EX-99.C.3 4 y51534ex99-c_3.txt FINANCIAL PRESENTATION MATERIALS 1 Exhibit (c)(3) CREDIT RESEARCH & TRADING LLC Project Snug February 15, 2001 [Please note that references to "base" case correspond to the Scenario 2 projections and references to "downside" case correspond to the Scenario 1 projections.] 2 SPRINGS INDUSTRIES INC. Table of Contents SECTION 1 HEARTLAND INVESTMENT THESIS SECTION 2 PERSPECTIVES ON SPRINGS AND THE HOME TEXTILES INDUSTRY SECTION 3 VALUATION PERSPECTIVES SECTION 4 REVIEW OF ALTERNATIVES SECTION 5 ISSUES APPENDIX A COMPARABLE PUBLIC COMPANY ANALYSIS APPENDIX B DISCOUNTED CASH FLOW ANALYSIS APPENDIX C * INVESTMENT COMMITTEE MEMORANDUM GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT * Omitted and filed separately with the Commission. 3 SPRINGS INDUSTRIES INC. Background of Strategic Review Process Summer 2000 Board of Directors authorizes C. Bowles to explore strategic alternatives for Springs. C. Bowles hires R. Lee to provide strategic advice. R. Lee had worked with Springs while at Morgan Stanley and in June left Morgan Stanley to build a boutique Investment Bank to work with mid-cap companies August 2000 David Stockman approaches C. Bowles on behalf of Heartland and indicates an interest in making an equity investment in Springs October 2000 Board of Directors meets to consider review of strategic alternatives presented by C. Bowles and R. Lee and authorizes management to pursue various investment and acquisition transactions, including a potential transaction involving Heartland October 2000 - January 2001 Management and R. Lee meet with various potential investors (see Section 4 for a summary of these efforts) regarding a potential equity investment in Springs October 2000 - February 2001 Substantial due diligence of Springs by Heartland and discussions between Heartland and C. Bowles regarding future strategy and the terms of a potential recapitalization of Springs
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 4 SPRINGS INDUSTRIES INC. Section 1 -- Heartland Investment Thesis SECTOR CONSOLIDATION - Heartland has identified seven industry sectors where it is interested in partnering with a leading company in a sector which is ripe for consolidation. - Heartland believes there is considerable consolidation opportunity currently in the home textile sector and no other company has the scale and financial wherewithal other than Springs to execute a consolidation opportunity. 1999 SALES OF U.S. HOME TEXTILES COMPANIES ($ Millions) [BAR CHART] Springs $2,220 WestPoint $1,868 Pillowtex $1,552 Mohawk $ 470 Dan River $ 432 Crown Craft $ 310 Burlington $ 300 Croscill $ 283 PCF $ 230 Glenoit $ 222 Hollander $ 201 Maples $ 160 Louisville $ 156 Revman $ 141 Sunbeam $ 136 Keeco $ 132
POTENTIAL CONSOLIDATION TARGETS BATH BED Towel Capacity & Brands Basic Bedding Pillowtex Hollander Investment in Davidson Cotton Pacific Coast Feather Investment in Coteminas Pillowtex SOURCING Croscill Glenoit Divisions Calvin Klein Ex-Cell American Pacific Keeco DIVERSIFICATION Town & Country Blankets Charles Owen Sunbeam Kitchen Allure IMPACT OF SCALE ON VALUATION - A core valuation creation strategy for Heartland is to grow platform situations from approximately $2 billion in revenues to approximately $5 billion over a period of 3-5 years and potentially obtain a higher valuation multiple from the stock market vs. the base $2 billion company, particularly when the platform company becomes the clear industry leader. IMPACT OF SCALE ON OPERATIONS - Scale of revenues and EBITDA relative to competition allows the largest companies in a sector to more effectively invest in supply chain expertise and infrastructure which should become a core competitive advantage. PARTNERSHIP APPROACH TO VALUE REALIZATION - Agreement between Heartland and the Close family to allow (but not require) each party to participate equally in any value realization transaction. GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 5 SPRINGS INDUSTRIES INC. Heartland Experience and Resources REPUTATION - Good partner to management - very bright, gets involved enough to understand the business of the portfolio company and to assist or support management in decision making and investment in growth - Strength in developing and utilizing sophisticated management information systems - Can become enamored of certain investments or strategies BROAD RANGE OF CAPABILITIES FOR PORTFOLIO COMPANIES - Acquisition Expertise - Core Stockman expertise - Perry Lewis: former senior Smith Barney banker and successful private equity investor and merger advisor at Morgan, Lewis, Githens and Ahn - Financing Expertise - Several senior level former bank financing professionals, including Gerry McConnell, on the Heartland team - Management Expertise - Tim Leuliette: former CEO of Penske Organization and COO of ITT Automotive - Cindy Hess: former VP Quality/Engineering of Chrysler - last role was leadership position in PT Cruiser Program - Information Systems - Gary Banks - former CIO of Xerox - Key element of Heartland approach is to work closely with its portfolio companies and to provide senior level assistance as requested by the portfolio companies. Consistent with D. Stockman's reputation, a primary near term focus of Heartland would be to develop strong management information systems which can be utilized by the company to make more effective decisions and to provide in-depth information to Heartland so that it can effectively participate in assisting senior management. PERFORMANCE - Raised $1.2 billion fund in mid 2000 - Historical Performance is broad and generally good, but with some mixed results
Performance Summary IRR Recent Heartland Transactions MascoTech N/A Simpson Industries N/A Global Metal Technologies N/A Collins & Aikman N/A Prior Realized Blackstone Transactions Aristech Chemical 22% DeBartolo Corp. 35% LaSalle Re Holdings 25% UCAR International 198% American Axle and Manufacturing 69% Collins & Aikman 1% Prior Unrealized Blackstone Transactions Clark USA Valued at cost Haynes International Valued at cost Republic Technologies Valued at cost Imperial Home Decor Group Total write off ($85MM)
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 6 SPRINGS INDUSTRIES INC. Section 2 -- Perspectives on Springs and the Home Textiles Industry GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 7 SPRINGS INDUSTRIES INC. Home Textiles Industry - RECENTLY, THE MAJOR RETAILERS HAVE BEEN DEVELOPING BETTER IN-HOUSE CAPABILITIES TO PURSUE SOURCING FROM FOREIGN MANUFACTURERS, EVEN SETTING UP OFFICES IN CERTAIN COUNTRIES While annual growth in Springs' core bed and bath markets runs a healthy 5%, there exist a number of negative factors with which each competitor will have to deal going forward. A few of the major factors include the following: GROWING IMPORTS Imports are perhaps the most important competitive issue facing U.S. textile companies. In 1999, approximately one-quarter of all sheets and pillowcases and more than one-third of all towels sold in the United States were imported, and the share of imports is expected to grow. While the vast majority of imports are for promotional and seasonal products, the concern is that imports will start to gain market share in core open stock programs, particularly at lower price points. The import trend will force competitors both to optimize their U.S. manufacturing of certain products and to develop sourcing relationships and capabilities for products whose manufacturing is destined to move overseas. This trend will put particular burden on non-branded entry point products currently manufactured in the U.S. EXCESS INVENTORIES Despite persistent efforts by most U.S. textiles companies to reduce inventories in 2000, low inventory turnover remains an industry-wide drain on capital and profitability, both for manufacturers and for retailers. However, supply chain management expertise, for larger companies like Springs and WestPoint Stevens that are able to leverage their scale to develop a comparative advantage, should create the opportunity to improve margins and returns on capital and to develop stronger, interdependent relationships with their key retail accounts. CLOSE-OUT LOSSES The channels through which close-out and off-quality merchandise was historically disposed have become a significant source of losses for home textiles manufacturers. Largely due to growth in imports made especially for those channels, U.S. manufacturers will likely incur significant losses in disposing of close-out and off-quality merchandise going forward. As a result, there will be an increasing focus on minimizing manufacturing defects and shortening the lag between production and retail sale. CHARGE-BACKS With few exceptions, home textiles retailers in 2000 became significantly more aggressive about charging their suppliers for any and all packaging and shipping errors and manufacturing defects -- often at punitive rates. Certain retailers (Kmart, for example) have come to view such efforts as a source of margin improvement. This trend is expected to continue, as competitive pressures in the retail industry are not expected to abate anytime soon. GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 8 SPRINGS INDUSTRIES INC. Springs' Competitive Position - SPRINGS HAS ACHIEVED CONSIDERABLE SUCCESS AT WAL*MART AND THROUGH ITS AGGRESSIVENESS IS PUSHING THE BED-IN-A-BAG LINE ACROSS A BROAD RANGE OF ACCOUNTS - SPRINGS' PORTFOLIO WEAKNESS IS IN TOWELS. IT RANKS WELL BEHIND WESTPOINT STEVENS AND PILLOWTEX AND ITS PROFITABILITY IS SIGNIFICANTLY BELOW SATISFACTORY LEVELS SPRINGS [BAR CHART]
1996 1997 1998 1999 2000 Revenues $2,243 $2,226 $2,181 $2,220 $2,275 EBITDA Margin 9% 10% 9% 11% 11%
BREADTH OF PRODUCTS Springs has perhaps the broadest product offering in the home textiles industry. For example, the company ranks second in sheets and pillowcases behind WestPoint Stevens, first in comforters and bedspreads, fourth in pillows behind Pillowtex, third in towels (but well behind WestPoint Stevens and Pillowtex), second in bath and area rugs and first in shower curtains. Generally, WestPoint Stevens has a more limited product offering, tending to focus primarily on markets in which it ranks first or second. Most other competitors lack the scale required to compete against Springs across its product spectrum. STABLE REVENUES As the table above indicates, Springs' revenues have been fairly stagnant in recent history. However, even though revenue growth was low in 2000, "low growth" was much better than the loss of revenue at WestPoint Stevens and Pillowtex. Until this year, WestPoint Stevens has had better overall revenue growth than Springs. Pillowtex tripled its size with the Fieldcrest Cannon acquisition in 1997 but has suffered considerably over the last 12-18 months. Dan River is the only major competitor that has experienced substantial growth, fueled in part by its early entry into the fast-growing Bed-in-a-Bag market and its acquisition of Bibb. LOW BUT IMPROVING MARGINS Owing in part to the complexity of its operations, Springs' operating margins have lagged those of each of its major competitors . However, Springs has managed gradual improvement and expects that trend to continue. LOW FINANCIAL LEVERAGE Springs has much greater financial strength than any of its major competitors -- Pillowtex is in Chapter XI, and WestPoint Stevens and Dan River are very highly leveraged. Springs' could take on considerable debt before its leverage threatened to limit its flexibility or interfere with the implementation of its business strategy, which is clearly the case with its competitors. GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 9 SPRINGS INDUSTRIES INC. Each of Springs' Major Competitors Has Been Weakened by Difficult Conditions in Home Textiles Markets - REPORTED MARGINS FOR WESTPOINT STEVENS ARE PROBABLY OVERSTATED, AS THEY DO NOT REFLECT LARGE WRITE-OFFS AND RESTRUCTURING CHARGES. IF THE 1998 AND 2000 WRITE-OFFS AND CHARGES WERE AMORTIZED OVER FIVE YEARS, THE MARGINS IN 1998, 1999 AND 2000 WOULD BE 17.9%, 18.2% AND 15.3%, RESPECTIVELY. WESTPOINT STEVENS [BAR CHART]
1996 1997 1998 1999 2000 Revenues $1,724 $1,658 $1,779 $1,883 $1,815 EBITDA Margin 16% 18% 19% 19% 17%
WESTPOINT STEVENS (WXS) Historically the best operator with the most modern facilities among U.S. home textiles manufacturers, WestPoint acts largely as a contract manufacturer for brands such as Ralph Lauren and Martha Stewart. WestPoint Stevens has obtained some success with Target by moving the Martex brand there in response to Springs giving the Springmaid label to Wal*Mart. WestPoint has been perhaps hardest hit by the recent economic slowdown, with fourth quarter 2000 revenues down 14% from the prior year -- though its margins remain the best in the industry. EBITDA for 2000 was $310 million, 12% lower than in 1999, leaving the company highly leveraged with a debt-to-EBITDA ratio of approximately 5.3x. - FULL 2000 RESULTS FOR DAN RIVER HAVE NOT BEEN MADE AVAILABLE DAN RIVER [BAR CHART]
1996 1997 1998 1999 2000 (1) Revenues $380 $476 $517 $629 $647 EBITDA Margin 12% 15% 15% 15% 15%
DAN RIVER (DRF) Dan River is the market leader in Bed-in-a-Bag ensembles and is the fourth largest U.S. producer of sheets and pillowcase. Dan River does not market towels, however, and generally lacks the breadth of products offered by Springs, WestPoint and Pillowtex. Revenue growth has been strong, and Dan River's historical margins are between that of Springs at the low end and WestPoint Stevens at the high end, though they were likely hit in 2000, especially in the fourth quarter, by the need to reduce inventory. - DATA FOR PILLOWTEX IN 1996 IS NOT AVAILABLE ON A COMPARABLE BASIS TO INCLUDE THE 1997 ACQUISITION OF FIELDCREST CANNON. 2000 RESULTS FOR PILLOWTEX HAVE NOT BEEN MADE AVAILABLE PILLOWTEX [BAR CHART]
1996 1997 1998 1999 2000 (1) Revenues $1,785 $1,510 $1,552 $1,450 EBITDA Margin 8% 13% 8% 7%
PILLOWTEX (PTEXQ) Pillowtex is the second largest manufacturer of towels and the largest producer of pillows in the United States. Pillowtex has the strongest brands in the home textiles business -- Royal Velvet, Charisma and Fieldcrest-Cannon. Unable to integrate successfully the operations of Fieldcrest Cannon, acquired in 1997, Pillowtex's EBITDA margins fell from 13.0% in 1998 to 7.9% in 1999 on sales of $1.6 billion and $1.5 billion, respectively -- levels insufficient to support the acquisition financing. Pillowtex filed for Chapter 11 bankruptcy protection in December 2000 and is generally expected to take quite some timestabilizing its operations before it emerges from bankruptcy. Further erosion in the company's competitive position is expected as it reorganizes, which could continue to destabilize competitive conditions in the home textiles industry. (1) LTM through 9/30/00 GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 10 SPRINGS INDUSTRIES INC. Projected Results KEY MANAGEMENT PRIORITIES: - MATERIALLY IMPROVE QUALITY AND DEPTH OF MANAGEMENT IN OPERATIONS AND MANUFACTURING - FIX TOWEL PROFITABILITY - INVEST IN SUPPLY CHAIN MANAGEMENT EFFICIENCY - EXPAND FOREIGN SOURCING CAPABILITY SPRINGS MANAGEMENT SEES MEANINGFUL UPSIDE POTENTIAL IN THE BUSINESS BUT HAS HAD TO CONSISTENTLY SCALE BACK ITS ASSESSMENT OF THAT POTENTIAL SUBSTANTIALLY OWING TO A MUCH MORE COMPETITIVE ENVIRONMENT PROFIT FROM OPERATIONS ($ millions) [BAR CHART]
1998 1999 2000 2001 2002 2003 2004 2005 1998 Plan $120 $183 $245 $305 1999 Plan $106 $134 $180 $224 $290 $330 2000 Plan $149 $177 $210 $257 $275 $297 Revised 2000 Plan $142 $152 $180 $224 $235 $248
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 11 SPRINGS INDUSTRIES INC. Historical and Projected Revenues and Profit from Operations - FOR MODELING PURPOSES, WE HAVE DEVELOPED A DOWNSIDE CASE TO TEST RETURNS AND LEVERAGE AT LOWER LEVELS OF PERFORMANCE REVENUES ($ MILLIONS) [BAR CHART]
1998 1999 2000A 2001P 2002P 2003P 2004P 2005P Base Case (1) $2,181 $2,220 $2,275 $2,323 $2,477 $2,638 $2,766 $2,902* Downside Case $2,265 $2,321 $2,388 $2,447 $2,513**
* `00-'05 CAGR = 5.0% ** `00-'05 CAGR = 2.0% PROFIT FROM OPERATIONS ($ MILLIONS) [BAR CHART]
1998 1999 2000A 2001P 2002P 2003P 2004P 2005P Base Case (1) $106 (4.9%) $134 (6.0%) $146 (6.4%) $152 (6.5%) $180 (7.3%) $224 (8.3%) $235 (8.3%) $248 (8.4%) Downside Case $139 (6.1%) $145 (6.3%) $156 (6.5%) $159 (6.5%) $165 (6.6%)
2000 EBIT MARGINS [BAR CHART] Springs 6.4% Dan River 7.9% Mohawk 9.7% WestPoint Stevens 12.6%
DEBT TO EBITDA MULTIPLES
1998 1999 2000A 2001P 2002P 2003P 2004P 2005P Base Case 1.4x 1.4x 1.3x 0.9x 0.6x 0.3x 0.0x 0.0x Downside Case 1.4x 1.4x 1.3x 1.0x 0.7x 0.4x 0.2x 0.0x
(1) The Base Case is consistent with the company's Revised 2000 Plan GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 12 SPRINGS INDUSTRIES INC. Section 3 -- Valuation Perspectives GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 13 SPRINGS INDUSTRIES INC. Historical Stock Price and Premium Analysis TWO-YEAR STOCK PRICE HISTORY [LINE GRAPH] 1-Jan-99 $ 41 8-Jan-99 $ 40 15-Jan-99 $ 41 22-Jan-99 $ 40 29-Jan-99 $ 42 5-Feb-99 $ 38 12-Feb-99 $ 37 19-Feb-99 $ 35 26-Feb-99 $ 33 5-Mar-99 $ 32 12-Mar-99 $ 32 19-Mar-99 $ 32 26-Mar-99 $ 29 2-Apr-99 $ 28 9-Apr-99 $ 29 16-Apr-99 $ 30 23-Apr-99 $ 36 30-Apr-99 $ 37 7-May-99 $ 41 14-May-99 $ 42 21-May-99 $ 44 28-May-99 $ 40 4-Jun-99 $ 42 11-Jun-99 $ 38 18-Jun-99 $ 38 25-Jun-99 $ 40 2-Jul-99 $ 43 9-Jul-99 $ 42 16-Jul-99 $ 41 23-Jul-99 $ 41 30-Jul-99 $ 40 6-Aug-99 $ 40 13-Aug-99 $ 40 20-Aug-99 $ 39 27-Aug-99 $ 38 3-Sep-99 $ 39 10-Sep-99 $ 39 17-Sep-99 $ 36 24-Sep-99 $ 34 1-Oct-99 $ 34 8-Oct-99 $ 34 15-Oct-99 $ 33 22-Oct-99 $ 39 29-Oct-99 $ 40 5-Nov-99 $ 42 12-Nov-99 $ 42 19-Nov-99 $ 41 26-Nov-99 $ 40 3-Dec-99 $ 40 10-Dec-99 $ 39 17-Dec-99 $ 38 24-Dec-99 $ 39 31-Dec-99 $ 40 7-Jan-00 $ 39 14-Jan-00 $ 40 21-Jan-00 $ 38 28-Jan-00 $ 37 4-Feb-00 $ 38 11-Feb-00 $ 39 18-Feb-00 $ 39 25-Feb-00 $ 34 3-Mar-00 $ 37 10-Mar-00 $ 37 17-Mar-00 $ 38 24-Mar-00 $ 38 31-Mar-00 $ 38 7-Apr-00 $ 39 14-Apr-00 $ 38 21-Apr-00 $ 42 28-Apr-00 $ 41 5-May-00 $ 47 12-May-00 $ 48 19-May-00 $ 47 26-May-00 $ 47 2-Jun-00 $ 42 9-Jun-00 $ 40 16-Jun-00 $ 40 23-Jun-00 $ 34 30-Jun-00 $ 32 7-Jul-00 $ 32 14-Jul-00 $ 32 21-Jul-00 $ 34 28-Jul-00 $ 32 4-Aug-00 $ 32 11-Aug-00 $ 32 18-Aug-00 $ 31 25-Aug-00 $ 31 1-Sep-00 $ 30 8-Sep-00 $ 31 15-Sep-00 $ 29 22-Sep-00 $ 28 29-Sep-00 $ 28 6-Oct-00 $ 27 13-Oct-00 $ 25 20-Oct-00 $ 23 27-Oct-00 $ 23 3-Nov-00 $ 24 10-Nov-00 $ 26 17-Nov-00 $ 27 24-Nov-00 $ 28 1-Dec-00 $ 28 8-Dec-00 $ 24 15-Dec-00 $ 28 22-Dec-00 $ 30 29-Dec-00 $ 32 5-Jan-01 $ 31 12-Jan-01 $ 32 19-Jan-01 $ 33 26-Jan-01 $ 34 2-Feb-01 $ 36 2/9/01 36.28
ONE-YEAR STOCK PRICE HISTORY [LINE GRAPH] 1/7/00 $ 39 1/14/00 $ 40 1/21/00 $ 38 1/28/00 $ 37 2/4/00 $ 38 2/11/00 $ 39 2/18/00 $ 39 2/25/00 $ 34 3/3/00 $ 37 3/10/00 $ 37 3/17/00 $ 38 3/24/00 $ 38 3/31/00 $ 38 4/7/00 $ 39 4/14/00 $ 38 4/21/00 $ 42 4/28/00 $ 41 5/5/00 $ 47 5/12/00 $ 48 5/19/00 $ 47 5/26/00 $ 47 6/2/00 $ 42 6/9/00 $ 40 6/16/00 $ 40 6/23/00 $ 34 6/30/00 $ 32 7/7/00 $ 32 7/14/00 $ 32 7/21/00 $ 34 7/28/00 $ 32 8/4/00 $ 32 8/11/00 $ 32 8/18/00 $ 31 8/25/00 $ 31 9/1/00 $ 30 9/8/00 $ 31 9/15/00 $ 29 9/22/00 $ 28 9/29/00 $ 28 10/6/00 $ 27 10/13/00 $ 25 10/20/00 $ 23 10/27/00 $ 23 11/3/00 $ 24 11/10/00 $ 26 11/17/00 $ 27 11/24/00 $ 28 12/1/00 $ 28 12/8/00 $ 24 12/15/00 $ 28 12/22/00 $ 30 12/29/00 $ 32 1/5/01 $ 31 1/12/01 $ 32 1/19/01 $ 33 1/26/01 $ 34 2/2/01 $ 36 2/9/01 36.28
PREMIA TO AVERAGE STOCK PRICES -------------------------------------------------------------------------------- PREMIUM TO AVERAGE STOCK PRICE AT SELECTED RECAP PRICES AVERAGE ------------------------------------------- TIME PERIOD PRICE $ 40 $ 42 $ 44 $ 46 -------------------------------------------------------------------------------- At 2/9/01 $ 36.28 10% 16% 21% 27% One Month 33.31 20% 26% 32% 38% Three Months 29.57 35% 42% 49% 56% Six Months 28.97 38% 45% 52% 59% One Year 34.06 17% 23% 29% 35%
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 14 SPRINGS INDUSTRIES INC. Historical Stock Performance - WHILE UNDER-PERFORMING THE S&P 500 IN THE MOST RECENT ONE- AND TWO-YEAR PERIODS, SPRINGS' STOCK HAS OUTPERFORMED THOSE OF DAN RIVER AND WESTPOINT STEVENS DURING ALL PERIODS PRESENTED - SPRINGS HAS OUTPERFORMED THE S&P 500 DURING THE LAST THREE- AND SIX-MONTH PERIODS THREE-MONTH RELATIVE STOCK PRICE GRAPH [LINE GRAPH]
SPX SMI DRF WXS MHK 11/1/00 11/2/00 100.4995708 101.0638298 105 101.7391304 100.2898551 11/3/00 100.3848806 101.0638298 105 100.8695652 100.5797101 11/6/00 100.7718721 105.5851064 107.5 100.8695652 100.8695652 11/7/00 100.7493562 107.9787234 110 102.6086957 99.13043478 11/8/00 99.15987673 113.2978723 105 100.8695652 98.26086957 11/9/00 98.51676728 110.106383 105 100 95.94202899 11/10/00 96.11319852 108.7765957 100 101.7391304 95.07246377 11/13/00 95.07746865 111.9680851 100 98.26086957 97.10144928 11/14/00 97.30724307 112.5 90 105.2173913 99.13043478 11/15/00 97.78992696 111.4361702 87.5 102.6086957 98.55072464 11/16/00 96.55929413 109.5744681 85 102.6086957 100.2898551 11/17/00 96.23562854 114.0957447 77.5 99.13043478 101.7391304 11/20/00 94.46954025 114.6276596 87.5 93.04347826 103.7681159 11/21/00 94.80235291 116.7553191 82.5 89.56521739 103.4782609 11/22/00 93.04400445 115.4255319 87.5 86.08695652 102.3188406 11/24/00 94.40973248 118.6170213 87.5 87.82608696 103.1884058 11/27/00 94.91633948 119.4148936 85 95.65217391 107.5362319 11/28/00 94.01007585 118.3510638 85 92.17391304 106.3768116 11/29/00 94.41958318 118.3510638 82.5 90.43478261 110.4347826 11/30/00 92.52262141 115.9574468 85 88.69565217 109.8550725 12/1/00 92.54232279 118.3510638 87.5 87.82608696 114.4927536 12/4/00 93.22764948 118.6170213 86 83.47826087 111.884058 12/5/00 96.85622212 120.212766 89.6 85.9826087 116.8115942 12/6/00 95.09154107 110.6382979 87.6 92.10434783 115.942029 12/7/00 94.53497699 101.8617021 92 90.15652174 116.8115942 12/8/00 96.38831427 103.4574468 90 90.99130435 119.1304348 12/11/00 97.11374734 114.893617 91.6 88.20869565 120.8695652 12/12/00 96.47908135 122.3404255 90 90.57391304 117.3913043 12/13/00 95.69172964 124.2021277 93.2 91.82608696 113.6231884 12/14/00 94.35062833 119.1489362 90.4 92.66086957 114.2028986 12/15/00 92.32560758 117.287234 92 90.57391304 115.6521739 12/18/00 93.07074204 119.6808511 90 86.8173913 115.6521739 12/19/00 91.86473593 122.3404255 87.2 87.93043478 114.4927536 12/20/00 88.98974121 120.7446809 86 87.51304348 111.3043478 12/21/00 89.70180549 119.6808511 86 83.47826087 112.4637681 12/22/00 91.8907699 128.4574468 86 85.70434783 117.3913043 12/26/00 92.53950831 127.9255319 84.4 90.85217391 116.8115942 12/27/00 93.50557971 132.4468085 88 99.47826087 128.4057971 12/28/00 93.87849875 134.5744681 92.4 104.2086957 134.4927536 12/29/00 92.89765131 138.0319149 88.8 104.2086957 126.9565217 1/2/01 90.29355061 131.6489362 93.6 110.4695652 126.3768116 1/3/01 94.81712895 135.3723404 96 125.2173913 132.173913 1/4/01 93.81658012 135.9042553 99.6 123.826087 137.1014493 1/5/01 91.35461083 130.3191489 100 120.9043478 137.1014493 1/8/01 91.17940924 135.9042553 99.6 117.9826087 142.6086957 1/9/01 91.52699793 134.3085106 99.2 114.7826087 141.4492754 1/10/01 92.40441311 135.6382979 100 114.9217391 139.1304348 1/11/01 93.35781934 136.4361702 98.8 116.173913 139.1304348 1/12/01 92.75974163 135.9042553 99.2 116.5913043 143.1884058 1/16/01 93.34585778 137.5 100 118.4 146.3768116 1/17/01 93.54427886 140.9574468 100 126.0521739 143.7681159 1/18/01 94.8459774 141.7553191 100 135.6521739 143.7681159 1/19/01 94.46461491 141.2234043 100 134.2608696 139.1304348 1/22/01 94.48924164 136.9680851 104 126.0521739 141.1594203 1/23/01 95.72057809 146.8085106 119.6 128 144.057971 1/24/01 95.99499022 142.8191489 125.6 127.3043478 140 1/25/01 95.51723167 145.4787234 128.4 127.3043478 143.1884058 1/26/01 95.33710474 144.1489362 128 125.3565217 140 1/29/01 95.98584315 145.2765957 129.2 128.6956522 143.0724638 1/30/01 96.65850467 145.3191489 128 121.6 142.2376812 1/31/01 96.11530938 150.5531915 120.4 125.773913 146.0869565 2/1/01 96.64021052 149.7021277 124.8 127.3043478 149.3333333 2/2/01 94.95152052 153.1914894 124 123.6869565 148.1275362 2/5/01 95.29207301 154.6808511 112 122.573913 147.8956522 2/6/01 95.14783074 156.1276596 111.2 124.9391304 148.2666667 2/7/01 94.34781385 158.4255319 114 122.0173913 145.9478261
SIX-MONTH RELATIVE STOCK PRICE GRAPH [LINE GRAPH]
SPX SMI DRF WXS MHK 8/1/00 8/2/00 100.0417217 101.1811024 101.4492754 101.0416667 99.30555556 8/3/00 101.0054934 100.3937008 98.55072464 101.0416667 97.68518519 8/4/00 101.7265837 99.40944882 98.55072464 102.0833333 99.30555556 8/7/00 102.8662819 101.3779528 97.10144928 102.0833333 100.9259259 8/8/00 103.1082679 100.5905512 98.55072464 100.5208333 101.3888889 8/9/00 102.4177735 99.80314961 98.55072464 104.1666667 100 8/10/00 101.5402267 100 95.65217391 102.0833333 96.99074074 8/11/00 102.3461512 100.1968504 95.65217391 106.7708333 99.53703704 8/14/00 103.7174049 101.1811024 98.55072464 110.4166667 99.53703704 8/15/00 103.2216118 98.62204724 100 112.5 98.61111111 8/16/00 102.9031361 98.03149606 105.7971014 117.1875 98.37962963 8/17/00 104.0310131 99.40944882 105.7971014 117.1875 96.2962963 8/18/00 103.7285307 99.01574803 111.5942029 116.1458333 95.60185185 8/21/00 104.2681316 97.63779528 113.0434783 111.9791667 95.60185185 8/22/00 104.1742577 100 110.1449275 112.5 97.4537037 8/23/00 104.7194215 98.81889764 108.6956522 112.5 93.75 8/24/00 104.8821362 99.40944882 108.6956522 113.0208333 94.21296296 8/25/00 104.7527988 98.62204724 108.6956522 113.0208333 92.36111111 8/28/00 105.2840554 96.8503937 104.3478261 111.4583333 88.88888889 8/29/00 104.9885265 94.48818898 107.2463768 112.5 90.74074074 8/30/00 104.4843891 94.68503937 104.3478261 113.0208333 88.42592593 8/31/00 105.5336903 94.15622047 102.8985507 117.1875 87.96296296 9/1/00 105.7485571 93.8976378 102.8985507 115.625 89.81481481 9/5/00 104.7966066 93.50393701 102.8985507 114.5833333 86.80555556 9/6/00 103.7653849 98.42519685 101.4492754 117.1875 98.14814815 9/7/00 104.4788262 98.42519685 102.8985507 118.75 100.2314815 9/8/00 103.9218413 98.03149606 101.4492754 117.7083333 95.83333333 9/11/00 103.5574717 94.68503937 101.4492754 116.6666667 94.21296296 9/12/00 103.0519435 93.30708661 101.4492754 116.6666667 95.13888889 9/13/00 103.2549892 91.92913386 100 118.2291667 90.97222222 9/14/00 102.974063 92.71653543 100 118.75 88.65740741 9/15/00 101.9268479 90.94488189 102.8985507 116.6666667 86.34259259 9/18/00 100.445727 90.15748031 100 112.5 82.87037037 9/19/00 101.515889 91.14173228 102.8985507 111.4583333 81.94444444 9/20/00 100.9206592 88.77952756 101.4492754 114.0625 80.09259259 9/21/00 100.7614213 87.79527559 101.4492754 111.9791667 78.7037037 9/22/00 100.7384744 86.61417323 98.55072464 110.9375 81.48148148 9/25/00 100.0646687 86.22047244 98.55072464 109.375 83.10185185 9/26/00 99.24275085 85.43307087 100 100.5208333 81.48148148 9/27/00 99.19824769 85.62992126 100 100 81.01851852 9/28/00 101.4039357 86.61417323 95.65217391 97.39583333 84.25925926 9/29/00 99.88943745 88.77952756 100 102.0833333 80.78703704 10/2/00 99.86996732 87.79527559 95.65217391 95.3125 79.62962963 10/3/00 99.19059871 89.37007874 97.10144928 93.22916667 78.93518519 10/4/00 99.73715319 90.7480315 95.65217391 96.875 79.62962963 10/5/00 99.87344413 91.14173228 97.10144928 95.3125 81.71296296 10/6/00 97.9758014 85.43307087 94.20289855 92.70833333 81.94444444 10/9/00 97.4918295 85.23622047 94.20289855 88.54166667 80.32407407 10/10/00 96.44809123 84.84251969 94.20289855 73.95833333 78.47222222 10/11/00 94.88839441 82.08661417 91.30434783 72.39583333 73.14814815 10/12/00 92.46783951 80.70866142 69.56521739 71.875 71.52777778 10/13/00 95.55455114 80.11811024 69.56521739 71.35416667 72.22222222 10/16/00 95.58584243 79.92125984 63.76811594 68.75 73.14814815 10/17/00 93.87177526 77.36220472 60.86956522 63.54166667 71.06481481 10/18/00 93.3266115 75.78740157 59.42028986 63.54166667 71.52777778 10/19/00 96.56908421 75.39370079 60.86956522 64.0625 74.53703704 10/20/00 97.13719491 72.44094488 63.76811594 62.5 74.53703704 10/23/00 97.05722829 71.25984252 63.76811594 58.85416667 72.4537037 10/24/00 97.22063834 71.65354331 60.86956522 59.89583333 72.4537037 10/25/00 94.90995063 72.04724409 57.97101449 58.85416667 71.99074074 10/26/00 94.87796398 71.65354331 62.31884058 59.375 75 10/27/00 95.93074195 72.44094488 57.97101449 61.45833333 74.76851852 10/30/00 97.25749252 73.81889764 55.07246377 61.45833333 78.47222222 10/31/00 99.39503512 74.21259843 56.52173913 59.89583333 80.78703704 11/1/00 98.82622905 74.01574803 57.97101449 59.89583333 79.86111111 11/2/00 99.31993603 74.80314961 60.86956522 60.9375 80.09259259 11/3/00 99.20659203 74.80314961 60.86956522 60.41666667 80.32407407 11/6/00 99.5890411 78.1496063 62.31884058 60.41666667 80.55555556 11/7/00 99.56678951 79.92125984 63.76811594 61.45833333 79.16666667 11/8/00 97.9959669 83.85826772 60.86956522 60.41666667 78.47222222 11/9/00 97.36040609 81.49606299 60.86956522 59.89583333 76.62037037 11/10/00 94.98504972 80.51181102 57.97101449 60.9375 75.92592593 11/13/00 93.96147695 82.87401575 57.97101449 58.85416667 77.5462963 11/14/00 96.16507892 83.26771654 52.17391304 63.02083333 79.16666667 11/15/00 96.64209721 82.48031496 50.72463768 61.45833333 78.7037037 11/16/00 95.42590919 81.1023622 49.27536232 61.45833333 80.09259259 11/17/00 95.1060427 84.4488189 44.92753623 59.375 81.25 11/20/00 93.36068424 84.84251969 50.72463768 55.72916667 82.87037037 11/21/00 93.68959043 86.41732283 47.82608696 53.64583333 82.63888889 11/22/00 91.95188095 85.43307087 50.72463768 51.5625 81.71296296 11/24/00 93.30157847 87.79527559 50.72463768 52.60416667 82.40740741 11/27/00 93.80223907 88.38582677 49.27536232 57.29166667 85.87962963 11/28/00 92.90661289 87.5984252 49.27536232 55.20833333 84.9537037 11/29/00 93.31131354 87.5984252 47.82608696 54.16666667 88.19444444 11/30/00 91.43661776 85.82677165 49.27536232 53.125 87.73148148 12/1/00 91.45608789 87.5984252 50.72463768 52.60416667 91.43518519 12/4/00 92.13337042 87.79527559 49.85507246 50 89.35185185 12/5/00 95.71935192 88.97637795 51.94202899 51.5 93.28703704 12/6/00 93.97538419 81.88976378 50.7826087 55.16666667 92.59259259 12/7/00 93.4253529 75.39370079 53.33333333 54 93.28703704 12/8/00 95.25693624 76.57480315 52.17391304 54.5 95.13888889 12/11/00 95.97385439 85.03937008 53.10144928 52.83333333 96.52777778 12/12/00 95.34663793 90.5511811 52.17391304 54.25 93.75 12/13/00 94.56852792 91.92913386 54.02898551 55 90.74074074 12/14/00 93.24316807 88.18897638 52.4057971 55.5 91.2037037 12/15/00 91.24191642 86.81102362 53.33333333 54.25 92.36111111 12/18/00 91.97830471 88.58267717 52.17391304 52 92.36111111 12/19/00 90.78645435 90.5511811 50.55072464 52.66666667 91.43518519 12/20/00 87.94520548 89.37007874 49.85507246 52.41666667 88.88888889 12/21/00 88.64891176 88.58267717 49.85507246 50 89.81481481 12/22/00 90.81218274 95.07874016 49.85507246 51.33333333 93.75 12/26/00 91.45330645 94.68503937 48.92753623 54.41666667 93.28703704 12/27/00 92.40803838 98.03149606 51.01449275 59.58333333 102.5462963 12/28/00 92.77658021 99.60629921 53.56521739 62.41666667 107.4074074 12/29/00 91.80724567 102.1653543 51.47826087 62.41666667 101.3888889 1/2/01 89.23371115 97.44094488 54.26086957 66.16666667 100.9259259 1/3/01 93.70419303 100.1968504 55.65217391 75 105.5555556 1/4/01 92.71538836 100.5905512 57.73913043 74.16666667 109.4907407 1/5/01 90.28231695 96.45669291 57.97101449 72.41666667 109.4907407 1/8/01 90.10917182 100.5905512 57.73913043 70.66666667 113.8888889 1/9/01 90.45268062 99.40944882 57.50724638 68.75 112.962963 1/10/01 91.31979695 100.3937008 57.97101449 68.83333333 111.1111111 1/11/01 92.26201238 100.984252 57.27536232 69.58333333 111.1111111 1/12/01 91.67095473 100.5905512 57.50724638 69.83333333 114.3518519 1/16/01 92.25019122 101.7716535 57.97101449 70.91666667 116.8981481 1/17/01 92.44628329 104.3307087 57.97101449 75.5 114.8148148 1/18/01 93.73270287 104.9212598 57.97101449 81.25 114.8148148 1/19/01 93.3558167 104.5275591 57.97101449 80.41666667 111.1111111 1/22/01 93.38015437 101.3779528 60.28985507 75.5 112.7314815 1/23/01 94.59703776 108.6614173 69.33333333 76.66666667 115.0462963 1/24/01 94.86822891 105.7086614 72.8115942 76.25 111.8055556 1/25/01 94.39607816 107.6771654 74.43478261 76.25 114.3518519 1/26/01 94.2180655 106.6929134 74.20289855 75.08333333 111.8055556 1/29/01 94.85918921 107.5275591 74.89855072 77.08333333 114.2592593 1/30/01 95.52395522 107.5590551 74.20289855 72.83333333 113.5925926 1/31/01 94.9871358 111.4330709 69.79710145 75.33333333 116.6666667 2/1/01 95.50587581 110.8031496 72.34782609 76.25 119.2592593 2/2/01 93.83700716 113.3858268 71.88405797 74.08333333 118.2962963 2/5/01 94.17356234 114.488189 64.92753623 73.41666667 118.1111111 2/6/01 94.03101314 115.5590551 64.46376812 74.83333333 118.4074074 2/7/01 93.24038662 117.2598425 66.08695652 73.08333333 116.5555556
ONE-YEAR RELATIVE STOCK PRICE GRAPH [LINE GRAPH]
SPX SMI DRF WXS MHK 1/7/00 1/14/00 101.6 102.6 100 99.3 101.5 1/21/00 100 97.4 97.5 92.4 96.2 1/28/00 94.4 95.5 92.5 94.9 93.7 2/4/00 98.8 97.9 100 100.4 94.7 2/11/00 96.2 101.6 107.5 80.9 88.6 2/18/00 93.4 100.2 113.8 95.3 92.6 2/25/00 92.5 88.7 115 96 87.8 3/3/00 97.8 96.6 106.3 97.8 87.1 3/10/00 96.8 95.2 110 93.9 80.5 3/17/00 101.6 98.1 106.3 94.9 84.3 3/24/00 106 98.5 107.5 98.9 83.5 3/31/00 104 98.2 128.8 109.7 90.9 4/7/00 105.2 101.3 117.5 104.3 90.4 4/14/00 94.1 98.7 108.8 94.2 89.6 4/21/00 99.5 107.9 113.8 100.4 95.2 4/28/00 100.8 106.1 113.8 108.3 100.8 5/5/00 99.4 122.5 112.5 112.6 101.3 5/12/00 98.6 124.6 106.3 107.6 99.2 5/19/00 97.6 120.2 105 104 93.9 5/26/00 95.6 122.1 100 65.3 92.1 6/2/00 102.5 109.5 98.8 63.2 98 6/9/00 101.1 103.1 95 67.1 90.1 6/16/00 101.6 102.3 97.5 58.1 87.1 6/23/00 100 87.9 100 51.6 85 6/30/00 100.9 82.7 95 64.3 88.3 7/7/00 102.6 82.1 95 68.6 98.2 7/14/00 104.8 82.9 92.5 68.2 101.3 7/21/00 102.7 88 96.3 65.7 99.7 7/28/00 98.5 83.8 93.8 65.7 105.1 8/4/00 101.5 81.6 85 70.8 108.9 8/11/00 102.1 82.2 82.5 74 109.1 8/18/00 103.5 81.3 96.3 80.5 104.8 8/25/00 104.5 80.9 93.8 78.3 101.3 9/1/00 105.5 77.1 88.8 80.1 98.5 9/8/00 103.7 80.5 87.5 81.6 105.1 9/15/00 101.7 74.6 88.8 80.9 94.7 9/22/00 100.5 71.1 85 76.9 89.3 9/29/00 99.7 72.9 86.3 70.8 88.6 10/6/00 97.7 70.1 81.3 64.3 89.8 10/13/00 95.3 65.8 60 49.5 79.2 10/20/00 96.9 59.5 55 43.3 81.7 10/27/00 95.7 59.5 50 42.6 82 11/3/00 99 61.4 52.5 41.9 88.1 11/10/00 94.8 66.1 50 42.2 83.2 11/17/00 94.9 69.3 38.8 41.2 89.1 11/24/00 93.1 72.1 43.8 36.5 90.4 12/1/00 91.2 71.9 43.8 36.5 100.3 12/8/00 95 62.8 45 37.8 104.3 12/15/00 91 71.2 46 37.6 101.3 12/22/00 90.6 78 43 35.6 102.8 12/29/00 91.6 83.8 44.4 43.3 111.2 1/5/01 90.1 79.2 50 50.2 120.1 1/12/01 91.5 82.6 49.6 48.4 125.4 1/19/01 93.1 85.8 50 55.7 121.8 1/26/01 94 87.6 64 52 122.6 2/2/01 93.6 93.1 62 51.4 129.7
TWO-YEAR RELATIVE STOCK PRICE GRAPH [LINE GRAPH]
SPX SMI WXS DRF MHK 1/1/99 1/8/99 103.7307908 96.68174962 89.5049505 85.63829787 93.61069837 1/15/99 101.1413649 99.39668175 85.34653465 92.55319149 89.7473997 1/22/99 99.67133897 96.53092006 86.93069307 92.55319149 88.55869242 1/29/99 104.1009412 100.7541478 84.25758416 84.04255319 91.53046062 2/5/99 100.8273472 92.60935143 84.85164356 79.78723404 87.07280832 2/12/99 100.0732166 88.53695324 86.73267327 79.25531915 84.69539376 2/19/99 100.8102633 84.76621418 78.21782178 67.55319149 83.50668648 2/26/99 100.7403008 80.2413273 80.79207921 55.85106383 77.26597325 3/5/99 103.7617045 78.28054299 81.58415842 58.5106383 75.0371471 3/12/99 105.3171498 76.6214178 77.22772277 63.29787234 72.51114413 3/19/99 105.6995029 76.77224736 88.71287129 61.70212766 67.31054978 3/26/99 104.3580127 70.13574661 91.68316832 61.17021277 61.8127786 4/2/99 105.2463737 66.36500754 91.18827723 69.68085106 67.75631501 4/9/99 109.6906193 70.58823529 98.41584158 68.08510638 72.95690936 4/16/99 107.3029457 73.45399698 109.7029703 72.87234043 74.14561664 4/23/99 110.3821091 87.93363499 110.0990099 78.19148936 74.59138187 4/30/99 108.6192169 90.19607843 108.5148515 82.9787234 76.67161961 5/7/99 109.418091 99.24585219 114.0594059 85.63829787 89.59881129 5/14/99 108.8323585 100.1508296 114.0594059 84.04255319 81.57503715 5/21/99 108.2214069 104.9773756 109.7029703 87.23404255 73.69985141 5/28/99 105.9069499 95.62594268 100.1980198 78.19148936 69.24219911 6/4/99 108.0147735 101.3574661 96.23762376 82.44680851 76.07726597 6/11/99 105.2398656 92.760181 95.34669307 82.44680851 73.69985141 6/18/99 109.2423712 92.15686275 91.48514851 79.78723404 75.48291233 6/25/99 107.0027578 97.13423831 91.08910891 63.82978723 72.36255572 7/2/99 113.1781684 103.3182504 93.06930693 67.0212766 71.91679049 7/9/99 114.1592704 101.6591252 93.46534653 61.70212766 69.83655275 7/16/99 115.4202224 99.84917044 102.970297 57.44680851 62.85289747 7/23/99 110.3894308 99.24585219 99.8019802 61.17021277 66.56760773 7/30/99 108.0936847 95.92760181 86.33663366 57.44680851 66.41901932 8/6/99 105.7808547 96.83257919 85.34653465 55.31914894 56.90936107 8/13/99 108.0090789 97.13423831 89.7029703 60.63829787 55.8692422 8/20/99 108.7355499 95.173454 84.55445545 63.82978723 56.61218425 8/27/99 109.6841112 92.760181 79.00990099 61.70212766 54.08618128 9/3/99 110.4138363 93.81598793 72.87128713 60.63829787 54.23476969 9/10/99 109.9598936 92.91101056 86.33663366 57.9787234 52.45170877 9/17/99 108.6387413 86.2745098 83.96039604 57.44680851 50.07429421 9/24/99 103.9154593 81.29713424 79.20792079 54.25531915 47.84546805 10/1/99 104.3588263 81.74962293 73.26732673 54.78723404 47.25111441 10/8/99 108.6875524 81.74962293 73.26732673 51.59574468 49.92570579 10/15/99 101.4789746 80.69381599 63.36633663 50 52.74888559 10/22/99 105.891493 93.06184012 61.78217822 48.93617021 53.64041605 10/29/99 110.8767277 96.07843137 60 45.21276596 54.53194651 11/5/99 111.4705954 102.413273 66.73267327 47.87234043 58.69242199 11/12/99 113.5719109 100.7541478 61.78217822 42.55319149 57.20653789 11/19/99 115.682175 98.19004525 59.6039604 42.55319149 55.27488856 11/26/99 115.2445027 96.22926094 69.30693069 43.61702128 61.66419019 12/3/99 116.6014497 95.62594268 63.16831683 42.55319149 61.8127786 12/10/99 115.2786704 92.91101056 59.00990099 42.0212766 60.62407132 12/17/99 115.6048909 91.40271493 50.0990099 40.95744681 61.06983655 12/24/99 118.6384973 94.57013575 52.27722772 42.0212766 59.28677563 12/31/99 119.5260448 96.3800905 55.44554455 43.61702128 62.70430906 1/7/00 117.2660934 93.36349925 54.85148515 42.55319149 58.54383358 1/14/00 119.1925026 95.77677225 54.45544554 42.55319149 59.43536404 1/21/00 117.2571447 90.95022624 50.69306931 41.4893617 56.31500743 1/28/00 110.6513834 89.14027149 52.07920792 39.36170213 54.82912333 2/4/00 115.8749786 91.40271493 55.04950495 42.55319149 55.42347697 2/11/00 112.8446263 94.87179487 44.35643564 45.74468085 51.85735513 2/18/00 109.5067644 93.51432881 52.27722772 48.40425532 54.23476969 2/25/00 108.4711567 82.80542986 52.67326733 48.93617021 51.4115899 3/3/00 114.6384322 90.19607843 53.66336634 45.21276596 50.96582467 3/10/00 113.4913726 88.83861237 51.48514851 46.80851064 47.102526 3/17/00 119.1371834 91.55354449 52.07920792 45.21276596 49.33135215 3/24/00 124.2615296 92.00603318 54.25742574 45.74468085 48.88558692 3/31/00 121.9120913 91.70437406 60.1980198 54.78723404 53.19465082 4/7/00 123.3577117 94.57013575 57.22772277 50 52.897474 4/14/00 110.3585171 92.15686275 51.68316832 46.27659574 52.45170877 4/21/00 116.7023258 100.7541478 55.04950495 48.40425532 55.72065379 4/28/00 118.1577085 99.09502262 59.40594059 48.40425532 58.98959881 5/5/00 116.546944 114.3288084 61.78217822 47.87234043 59.28677563 5/12/00 115.5975692 116.2895928 59.00990099 45.21276596 58.09806835 5/19/00 114.4578313 112.2171946 57.02970297 44.68085106 54.97771174 5/26/00 112.1043255 114.0271493 35.84158416 42.55319149 53.93759287 6/2/00 120.1776722 102.2624434 34.65346535 42.0212766 57.3551263 6/9/00 118.5254184 96.22926094 36.83168317 40.42553191 52.74888559 6/16/00 119.1363699 95.5412368 31.88118812 41.4893617 50.96582467 6/23/00 117.2669069 82.05128205 28.31683168 42.55319149 49.77711738 6/30/00 118.3342418 77.22473605 35.24752475 40.42553191 51.67167905 7/7/00 120.3110891 76.6214178 37.62376238 40.42553191 57.50371471 7/14/00 122.8395012 77.37556561 37.42574257 39.36170213 59.28677563 7/21/00 120.4160328 82.20211161 36.03960396 40.95744681 58.39524517 7/28/00 115.5105228 78.28054299 36.03960396 39.89361702 61.51560178 8/4/00 119.0119018 76.16892911 38.81188119 36.17021277 63.74442793 8/11/00 119.7367458 76.77224736 40.59405941 35.10638298 63.89301634 8/18/00 121.3540184 75.86726998 44.15841584 40.95744681 61.36701337 8/25/00 122.5523295 75.56561086 42.97029703 39.89361702 59.28677563 9/1/00 123.7172864 71.94570136 43.96039604 37.76595745 57.65230312 9/8/00 121.5801762 75.11312217 44.75247525 37.23404255 61.51560178 9/15/00 119.2461948 69.68325792 44.35643564 37.76595745 55.42347697 9/22/00 117.8558935 66.36500754 42.17821782 36.17021277 52.30312036 9/29/00 116.8625888 68.02413273 38.81188119 36.70212766 51.85735513 10/6/00 114.6237889 65.46003017 35.24752475 34.57446809 52.60029718 10/13/00 111.7911213 61.38763198 27.12871287 25.53191489 46.35958395 10/20/00 113.6426869 55.50527903 23.76237624 23.40425532 47.84546805 10/27/00 112.2312342 55.50527903 23.36633663 21.27659574 47.99405646 11/3/00 116.0637147 57.31523379 22.97029703 22.34042553 51.56017831 11/10/00 111.1248505 61.6892911 23.16831683 21.27659574 48.73699851 11/17/00 111.2664025 64.70588235 22.57425743 16.4893617 52.15453195 11/24/00 109.1553249 67.26998492 20 18.61702128 52.897474 12/1/00 106.9962497 67.11915535 20 18.61702128 58.69242199 12/8/00 111.4429358 58.67269985 20.72079208 19.14893617 61.06983655 12/15/00 106.7456863 66.5158371 20.62574257 19.57446809 59.28677563 12/22/00 106.2429326 72.85067873 19.51683168 18.29787234 60.17830609 12/29/00 107.407076 78.28054299 23.73069307 18.89361702 65.08172363 1/5/01 105.6230323 73.90648567 27.53267327 21.27659574 70.28231798 1/12/01 107.2476266 77.07390649 26.55049505 21.10638298 73.40267459 1/19/01 109.2187792 80.09049774 30.57425743 21.27659574 71.32243685 1/26/01 110.2275408 81.74962293 28.54653465 27.23404255 71.76820208 2/2/01 109.7817333 86.87782805 28.16633663 26.38297872 75.9346211
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 15 SPRINGS INDUSTRIES INC. Recent Trading Volume Analysis (through 02/09/01) - THERE HAS BEEN RELATIVELY LITTLE TRADING OF SPRINGS' STOCK ABOVE THE $34 TO $35 DOLLAR RANGE IN THE LAST SIX MONTHS THREE MONTH TRADING VOLUME PER STOCK PRICE RANGE [BAR CHART]
Stock Price Range % of Trading Volume ----------------- ------------------- 22-23 7% 24-25 12% 26-27 39% 28-29 12% 30-31 14% 32-33 8% 34-35 3% 36-37 3% 38-39 0% 40-41 0% 42-43 0% 44-45 0% 46-47 0%
SIX MONTH TRADING VOLUME PER STOCK PRICE RANGE [BAR CHART]
Stock Price Range % of Trading Volume ----------------- ------------------- 22-23 13% 24-25 11% 26-27 33% 28-29 14% 30-31 19% 32-33 6% 34-35 2% 36-37 2% 38-39 0% 40-41 0% 42-43 0% 44-45 0% 46-47 0%
PERIODIC TRADING VOLUME AT OR ABOVE VARIOUS STOCK PRICES ----------------------------------- $ 40 $ 42 $ 44 ------- ------- ------- One Year 17.9% 13.5% 11.1% Two Year 23.3% 13.5% 7.6%
ONE YEAR TRADING VOLUME PER STOCK PRICE RANGE [BAR CHART]
Stock Price Range % of Trading Volume ----------------- ------------------- 22-23 6% 24-25 5% 26-27 16% 28-29 7% 30-31 14% 32-33 12% 34-35 8% 36-37 10% 38-39 5% 40-41 4% 42-43 2% 44-45 9% 46-47 2%
TWO YEAR TRADING VOLUME PER STOCK PRICE RANGE [BAR CHART]
Stock Price Range % of Trading Volume ----------------- ------------------- 22-23 4% 24-25 2% 26-27 11% 28-29 7% 30-31 9% 32-33 11% 34-35 9% 36-37 8% 38-39 16% 40-41 10% 42-43 6% 44-45 1% 46-47 6% 48-49 1%
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 16 SPRINGS INDUSTRIES INC. Valuation Synopsis
Public Market Trading Parameters Discounted Cash Relative to (1): Flow Valuation ------------------------------------------- ------------------------------ Revenues EBIT P/E Base Case Downside Case ------------- ------------- ------------- ------------- ------------- $32.33-$44.50 $33.89-$41.62 $35.24-$39.00 $53.31-$71.72 $40.45-$55.00 0.4x - 0.5x 6.5x - 7.5x 9.0x - 10.0x
(1) Does not include premium for change of control GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 17 SPRINGS INDUSTRIES INC. EBITDA Multiples and Margins
EBITDA MULTIPLES AT VARIOUS STOCK PRICES ---------------------------------------------------------- $ 36 $ 38 $ 40 $ 42 $ 44 $ 46 ---- ---- ---- ---- ---- ---- 2000 EBITDA 3.9 4.0 4.2 4.3 4.5 4.6 2001E EBITDA 3.8 3.9 4.0 4.2 4.3 4.5
- EBITDA MULTIPLES ARE THE MOST COMMONLY REFERENCED VALUATION PARAMETERS ACROSS MANY INDUSTRIES. HOWEVER, THIS INDICATOR IGNORES THE RELATIVE LEVEL OF CAPITAL SPENDING REQUIRED TO SUPPORT THE EBITDA GENERATION. THE NEXT PAGE LOOKS AT EBIT MULTIPLES, WHICH INCLUDE DEPRECIATION AS ONE PROXY OF RELATIVE CAPITAL SPENDING QUARTERLY LTM EBITDA MULTIPLES [BAR CHART]
SMI WXS 1Q98 6.44 10.08 2Q98 6.22 10.63 3Q98 5.14 9.86 4Q98 5.82 9.81 1Q99 4.25 8.84 2Q99 5.38 9.16 3Q99 4.37 7.99 4Q99 4.45 6.97 1Q00 4.51 7.07 2Q00 3.70 6.34 3Q00 3.29 6.50 4Q00 3.57 6.44
COMPARATIVE ENTERPRISE VALUE TO EBITDA [BAR CHART]
1999A 2000E 2001P Springs 4.2 3.9 3.7 Dan River 4.8 4.8 4.6 Mohawk 5.8 5.8 5.9 WestPoint Stevens 5.8 6.6 6.2
COMPARATIVE COMPOUND ANNUAL GROWTH RATES (1999-2001) [BAR CHART]
Springs Dan River Mohawk WestPoint Stevens Revenues 1.70% 4.20% 0.03% 1.80% EBITDA 5.30% 1.80% -0.03% -3.50%
COMPARATIVE EBITDA MARGIN [BAR CHART]
Springs Dan River Mohawk WestPoint Stevens 1999 10.60% 14.70% 1.3% 18.70% 2000E 11.10% 14.00% 12.3% 17.10% 2001P 11.40% 14.00% 11.2% 16.80%
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 18 SPRINGS INDUSTRIES INC. EBIT Multiples and Margins
EBIT MULTIPLES AT VARIOUS STOCK PRICES -------------------------------------------------------------------------------- $ 36 $ 38 $ 40 $ 42 $ 44 $ 46 ----- ----- ----- ----- ----- ----- 2000 EBIT 6.8 7.0 7.3 7.6 7.8 8.1 2001E EBIT 6.5 6.7 7.0 7.2 7.5 7.7
QUARTERLY LTM EBIT MULTIPLES [BAR CHART]
SMI WXS 1Q98 10.79 13.69 2Q98 10.91 14.31 3Q98 9.81 13.15 4Q98 11.01 12.99 1Q99 7.93 11.74 2Q99 9.74 12.14 3Q99 7.80 10.48 4Q99 7.73 9.15 1Q00 7.64 9.21 2Q00 6.07 8.15 3Q00 5.44 8.42 4Q00 6.26 8.71
COMPARATIVE ENTERPRISE VALUE TO EBIT MULTIPLES [BAR CHART]
1999A 2000E 2001P Springs Industries 7.4 6.8 6.5 Dan River 8.8 8.5 8.3 Mohawk 7.9 7.3 8.0 WestPoint Stevens 7.7 8.9 8.2
COMPARATIVE COMPOUND ANNUAL GROWTH RATES (1999-2001) [BAR CHART]
Revenues EBIT Springs 1.70% 6.20% Dan River 4.20% 3.30% Mohawk 3.7% -3.5% WestPoint Stevens 1.80% -3.50%
COMPARATIVE EBIT MARGIN [BAR CHART]
1999A 2000A 2001P Springs 6.00% 6.40% 6.60% Dan River 8.10% 7.90% 7.90% Mohawk 9.6% 9.7% 8.3% WestPoint Stevens 14.20% 12.60% 12.80%
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 19 SPRINGS INDUSTRIES INC. Valuation Relative to Revenues and EPS
P/E RATIO AT VARIOUS STOCK PRICES ------------------------------------------------------------- $ 36 $ 38 $ 40 $ 42 $ 44 $ 46 ----- ----- ------ ------ ------ ------ 2000 EPS 9.2 9.7 10.3 10.8 11.3 11.9 2001E EPS 9.2 9.8 10.3 10.8 11.4 11.9
COMPARATIVE EBIT MARGIN [BAR CHART]
1999A 2000A 2001P Springs 6.00% 6.40% 6.60% Dan River 8.10% 7.90% 7.90% Mohawk 9.6% 9.7% 8.3% WestPoint Stevens 14.20% 12.60% 12.80%
EPS GROWTH AND NET INCOME MARGINS [BAR CHART]
EPS CAGR 1999-2001 Ave. Net Margins 1999-2000 Springs Industries 0.30% 3.10% Dan River -10.00% 1.90% Mohawk 2.7% 4.9% WestPoint Stevens -10.30% 4.30%
ENTERPRISE VALUE TO REVENUES [BAR CHART]
1999 2000A 2001P Springs 0.4 0.4 0.4 Dan River 0.7 0.6 0.6 Mohawk 0.7 0.7 0.6 WestPoint Stevens 1.1 1.1 1.0
PRICE TO EARNINGS RATIO [BAR CHART]
1999 2000E 2001P Springs 9.5 9.4 9.3 Dan River 4.1 5.6 5.7 Mohawk 10.8 10.2 11.1 WestPoint Stevens 4.2 5.8 5.9
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 20 SPRINGS INDUSTRIES INC. Section 4 -- Review of Alternatives GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -20- 21 SPRINGS INDUSTRIES INC. Summary of Alternatives STATUS QUO Implementation of the company's existing strategic plan absent a leveraged buyout, material share repurchase, sale of the company or active acquisition program. Both the family and the public shareholders would retain their existing ownership of the company, which would remain public. SHARE REPURCHASE Share repurchases of various sizes are open to the company to effect from its own balance sheet without new investors. Unlike the recapitalization alternative, the family would neither confront the governance complexities nor enjoy the qualitative capabilities that a new investor would bring. A repurchase program in the $75 million range could likely be effected without any refinancing of the company's existing debt, saving the company the associated fees and expenses of refinancing its entire existing bank facility. Alternatively, a larger repurchase program, in the neighborhood of $150 million, would require the company to refinance its lending agreements. LEVERAGED RECAP The family takes the company private, either alone or with a new investor, and operates it privately for a period of time (five years on average) prior to an eventual exit through the public markets, through a sale to third party or through some other exit transaction such as another leveraged recap. Financial leverage would increase in either case (with the increase materially greater in the go-it-alone scenario), though the company's low leverage presently would allow it to incur a substantial amount of transaction-related debt and still be underlevered relative to its major competitors. Qualitative considerations dictate whether a go-it-alone strategy is more attractive than bringing in a new equity investor. With a partner, governance complexity increases, but so does the company's market profile and ability to attract and retain key senior executives. The partner would participate actively with senior management in the decision-making framework at the company, bringing its experience and other management capabilities to bear in helping management implement its business strategy. SALE OF COMPANY The family could put the company up for auction, intending to exit its investment. This method of exit is unlikely to be viable from an economic perspective, however, as there are believed to be no U.S. or foreign buyers willing or reasonably capable of acquiring the company for a total enterprise value in the range currently being considered by Heartland. Moreover, no financial buyers other than Heartland have expressed interest in acquiring even a minority position in Springs at those values. Additionally, this alternative would involve the family ceding total control over the company and its operations as well as the potential upside in value to a third party. GROWTH THROUGH ACQUISITION There exist a number of acquisition opportunities the company could pursue in lieu of, or in addition to, the alternatives presented above, and the company's low financial leverage make it perhaps the only competitor in the home textiles industry that could implement a sizable acquisition strategy. In terms of acquisition targets, Pillowtex is an obvious candidate whose business complements that of Springs well, but its recent bankruptcy filing and pending reorganization are expected to make any sizeable transaction unlikely in the near-term. Even then a transaction could be complicated and risky given the volatility and weakness in Pillowtex's operations. WestPoint Stevens is also unlikely for antitrust reasons. More likely is a roll-up strategy in which the company acquires smaller, niche players (of which there are many in the industry) to enhance its product offerings or acquire relationships and experience, such as in foreign sourcing. GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -21- 22 SPRINGS INDUSTRIES INC. COMPARATIVE SHARE OWNERSHIP $46 RECAP Family Shares 6.24MM Heartland Shares 5.44MM Shares Repurchased 6.60MM Family Ownership 53.4% Heartland Ownership 46.6% Family Value $311.9MM Heartland Value $250.0MM
- NUMBERS IN WHITE DENOTE THE PERCENTAGE OF OUTSTANDING SHARES OWNED BY THE FAMILY AS OF THE CLOSING SHARES OUTSTANDING UNDER VARIOUS ALTERNATIVES [BAR GRAPH]
Rolled Publicly Purchased Repurchased % Owned by Family Over by Family Held by Heartland from Public As of Closing Status Quo (1) 7.3 10.6 $75MM Repurchase at $38 (1) 7.3 8.6 2 40.9% $150MM Repurchase at $40 (1) 7.3 6.8 3.8 45.9% Heartland Recap at $46 6.2 5.4 6.6 51.7% Family LBO at $46 7.3 0 10.9 53.4% 100%
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -22- 23 SPRINGS INDUSTRIES INC. COMPARATIVE LEVERAGE - THE LEVEL OF DEBT TO EBITDA (CASH FLOW) IS THE MOST COMMONLY USED INDICATOR OF FINANCIAL LEVERAGE. INVESTMENT GRADE CREDITS (BBB) WOULD GENERALLY BE LOW -- APPROXIMATELY 2.75X DEBT TO TRAILING EBITDA - CURRENT LENDING CONDITIONS MAY PRECLUDE A FAMILY-LED LBO AT DEBT LEVELS AT OR ABOVE 3.0X EBITDA - GENERALLY, HIGHER LEVERAGE LEVELS ARE AVAILABLE WHEN A WELL-KNOWN FINANCIAL INVESTOR ACTS AS A "SPONSOR" OF A TRANSACTION - EVEN THOUGH THE LEVERAGE LEVELS CONTEMPLATED ARE SIGNIFICANTLY BELOW THOSE OF ITS THREE PRIMARY COMPETITORS, CUSTOMERS MAY REACT NEGATIVELY TO A HIGHLY-LEVERAGED PLATFORM FOR SPRINGS DEBT TO 2000 EBITDA -- PRO FORMA AS OF 12/31/00 [BAR GRAPH]
Family Dan River 4 WestPoint Stevens 5.3 Status Quo 1.3 $75MM Repurchase at $38 1.6 $150MM Repurchase at $40 2 HIP Recap at $46 2.7 HIP Recap at $46 (w/ Growth) (1) 2.7 Family LBO at $46 3.4
DEBT TO EBITDA (Heartland Recap at $46) [BAR GRAPH]
Base Downside Case Case 2000PF 2.7 2.7 2001P 2.3 2.4 2002P 1.8 2.1 2003P 1.3 1.7 2004P 1 1.5 2005P 0.6 1.1
(1) Assumes HIP acquisition strategy is pursued GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -23- 24 SPRINGS INDUSTRIES INC. COMPARATIVE EXPENSES - Heartland fees are at the high end of the range for investment firms - A 1% transaction fee is common, but normally this is for an investment for approximately 80% of the equity versus half that amount - A $4 million management fee is high; normal fee would be $1-2 million - To offset these amounts, an annual fee of $3.0 million was negotiated for the benefit of the family. ONE-TIME TRANSACTION EXPENSES
$150MM SHARE $75MM SHARE Heartland Family Repurchase Repurchase Status Recap at $46 LBO at $46 at $40 at $38 Quo --------------- --------------- --------------- --------------- --------------- Heartland (1%) $ 11.7 $ -- $ -- $ -- $ -- Chase / Banks (2.5%) 16.9 22.3 12.4 -- -- CRT (0.5%) 5.9 5.9 0.8 0.4 -- Special Committee Banker 2.0 2.0 -- -- -- Legal 5.0 5.0 0.5 0.3 -- --------------- --------------- --------------- --------------- --------------- TOTAL $ 41.5 $ 35.2 $ 13.6 $ 0.6 $ -- =============== =============== =============== =============== ===============
ANNUAL MONITORING FEES (Heartland Recap Only) Heartland $ 4.0 Family $ 3.0 --------------- Total $ 7.0 =============== GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -24- 25 SPRINGS INDUSTRIES INC. Comparative Returns - THE HIGH POINT OF THE RANGE IN EACH COLUMN TO THE RIGHT REPRESENTS AN ASSUMED EXIT MULTIPLE OF 5.0X EBITDA; THE LOWER END OF THE RANGE REPRESENTS AN ASSUMED EBITDA MULTIPLE OF 4.0X - THE PERIOD UNTIL EXIT IS ASSUMED TO BE FIVE YEARS - THE TOP TWO RETURN CHARTS SHOW RELATIVE RETURN LEVELS WHICH ARE GENERALLY EMPLOYED IN DECIDING TO INVEST OR NOT INVEST IN A SITUATION. IN THE CASE OF THE CLOSE FAMILY, THE RETURN LEVELS WOULD INFLUENCE THE DECISION TO KEEP MONEY IN THE COMPANY OR TO TAKE MONEY OUT AT THE PRICE INDICATED. - THE TWO CHARTS AT THE BOTTOM SHOW THE COMPARATIVE RETURNS ASSUMING THE INVESTOR CHOOSES TO KEEP MONEY IN THE COMPANY AND IS EVALUATING ALTERNATIVE STRATEGIES TO ENHANCE SHAREHOLDER VALUE BASE CASE RETURNS (Five-Year) [BAR GRAPH]
Status Quo 23% - 28% $75MM Repurchase at $38 23% - 28% $150MM Repurchase at $40 23% - 28% HIP Recap at $46 21% - 28% HIP Recap at $46 (w/ Growth) (1) 29% - 36% Family LBO at $46 26% - 36%
DEBT TO EBITDA MULTIPLE
Status Quo 1.3x $75MM Repurchase at $38 1.6x $150MM Repurchase at $40 2.0x HIP Recap at $46 2.7x HIP Recap at $46 (w/ Growth) (1) 2.7x Family LBO at $46 3.4x
BASE CASE RETURNS (Five-Year -- Assuming $36 Starting Investment Value) [BAR GRAPH]
Status Quo 23% - 28% $75MM Repurchase at $38 25% - 30% $150MM Repurchase at $40 26% - 31% HIP Recap at $46 27% - 33% HIP Recap at $46 (w/ Growth) (1) 35% - 43% Family LBO at $46 32% - 40%
DOWNSIDE CASE RETURNS (Five-Year) [BAR GRAPH]
Status Quo 17% - 22% $75MM Repurchase at $38 16% - 21% $150MM Repurchase at $40 16% - 21% HIP Recap at $46 12% - 18% HIP Recap at $46 (w/ Growth) (1) 21% - 29% Family LBO at $46 15% - 8%
DEBT TO EBITDA MULTIPLE
Status Quo 1.3x $75MM Repurchase at $38 1.6x $150MM Repurchase at $40 2.0x HIP Recap at $46 2.7x HIP Recap at $46 (w/ Growth) (1) 2.7x Family LBO at $46 3.4x
DOWNSIDE CASE RETURNS (Five-Year -- Assuming $36 Starting Investment Value) [BAR GRAPH]
Status Quo 17% - 22% $75MM Repurchase at $38 18% - 23% $150MM Repurchase at $40 18% - 23% HP Recap at $46 18% - 25% HP Recap at $46 (w/ Growth) (1) 28% - 36% Family LBO at $46 20% - 29%
(1) Assumes HIP acquisition strategy is pursued GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -25- 26 SPRINGS INDUSTRIES INC. Net Present Value Per Share APPROXIMATE MARKET RATES OF RETURN RELATIVE TO FINANCIAL LEVERAGE [BAR GRAPH]
Debt to EBITDA Expected IRR 1 12% - 15% 1.5 14% - 16% 2 16% - 18% 2.5 19% - 21% 3 24% - 26% 3.5 29% - 31%
NET PRESENT VALUE PER SHARE AT 4.5X EBITDA ---------------------------------------------------------------------------- NPV PER SHARE (adjusted for relative NPV AT 15% RETURN @ RETURN financial risk) --------------------- PARAMETER --------------------- ALTERNATIVE LEVERAGE BASE DOWNSIDE REQUIRED BASE DOWNSIDE ----------- -------- ---- -------- -------- ---- -------- Status Quo 1.31x $54.61 $42.38 13.0% $59.44 $46.08 $75MM Repurchase at $38 1.61x $58.34 $44.56 15.0% $58.34 $44.56 $150MM Repurchase at $40 1.95x $61.82 $46.32 17.0% $56.87 $42.65 Recap at $46 2.67x $65.99 $47.17 21.0% $51.73 $37.13 Recap at $46 (w/ Growth) 2.67x $90.41 $69.27 25.0% $60.40 $41.46 Family LBO at $46 3.43x $84.82 $54.82 30.0% $45.95 $29.70
NPV PER SHARE AT 4.5X EBITDA -- CAPITAL ASSET PRICING MODEL DISCOUNT RATES ---------------------------------------------------------------------------- Status Quo 10.4% $66.69 $51.67 $75MM Repurchase at $38 10.8% $69.91 $53.30 $150MM Repurchase at $40 13.2% $66.75 $49.97 Recap at $46 14.4% $67.55 $48.26 Recap at $46 (w/ Growth) 14.4% $92.56 $70.90 Family LBO at $46 18.7% $72.39 $46.79
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -26- 27 SPRINGS INDUSTRIES INC. Impact of Alternative Strategies on Acquisition Borrowing Capacity - HEARTLAND HAS TENTATIVELY AGREED TO INVEST APPROXIMATELY $50 MILLION IN ADDITIONAL EQUITY TO SUPPORT ACQUISITIONS - THE BORROWING CAPACITY WITH THE SPONSORSHIP OF A RECOGNIZED FINANCIAL INVESTOR MAY BE GREATER THAN FOR THE COMPANY ON ITS OWN ACQUISITION BORROWING CAPACITY AT DECEMBER 2000 (1) [BAR GRAPH]
Incremental Base Borrowing Additional Borrowing Capacity HIP Equity at 3.5x EBITDA Status Quo 856.9 $75MM Repurchase at $38 706.9 $150MM Repurchase at $40 532.1 HIP Recap at $46 210.4 50 338
ACQUISITION BORROWING CAPACITY AT DECEMBER 2002 (1) [BAR GRAPH]
Marginal Base Borrowing Additional Borrowing Capacity HIP Equity to 3.5x EBITDA Status Quo 1,420.40 $75MM Repurchase at $38 1,263.00 $150MM Repurchase at $40 1,079.50 HIP Recap at $46 498.3 50 499.2
TOTAL DEBT (Recap at $46 With and Without Growth) [BAR GRAPH]
Heartland Heartland Recap Recap at $46 w/ at $46 Growth 2000PF 678.2 678.2 2001P 594.6 646 2002P 551.3 751.9 2003P 459.1 792.1 2004P 355.8 858.7 2005P 215.3 645.4
DEBT TO EBITDA (Recap at $46 With and Without Growth) [BAR GRAPH]
Heartland Heartland Recap Recap at $46 w/ at $46 Growth 2000PF 2.67 2.67 2001P 2.26 2.39 2002P 1.84 2.05 2003P 1.31 1.62 2004P 0.96 1.49 2005P 0.55 1.03
(1) The amount of debt that could be incurred in connection with acquisitions while leaving the pro forma ratio of debt to EBITDA at or below 3.0x. The red portion in the Heartland case shows the additional borrowing capacity that might be obtained by extending the borrowing level to 3.5x EBITDA, while the yellow portion represents $50 million of additional equity from Heartland. GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -30- 28 SPRINGS INDUSTRIES INC. EFFORTS TO ATTRACT ALTERNATE PRIVATE EQUITY INVESTORS HAVE BEEN UNSUCCESSFUL - Each of these private equity firms was approached regarding the opportunity to invest in Springs on terms similar to Heartland's, but each declined for the reasons mentioned - * reviewed the opportunity with CRT, but declined the opportunity to meet with management - * was conflicted in looking at Springs as it was still actively considering an investment in WestPoint Stevens - * was the only firm that expressed interest in Springs, but it did so at price levels significantly below that offered by Heartland - * Investment Committee Memorandum, summarizing its opinion of the Springs opportunity, is attached as Appendix C - * declined to consider investing in Springs unless it could acquire at least 80% of the equity * - M&A advisory and private equity firm founded in 19* and led by * - * million private equity fund - Close advisory relationships with * - Conducted intensive due diligence over short time frame in January. * continues to express interest in the company and the sector, but believes that the appropriate value is in the * range (see * Investment Committee memorandum attached as Appendix C). Further, in order to achieve mid-30% returns, * would propose levering the company to the 3.0x EBITDA level * PARTNERS - Presently has * billion in capital under management, including $2.5 billion in * IV.L.P., has made * investments totalling approximately * billion since 1988 - * has invested in such companies as * - After meetings with management and R. Lee, declined to invest based on an unfavorable view of the home textiles industry * - Founded in 19* has * billion in committed capital from * - Previously investments include * - After meetings with management and Credit Research & Trading, declined to invest based on the breadth of initiatives required to deliver the projected performance * - Invested more than * billion in * companies since 1980; presently investing * IV.L.P., a * billion private equity fund - Previously investments include such companies as * - After meetings with management and Credit Research & Trading, declined to invest based on an unfavorable view of the home textiles industry GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT * Omitted and filed separately with the Commission. -31- 29 SPRINGS INDUSTRIES INC. NO STRATEGIC BUYERS ARE POSITIONED TO EFFECT A MAJOR ACQUISITION IN THE HOME TEXTILES INDUSTRY - None of Springs' U.S. competitors have both the size and financial flexibility necessary to acquire Springs - WestPoint Stevens and Pillowtex are of sufficient revenue scale to contemplate such a transaction with Springs, but each lacks the financial strength required to do so - All other home textiles competitors are essentially niche players - There are believed to be no foreign or non-industry acquirors looking to enter the U.S. home textiles industry - Management of Newell, the largest company focused on supplying big box retailers, has categorically stated they are not interested in the home textiles sector - Mohawk has been rumored to be interested in expanding into this sector, but has yet to surface in any acquisition situation in the sector other than rugs. Mohawk is primarily focused on a well-publicized, strategic move into hard flooring 1999 Sales of U.S. Home Textiles Companies ($ Millions) [BAR CHART]
Sales ----- Springs $2,220 WestPoint $1,868 Pillowtex $1,552 Mohawk $ 470 Dan River $ 432 Crown Craft $ 310 Burlington $ 300 Croscill $ 283 PCF $ 230 Glenoit $ 222 Hollander $ 201 Maples $ 160 Louisville $ 156 Revman $ 141 Sunbeam $ 136 Keeco $ 132
Equity P/E Debt/ Revenues Value Ratio EBITDA -------- ----- ----- ------ WestPoint Stevens $1,815.9 $ 433.8 5.9x 5.3x Mohawk 3,255.8 1,595.6 11.1x 1.5x Newell 6,413.3 7,501.2 12.6x 1.9x Springs 2,275.1 650.5 9.3x 1.3x
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -32- 30 SPRINGS INDUSTRIES INC. EXIT STRATEGIES - One advantage of being private is the ability to execute acquisitions which tend to be dilutive to earnings in the first year or two. The strategy for consolidation "plays" is to build a base while private and slow the acquisition pace just before going to the market to realize value EXIT MECHANISMS - IPO This is the primary exit alternative for Heartland; Heartland's primary thesis is that it can obtain multiple expansion by building scale in a platform company through the combination of acquisitions and internal growth. That said, the market for consumer-based IPOs has been weak for several years, being crowded out by higher-growth or much larger capitalization situations. - SALE There does not appear to be any logical industry candidates at this time. This may change over the course of five years, but should not be counted on. (Sale to another financial buyer falls into the category of leveraged recapitalization) - LEVERAGED RECAPITALIZATION This is a very logical and often-used mechanism to extract value -- borrowing against a strong company and using the proceeds to repurchase shares. This can be done without changing the ownership level. Sometimes this strategy can be pursued with a new equity source, particularly when the amount of funds desired is large relative to the capital structure or when one party seeks to exit. EXIT TIMING - FIRST THREE YEARS Both parties have agreed tentatively not to pursue exit alternatives for the first three years - IPO Can be pursued at the instigation of either party after three years - RECAPITALIZATION OR SALE Can be pursued at the instigation of either party after the fifth year if the company has not sold at least 20% of the stock into the public market GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT -33- 31 SPRINGS INDUSTRIES INC. SECTION 5 -- ISSUES RELATED TO HEARTLAND - David Stockman's level of involvement D. Stockman appears very competent, very enthusiastic and has worn well on the management team to date, even through an extensive due diligence process. David's personal involvement is a core attraction of Heartland as a partner. Possibly his involvement could wane as he spreads himself across more investments. - Heartland will push C. Bowles to aggressively improve the quality of management. L. Close is generally in agreement and the assumption is that involvement by an outside investor should enhance the prospects of attracting stronger candidates. - There exists some concern about the balance between D. Stockman's ardor for growth through acquisitions and the reasonable pace for digestion by the company. On its own, Springs would need to materially expand the scope of its management team to pursue acquisitions. Heartland immediately bridges part of this gap through its own expertise. Springs' current acquisition capacity is approximately one every two years. However, Heartland may be interested in one to two transactions per year. Even though Heartland has the capacity, Springs may be strained to integrate acquisitions at that rate. - D. Stockman has a reputation of relying very heavily on the information presented (often generated at his direction) and can thus drive toward poor decisions if the information is not correct or not pertinent. Effective utilization of D. Stockman's strengths requires strong input from management to make sure the critical information is at hand and requires strong input from the Close family board members to push back against D. Stockman's approach in selected situations. He has demonstrated the capacity to modify his approach very efficiently when presented with better information. RELATED TO PRICING AND STRUCTURE - The risk return trade off leads investor to desire less equity in order to obtain better returns. The contra to this is enough equity to support acquisitions. Heartland has offered to invest to the same level as the Close family. We have asked them to invest less in order to improve returns. The expectation is that leverage of 2.5x EBITDA going in at the start should be sufficient to support a reasonable acquisition program (1-2 deals per year in the $100-$200 million range). A Pillowtex transaction would be beyond the initial resources and require additional equity. Heartland has requested an option to invest additional equity if the Company (Close family agreement needed here) needs it. We have recently turned this around to request a "call" on that equity and expect Heartland to agree. - The high price required to take the company private versus buying a block of shares at a lower price, together with the low level of leverage, dampens returns to both sides. This puts a burden on the partnership to assume that Heartland brings qualitative factors which would enhance the returns versus a stand alone approach. This might come from the following: -- Hands-on active involvement by the Heartland Board members vs. hands-off involvement by Springs' current Board members may lead to more dynamic change and accountability throughout the organization -- Significant expansion of management information system and tools -- Assistance in pursuing and executing acquisition-based growth strategy -- Value accretion that comes from successful execution of a growth strategy -- Expertise and assistance in the value realization process GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 32 SPRINGS INDUSTRIES INC. SUMMARY ASSESSMENT OF TRANSACTION WITH HEARTLAND BENEFITS - Partnership with Heartland would represent a major change in the management and direction of Springs -- Heartland will bring an intense set of resources and expectations to the table, directed to help the company achieve a clear leadership position in its industry - Heartland brings the experience and resources to help the company take advantage of the potential to lead a consolidation of the home textiles sector - Taking the company private will allow the company to pursue strategic directions which would be difficult as a public company - Taking the company private, together with successful execution of a growth strategy, will allow the family and Heartland to take advantage of any improvement in valuation parameters (multiple expansion) -- We have modeled exit values at 4.0x to 5.0x EBITDA. Heartland expects exit multiples to be in the 5.5x to 6.5x range - Heartland's involvement should enhance the company's ability to: -- Attract senior-level management -- Access capital more aggressively ISSUES - Any financial investor will push management to achieve the company's potential. This may place considerably more pressure on the entire senior management team, including C. Bowles. - The premium required to take the company private versus a share buyback, together with a conservative capital structure, affects the returns. In order to achieve materially better returns, either the capital structure needs to be levered up or the company needs to realize a qualitative benefit from partnering with Heartland -- either through effecting a growth strategy or through assisting management in effecting an improvement in the company's competitive position and economics. GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 33 SPRINGS INDUSTRIES INC. APPENDIX A -- COMPARABLE PUBLIC COMPANY ANALYSIS GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 34 COMPARABLE PUBLIC COMPANY ANALYSIS Textile and Apparel Companies (figures in millions, except per share numbers and where noted)
SPRINGS INDUSTRIES WESTPOINT STEVENS DAN RIVER MOHAWK INDUSTRIES ------------------ ----------------- --------- ----------------- Ticker Symbol SMI WXS DRF MHK LTM Period Ended: 12/31/00 12/31/00 09/30/00 12/31/00 Stock Price as of 2/9/01 $36.28 $8.75 $2.93 $29.41 Primary Shares Outstanding 17.931 49.577 21.766 54.255 MARKET CAPITALIZATION $650.5 $433.8 $63.8 $1,595.6 In the Money Options Outstanding 0.763 0.000 0.000 1.752 Weighted Average Exercise Price $32.40 $0.00 $0.00 $16.62 Option Shares (Treasury Method) 0.1 0.0 0.0 0.8 Other Common Share Equivalents 0.0 0.0 0.0 0.0 FD Shares Outstanding (1) 18.0 49.6 21.8 55.0 EQUITY VALUE $653.5 $433.8 $63.8 $1,618.0 ----------------------------------------------------------------------------------------------------------------------------- (-) Cash & equivalents $2.9 $0.2 $3.2 $0.0 (-) Equity in Unconsolid. Affil. 0.0 0.0 0.0 0.0 (+) Total Debt (2) 333.2 1,627.8 389.5 589.8 (+) Preferred Stock (3) 0.0 0.0 0.0 0.0 (+) Minority Interest 0.0 0.0 0.0 0.0 AGGREGATE VALUE (4) $983.8 $2,061.5 $450.1 $2,207.9 -----------------------------------------------------------------------------------------------------------------------------
AGGREGATE VALUATIONS: -------------------- Revenues: 1999A 0.44x 1999A 1.09x 1999A 0.72x 1999A 0.72x LTM 0.43 LTM 1.14 LTM 0.70 LTM 0.68 2000A 0.43 2000A 1.14 2000A 0.68 2000A 0.68 2001P 0.43 2001P 1.06 2001P 0.66 2001P 0.67 ---------------------------------------------------------------------------------------------------------------------------------- EBITDA: 1999A 4.18x 1999A 5.85x 1999A 4.86x 1999A 5.52x LTM 3.88 LTM 6.64 LTM 4.62 LTM 5.53 2000A 3.88 2000A 6.64 2000A 4.84 2000A 5.53 2001P 3.77 2001P 6.29 2001P 4.69 2001P 5.97 ---------------------------------------------------------------------------------------------------------------------------------- EBIT: 1999A 7.34x 1999A 7.69x 1999A 8.86x 1999A 7.49x LTM 6.81 LTM 8.98 LTM 7.92 LTM 6.96 2000A 6.81 2000A 8.98 2000A 8.56 2000A 6.96 2001P 6.51 2001P 8.25 2001P 8.31 2001P 8.04
EQUITY VALUATION: ---------------- Net Income (EPS): 1999A 9.39x 1999A 4.17x 1999A 4.34x 1999A 10.29x LTM 9.28 LTM 6.50 LTM 4.25 LTM 9.69 2000A 9.28 2000A 6.50 2000A 5.92 2000A 9.69 2001P 9.32 2001P 5.92 2001P 5.75 2001P 11.11 ---------------------------------------------------------------------------------------------------------------------------------- Book Equity: MRQ 0.80x MRQ -0.61x MRQ 0.23x MRQ 2.14x ----------------------------------------------------------------------------------------------------------------------------------
(1) FD shares outstanding includes in-the-money options and convertibles calculated based on weighted average exercise price (2) Includes ST and LT debt, out-of-the-money convertibles, capitalized leases (3) Includes out-of-the-money convertibles (4) Aggregate value includes equity value plus LT debt, ST debt, capitalized leases, preferred stock, out-of-the-money convertibles, and minority interest, less equity investments in unconsolidated affiliates and cash & equivalents ================================================================================ CREDIT RESEARCH & TRADING LLC 35 COMPARABLE PUBLIC COMPANY ANALYSIS Textile and Apparel Companies (figures in millions, except per share numbers and where noted) --------------------------------------------------------------------------------
SPRINGS INDUSTRIES WESTPOINT STEVENS -------------------------------------------------- -------------------------------------------------- Margins: 3yr CAGR: Margins: 3yr CAGR: -------- --------- -------- --------- REVENUES: 1998A $2,180.5 1998A $1,779.0 1999A 2,220.4 1999A 1,883.3 LTM 2,275.1 LTM 1,815.9 2000A 2,275.1 2000A 1,815.9 2001P 2,298.0 1.8% 2001P 1,953.2 3.2% -------------------------------------------------------------------------------------------------------------------------------- EBITDA: 1998A $ 191.5 8.8% 1998A $ 328.9 18.5% 1999A 235.3 10.6% 1999A 352.2 18.7% LTM 253.5 11.1% LTM 310.3 17.1% 2000A 253.5 11.1% 2000A 310.3 17.1% 2001P 261.1 11.4% 10.9% 2001P 327.9 16.8% -0.1% -------------------------------------------------------------------------------------------------------------------------------- EBIT: 1998A $ 104.5 4.8% 1998A $ 248.3 14.0% 1999A 134.0 6.0% 1999A 268.1 14.2% LTM 144.5 6.4% LTM 229.5 12.6% 2000A 144.5 6.4% 2000A 229.5 12.6% 2001P 151.1 6.6% 13.1% 2001P 249.9 12.8% 0.2% -------------------------------------------------------------------------------------------------------------------------------- CAPEX: 1998A $ 115.0 5.3% 1998A $ 147.5 8.3% 1999A 166.8 7.5% 1999A 148.6 7.9% LTM 93.0 4.1% LTM 76.7 4.2% 2000A 93.0 4.1% 2000A 76.7 4.2% 2001P 110.0 4.8% -1.5% 2001P 70.0 3.6% -22.0% -------------------------------------------------------------------------------------------------------------------------------- NET INCOME: 1998A $ 54.1 2.5% 1998A $ 90.6 5.1% 1999A 69.6 3.1% 1999A 104.1 5.5% LTM 70.4 3.1% LTM 66.7 3.7% 2000A 70.4 3.1% 2000A 66.7 3.7% 2001P 70.1 3.1% 9.0% 2001P 73.3 3.8% -6.8% -------------------------------------------------------------------------------------------------------------------------------- EPS: 1998A $ 2.86 1998A $ 1.51 1999A 3.83 1999A 1.84 LTM 3.88 LTM 1.34 2000A 3.88 2000A 1.34 2001P 3.85 10.4% 2001P 1.48 -0.7% -------------------------------------------------------------------------------------------------------------------------------- BOOK EQUITY: MRQ $ 819.8 MRQ ($712.8) -------------------------------------------------------------------------------------------------------------------------------- DEBT/LTM EBITDA: 1.31 x 5.25 x DEBT/BOOK EQUITY 0.41 x -2.28 x -------------------------------------------------------------------------------------------------------------------------------- FY ENDS: December December LTM ENDED: 12/31/00 12/31/00 EPS/PROJECTIONS AS OF: 02/01/01 (First Union) 02/09/01 (First Union)
DAN RIVER MOHAWK INDUSTRIES ---------------------------------------------------- ------------------------------------------------ Margins: 3yr CAGR: Margins: 3yr CAGR: -------- --------- -------- --------- REVENUES: 1998A $517.4 1998A $2,744.6 1999A 628.9 1999A 3,083.3 LTM 647.1 LTM 3,255.8 2000A 663.0 2000A 3,255.8 2001P 682.9 9.7% 2001P 3,315.0 6.5% ---------------------------------------------------------------------------- ------------------------------------------------ EBITDA: 1998A $ 77.3 14.9% 1998A $ 321.7 11.7% 1999A 92.6 14.7% 1999A 400.1 13.0% LTM 97.3 15.0% LTM 399.5 12.3% 2000A 93.1 14.0% 2000A 399.5 12.3% 2001P 95.9 14.0% 7.4% 2001P 369.7 11.2% 4.7% ---------------------------------------------------------------------------- ------------------------------------------------ EBIT: 1998A $ 46.5 9.0% 1998A $ 249.1 9.1% 1999A 50.8 8.1% 1999A 294.8 9.6% LTM 56.8 8.8% LTM 317.1 9.7% 2000A 52.6 7.9% 2000A 317.1 9.7% 2001P 54.1 7.9% 5.2% 2001P 274.7 8.3% 3.3% ---------------------------------------------------------------------------- ------------------------------------------------ CAPEX: 1998A $ 39.5 7.6% 1998A $ 83.2 3.0% 1999A 36.7 5.8% 1999A 145.6 4.7% LTM 38.4 5.9% LTM 73.5 2.3% 2000A 40.0 6.0% 2000A 73.5 2.3% 2001P 30.0 4.4% -8.7% 2001P 95.0 2.9% 4.5% ---------------------------------------------------------------------------- ------------------------------------------------ NET INCOME: 1998A $ 17.1 3.3% 1998A $ 128.0 4.7% 1999A 14.7 2.3% 1999A 157.2 5.1% LTM 15.0 2.3% LTM 166.9 5.1% 2000A 10.8 1.6% 2000A 166.9 5.1% 2001P 11.1 1.6% -13.4% 2001P 145.6 4.4% 4.4% ---------------------------------------------------------------------------- ------------------------------------------------ EPS: 1998A $ 0.85 1998A $ 2.09 1999A 0.63 1999A 2.61 LTM 0.68 LTM 3.08 2000A 0.50 2000A 3.08 2001P 0.51 -15.7% 2001P 2.75 9.5% ---------------------------------------------------------------------------- ------------------------------------------------ BOOK EQUITY: MRQ $279.4 MRQ $ 754.4 ---------------------------------------------------------------------------- ------------------------------------------------ DEBT/LTM EBITDA: 4.00 x 1.48 x DEBT/BOOK EQUITY 1.39 x 0.78 x ---------------------------------------------------------------------------- ------------------------------------------------ FY ENDS: December December LTM ENDED: 09/30/00 12/31/00 EPS/PROJECTIONS AS OF: 10/27/00 (First Union)(1) 02/09/01 (CSFB) (2)
(1) DRF preannounced on 2/5/01 and provided 2000E Sales and EPS. New research not out yet - some data has been estimated by CRT. (2) MHK Capex per SunTrust Equitable 1-29-01. ================================================================================ CREDIT RESEARCH & TRADING LLC 36 SPRINGS INDUSTRIES INC. APPENDIX B -- DISCOUNTED CASH FLOW ANALYSIS GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 37 SPRINGS INDUSTRIES INC. DISCOUNTED CASH FLOW ANALYSIS COMPARATIVE UNLEVERED BETAS Springs 0.44 Dan River 0.62 Mohawk 0.53 WestPoint Stevens 0.70 Average (excluding Springs) 0.61
2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ EBITDA Base Case $261.5 $298.6 $350.3 $369.6 $391.0 Downside Case 248.6 263.4 282.0 293.6 308.0 UNLEVERED AFTER-TAX FREE CASH FLOW Base Case 129.7 78.1 123.8 131.5 161.9 Downside Case 134.6 77.8 99.5 100.2 126.1
Net Present Value Per Share -------------------------------------------------------- Base Case Downside Case ------------------------- -------------------------- Discount Rates Terminal EBITDA Multiple Terminal EBITDA Multiple ------------------------- -------------------------- 3.5x 4.0x 4.5x 3.5x 4.0x 4.5x ------ ------ ------ ------ ------ ------ 9.0% $57.63 $64.68 $71.72 $43.89 $49.45 $55.00 9.5% $56.15 $63.04 $69.92 $42.72 $48.14 $53.57 10.0% $54.71 $61.44 $68.17 $41.57 $46.87 $52.18 10.5% $53.31 $59.89 $66.47 $40.45 $45.63 $50.82
Weighted Average Cost of Capital Calculation --------------------------------------------------------------------------------------- Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 ---------- ---------- ---------- ---------- ---------- Debt 40.0% 50.0% 60.0% 70.0% 80.0% Common Equity 60.0% 50.0% 40.0% 30.0% 20.0% ---------- ---------- ---------- ---------- ---------- Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0% Relevered Beta 0.87 1.00 1.19 1.50 2.14 Pre-tax Cost of Debt 7.0% 8.0% 9.0% 10.0% 11.0% After-tax Cost of Debt 4.3% 5.0% 5.6% 6.2% 6.8% Cost of Equity 12.6% 13.7% 15.3% 18.0% 23.4% COST OF CAPITAL 9.3% 9.3% 9.5% 9.7% 10.1%
GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT 38 SPRINGS INDUSTRIES INC. APPENDIX C -- * INVESTMENT COMMITTEE MEMORANDUM Please see Appendix D to the Close Family Meeting Materials for the * Memorandum GREENWICH CREDIT RESEARCH [SPRINGS LOGO] & TRADING CONNECTICUT * Omitted and filed separately with the Commission. 39 MEMORANDUM TO: Investment Committee FROM: * DATE: January 21, 2001 RE: Project Snug ================================================================================ Over the past few days we have worked to develop greater insight on key investment issues, and further refine our perspective on this transaction. This memo covers: I. Investment summary - Positives - Risks - Investment Thesis II. Review of company financial performance III. Anticipated governance terms IV. Transaction structure V. Preliminary financial models VI. Timing and next steps We would like to review the transaction with the Committee on Monday, with the objective of reaching consensus on the appropriate message for the CEO as to our interest level in making an investment. A gating issue is that the Company has not finalized their 2001 budget and its implications for their longer term forecast, although they have given us fairly specific direction on both revenue and EBITDA projections. Thus at this point we do not have a detailed analysis of the sources of profit improvement for the forecast period. I. INVESTMENT SUMMARY INVESTMENT POSITIVES This investment opportunity has a number of positive features in terms of the company's competitive position and the opportunities for value creation. The key positive features of this opportunity include: - Strong player with good competitive position * Omitted and filed separately with the Commission. * 40 - One of the top two manufacturers in most of its market segments, with market shares ranging from 10%-30% - Limited number of scale competitors: Westpoint Stevens, Pillowtex (recently filed for bankruptcy), and Dan River - Other smaller players are less well positioned to meet needs of a consolidating retailer base - Strong retailer relationships - The company sells to the right retailers, and is well positioned within these retailers given its meaningful share of their home textile sales - The company is gaining share in its most attractive accounts due to its strategy of focusing on core accounts and pruning less profitable customers - Relatively stable end-user demand - Consumer demand does not vary significantly, with most of its core products growing at 4%-5% annually over the past five years - Long term fundamentals indicate continued growth in demand in line with historical levels - Continuing mix shift, as consumers trade up to higher quality products - Favorable demographic trends, with increase in number of people in prime home textile purchasing age groups - Increasing per capita demand due to higher average number of bedrooms and bathrooms in homes, and increase in average bed size - Significant, identifiable potential upside in operating cost performance - The company has historically produced relatively stable but low EBIT margins in the mid to high single digit range. This performance is meaningfully behind that of Westpoint Stevens and Dan River. (See Exhibit 1) - McKinsey's analysis indicates that the bulk of the performance differential is not driven by structural disadvantages, but rather by suboptimal plant utilization and efficiency (primarily in the production of grey fabrics) and inefficient purchasing practices. The company believes that the structural cost gap with Westpoint Stevens is approximately 2%. - Near term, these profit improvement opportunities are tactical in nature * * Omitted and filed separately with the Commission. 2 41 - Purchasing cost reductions through centralized purchasing management and supplier negotiations - Manufacturing cost reductions through many "blocking and tackling" opportunities - Some overhead and IT reductions - Longer term, there is the potential to create significant additional economic value through substantially reconfiguring the asset base and moving to outsource production, primarily in the grey fabric product area - Long, term, there is a clear opportunity to create value through acquisition - The company needs additional brands to increase penetration within its core accounts, and could roll out acquired brands and product lines to selected customers - The industry has a number of smaller niche players who are increasingly unable to meet the needs of mass merchandisers, and would be more valuable to a strategic acquiror than as independent companies - Relatively low purchase price -- we think that a transaction could be done at 4.5x LTM EBITDA, which is close to the low end of the historical trading range of 4-6x. Key Investment Risks and Considerations We believe that this investment has a relatively high risk profile due to company specific issues, the structural challenges inherent in this industry, the difficult near-term operating environment, and some significant longer-term strategic risks. A.) Company specific issues - The Company faces significant execution risk in the near and medium term - The identified profit improvement opportunities will require the company to move aggressively on cost reduction in the manufacturing area. To date, the company has captured some significant cost reduction in the area, but has also run into some meaningful problems in achieving forecasts, primarily in the towel manufacturing area. (See discussion below in "Financial Performance" section.) The company acknowledges that the key gap in the management team is leadership on the manufacturing and operations side of the business. Note: We do not at this point have a detailed understanding of all of the sources of profit improvement in 2001, due to the company's delay in revising their budget. Thus we are unable at this time to more accurately gauge the achievability of projected profit improvement initiatives. * * Omitted and filed separately with the Commission. 3 42 - The company requires a major near-term IT upgrade. The current systems are antiquated, high cost, and do not provide management with the full information needed to run the business. Management has not yet made a decision on the new IT platform, and is considering both an ERP implementation and a major overhaul of legacy systems. Management expects this upgrade to cost $70 - $90 million and take place over the next 2 1/2 years. - The company has significant customer concentration risk - As a result of its core account strategy, the percentages of sales and operating profits generated by its top 8 customers have grown to 60% and 77% respectively. Importantly, Wal-Mart is by far the largest single customer, accounting for 28% and * of sales and *. - The company appears to have some lack of visibility into near term financial performance, which makes it difficult for us to have confidence in the projections and which raises the issue of potential quarter-to-quarter volatility. (See "Financial Review" for a more in-depth discussion of this issue.) - The company's shortfall in Q3 and Q4 of 2000 illustrate the potential vulnerability of margins in the short term to factors outside the company's control - The delay in preparing the 2001 budget further illustrates the difficulty of getting a strong handle on near term performance - This lack of visibility implies that a conservative capital structure is required for the transaction B.) Industry structure issues - The US textiles industry is structurally challenging - This is a mature industry with excess manufacturing capacity - An increasingly concentrated retailer base wields significant power over the manufacturers, and captures much if not most of the consistent improvements in productivity - Unit prices decline on a fairly consistent basis, with effective annual unit price reductions in the 2% - 3% range. - Two of Snug's key competitors have significantly higher profit margins, and thus are positioned to win in pricing wars * * Omitted and filed separately with the Commission. 4 43 - There is a clear trend of increased competition from low cost imports, although this is both a threat and an opportunity for the company, in that they will increasingly outsource their own production to lower cost countries - Historically, Snug's product segments have been somewhat protected from import competition as they have relatively low labor content. However, imports have nonetheless grown consistently and now have penetration rates in the 20%-40% range across Snug's key product segments and are growing at approximately 10%-20% per year. Several countries -- particularly Pakistan -- have targeted the home textiles segment as a key source of economic growth, and have invested heavily in both basic grey fabric manufacturing capacity, as well as in higher value added finishing and fabrication capacity. - The regulatory environment is changing as quotas are phased out by the 2005 timeframe and will replaced by GATT regulation. This creates the threat of a significant increase in import penetration as trade barriers fall. There appears to be pent-up capacity waiting to enter the US market as quotas fall, given that quotas in Snug's primary product lines for the key home textile exporting countries are typically fully utilized. - Increasing access to low cost imports encourages retailers to go direct on product sourcing, and to by-pass the US producers. - Longer term, success in this industry will require the company to fundamentally shift its production model to increase outsourcing of product, shut domestic manufacturing capacity, and focus increasingly on developing "close to the customer" competencies, including customer account management, product design & development, distribution, and supply chain management. C. Difficult near term environment - The US home textiles industry faces a very difficult near-term environment - Soft revenue due to slowdown in consumer demand has hurt the top line and margins, and is expected to continue through at least the first half of 2000 - Retailers have become increasingly aggressive at squeezing profits out of the manufacturers, primarily by aggressively pursuing claims and returns - The sector faces a huge inventory build-up across the supply chain, with average inventory levels at 15 weeks at manufacturers and 11 weeks at retailers (all products), for an estimated total of 26 weeks across the industry. (This total is likely understated due to LIFO accounting and the slower moving nature of home textile products compared to other products at retailers.) An inventory correction could put significant near term pressure on margins due to plant stand-downs and price reductions. * * Omitted and filed separately with the Commission. 5 44 INVESTMENT THESIS Given the investment positives and risks, our decision to invest would be based on the following points: - The company can achieve significant improvement in near-term operating performance and returns on capital - Attractive returns on the transaction appear to be attainable, as they only require the company to perform at profit levels approaching those achieved by competitors - However, these required margins would be significantly in excess of what the company has done historically - These margins would need to be achieved in the face of continuing price reductions and cost pressures - The company can significantly reconfigure the manufacturing strategy and asset base over next three to five years. We believe that long term success in this business will require a combination of outsourced and owned manufacturing, due to the increasing penetration of low cost imports. - The company will need to outsource production of products in which they are not competitive (most importantly, grey fabric.) The company already sources approximately 20-25% of its total requirements in grey, and is focused on developing outsourcing relationships. - The existing manufacturing base will need to be rationalized, and in particular the company will need to close some high-cost grey fabric plants. - Fundamentally, the company needs to move from a manufacturing-focused firm to one which has as its core competencies product design, development & sourcing; customer relationship management; supply chain management and distribution. - This is the strategy set by the company as a result of McKinsey work over past two years, and the company is moving in this direction - Some companies in comparable industries have successfully made this shift, and have achieved strong financial performance as a result. (See the Sara Lee case study in Exhibit 2 as an example of a successful transformation.) - The company is appropriately capitalized to manage through potential near term volatility in financial performance * * Omitted and filed separately with the Commission. 6 45 - The capital structure and bank arrangements need to contemplate the potential near term volatility in financial results -- "Don't blow the bank covenants two quarters out of the box" - The company can manage through the anticipated difficult near term environment Management Team Crandall Bowles has significantly upgraded Snug's management team since taking helm as CEO in 1998. Key hires include a CFO, CIO, head of purchasing, and human resources. We have generally been impressed with management's knowledge of their business and their understanding of the operating and strategic issues facing their business. Our general sense is that they are headed in the right direction and have a realistic assessment of the challenges facing the company. Clearly, one major challenge for the new management team has been in implementing new management techniques and reports. For example, the budgeting and reporting system has been substantially revamped and is moving in the right direction, but still has a number of kinks which need to be worked out. As another example, the strategic planning process has been meaningfully upgraded, but still is not sufficiently linked to the budgeting process. There are still some critical management gaps and cultural challenges in driving improved performance. - The most important gap is on operations and manufacturing side. The company does not have the leadership in place to drive improved performance in the manufacturing operations, and more broadly in the supply chain management strategy of the company. The company is fully aware of this gap and intends to hire an outsider to join, possibly as COO. - Culturally, the company has historically been relatively unaggressive and slow moving (resulting in its relative operating profit performance versus competitors). - Snug has had relatively underleveraged balance sheet when compared to its competitors, and thus has not faced as much pressure to take costs out and improve the cash performance of the operations - Our sense is that management is relatively cautious in implementing change, although the team has made a number of hard decisions, e.g. plant closings II. REVIEW OF COMPANY FINANCIAL PERFORMANCE Review of 2000 Budget Snug developed its 2000 budget using a bottoms-up approach. For each of its products and cost centers, Snug was relatively aggressive in setting profit improvement goals. * Omitted and filed separately with the Commission. * 7 46 Due to the aggressive nature of the individual business forecasts, Snug included a $40 million contingency in its budget, which was not allocated to any specific products or cost centers. As shown in Exhibit 3, management used Snug's 1999 profit from operations (PFO) of $134 million as a baseline for its budget. In 2000, management expected profitability improvements equaling $28.8 million from revenue growth and improved account mix, $32.3 million from its manufacturing cost reduction initiatives and $26.5 million from its purchasing initiatives. This implied a budget of approximately $220 million prior to the $40 million contingency, and a $180 million including the contingency. 2000 Actual Performance vs. Budget Snug's actual PFO in 2000 was $145 million, or $35 million (19.4%) below the budgeted $180 million. As summarized in Exhibit 4, Snug was on-track to achieve its budgeted performance after the first two quarters, but was affected significantly during the retail slow-down in the second half. Snug's purchasing initiatives and some manufacturing initiatives were successful in 2000, but offsetting factors in other areas of the business prevented Snug from achieving its budget (see Exhibit 5). - Purchasing Initiatives: Snug achieved approximately $31.3 million of cost savings in 2000 due to purchasing initiatives, slightly more than what was budgeted. Excluding cotton, greige and natural gas costs, purchasing cost savings totaled $20.6 million in 2000 (versus $14.8 million budgeted). Most of this savings was the result of consolidated buying and leveraging information / buying power across the organization. As shown in Exhibit 6, the largest source of purchasing cost savings in 2000 was in Fabrication/Packaging/Other (threads, cartons, tape, etc.), where Snug consolidated suppliers from 35 to 3 and took advantaged of the depressed apparel industry and the Pillowtex situation to reduce purchase prices. Management expects these savings to hold going forward. Cotton and greige costs (which were at historic lows) contributed $15.3 million of total purchasing cost savings, and natural gas (which unexpectedly rose in price) offset $4.6 million of these savings. - Manufacturing Initiatives: Although management believes it was successful on approximately two-thirds of its manufacturing improvement projects during 2000, this resulted in only approximately $7.5 million of manufacturing cost savings due to three primary offsetting expenses: - Towels: Snug recently spent $65 million on modernizing its towel facilities, and management had budgeted an $11 million cost savings in 2000 as a result of this modernization. Snug believes it did not account for these projected savings accurately. Specifically, the modernizations increased Snug's towel capacity, but will not result in cost savings until this capacity is filled in 2001. As a result, the improved efficiency did not impact the 2000 results, and the towel operations remained at breakeven. However, Snug does not expect the towel operations to * Omitted and filed separately with the Commission. * 8 47 achieve desired profitability in 2001, either, and has not yet identified what needs to be done to allow efficiency improvements to flow through to the bottom line. -- Window Fashions: Snug lost an unanticipated $6 million in its window fashions segment, primarily due to contributions of blindmakers to retailers (machines that allow sales representatives to custom-cut blinds for customers) as well as recognition of sales tax on previously-contributed blindmakers (which the company is currently disputing with the IRS). -- Plant Standings: In an effort to reduce inventory levels in the second half of 2000, Snug stood down plants for approximately five weeks, for a total cost of approximately $4.0 million. - Sales Volume / Account Mix: Snug budgeted $28.8 million of improved profitability as the result of increased sales volume and improved account mix in 2000. However, due to the soft industry environment in the second half of the year, these profit improvements were not realized. Instead, three factors contributed to a combined $17.9 million deterioration of the core business profitability: -- Volume: As retailers focused on reducing inventory levels in the second half of 2000, the resulting impact on Snug's sales volume had a $10 million impact on its PFO. -- Claims: Retailers were also much more aggressive on claims in 2000 than had been expected. As shown in Exhibit 7, claims as a percentage of sales increased from *% in the third quarter of 1999 (when the 2000 budget was developed) to *% in 2000. Most of the increase in claims was due to operational claims (e.g., refunds because the UPC was on the wrong corner of a box), which increased by approximately $10 million for the core bed and bath segment and another $10 million for the hard windows segment compared to 1999. For all of 2000, claims were approximately $23 million over budget. -- Loss on Closeouts: Snug liquidates its closeout inventory (primarily leftover inventory from canceled programs) and off-quality inventory through the wholesale channel (both through its own outlets and through discount retailers such as T.J. Maxx). Prior to 1998, Snug was able to realize close to 80% of its cost on the sale of this closeout inventory. However, in 1999, the percentage realization declined to the high sixties (see Exhibit 8). As a result, Snug held back its closeout inventory in the fourth quarter of 1999, hoping wholesale pricing would improve. Pricing through the wholesale channel declined even further to 54% realization in 2000, and Snug lost $13.6 million more than anticipated. Management believes the softness in wholesale pricing is driven by the impact of low-cost imports in the channel, and that this low level of realization will continue. However, as Snug's manufacturing is realigned to optimize the levels of closeout and off-quality inventory, these expenses should be reduced somewhat. Financial Projections * Omitted and filed separately with the Commission. * 9 48 Snug is currently in the process of revising its 2001 budget to account for the recent industry downturn. We have not yet seen from management a detailed build-up to expected 2001 operating performance or revised projections beyond 2001. However, management has provided us with its most recent high-level estimates for 2001 performance. Based on its most recent estimates, management expects to generate profits from operations of $153 million in 2001 on gross sales of $2.5 billion. The impact of the revised 2001 projections on results going forward is unclear, and we have not been given guidance by Snug as to this impact, although they have initially indicated a target of $175 million in profit from operations for 2002. Management expects to complete its 2001 budget later this week and complete its detailed product and customer account forecasts by next week. As shown in the table below, the 2001 outlook has been revised on three different occasions since October:
Actual 2001E -------------- --------------------------------------------- Strategic October December January (In millions) 1999 2000 Plan Estimates Estimates Estimates ---- ---- --------- --------- --------- --------- Gross Sales * * * * * * Growth 3.2% 4.5% 4.0% 2.5% 1.5% PFO $ 136 $ 145 $ 177 $ 147 $ 151 $ 153 PFO as % of Gross Sales 5.7% 5.9% 6.7% 5.6% 5.9% 6.1%
The October estimates represent what was a high level first cut at estimating the impact of the slowing industry environment on revenue and PFO. In December, Snug reevaluated its 2001 projections and reduced revenue to * million from * million. This new figure assumed revenue growth of (3.5%), (1.5%), 10% and 12% in Q1, Q2, Q3 and Q4, respectively. Based on the revised December revenue projection, PFO would have been $132 million. However, Snug identified $19 million of additional cost savings to offset this decline, and estimated PFO of $151 million. In January, Snug again revised its 2001 estimates by slowing the growth assumptions in the second two quarters of the year. This new revenue figure, * million, implied an additional PFO shortfall of $16 million. However, Snug identified cost savings opportunities of $18 million to offset this shortfall. A large component of the total $37 million of newly discovered cost savings ($19 million in December plus $18 million in January) results from Snug's desire to reduce fixed costs by 2-3%. III. ANTICIPATED GOVERNANCE TERMS We have had an initial conversation on governance with the CEO and her outside advisor, and have a general sense of the arrangements although few specifics. The contemplated governance arrangements between the CEO and Heartland has an initial board composed of an equal number of family members and Heartland representatives, * * Omitted and filed separately with the Commission 10 49 with 3 seats each. Crandall would have the ability to break ties. If and when Crandall is replaced as CEO, the CEO would get a seat and effectively would be the tie-breaking vote. - Board approval is required for "standard operating items, including a budget" - Consensus is required for "major decisions, i.e. acquisitions/divestitures, changes in financial structure, etc." We do not know what sort of deadlock mechanism is currently contemplated. We anticipate we could get 1 of the 3 Heartland seats, but no specific negative control rights unique to *. Our read on the situation is that in the event of a dispute, we would be more likely to be aligned with management than with Heartland, due to our similar perspectives on the business priorities. IV. TRANSACTION STRUCTURE ------------------------- As contemplated, the proposed transaction would be done at an equity purchase price of $40 per Snug share. However, given that Snug's stock has recently risen and is currently trading at $33.19, we believe it would be difficult to complete a deal at this price and have therefore assumed a purchase price of $42 per share. (See historical share price graph in Exhibit 9 and stock price histogram in Exhibit 10.) The Close family (Crandall Close Bowles' family) owns approximately 40% of the economic interest in Snug and 75% of the voting stock. A $42 purchase price implies approximately a $460 million purchase price for the outstanding public stake (excluding rolled-over Close family shares). Heartland and * would invest approximately a combined $300 million in the transaction, and the remainder of the non-family public equity would be repurchased with new bank debt. A detailed sources and uses table is outlined below: Sources Uses ----------------------------- --------------------------------------- Roll-Over Equity $302 Equity Purchase Price $762 Heartland/* Equity 302 Refinance Existing Debt 370 Bank Debt 558 Transaction Expenses 30 --- -- $1,162 $1,162 The proposed structure would imply the following enterprise value and debt multiples: Enterprise Value $1,133 Net Debt $558 EV/LTM EBITDA 4.5x Net Debt/LTM EBITDA 2.2x V. PRELIMINARY FINANCIAL MODELS ------------------------------- Although we have not yet received management's revised projections, we have developed three financial cases to help provide a directional indication of returns. We * * Omitted and filed separately with the Commission. 11 50 have run our cases at a $42 share price, which we believe is more realistic than the $40 in management's models. + Management Base Case (Exhibit 11): Assumes management's prior revenue growth and annual margin improvement forecasts in 2003-2005, starting from the reduced 2001 base and using initial guidance of $175 million for 2002. Assuming no multiple expansion, this case indicates returns in the low- to mid-twenties. We believe that management's projections may be optimistic. + Management "Downside" Case (Exhibit 12): Assumes revenue growth and annual margin improvement forecasts in 2002-2005 based on the downside estimates provided by Snug's advisor, starting from the reduced 2001 base. Assuming no multiple expansion, this case indicates returns in the high teens. + Flat Margins Case (Exhibit 13): Provided for illustrative purposes only, this case assumes flat margins and 3% annual revenue growth, starting from the reduced 2001 base. Assuming no multiple expansion, this case indicates returns in the high single digits. VI. TIMING AND NEXT STEPS We have committed to Crandall that we will give her a response as to our interest level in pursuing this transaction early this week. We have explained that it is difficult for us to reach a conclusion on the transaction before they have finalized their view about the projected financial performance of the business and the sources of profit improvement. Thus we anticipate that we could gain some additional time before giving her our definitive response. However, we will still need to be very specific as to the open due diligence items and what level of proof is required to address these issues. ATTACHMENTS Exhibit 1: Summary Comparative Operating Statistics Exhibit 2: Sara Lee Case Study Exhibit 3: Snug 2000 Budgeted Profit from Operations Exhibit 4: Quarterly Performance vs. Budget Exhibit 5: Snug 2000 Actual Profit from Operations Exhibit 6: 2000 Purchasing Initiatives Exhibit 7: Consolidated Claims Experience Exhibit 8: Wholesale Trends Exhibit 9: 3-Year Stock Price History Exhibit 10: 3-Year Stock Price Histogram Exhibit 11: Preliminary LBO Model: Management Base Case Exhibit 12: Preliminary LBO Model: Management Downside Case Exhibit 13: Preliminary LBO Model: Flat Margins Case * 12 * Omitted and filed separately with the Commission. 51 Project Snug -------------------------------------------------------------------------------- Exhibit 1: Summary Comparative Operating Statistics ($ in millions unless noted)
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 LTM ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- Revenue Growth Springs Industries NA 10% 5% (2%) 1% 5% 2% 2% 8% (1%) 0% (2%) 2% NA Westpoint Stevens NA NA NA NA NA NA 0% 6% 3% (9%) 10% 7% 6% NA Dan River NA NA NA NA NA NA NA 17% 4% (1%) 26% 9% 22% NA EBITDA Growth Springs Industries NA 4% 5% (10%) (5%) 21% 4% 8% 3% (12%) 5% (10%) 23% NA Westpoint Stevens NA NA NA NA NA NA 7% 7% 4% 3% 12% 15% 8% NA Dan River NA NA NA NA NA NA NA 164% 37% (4%) 106% 14% 15% NA Gross Profit Margin Springs Industries 20% 19% 20% 19% 19% 20% 20% 20% 18% 18% 18% 18% 19% 20% Westpoint Stevens NA NA NA NA NA 18% 7% 7% 11% 24% 25% 26% 27% 27% Dan River NA NA NA NA NA NA 10% 14% 15% 15% 20% 20% 18% 19% EBITDA Margin Springs Industries 11% 10% 10% 9% 9% 10% 10% 11% 10% 9% 10% 9% 11% 12% Westpoint Stevens NA NA NA NA NA 14% 15% 15% 15% 17% 17% 18% 19% 18% Dan River NA NA NA NA NA NA 3% 7% 9% 9% 14% 15% 14% 15% EBIT Margin Springs Industries 7% 7% 6% 5% 4% 6% 6% 7% 6% 5% 6% 5% 6% 7% Westpoint Stevens NA NA NA NA NA 4% (6%) (6%) (1%) 12% 12% 14% 14% 14% Dan River NA NA NA NA NA NA (2%) 2% 4% 3% 8% 9% 7% 9% ROE Springs Industries NA 10% 12% (1%) 5% 8% 8% 11% 11% 12% 9% 5% 9% NA Westpoint Stevens NA NA NA NA NA NA (702%) 85% 31% (12%) (16%) (20%) (21%) NA Dan River NA NA NA NA NA NA NA 10% 0% 8% 11% 8% 6% NA Pre-Tax EBIT ROA Springs Industries NA 11% 11% 8% 6% 9% 10% 11% 9% 8% 9% 7% 9% NA Westpoint Stevens NA NA NA NA NA NA (5%) (6%) (1%) 15% 17% 18% 18% NA Dan River NA NA NA NA NA NA NA 2% 4% 4% 11% 8% 6% NA Pre-Tax EBIT ROIC Springs Industries NA 18% 15% 11% 9% 12% 13% 15% 14% 11% 13% 11% 13% NA Westpoint Stevens NA NA NA NA NA NA (7%) (10%) (2%) 27% 30% 30% 29% NA Dan River NA NA NA NA NA NA NA 3% 6% 5% 14% 10% 8% NA
- 1 - 52 PROJECT SNUG PRELIMINARY DRAFT -- CONFIDENTIAL -------------------------------------------------------------------------------- EXHIBIT 2: SARA LEE CASE STUDY OVERVIEW OF SARA LEE'S OUTSOURCING STRATEGY - In September 1997, Sara Lee announced plans for a "fundamental reshaping" of its operations that would "deverticalize" its structure by shedding manufacturing assets, outsourcing its production and focus on building its brand name. - Using Nike Inc. as a model, Sara Lee noted that the value added would be in the design and branding of the product. - In announcing the plan, Sara Lee stated that it was "imperative" for companies to focus on new products, managing brands and building market share, an area where it had been lacking. - Management noted that Pillsbury, for example, spent $88 million on its brand, more than 25 times what Sara Lee spent. - The actions sought to mollify investor dissatisfaction. Sara Lee's shares were selling at a 20% discount to the overall market. In addition, its multiples were lagging behind its peers and its sales growth had slowed. - The plan focused on a four-part restructuring: 1) Management planned to deverticalized operations by selling manufacturing operations and outsource its work to these firms. Sara Lee aimed to achieve $3 billion in surplus cash from this strategy 2) Sara Lee also sought to divest businesses that failed to meet its standards for returns on capital. These divestitures were expected to increase returns on invested capital (ROIC) from 16% to 20%. 3) Management targeted cost-cutting measures in an attempt to reduce SG&A expenses, which accounted for 29% of the sales base. 4) With $4 billion in proceeds from asset sales and outsourcing, management sought to repurchase outstanding shares. - With these initiatives, management targeted an EPS growth rate of 13% to 15%, compared to its historical growth of 6% for the five years prior. 53 PROJECT SNUG PRELIMINARY DRAFT -- CONFIDENTIAL ------------------------------------------------------------------------------- EXHIBIT 2: SARA LEE CASE STUDY (CONT'D.) IMPLEMENTATION - Within the first month, Sara Lee sold 9 yarn and textile facilities for $600 million and outlined plans to sell four more facilities for a total of $1.4 billion. By the following month, Sara Lee stock had gained over ten points for a 26% gain in its stock price to $52 per share, its 52-week high. - Within the following year, Sara Lee had shut 34% of its facilities earmarked for closure. It sold its Household and Body Care production units for $125 million and a meat products facility for $500 million. The Company announced its plan to sell its turkey meat facilities, sold three factories in Europe for $200 million and cut its tobacco unit for $1.08 billion. - By 1999, the company had closed or consolidated 78 facilities and signed 30 outsourcing arrangements. RESULTS - As a result, capital expenditures as a percent of sales dropped from 4.9% in 1993 to 2.4% in 1998, and 1.9% of sales in 1999. Furthermore, Sara Lee achieved almost $200 million in working capital savings. - Sara Lee also grew its EPS to $2.50 by 1998, on target with 13% earnings growth, despite foreign currency translation problems that plagued the company throughout the year. At the same time, the Company's EPS multiple expanded to over 25x forward estimates. - Sara Lee was also able to increase its dividend to $1.45 per share from $0.84 per share over three years, mainly as a result of over $3.0 billion in share repurchases. - The Company also witnessed a 60-basis point rise in EBIT margin to 9.7%, driven by operating leverage, a favorable product mix shift and higher hedging gains. - Furthermore, ROIC climbed from 16% to 17.5% in 1998, and 21.3% in 2000. - For the year following the announcement, Sara Lee's stock price rose as much as 47% to $64.00 per share. However, Sara Lee's stock had slumped in 1999, due in part to worries about listeria outbreaks. It has taken some time to recover, and has only recently reached levels seen in 1998. 54 PROJECT SNUG -------------------------------------------------------------------------------- EXHIBIT 3: SNUG 2000 BUDGETED PROFIT FROM OPERATIONS (PFO) [BAR GRAPH: PFO Contribution (mm) 1999 PFO $134.0 Growth & Acct. Mix $28.8 Manufacturing Efficiencies $32.3 Purchasing $26.5 General & Administrative -$3.0 2000 Budgeted PFO $218.6 (Pre-contingency) Contingency $38.6 2000 Budget $180.0] 55 PROJECT SNUG -------------------------------------------------------------------------------- EXHIBIT 4: QUARTERLY PERFORMANCE VS. BUDGET
Full Q1 Q2 Q3 Q4 Year -------------------------------------------------------------------- Budgeted PFO $37.0 $42.0 $48.1 $53.1 $180.2 Changes: Volume $ 4.4 ($0.9) ($4.3) ($9.2) ($10.0) Claims (8.3) (4.3) (6.3) (4.2) (23.1) Loss on Close-Outs/Seconds (1.5) (0.6) (2.7) (8.8) (13.6) Window Fashions Blindmaker 0.0 0.0 (1.7) (2.1) (3.6) Sales Tax 0.0 (2.2) 0.0 0.0 (2.2) USDA Cotton Rebate 2.2 1.5 1.3 1.2 6.2 AIP, Profit Sharing 0.0 4.7 3.0 6.8 14.5 Plant Standings 0.0 0.0 (0.8) (3.2) (4.0) All Other 6.2 1.7 (1.4) (6.7) 0.3 ----- ----- ------ ------ ------ Total Changes $ 3.0 ($0.1) ($12.9) ($25.7) ($35.7) Current Projections $40.0 $41.9 $35.2 $27.4 $144.5
56 PROJECT SNUG -------------------------------------------------------------------------------- EXHIBIT 5: SNUG 2000 ACTUAL PROFIT FROM OPERATIONS (PFO) [BAR GRAPH: 2000 PFO Contribution (mm) 1999 PFO $134.0 Expected Growth & Acct. Mix: Budget $ 28.8 Less: Volume -$ 10.0 Less: Claims -$ 23.1 Less: Loss of Closeouts -$ 13.6 ------ Actual -$ 17.9 Manufacturing Efficiencies: Budget $ 32.3 Less: Towels -$ 11.0 Less: Window Fashions -$ 6.0 Less: Plant Standings -$ 4.0 Less: Other -$ 3.8 ------ Actual $ 7.5 Purchasing: Budget $ 26.5 Additional Savings $ 3.8 ------ Actual $ 31.3 2000 Actual $145.0 2000 Budget (excl. Contingency) $180.0]
57 PROJECT SNUG -------------------------------------------------------------------------------- EXHIBIT 6: 2000 PURCHASING INITIATIVES
VARIANCE VS. BUDGET ------------------- COMMODITY ACTUAL BUDGET $ % -------------------------------------------------- ------------ --------- --------- --------- Fab/Packaging/Other $6,658 $2,980 $3,678 123.4% Utilities 4,731 4,000 731 18.3% Polyester (3,468) (3,869) 401 10.4% MRO/Supplies 3,227 2,827 400 14.1% Chemicals 2,265 2,875 (610) (21.2%) Yarn 1,754 1,999 (245) (12.3%) Backing/Coatings 1,455 360 1,095 304.2% Contract Labor 1,136 759 377 49.7% Dyes 997 600 397 66.2% Travel 954 1,200 (246) (20.5%) Cap/Constr/Other 938 1,063 (125) (11.8%) ------- ------- ------- ------ Subtotal (excl. Cotton, Greige & Natural Gas) $20,647 $14,794 $5,853 39.6% Cotton $11,710 $12,742 ($1,032) (8.1%) Greige 3,566 535 3,031 566.5% Natural Gas (4,592) 0 (4,592) NM ------- ------- ------- ------ Subtotal (Cotton, Greige & Natural Gas Only) $10,684 $13,277 (2,593) (19.5%) Total $31,331 $28,071 3,260 11.6%
58 EXHIBIT 7
CONSOLIDATED CLAIMS EXPERIENCE 1999 2000 --------------------------------------------- ----------------------------------------------- Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year --- --- --- --- ---- --- --- --- --- ---- Core B+B Net Sales 354 301 308 284 1247 345 315 326 316 1303 Windows/Other Net Sales 230 244 255 246 975 248 258 248 265 1018 Consolidated Net Sales 584 545 583 529 2221 593 573 574 581 2321 Returns * * * * * * * * * * % CB+B Net Sales * * * * * * * * * * Promotional * * * * * * * * * * % CB+B Net Sales * * * * * * * * * * Operational 5.3 4.3 6.5 3.0 19.1 7.3 9.3 6.5 6.5 29.6 % CB+B Net Sales 1.5% 1.4% 2.1% 1.1% 1.5% 2.1% 3.0% 2.0% 2.1% 2.3% Other 0.0 0.0 0.0 3.3 3.3 2.4 -2.5 0.0 0.0 -0.1 % CB+B Net Sales 0.0% 0.0% 0.0% 1.2% 0.3% 0.7% -0.8% 0.0% 0.0% 0.0% Total Core Bed + Bath Claims * * * * * * * * * * % CB+B Net Sales * * * * * * * * * * Budget 2000 * * * * * * * * * * Windows/Other Total Claims * * * * * * * * * * % Windows?Other N.S. * * * * * * * * * * Consolidated Claims * * * * * * * * * * % Total Net Sales * * * * * * * * * *
* Omitted and filed separately with the Commission. 59 Exhibit 8 --------- WHOLESALE TRENDS
Inventory Realization 1999 Sold Revenue Loss % ---- --------- ------- ------ --------- Quarter 1 * 12.5 * * Quarter 2 * 13.3 * * Quarter 3 * 13.1 * * Quarter 4 * (0.3) * * -------- ------- ------ ------ Total Year 1999 * 38.9 * * --------------- ======== ======= ====== ====== 2000 ---- Quarter 1 * 9.6 * * Quarter 2 * 13.0 * * Quarter 3 * 12.3 * * Quarter 4 * 12.6 * * -------- ------- ------ ------ Total Year 2000 * 47.6 * * =============== ======== ======= ====== ======
* Omitted and filed separately with the Commission. 60 PROJECT SNUG -------------------------------------------------------------------------------- EXHIBIT 9: 3-YEAR STOCK PRICE HISTORY [STOCK PRICE HISTORY LINE GRAPH: S&P 500 Composite (Indexed) Westpoint Stevens (Indexed) Snug Dan River (Indexed) Dates: 1/20/98 -- 11/20/00] 61 PROJECT SNUG -------------------------------------------------------------------------------- EXHIBIT 10: 3-YEAR STOCK PRICE HISTOGRAM [BAR GRAPH: Days Closing Price in Range Stock Price Range (Last 3 Years) < $25 17 $25 - $30 74 $30 - $35 154 $35 - $40 252 $40 - $45 124 $45 - $50 35 $50 - $55 28 > $55 74] 62 EXHIBIT 11 Project Snug Case Mgmt Base OVERVIEW Cap Struct: Base (Amounts in Millions) No Acquisitions
EQUITY PURCHASE PRICE Current Share Price (1/19/01) $33.19 Premium Paid 26.6% ------- Purchase Price Per Share $42.00 Share Outstanding 18.1 ------- Equity Purchase Price $762.2
PRO FORMA SHARE OWNERSHIP Shares Value -------- ------- Rolled-Over Close Family Shares 7.2 $301.7 * Shares 1.8 $75.4 Heartland Shares 5.4 226.2 ---- ------ Total Outside Investors 7.2 $301.7 Shares Repurchased with Debt 3.8 $158.9 Total Equity Purchase Price 18.1 $762.2
SOURCES Rate $ % -------- --------- --------- Revolver 9.0% 50.0 0.0% Senior Debt 9.0% 558.7 48.1% Subordinated Debt 12.0% 0.0 0.0% Roll-Over Equity 301.7 26.0% Investors' Equity 301.7 26.0% ----- ---- Total Sources $1,162.0 100.0% -------- ----- USES Equity Purchase Price $762.2 Refinance Existing Debt 373.0 Transaction Expenses 29.5 Prepayment Penalties 0.0 Existing Cash (2.7) --------- Total Uses $1,162.0 ---------
ACQUISITION MULTIPLES Multiples Amount Enterprise Transaction --------- ------ ---------- ----------- Purchase Price Revenue -------------- Equity Purchase Price $762.2 FYE 12/30/00 $2,278.1 0.5% 0.5% Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.5 0.5 ----- Enterprise Value $1,132.5 EBITDA Plus: Fees & Expenses 29.5 FYE 12/30/00 $254.0 4.5% 4.6% Transaction Value $1,162.0 FYE 12/31/01 255.8 4.4 4.5 -------- EBIT FYE 12/30/00 $145.0 7.8% 8.0% FYE 12/31/01 133.0 7.4 7.6
FINANCIAL SUMMARY Historical Fiscal Year Ending December 31, -------------------------------- ------------------------------------------------- 1998 PF 1999 PF 2000E PF 2001 2002 2003 2004 2005 ------- ------- -------- ------ ------ ------ ------ ------ Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,453.9 $2,610.2 $2,756.8 $2,915.9 Gross Profit 384.7 419.6 437.4 449.9 490.0 552.2 587.2 626.2 EBITDA 191.5 239.1 254.0 255.8 290.7 354.2 373.9 404.2 PFO 104.5 134.1 145.0 153.0 175.0 217.2 233.4 251.9 EBIT 104.5 137.8 145.0 139.5 158.8 198.0 213.5 231.3 Net Income 55.5 69.7 96.5 112.0 130.8 Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0 Interest Expense $50.3 $47.0 $42.7 $37.2 $26.8 $13.3 Revenue Growth 1.8% 2.6% 1.5% 6.1% 6.4% 5.6% 5.8% Gross Margin 17.6% 18.9% 19.2% 19.4% 20.0% 21.2% 21.3% 21.5% EBITDA Margin 8.8% 10.8% 11.1% 11.1% 11.8% 13.2% 13.6% 13.9% PFO Margin 4.8% 6.0% 6.4% 6.6% 7.1% 8.3% 8.5% 8.6% EBIT Margin 4.8% 6.2% 6.4% 6.0% 6.5% 7.6% 7.7% 7.9% CREDIT RATIOS EBITDA/Interest 4.8% 5.1% 5.4% 6.8% 9.1% 14.0% 30.5% (EBITDA-CapEx)/Int. 1.4 3.1 2.4 2.9 5.5 9.3 21.1 Net Debt/EBITDA 2.3 2.2 1.9 1.6 1.1 0.6 0.2 Total Debt/EBITDA 2.3 2.2 1.9 1.6 1.1 0.6 0.2 % of Debt Remaining 100.0% 87.0% 82.7% 65.3% 41.2% 11.6% FINANCIAL MEASURES Asset Turns 1.40% 1.46% 1.51% 1.58% 1.68% Days Sales in Inventory (COGS) 90.6 88.5 86.3 84.9 83.7 PRE-TAX EDIT ROIC 11.6% 13.0% 15.9% 17.4% 19.3%
FINANCIAL RETURNS Trailing EBITDA Exit Multiple ------------------------------------------------------------------- PRIVATE SALE IN 2005 3.5% 4.0% 4.5% 5.0% 5.5% ------ ------ ------ ------ ------ * 16.8% 20.1% 23.0% 25.6% 28.1% Gain to Management $37.3 $47.4 $57.5 $67.6 $77.7 PRIVATE SALE IN 2003 * 11.3% 18.2% 24.3% 29.9% 35.1% Gain to Management $12.0 $20.6 $29.3 $37.9 $46.5
% OWNERSHIP Capital Primary F.D. Amount ------- ------ ------- * 12.5% 11.9% $75.4 Heartland 37.5% 35.6% 226.2 Close Family 50.0% 47.5% 301.7 Management 0.0% 5.0% 0.0 ----- ----- ------ Total 100.0% 100.0% $603.3
* Omitted and filed separately with the Commission. 63 EXHIBIT 12 Case: Mgmt Downside Project Snug Cap Struct: Base Overview No Acquisitions (Amounts in millions) Equity Purchase Price Current Share Price (1/19/01) $33.19 Premium Paid 26.6% Purchase Price Per Share $42.00 Shares Outstanding 18.1 Equity Purchase Price $762.2
Pro Forma Share Ownership Shares Value ------ ----- Rolled Over Close Family Shares 7.2 $301.7 * Shares 1.8 575.4 Heartland Shares 5.4 226.2 ------ ----- Total Outside Investors 7.2 $301.7 Shares Repurchased with Debt 3.8 $158.9 Total Equity Purchase Price 18.1 $762.2
Sources Rate $ % ----- -------- ------ Revolves 9.0% 50.0 0.0% Senior Debt 9.0% 558.7 48.1% Subordinated Debt 12.0% 0.0 0.0% Roll-Over Equity 301.7 26.0% Investors' Equity 301.7 26.0% -------- ------ Total Sources $1,162.0 100.0% -------- ------ Uses Equity Purchase Price 762.2 Refinance Existing Debt 373.0 Transaction Expenses 29.5 Prepayment Penalties 0.0 Existing Cash (2.7) -------- Total Uses $1,162.0
Acquisition Multiples Multiples Amount Enterprise Transaction ------------ -------- ---------- ----------- Purchase Price Revenue Equity Purchase Price $ 762.2 FYE 12/30/00 $2,276.1 0.5x 0.5x Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.5 0.5 Enterprise Value $1,832.5 EBITDA Plus: Fees & Expenses 29.5 FYE 12/30/01 $ 254.0 4.5x 4.6x -------- Transaction Value $1,162.0 FYE 12/31/01 259.2 4.4 4.5 -------- EBIT FYE 12/30/00 $ 145.0 7.8x 8.0x FYE 12/31/01 153.0 7.4 7.0
Financial Summary Historical Fiscal Year Ending December 31, ---------------------------- ------------------------------------------------ 1998 PF 1999PF 2000E PF 2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- -------- -------- -------- Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,398.0 $2,496.7 $2,565.6 $2,641.4 Gross Profit 384.7 419.6 0.0 449.9 474.1 505.4 521.4 $39.9 EBITDA 191.5 239.1 254.0 259.2 284.6 314.6 334.7 355.6 PPO 104.5 134.1 145.0 153.0 166.3 184.9 192.2 200.9 EBIT 104.5 137.8 145.0 143.0 152.8 167.4 374.3 182.7 Net Income 55.9 62.6 73.9 83.2 95.0 Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0 Interest Expense $50.3 $49.8 $48.5 $44.2 $35.7 $24.3 Revenue Growth 1.8% 2.6% 1.5% 3.7% 4.1% 2.8% 3.0% Gross Margin 17.6% 18.9% 0.0% 19.4% 19.8% 20.2% 20.3% 20.4% EBITDA Margin 8.8% 10.8% 11.1% 11.2% 15.9% 12.6% 13.0% 13.5% PFO Margin 4.8% 6.0% 6.4% 6.6% 6.9% 7.4% 7.5% 7.6% EBIT Margin 4.8% 6.2% 6.4% 6.2% 6.4% 6.7% 6.8% 6.9% Credit Ratios: EBITDA/Interest 4.8x 5.1x 5.2x 5.9x 7.1x 9.4x 14.6x (EBITDA-CapEx) mgmt 1.4 3.1 2.3 2.4 4.0 5.9 9.5 Net Debt/EBITDA 2.3 2.2 2.1 1.9 1.4 1.0 0.6 Total Debt/EBITDA 2.3 2.2 2.1 1.9 1.4 1.0 0.6 &% of Debt Remaining 100.0% 98.2% 94.6% 81.2% 60.7% 36.8% Financial Resources Asset Turns 1.40x 1.43x 1.46x 1.50x 1.57x Days Sales in Inventory (COOS) 91.2 89.7 88.1 86.9 85.6 Pre-Tax EBIT ROIC 11.5% 11.5% 12.9% 13.6% 14.6%
Financial Returns Trailing EBITDA Exit Multiple ---------------------------------------------- Private Sale in 2005 3.5x 4.0x 4.5x 5.0x 5.5x ----- ----- ----- ----- ----- * 11.1% 14.5% 17.6% 20.4% 23.0% Gain to Management $22.0 $30.9 $39.8 $48.0 $57.5 Private Sale in 2001 * 2.3% 9.6% 16.1% 21.9% 27.2% Gain to Management $2.2 $10.1 $17.9 $25.8 $33.7
% Ownership Capital Primary P.D. Amount ------ ------ ------ * 12.5% 11.9% $25.4 Heartland 37.5% 35.6% 226.2 Close Family 50.0% 47.5% 301.7 Management 0.0% 5.0% 0.0 ------ ------ ------ Total 100.0% 100.0% $603.7
* Omitted and filed separately with the Commission. 64 PROJECT SNUG EXHIBIT 13 Case: Flat Margins OVERVIEW Cap Street: Base (AMOUNTS IN MILLIONS) No Acquisitions
EQUITY PURCHASE PRICE Current Share Price (1/19/01) $33.19 Premium Paid 26.6% ------ Purchase Price Per Share $42.00 Shares Outstanding 18.1 ------ Equity Purchase Price $762.2
PRO FORMA SHARE OWNERSHIP SHARES VALUE ------ ------ Rolled-Over Close Family Shares 7.2 $301.7 * Shares 1.8 $75.4 Heartland Shares 5.4 226.2 ------ ------ Total Outside Investors 7.2 $301.7 Shares Repurchased with Debt 3.8 $158.9 Total Equity Purchase Price 18.1 $762.2
SOURCES Rate $ % ----- ------- ---- Revolver 9.0% $0.0 0.0% Senior Debt 9.0% 558.7 48.1% Subordinated Debt 12.0% 0.0 0.0% Roll-Over Equity 301.7 26.0% Investors' Equity 301.7 26.0% -------- ----- Total Sources $1,162.0 100.0% ======== ===== USES Equity Purchase Price $762.2 Refinance Existing Debt 373.0 Transaction Expenses 29.5 Prepaying Penalties 0.0 Existing Cash (2.7) -------- Total Uses $1,162.0 ========
ACQUISITION MULTIPLES MULTIPLES AMOUNT ENTERPRISE TRANSACTION --------- -------- ---------- ----------- PURCHASE PRICE REVENUE Equity Purchase Price $762.2 FYE 12/30/00 $2,264.3 0.5x 0.5x Plus: Net Debt 370.3 FYE 12/31/01 2,299.2 0.5 0.5 -------- EBITDA Enterprise Value $1,132.5 FYE 12/30/00 $254.0 4.5x 4.6x Plus: Fees & Expenses 29.5 FYE 12/31/01 263.6 4.3 4.4 Transaction Value $1,162.0 EBIT -------- FYE 12/30/00 $145.0 7.8x 8.0x FYE 12/31/01 153.0 7.4 7.6
FINANCIAL SUMMARY HISTORICAL FISCAL YEAR ENDING DECEMBER 31, ---------------------------- ------------------------------------------------ 1998 PF 1999 PF 2000E PF 2001 2002 2003 2004 2005 Revenue $2,180.5 $2,220.5 $2,264.3 $2,299.2 $2,368.1 $2,439.2 $2,512.4 $2,587.7 Gross Profit 384.7 419.6 434.7 441.4 454.7 468.3 482.4 496.8 EBITDA 191.5 239.1 254.0 263.6 271.4 279.4 287.7 296.2 PFO 104.5 134.1 145.0 153.0 157.6 162.3 167.2 172.2 EBIT 104.5 137.8 145.0 153.0 157.6 162.3 167.2 172.2 Net Income 62.2 65.6 69.4 74.8 83.2 Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0 Interest Expense $50.3 $49.3 $48.3 $46.7 $42.5 $36.9 Revenue Growth 1.8% 2.0% 1.5% 3.0% 3.0% 3.0% 3.0% Gross Margin 17.6% 18.9% 19.2% 19.2% 19.2% 19.2% 19.2% 19.2% EBITDA Margin 8.8% 10.8% 11.2% 11.5% 11.5% 11.5% 11.5% 11.4% PFO Margin 4.8% 6.0% 6.4% 6.7% 6.7% 6.7% 6.7% 6.1% EBIT Margin 4.8% 6.2% 6.4% 6.7% 6.7% 6.7% 6.7% 6.1% CREDIT RATIOS EBITDA/Interest 4.8x 5.1x 5.4x 3.6x 6.0x 6.8x 8.0x (EBITDA-CapEx)/int. 1.4 3.1 2.4 2.1 3.0 3.8 4.6 Net Debt/EBITDA 2.3 2.2 2.0 2.0 1.8 1.5 1.3 Total Debt/EBITDA 2.3 2.2 2.0 2.0 1.8 1.5 1.3 % of Debt Remaining 100.0% 95.9% 96.0% 89.7% 79.4% 67.4% FINANCIAL MEASURES Asset Turns 1.37x 1.36x 1.35x 1.36x 1.38x Days Sales in Inventory (COGS) 101.0 101.0 101.0 101.0 101.0 Pre-Tax EBIT ROIC 12.4% 12.3% 12.1% 12.3% 12.5%
FINANCIAL RETURNS Trailing EBITDA Exit Multiple ------------------------------------------------ PRIVATE SALE IN 2005 3.5x 4.0x 4.5x 5.0x 5.5x --------- -------- --------- --------- --------- * 1.7% 5.7% 9.2% 12.3% 15.1% Gain to Management $2.8 $10.2 $17.6 $25.0 $32.4 PRIVATE SALE IN 2001 * (7.6%) 0.7% 7.4% 13.5% 18.9% Gain to Management $0.0 $0.6 $7.6 $14.6 $21.6
% OWNERSHIP CAPITAL PRIMARY F.D. AMOUNT ------- ----- ------- * 12.5% 12.9% 573.4 Heartland 37.5% 35.6% 226.2 Close Family 50.0% 47.5% 301.7 Management 0.0% 5.0% 0.0 ----- ----- ----- Total 100.0% 100.0% $601.3
* Omitted and filed separately with the Commission. 65 PROJECT SNUG SHARE PRICE AND LEVERAGE SENSITIVITY ANALYSIS RETURNS IN 2005 (ASSUMING EXIT MULTIPLE OF 4.5x 2005 EBITDA) ACQUISITION PRICE PER SHARE FINANCIAL CAPITAL ------------------------------------------------------- CASE STRUCTURE * * * * * * ---------------------------------------------------------------------------------------------------- Base Capital Structure Mgmt Base Base 28.9% 27.3% 25.8% 24.3% 23.0% 21.7% Mgmt Mid Base 26.9% 25.3% 23.9% 22.4% 21.1% 19.8% Mgmt Downside Base 24.8% 23.2% 21.7% 20.3% 19.0% 17.7% 2.75x Leverage Capital Structure Mgmt Base 2.75x Leverage 36.7% 33.7% 31.0% 28.6% 26.4% 24.4% Mgmt Mid 2.75x Leverage 34.3% 31.3% 28.7% 26.3% 24.2% 22.2% Mgmt Downside 2.75x Leverage 31.6% 28.7% 26.1% 23.8% 21.7% 19.8% 3x Leverage Capital Structure Mgmt Base 3x Leverage 41.4% 37.6% 34.2% 31.3% 28.7% 26.4% Mgmt Mid 3x Leverage 38.8% 35.0% 31.8% 28.9% 26.4% 24.0% Mgmt Downside 3x Leverage 35.8% 32.1% 28.9% 26.1% 23.7% 21.4%
* Omitted and filed separately with the Commission. 66
Project Snug Care: Mgmt Mid Overview Cap Stock: 2.75x Leverage -------- No Acquisitions (Amounts in millions) EQUITY PURCHASE PRICE Current Share Price (1/19/01) $33.19 Premium Paid 8.5% Purchase Price Per Share $36.00 Shares Outstanding 18.0 Equity Purchase Price $648.3
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PRO FORMA SHARE OWNERSHIP Shares Value ---------- ---------- Rolled-Over Close Family Shares 7.2 $258.6 Outside Investors Shares 2.5 591.0 Other Equity Shares 0.0 0.0 --- --- Total Outside Investors 2.5 591.0 Shares Repurchased with Debt 8.3 $298.7 Total Equity Purchase Price 10.0 $648.3
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SOURCES Rate $ % ---------- ---------- --------- Revolver 9.0% $0.0 0.0% Senior Debt 9.0% $71.5 54.5% Subordinated Debt 13.0% 127.0 12.1% Roll-Over Equity 258.6 24.7% Investors' Equity 91.0 8.7% ---- ----- Total Sources $1,048.1 100.0% -------- ------ USES Equity Purchase Price $648.3 Refinance Existing Debt 373.0 Transaction Expenses 29.5 Prepayment Penalties 0.0 Existing Cash (2.7) -------- Total Uses $1,068.1
------------------------------------------------------------------------------- ACQUISITION MULTIPLES Multiples Amount Enterprise Transaction --------- ------ ---------- ----------- Purchase Price Revenue -------------- Equity Purchase Price $643.3 FYE 12/30/00 $2,278.2 0.4x 0.5x Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.4 0.5 ----- Enterprise Value $1,018.5 EBITDA Plus: Fees & Expenses 29.5 FYE 12/30/00 $254.0 4.0x 4.0x ---- Transaction Value $1,048.1 FYE 12/31/01 257.5 4.0 4.1 -------- EBIT FYE 12/30/00 $145.0 7.0x 7.2x FYE 12/31/01 $153.0 6.7 6.9
----------------------------------------------------------------------------------------------------------------------------------- Financial Summary Historical Fiscal Year Ending December 31, -------------------------------------------------- ----------------------------------------------- 1998 PF 1999PF 2000EPF 2001 2002 2003 2004 2005 --------- --------- ---------- --------- -------- -------- -------- -------- Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,426.0 $2,553.1 $2,660.0 $2,776.1 Gross Profit 384.7 419.6 437.4 444.1 477.0 523.2 548.1 576.0 EBITDA 191.5 239.1 254.0 257.5 288.6 330.6 354.8 380.1 -------- -------- -------- -------- -------- -------- -------- -------- PPO 104.5 134.1 145.0 153.0 171.0 201.8 213.3 226.6 EBIT 104.5 137.8 145.0 141.2 150.8 183.5 194.4 207.3 Net Income 45.3 36.6 73.1 86.8 101.4 Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0 567.9 365.8 362.5 538.4 549.8 538.3 Revenue Growth 1.6% 2.6% 1.5% 4.9% 5.2% 4.2% 4.0% Gross Margin 17.6% 18.9% 19.2% 19.2% 19.7% 20.5% 20.6% 20.7% EBITDA Margin 8.8% 10.8% 11.1% 11.1% 13.9% 13.0% 13.3% 13.7% PPO Margin 4.8% 6.0% 6.4% 6.6% 7.1% 7.9% 8.0% 8.2% EBIT Margin 4.8% 6.2% 6.4% 6.3% 6.5% 7.2% 7.3% 7.5% Credit Ratios ------------- EBITDA/Interest 3.5x 3.7x 3.9x 4.6x 5.7x 7.1x 9.9x (EBITDA-CapEx) Mgmt 1.1 2.3 1.7 1.9 3.3 4.6 6.7 Net Debt/EBITDA 2.9 2.8 2.5 2.2 1.7 1.2 0.8 Total Debt/EBITDA 2.9 2.8 2.5 2.2 1.7 1.2 0.8 % of Debt Remaining 100.0% 91.4% 89.4% 78.4% 62.0% 41.8% Financial Measures ------------------ Asset Terms 1.40x 1.45x 1.49x 8.54x 1.62x Days Sales in Inventory (COGS) 90.9 89.1 87.2 85.9 84.6 Pre-Tax EBIT RONC 11.7% 12.8% 14.8% 15.9% 17.4%
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Financial Returns Trailing EBITDA Exit Multiple ----------------------------------------------- Private Sale in 2005 3.5x 4.0x 4.5x 3.0x 3.5x -------------------- ----------------------------------------------- Outside Investors 23.5% 27.6% 31.3% 34.6% 37.6% Gain to Management $34.4 $43.9 $53.4 $62.9 $72.4 Private Sale in 2003 -------------------- Outside Investors 19.5% 29.2% 37.6% 45.0% 51.9% Gain to Management $13.0 $21.3 $29.5 $37.8 $46.1
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% Ownership Capital Primary F.D. Amount --------------- ------- ---------- Outside Investors 26.0% 24.7% $91.0 Other Equity 0.0% 0.0% 0.0 Close Family 74.0% 70.3% 258.6 Management 0.0% 5.0% 0.0 ----- ----- --- Total 100.0% 100.0% $349.6
------------------------------------------------------------------------------- 67 Project Snug Case: Mgmt Mid Overview Cap Struck: 3x Leverage (Amounts in millions) No Acquisitions
Equity Purchase Price Current Share Price (1/19/01) $33.19 Premium Paid 8.5% ------ Purchase Price Per Share $36.00 Shares Outstanding 18.0 ------ Equity Purchase Price $648.3
Pro Forma Share Ownership Shares Value ------ ----- Rolled-Over Close Family Shares 7.2 $258.6 Outside Investors Shares 0.8 527.5 Other Equity Shares 0.0 0.0 ------ ------ Total Outside Investors 0.8 527.5 Shares Repurchased with Debt 10.1 $362.2 Total Equity Purchase Price 18.0 $648.3
Sources Rate $ % ---- ------- ------- Revolves 9.0% $0.0 0.0% Senior Debt 9.0% 635.0 60.6% Subordinated Debt 13.0% 127.0 12.1% Roll-Over Equity 258.6 24.7% Investors' Equity 27.5 2.6% -------- ------ Total Sources $1,048.1 100.0% -------- ------ Uses Equity Purchase Price $ 648.3 Refinance Existing Debt 373.0 Transaction Expenses 29.5 Prepayment Penalties 0.0 Existing Cash (2.7) -------- Total Uses $1,048.1 --------
Acquisition Multiples Multiples Amount Enterprise Transaction --------- ------ ---------- ----------- Purchase Price Revenue Equity Purchase Price $ 648.3 FYE 12/30/00 $2,278.1 0.4x 0.5x Plus: Net Debt 370.3 FYE 12/31/01 2,313.2 0.4 0.5 -------- Enterprise Value $1,018.5 EBITDA Plus: Fees & Expenses 29.5 FYE 12/30/00 $ 254.0 4.0x 4.1x -------- Transaction Value $1,048.1 FYE 12/31/01 257.5 4.0 4.1 -------- EBIT FYE 12/30/00 $ 145.0 7.0x 7.2x FYE 12/31/01 153.0 6.7 6.9
Financial Summary Historical Fiscal Year Ending December 31, ---------------------------------- ---------------------------------------------------- 1998 PF 1999 PF 2000E PF 2001 2002 2003 2004 2005 ------- ------- -------- -------- -------- -------- -------- -------- Revenue $2,180.5 $2,220.5 $2,278.1 $2,313.2 $2,426.0 $2,553.1 $2,660.0 $2,776.1 Gross Profit 384.7 419.6 437.4 444.1 477.0 523.2 548.1 576.0 EBITDA 191.5 239.1 254.0 257.5 288.6 330.6 354.8 380.1 PFO 104.5 134.1 145.0 153.0 171.6 201.8 213.3 226.6 EBIT 104.5 137.8 145.0 141.2 156.8 183.5 194.4 207.3 Net Income 41.8 52.9 71.1 82.7 97.0 Cap Ex 120.5 166.8 100.0 144.0 168.0 139.0 125.0 125.0 Interest Expense $73.7 $71.6 $68.7 $64.9 $56.7 $45.6 Revenue Growth 1.8% 2.6% 1.5% 4.9% 5.2% 4.2% 4.4% Gross Margin 17.6% 18.9% 19.2% 19.2% 19.7% 20.5% 20.6% 20.7% EBITDA Margin 8.8% 10.8% 11.1% 11.1% 11.9% 13.0% 13.3% 13.7% PFO Margin 4.8% 6.0% 6.4% 6.6% 7.1% 7.9% 8.0% 8.2% EBIT Margin 4.8% 6.2% 6.4% 6.1% 6.5% 7.2% 7.3% 7.5% Credit Ratios ------------- EBITDA/Interest 3.2x 3.4x 3.6x 4.2x 5.1x 6.3x 8.3x (EBITDA-CapEx)/Int. 1.0 2.1 1.6 1.8 3.0 4.1 5.6 Net Debt/EBITDA 3.2 3.0 2.7 2.4 1.9 1.4 1.0 Total Debt/EBITDA 3.2 3.0 2.7 2.4 1.9 1.4 1.0 % of Debt Remaining 100.0% 92.6% 91.3% 81.7% 67.2% 49.3% Financial Measures ------------------ Asset Turns 1.40x 1.45x 1.49x 1.54x 1.62x Days Sales in Inventory (COGS) 90.9 89.1 87.2 85.9 84.6 Pre-Tax EDIT ROIC 11.7% 12.8% 14.8% 15.9% 17.4%
Financial Returns Trailing EBITDA Exit Multiple ------------------------------------------------- Private Sale in 2005 3.5x 4.0x 4.5x 5.0x 5.5x -------- -------- -------- -------- -------- Outside Investors 26.4% 31.0% 35.0% 38.6% 41.9% Gain to Management $33.4 $43.0 $52.5 $62.0 $71.5 Private Sale in 2003 Outside Investors 22.2% 33.4% 43.0% 51.4% 39.0% Gain to Management $12.4 $20.7 $29.0 $37.2 $45.5
% Ownership Capital Primary F.D. Amount ------- -------- ------- Outside Investors 9.6% 9.1% $ 27.5 Other Equity 0.0% 0.0% 0.0 Close Family 90.4% 85.9% 258.6 Management 0.0% 5.0% 0.0 ------ ------ ------ Total 100.0% 100.0% $286.1