-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H7Qmk/xQFr8xQ0lIPmGFqQEEOVupCBjMeHetLDc9+uOKcd05xHpLaHhqC/AEZD4+ V/nGYLrN53IOP4YIdABJXg== 0000950144-99-003901.txt : 19990403 0000950144-99-003901.hdr.sgml : 19990403 ACCESSION NUMBER: 0000950144-99-003901 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPRINGS INDUSTRIES INC CENTRAL INDEX KEY: 0000093102 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 570252730 STATE OF INCORPORATION: SC FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05315 FILM NUMBER: 99584339 BUSINESS ADDRESS: STREET 1: 205 N WHITE ST CITY: FORT MILL STATE: SC ZIP: 29715 BUSINESS PHONE: 8035471500 MAIL ADDRESS: STREET 1: 205 NORTH WHITE STREET CITY: FORT MILL STATE: SC ZIP: 29715 FORMER COMPANY: FORMER CONFORMED NAME: SPRINGS MILLS INC DATE OF NAME CHANGE: 19820517 10-K 1 SPRINGS INDUSTRIES, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 2, 1999 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-5315 SPRINGS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) SOUTH CAROLINA 57-0252730 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 205 NORTH WHITE STREET 29715 FORT MILL, SOUTH CAROLINA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (803) 547-1500 Securities registered pursuant to Section 12(b) of the Act Name of each exchange Title of each class on which registered ------------------------------------ ----------------------- Class A Common Stock; $.25 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act None ================================================================================ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes [x] No [ ] ================================================================================ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) ================================================================================ Aggregate market value of Springs Industries, Inc. Common Stock, excluding treasury shares, held by nonaffiliates as of March 26, 1999, was $308,828,204. ================================================================================ As of March 26, 1999, there were 10,636,334 shares of Class A Common Stock and 7,196,864 shares of Class B Common Stock of Springs Industries, Inc. outstanding. ================================================================================ DOCUMENTS INCORPORATED BY REFERENCE ================================================================================ Specified Portions of Annual Report to Security Holders for Fiscal Year Ended January 2, 1999 (Parts I & II) ================================================================================ Specified Portions of Proxy Statement to Security Holders dated March 3, 1999 (Parts III & IV) - -------------------------------------------------------------------------------- 2 --------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC -------------------------------------------- FORM 10-K ANNUAL REPORT ----------------------- SPRINGS INDUSTRIES, INC. ------------------------ * * * * * * TABLE OF CONTENTS TO FORM 10-K ------------------------------ PART I ITEM 1. BUSINESS 2. PROPERTIES 3. LEGAL PROCEEDINGS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 6. SELECTED FINANCIAL DATA 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS 2 3 PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11. EXECUTIVE COMPENSATION 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K SIGNATURES EXHIBIT INDEX 3 4 -------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC -------------------------------------------- FORM 10-K ANNUAL REPORT SPRINGS INDUSTRIES, INC. PART I ITEM 1. BUSINESS Springs Industries, Inc., a corporation organized under the laws of the State of South Carolina, began its operations in 1888. Springs' principal executive offices are located at 205 North White Street, Fort Mill, South Carolina 29715 (telephone number: 803/547-1500). The term "Springs" or "the Company" as used herein means Springs Industries, Inc., and its subsidiaries unless clearly indicated otherwise. The Company's operations are engaged principally, and, in recent years, increasingly, in the manufacturing, marketing and sale of packaged textile and nontextile home furnishing products, the business of its home furnishings segment. The balance of the Company's operations are engaged in the manufacturing and marketing of printed and dyed fabrics sold to retail stores and manufacturers, the business of its specialty fabrics segment. The operations of these segments are conducted by various divisions and subsidiaries. Through both internal development and acquisitions of complementary businesses, Springs has emerged as one of the most significant manufacturers and marketers of home furnishings in the United States. Among the factors contributing to Springs' industry position are its highly automated manufacturing facilities, its well-known brands, and its commitment to offer a wide array of home furnishings in coordinating fashions and designs. 4 5 Home furnishings is the larger segment of Springs' business, with sales of $1.866 billion in 1998 and operating income (before interest and taxes) of $69.7 million. Before unusual items, this segment's operating income was $84.4 million. (For details on the unusual items, see footnote 4 on page 13 of the Company's Annual Report to Shareowners (the "Annual Report") under the caption "Reportable Segment Information," which is incorporated by reference.) The home furnishings segment manufactures, purchases for resale and markets home furnishing products, including sheets, pillowcases, bedspreads, comforters, infant and toddler bedding, towels, shower curtains, bath and accent rugs, other bath fashion accessories, drapery hardware and hard and soft decorative window fashions. Springs' home furnishing products are sold primarily through its own sales force to retailers and are varied in design, styling and color to appeal to a broad spectrum of consumers. The Company's retail customers include department stores, specialty stores, national chains, mass merchandisers, and catalog operations. Springs also sells bath products through independent sales representatives to retail customers, bed and bath products through distributors to institutional customers and directly to consumers through its 55 company-owned outlet stores, and decorative window products directly to large-scale contractors and to distributor/fabricators. The Company has a wholly-owned Canadian subsidiary (Springs Canada, Inc.) that markets and distributes bedding and bath products in that country. The majority of the bedding products sold in Canada is purchased by the Company from a Canadian manufacturer. Springs Canada enables the Company to better serve Canadian home furnishing retailers and their customers. During the second quarter of 1996, the Company adopted a plan to consolidate and realign its fabric manufacturing operations. In connection with this plan, the Company closed three fabric manufacturing plants, added production in other plants, and increased outside purchases of grey fabric. This consolidation and realignment primarily affected the home furnishings segment. On January 5, 1999, Springs acquired the remaining 50% interest in American Fiber Industries, LLC ("AFI"), a manufacturer and distributor of bed pillows, mattress pads, down comforters and comforter accessories. Springs acquired its original 50 percent interest in February 1997. The cost of the remaining equity interest totaled approximately $15 million. Effective January 23, 1999, the Company purchased the stock of Regal Rugs, Inc. ("Regal") from Readicut International plc. Regal manufactures bath and accent rugs for sale to department and specialty stores, national chain stores, mass merchandisers, and catalogs. The purchase price for Regal was approximately $30 million, subject to possible adjustments for asset valuation and incremental tax liabilities of the seller. Both of these acquisitions reflect Springs' continuing strategic emphasis on increasing sales through acquisitions that complement the Company's extensive line of home furnishings. 5 6 For additional details of the home furnishings segment transactions described above, see pages 29 through 33 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition," which is incorporated by reference. Springs' specialty fabrics segment manufactures, finishes, purchases for resale and markets a wide variety of fabrics and, in 1998, generated sales of $314.4 million and operating income of $3.0 million. This segment's operating income before unusual items was $20.1 million. (For details on the unusual items, see footnote 4 on page 13 of the Annual Report under the caption "Reportable Segment Information," which is incorporated herein by reference.) The specialty fabrics segment produces and markets printed and dyed fabrics sold to retail stores and manufacturers. The segment sells its products primarily through its own sales force. Sales are also made through distributors and agents. Prior to the divestitures described below, this segment also produced and marketed finished fabrics to apparel manufacturers, as well as protective, fire-retardant and other fabrics for industrial and furniture and other applications. During the past three years, Springs has sold four specialty fabrics businesses and a significant specialty fabrics manufacturing facility. More specifically: - - In April 1996, the Company sold its Clark-Schwebel, Inc., subsidiary for $193 million in cash. Through the date of divestiture, Clark-Schwebel, Inc., had 1996 sales of $68.9 million and operating earnings before interest and taxes of $11.3 million. - - On August 7, 1998, the Company sold its UltraSuede business and related assets of its UltraFabrics Division. The Company has retained the rest of the UltraFabrics Division, which remains part of the Company's specialty fabrics segment. - - On September 25, 1998, Springs sold its Rock Hill Printing & Finishing Plant, a facility which had been closed earlier in the year and which had operated within the Company's specialty fabrics segment. - - Effective December 19, 1998, the Company sold its Industrial Products Division to an investor group for principally $18.5 million in cash and other consideration in the form of notes receivable and a preferred equity interest in the buyer. - - Effective January 2, 1999, Springs sold its apparel fabrics business, the Springfield Division, for a $10 million preferred equity interest in the buyer and cash of $33 million. For additional details of the specialty fabrics segment transactions described above, see "Management's Discussion and Analysis of Operations and Financial Condition," which is incorporated by reference from pages 29 through 33 of the Annual Report. 6 7 Home furnishing products, consisting primarily of textile bedding products, textile and non-textile bath products, and window fashions, represented 85.6%, 85.2%, and 81.4% of consolidated revenues for each of 1998, 1997, and 1996, respectively. Specialty fabric products, consisting primarily of apparel fabric, over-the-counter home-sewing fabric, and high performance fabric, represented 14.4%, 14.8%, and 18.6% of consolidated revenues for each of 1998, 1997, and 1996, respectively. Raw materials used by the Company include principally cotton, polyester fiber and purchased woven fabric. The Company also purchases other natural and manmade fibers, finished knitted and non-woven fabrics, dyes and chemicals, aluminum, plastic, wood, and steel. Such raw materials are generally readily available; and the Company is not dependent on any one supplier as a source for raw materials. Any shortage in the supply of cotton by reason of weather, disease or other factors, or significant increases in the price of cotton or polyester, however, could adversely affect the Company's results of operations. The Company considers its trademarks to be materially important to its business. The trademarks are protected, in part, through United States and foreign trademark registrations. The home furnishings segment sells bed and bath products under the Wamsutta(R), Springmaid(R), Performance(TM), and Dundee(R) brands, and decorative window products under the Graber(R), Bali(R), Nanik(R), FashionPleat(R), Maestro(TM) and CrystalPleat(R) brands. This segment also uses the Wabasso(R) and Texmade(R) brands on bed products sold in Canada. The home furnishings segment also uses certain licensed designs and trademarks which may be considered to be of material importance to this segment. These include a license agreement with each of Bill Blass, Ltd., and Liz Claiborne, Inc., and multiple license agreements with The Walt Disney Company. The Bill Blass license agreement has automatic renewal provisions if certain sales thresholds are met; the Liz Claiborne license agreement expires December 31, 1999, subject to certain renewal rights; and the Walt Disney license agreements expire at various future dates from 1999 to 2001. Home furnishing products are also sold under private brand names of certain customers. The specialty fabrics segment uses the Springmaid(R), Wamsutta(R), and UltraLeather(TM) brands on home-sewing and other specialty fabrics. In 1998, the Company's requirements for cash to finance working capital were provided from operations, asset sales, business divestitures and long-term borrowings. Management expects that cash generated by operations, cash received from the sale of the Springfield Division, cash on hand at the end of 1998, and borrowings from committed bank lines and commercial paper will adequately provide 7 8 for the Company's cash needs during 1999. Trade receivables are generally collected in 60 days or less. The home furnishings segment's top ten customers represent approximately 55% of the segment's sales; however, the segment's total customer base is very large. While the Company has no reason to believe that the segment will lose the business of any of its largest customers, the loss of one or more of the largest accounts (or a material portion of any thereof) could have a material adverse effect upon the Company's business. Sales in the specialty fabrics segment are more dispersed, with its top ten customers accounting for approximately 38% of the segment's sales. In 1998, consolidated sales to Wal-Mart Stores, Inc. were approximately 15% of Springs' total sales; no other single customer accounted for ten percent or more of Springs' total sales. The Company's unfilled order position at January 2, 1999, amounted to approximately $177 million. The unfilled order position at January 3, 1998, was approximately $166 million. The markets in which the principal products of the Company are sold are highly competitive as to price, quality, customer service and product design. The Company believes that it competes effectively in both segments with respect to these factors. In certain product categories competition is concentrated among several large domestic companies while in other product categories competition is much more dispersed among both large and small companies. Springs is involved in certain administrative proceedings governed by environmental laws and regulations, including proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act. The potential costs to the Company related to all of these environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution and cleanup costs; the complexity and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs and effectiveness of alternative cleanup technologies; the determination of the Company's liability in proportion to other potentially responsible parties; and the extent, if any, to which such costs are recoverable from insurers or other parties. The Company estimates the range of possible losses for such matters to be between $8 million and $13 million, and has accrued an undiscounted liability of approximately $12 million, which represents management's best estimate of Springs' probable liability concerning all known environmental matters. Management believes the $12 million will be paid out over the next 10 years. This accrual has not been reduced by any potential insurance recovery to which the Company may be entitled regarding environmental matters. 8 9 Approximately 17,500 associates were employed by Springs and its subsidiaries at the end of 1998. Of these associates, approximately 16,230 were employed in the home furnishings segment, approximately 720 in the specialty fabrics segment, and approximately 550 in corporate administrative and shared services functions. International sales of home furnishing and specialty fabrics are made through Springs' divisions and its subsidiaries. Sales outside of the United States accounted for approximately 6.9% of total sales in 1998, 6.7% in 1997, and 6.4% in 1996. The bulk of Springs' sales outside of the United States is made in Canada by the home furnishings segment. During each of the last three years, less than 5% of the Company's assets have been located outside of the United States. Financial information for the home furnishings and specialty fabrics segments is incorporated by reference from page 13 of the Company's Annual Report under the caption "Reportable Segment Information." ITEM 2. PROPERTIES The Company owns its Executive Office Building and an additional office building in Fort Mill, South Carolina, as well as the 21-story Springs Building at 104 West 40th Street, New York City, New York. The Springs Building contains sales showrooms for the home furnishings segment's bed and bath fashions and baby products businesses. The Springs Building also serves as the sales headquarters for the home furnishings segment's baby products business and the specialty fabrics segment's UltraFabrics Division. A substantial part of the Springs Building is leased to other businesses. The Company has put the Springs Building up for sale with plans to lease back space it currently occupies. The Company leases offices in Charlotte, North Carolina, which are used by its bed and bath fashions businesses. These businesses and other divisions lease additional space in other cities for administration and sales offices, manufacturing facilities, outlet stores and distribution centers. The Company also owns an administrative center and a major warehouse facility, both located near Lancaster, South Carolina. The administrative center houses customer service operations, computer and data processing operations and accounting offices. The warehouse facility serves as a warehouse and distribution center for a significant portion of the Company's home furnishing products. Springs currently has thirty-seven manufacturing plants. Fourteen plants are grey fabric manufacturing plants; two are dyeing, printing and finishing plants; ten are fabricating plants; seven plants perform both dyeing, printing, finishing and fabricating operations; and four plants manufacture decorative window products. Of 9 10 these plants, fourteen are in South Carolina, eleven in Georgia, two in each of North Carolina, Alabama, and Wisconsin, and one in each of California, Indiana, Mississippi, Pennsylvania, Tennessee, and Nevada. The home furnishings segment uses thirty-four of these plants and shares another three plants with the specialty fabrics segment. The plants are owned by Springs and are unencumbered, except for four which are subject to mortgages and four which are leased either through industrial revenue bond financing or through other lease arrangements. Springs considers all plants to be well maintained and generally in good operating condition. ITEM 3. LEGAL PROCEEDINGS Information required by this Item is incorporated by reference from the Notes to Consolidated Financial Statements, Note 12. - Other Matters, found on page 26 of the Annual Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None reportable. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to Instruction #3 to Paragraph (b) of Item 401 of Regulation S-K, the following information is provided on the Company's Executive Officers.
Position and Business Name Age Experience - ---- --- --------------------- Crandall C. Bowles 51 Chairman of the Board, President and Chief Executive Officer (April 1998 to present). President and Chief Executive Officer (January 1998 to April 1998). President and Chief Operating Officer (January 1997 to January 1998). Executive Vice President (April 1992 to January 1997). President - Bath Fashions Group (May 1995 to January 1997). President - Textile Manufacturing Group (March 1993 to May 1995). Director (1978 to present).
10 11 Gracie P. Coleman 47 Senior Vice President - Human Resources (February 1999 to present). Vice President - Marketing and Corporate Support for Government Solutions, Lucent Technologies (1997 to February 1999). Human Resources Vice President, Lucent Technologies (1996 to 1997). Human Resources Vice President - Strategic Partners Network Systems, AT&T (1995 to 1996). Human Resources Director of Network Systems, AT&T (1993 to 1995). C. Powers Dorsett 54 Senior Vice President - General Counsel and Secretary (February 1996 to present). Vice President - General Counsel and Secretary (February 1990 to January 1996). William K. Easley 55 Senior Vice President (February 1996 to present). President - Textile Manufacturing (May 1995 to present). President - Performance Home Fashions Division, Home Furnishings Group (October 1993 - May 1995). Senior Vice President - Bed and Bath Group (August 1992 - October 1993). Samuel J. Ilardo 43 Vice President and Treasurer (April 1998 to present). Treasurer (May 1995 to April 1998). Assistant Treasurer (March 1994 to April 1995). Tax Director (November 1992 to February 1994). Stephen P. Kelbley 56 Executive Vice President (September 1991 to present). President - Home Furnishings Operating Group (February 1998 to present). President - Diversified Home Products Group (January 1997 to February 1998). President - Diversified Products Group (May 1995 to January 1997). President - Specialty Fabrics Group (March 1994 to April 1995). Chief Financial Officer (September 1991 to March 1994).
11 12 Charles M. Metzler 46 Vice President - Controller (February 1996 to present). Controller - Springs Canada, Inc. (September 1992 to January 1996). Robert W. Moser 60 Executive Vice President (July 1989 to present). President - Fabrics Group (January 1997 to present). President - Bath Manufacturing (May 1995 to January 1997). President - Specialty Fabrics Group (March 1993 to March 1994). President - Finished Fabrics Group and Windows (September 1991 to March 1993). Thomas P. O'Connor 53 Executive Vice President (August 1992 to present). President - Sales and Marketing Group (February 1998 to present). President - Bed Fashions Group (May 1995 to February 1998). President - Home Fashions Group (March 1993 to April 1995). Elizabeth M. Turner 38 Vice President - Public Affairs (March 1999 to present). Director of Public Relations (September 1997 to February 1999); Director - Corporate Affairs for Coca-Cola Bottling Company Consolidated (September 1996 to August 1997). Manager - Corporate Affairs for Coca-Cola Bottling Company Consolidated (October 1990 to August 1996). James F. Zahrn 48 Executive Vice President and Chief Financial Officer (April 1997 to present). Senior Vice President and Chief Financial Officer (March 1995 to April 1997). Vice President - Finance and Treasurer (March 1994 to March 1995). Vice President and Treasurer (May 1993 to March 1994).
12 13 Crandall Close Bowles, Chairman, President and Chief Executive Officer, and a director of the Company, and Leroy S. Close, a director of the Company, are siblings. There are no other family relationships within the director and executive officer group. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Class A Common Stock of Springs is traded on the New York Stock Exchange. As of March 26, 1999, there were approximately 2,621 holders of record of Class A Common Stock, and approximately 74 holders of Class B Common Stock. No established trading market exists for Class B Common Stock. Class B Common Stock may, however, at the election of the holder, be exchanged on a one-for-one basis at any time for Class A Common Stock. Information required by this Item on the sales prices and dividends of the Common Stock of Springs is incorporated by reference from page 36 of the Annual Report under the caption "Quarterly Financial Data (Unaudited)." ITEM 6. SELECTED FINANCIAL DATA Information required by this Item is incorporated by reference from pages 34 and 35 of the Annual Report under the caption "Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations required by this Item is incorporated by reference from pages 29 through 33 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition." 13 14 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS Information required by this Item is incorporated by reference from pages 32 and 33 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition - Market Risk Sensitive Instruments and Positions." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements, including the report of independent certified public accountants, and supplementary data required by this Item are incorporated by reference from the Annual Report. See Item 14 for a list of financial statements and the pages of the Annual Report from which they are incorporated. Supplementary data is incorporated by reference from page 36 of the Annual Report under the caption "Quarterly Financial Data (Unaudited)." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except for one director who is retiring from the Board pursuant to the Company's retirement policy for directors, information about directors required by this Item is incorporated by reference from pages 2 through 4 of the Company's Proxy Statement to Security Holders dated March 3, 1999 (the "Proxy Statement") under the captions "Directors, Nominees, and Election of Directors" and "Information Regarding the Board of Directors." Information about the director who is retiring is provided below. The information on Executive Officers is provided at the end of Part I of this Form 10-K under the caption "Executive Officers of the Registrant." DONALD S. PERKINS, AGE 71, FORMER CHAIRMAN OF JEWEL COMPANIES, INC. A director of the Company since October 1995, Mr. Perkins previously served as a director of the Company from 1984 to January 1995. He was Chairman of Kmart Corporation from January 1995 to June 1995. Mr. Perkins is also a director of Aon Corporation, Cummins Engine Company, Inc., LaSalle Hotel Properties, LaSalle Street Fund, LaSalle U.S. Realty Income & Growth Fund, Lucent Technologies Inc., Nanophase Technologies Corporation, Neodesic Corporation, Parson Group LLC, The Putnam Funds, and Ryerson Tull, Inc. 14 15 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Information required by this Item on the late Section 16 filings by Company directors and officers is incorporated by reference from page 23 of the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is incorporated by reference from pages 5 through 14 of the Proxy Statement under the captions "Executive Officer Compensation and Related Information," "Management Compensation and Organization Committee Report," "Compensation Committee Interlocks and Insider Participation," "Employment and Retirement Agreements" and "Performance Graph." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this Item is incorporated by reference from pages 21 and 22 of the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this Item is incorporated by reference from page 23 of the Proxy Statement under the caption "Transactions With Certain Persons." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. The following financial statements and independent auditors' report are incorporated by reference from the Annual Report as a part of this Report: 15 16 (i) Consolidated Statement of Operations for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996 (Annual Report page 14). (ii) Consolidated Balance Sheet as of January 2, 1999, and January 3, 1998 (Annual Report page 15). (iii) Consolidated Statement of Shareowners' Equity as of January 2, 1999, January 3, 1998, and December 28, 1996 (Annual Report page 16) (iv) Consolidated Statement of Cash Flows for the fiscal years ended January 2, 1999, January 3, 1998, and December 28, 1996 (Annual Report page 17). (v) Notes to Consolidated Financial Statements (Annual Report pages 18 through 26). (vi) Independent Auditors' Report (Annual Report page 27). 2. Financial statement schedules are not shown here because, under applicable rules, they are not required, are inapplicable, or the information required is included in the Financial Statements or in the Notes thereto. 3. Exhibits required to be listed by Item 601 of Regulation S-K are listed (and, where applicable, attached) in the Exhibit Index attached hereto, which is incorporated herein by this reference. (b) Reports on Form 8-K: On October 9, 1998, the Company filed a Form 8-K with the Securities and Exchange Commission concerning the Company's sale of its Rock Hill Printing & Finishing Plant on September 25, 1998. The report also described the Company's adoption of a plan to modernize its Griffin, Georgia, towel weaving and yarn operations. No financial statements were included with the report. The matters discussed or incorporated by reference in this Form 10-K contain forward-looking statements that are based on management's expectations, estimates, projections, and assumptions. Words such as "expects," "anticipates," "plans," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements which include but are not 16 17 limited to projections of expenditures, cash flows, and operating performance. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guaranties of future performance and involve certain risks and uncertainties which are difficult to predict. Actual future results and trends, therefore, may differ materially from what is forecast in forward-looking statements due to a variety of factors, including: the ability of the Company and its suppliers and customers to bring their information systems into compliance with the "Year 2000 Computer Problem"; the health of the retail economy in general, competitive conditions, and demand for the Company's products; progress toward the Company's cost-reduction goals; unanticipated natural disasters; legal proceedings; labor matters; and the availability and price of raw materials which could be affected by weather, disease, energy costs, or other factors. [SIGNATURES ON NEXT PAGE] 17 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Springs Industries, Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SPRINGS INDUSTRIES, INC. By: /s/James F. Zahrn ---------------------------------- James F. Zahrn Executive Vice President and Chief Financial Officer Date: March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/John F. Akers By: /s/Crandall C. Bowles -------------------------------- -------------------------------------- John F. Akers, Director Crandall C. Bowles, Chairman, Date: March 30, 1999 President & Chief Executive Officer and Director (Principal Executive Officer) Date: March 30, 1999 By: /s/John L. Clendenin By: /s/Leroy S. Close -------------------------------- -------------------------------------- John L. Clendenin, Director Leroy S. Close, Director Date: March 30, 1999 Date: March 30, 1999 By: /s/Charles W. Coker By: /s/John H. McArthur -------------------------------- -------------------------------------- Charles W. Coker, Director John H. McArthur, Director Date: March 30, 1999 Date: March 30, 1999
18 19 By: /s/Aldo Papone By: /s/Donald S. Perkins -------------------------------- -------------------------------------- Aldo Papone, Director Donald S. Perkins, Director Date: March 30, 1999 Date: March 30, 1999 By: /s/Robin B. Smith By: /s/Sherwood H. Smith, Jr. -------------------------------- -------------------------------------- Robin B. Smith, Director Sherwood H. Smith, Jr., Director Date: March 30, 1999 Date: March 30, 1999 By: /s/Stewart Turley -------------------------------- Stewart Turley, Director Date: March 30, 1999 By: /s/James F. Zahrn By: /s/Charles M. Metzler -------------------------------- -------------------------------------- James F. Zahrn Charles M. Metzler, Executive Vice President and Vice President-Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) Date: March 30, 1999 Date: March 30, 1999
19 20 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC -------------------------------------- EXHIBITS * * * * * * * * * * * * * * * * * * * * * * 20 21 EXHIBIT INDEX Item (2) (a) Agreement and Plan of Merger dated February 6, 1995, as amended on March 7, 1995, among Springs Industries, Inc., Dundee Acquisition Corp., and Dundee Mills, Incorporated, incorporated by reference from Form 8-K filed June 12, 1995. (b) Agreement and Plan of Merger among Springs Industries, Inc., Fort Mill A Inc., Vestar/CS Holding Company, L.L.C., and Clark-S Acquisition Corporation dated as of February 24, 1996, together with a list identifying the schedules and exhibits to the Agreement, incorporated by reference from Form 10-K filed March 21, 1996. (3) (a) Springs' Restated Articles of Incorporation, amended and restated as of April 18, 1994, incorporated by reference from Form 10-Q filed August 15, 1994. (b) Springs' Bylaws, amended as of December 12, 1996, incorporated by reference from Form 10-K filed March 27, 1998. (4) $225,000,000 Credit Agreement dated December 17, 1997, among Springs Industries, Inc., Wachovia Bank, N.A., Bank of America NT & SA, SunTrust Bank, Atlanta, The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi, Ltd., Mellon Bank, N.A., and The Fuji Bank, Limited, Atlanta Agency, incorporated by reference from Form 10-K filed March 27, 1998. Note: No other long-term debt instrument issued by the Company exceeds 10% of the consolidated total assets of the Company and its subsidiaries. In accordance with paragraph 4(iii) of Item 601 of Regulation S-K, the Company will furnish to the Commission upon request copies of long-term debt instruments and related agreements. 21 22 (10) Material Contracts - Executive Compensation Plans and Arrangements (a) Springs' Deferred Unit Stock Plan, amended and restated effective February 22, 1990, incorporated by reference from Form 10-K, filed March 26, 1990. Amendment effective December 10, 1990, incorporated by reference from Form 10-K, filed March 25, 1991. Amendment effective August 16, 1990, incorporated by reference from Form 10-Q, filed November 12, 1991. Amendment effective as of November 1, 1996, incorporated by reference from Form 10-K filed March 28, 1997. (b) Springs' Restricted Stock Plan, incorporated by reference from Form 10-K, filed March 19, 1982. Amendment dated August 19, 1983, incorporated by reference from Form 10-K filed March 16, 1984. (c) Springs' Deferred Compensation Plan, as amended and restated on August 18, 1994, incorporated by reference from Form 10-Q filed November 14, 1994. (d) Springs' Senior Executive Supplemental Retirement Plan, incorporated by reference from Form 10-K, filed March 19, 1982. Amendment dated February 26, 1987, incorporated by reference from Form 10-K, filed March 27, 1987. Amendment dated June 20, 1991, incorporated by reference from Form 10-K filed March 25, 1992. (e) Springs' Shadow Retirement Plan, incorporated by reference from Form 10-K, filed March 19, 1982. Amendment adopted October 18, 1990, incorporated by reference from Form 10-K filed March 25, 1991. 22 23 (f) Springs' Deferred Compensation Plan for Outside Directors, as amended and restated on August 18, 1994, incorporated by reference from Form 10-Q, filed November 14, 1994. Amendments adopted as of October 29, 1995, and as of November 1, 1996, incorporated by reference from Form 10-K filed March 28, 1997. (g) Springs' Outside Directors COLI Deferred Compensation Plan adopted December 12, 1985, incorporated by reference from Form 10-K filed March 14, 1986. (h) Springs' Senior Management COLI Deferred Compensation Plan adopted December 12, 1985, incorporated by reference from Form 10-K filed March 14, 1986. (i) Springs' 1991 Incentive Stock Plan, as approved by shareholders on April 15, 1991, incorporated by reference from the Company's Proxy Statement to Shareholders dated February 27, 1991, under the caption "Exhibit A" on pages A-1 through A-12 of such Proxy Statement. Amendments approved by shareholders on April 29, 1996, incorporated by reference from Form 10-Q filed May 14, 1996. Amendments as of November 1, 1996, incorporated by reference from Form 10-K filed March 28, 1997. (j) Springs' 1999 Incentive Stock Plan, as approved by the Board of Directors on February 11, 1999, and subject to shareholder approval, incorporated by reference from the Company's Proxy Statement to Shareholders dated March 3, 1999, under the caption "Exhibit B" on pages B-1 through B-13 of such Proxy Statement. 23 24 (k) Springs' 1991 Restricted Stock Plan for Outside Directors, as approved by the Company's shareholders on April 15, 1991, incorporated by reference from the Company's Proxy Statement to Shareholders dated February 27, 1991, under the caption "Exhibit B" on pages B-1 through B-4 of such Proxy Statement. (l) Springs' Amended and Restated Achievement Incentive Plan, as approved by the Board of Directors on April 13, 1992, incorporated by reference from Form 10-Q filed May 11, 1992. Amendment approved by the Board of Directors on February 18, 1993, incorporated by reference from Form 10-K filed March 31, 1993. Amendment approved by the Board of Directors on February 12, 1998. (m) Springs' Contingent Compensation Plan adopted by the Board of Directors on June 20, 1991, incorporated by reference from Form 10-Q filed November 12, 1991. (n) Springs' Excess Benefits Plan adopted by the Board of Directors on August 18, 1994, and amended and restated effective March 1, 1996, incorporated by reference from Form 10-K filed March 28, 1997. (o) Form of stock option agreement used in conjunction with option grants under the 1991 Incentive Stock Plan from December 1991 to February 1995, incorporated by reference from Form 10-K filed March 27, 1998. (p) Form of stock option agreement used in conjunction with option grants under the 1991 Incentive Stock Plan from October 1995 to 1997, incorporated by reference from Form 10-K filed March 27, 1998. 24 25 (q) Form of agreement used in conjunction with grants of performance units under the 1991 Incentive Stock Plan, incorporated by reference from Form 10-K filed March 27, 1998. (r) Financial Planning Policy for certain executives of the Company, incorporated by reference from Form 10-K filed March 27, 1998. (13) Pages 13 through 36 of the 1998 Annual Report to Shareholders, which have been expressly incorporated by reference. (21) List of Subsidiaries of Springs. (23) Consent of expert for Form S-8 Registration Statement for 1991 Incentive Stock Plan and 1991 Restricted Stock Plan for Outside Directors. (27) Financial Data Schedule (for SEC purposes) 25 26 AMENDMENT TO ACHIEVEMENT INCENTIVE PLAN The Springs Industries, Inc. Achievement Incentive Plan is amended effective January 4, 1998, as follows: 1. By adding the following new definitions under Article II of the Plan: The "ROAE" for the Corporate Unit shall mean the total of the Operating Profits of the Divisions for the Plan Year divided by the total of the Divisions' amount of Actual Assets Employed. "ROAE Improvement Factor" of the Corporate Unit shall mean (i) the amount of Actual Assets Employed by all Divisions for the Plan Year multiplied by (ii) the increase, if any, in the ROAE for the Corporate Unit for the Plan Year over the ROAE for the Corporate Unit for the immediately preceding Plan Year. 2. By adding the following new paragraph C. of Article V of the Plan: C. The Financial Performance Target for the Corporate Unit shall mean 15% of the ROAE for the Corporate Unit. 3. By deleting paragraph A.2. of Article VI and substituting the following new paragraph: The Award Pool factor for the Corporate Unit shall be based on the percentage of achievement of the Corporation of its Financial Performance Target, as set forth in Appendix B to the Plan, subject to a maximum of 150%; provided, however, that the Award Pool Factor shall be "0" if the percentage of achievement is less than 25%. 4. By deleting paragraph C of Article VI and substituting the following: The Award Pool for the Corporate Unit shall equal the sum of the following, subject to a maximum Award Pool equal to 200% of the Corporate Target Award Pool: (1) the Corporate Award Pool Factor times the Corporate Target Award Pool; plus (2) 4% of the Corporate ROAE Improvement Factor, if any; (3) the amounts allocated back to the Corporate Unit pursuant to Section VII.B. s/Robert W. Moser ----------------------------- Executive Vice President Date: February 1999 26 EX-13 2 1998 ANNUAL REPORT TO SHAREHOLDERS 1 Reportable Segment Information(1) Springs Industries, Inc.
(In millions) 1998 1997 (2) 1996 Trade sales: Home furnishings $1,866.1 $1,896.2 $1,808.5 Specialty fabrics 314.4 329.9 412.5 - ---------------------------------------------------------------------------------------------- Total $2,180.5 $2,226.1 $2,221.0 ============================================================================================== Profit from operations before unusual items:(3) Home furnishings $ 84.4 $ 123.2 $ 85.3 Specialty fabrics 20.1 5.8 28.5 - ---------------------------------------------------------------------------------------------- Total 104.5 129.0 113.8 - ---------------------------------------------------------------------------------------------- Unusual items(4) 31.8 13.9 33.9 Interest expense 25.0 18.6 22.1 Other (income), net (11.1) (6.4) (46.7) - ---------------------------------------------------------------------------------------------- Income before income taxes and extraordinary item $ 58.8 $ 102.9 $ 104.5 ============================================================================================== Total assets at year end: Home furnishings $1,258.3 $1,248.6 $1,204.8 Specialty fabrics 128.9 160.3 163.0 Cash and cash equivalents 48.1 0.4 30.7 - ---------------------------------------------------------------------------------------------- Total $1,435.3 $1,409.3 $1,398.5 ============================================================================================== Capital expenditures: Home furnishings $ 115.5 $ 92.1 $ 66.3 Specialty fabrics 5.0 7.2 8.8 - ---------------------------------------------------------------------------------------------- Total $ 120.5 $ 99.3 $ 75.1 ============================================================================================== Depreciation and amortization: Home furnishings $ 80.0 $ 75.5 $ 76.9 Specialty fabrics 7.0 9.1 12.5 - ---------------------------------------------------------------------------------------------- Total $ 87.0 $ 84.6 $ 89.4 ==============================================================================================
(1) This schedule provides consolidated financial information for the Company's two reportable segments, but not financial information for the segments as separate entities. See the notes to the consolidated financial statements for further comments. (2) Fiscal year 1997 included 53 weeks, whereas fiscal years 1998 and 1996 included 52 weeks. (3) Profit from operations before unusual items represents sales less cost of goods sold, selling, general and administrative expenses, and provision for uncollectible receivables. (4) Unusual items in 1998 include restructuring and realignment expenses, Year 2000 expenses and an impairment charge, of which $14.7 million was charged to the home furnishings segment and $17.1 million to the specialty fabrics segment. In 1997, unusual items represent realignment expenses and Year 2000 expenses, of which $12.6 million was charged to the home furnishings segment and $1.3 million to the specialty fabrics segment. Unusual items in 1996 consist of restructuring and realignment expenses, of which $33.3 million was charged to the home furnishings segment and $0.6 million to the specialty fabrics segment. 13 2 Consolidated Statement Of Operations Springs Industries, Inc. (In thousands except per share data) For the Fiscal Years Ended January 2, 1999, January 3, 1998 (53 weeks), and December 28, 1996
1998 1997 1996 OPERATIONS Net sales $2,180,497 $2,226,075 $2,220,976 Cost and expenses: Cost of goods sold 1,795,757 1,820,131 1,830,249 Selling, general and administrative expenses 263,806 266,194 264,974 Provision for uncollectible receivables 16,401 10,747 12,001 Restructuring and realignment expenses 19,948 11,137 33,926 Impairment charge 4,783 -- -- Year 2000 expenses 7,067 2,751 -- Interest expense 25,069 18,583 22,064 Other income (16,588) (9,814) (58,128) Other expense 5,475 3,409 11,371 - ------------------------------------------------------------------------------------------------------ Total 2,121,718 2,123,138 2,116,457 - ------------------------------------------------------------------------------------------------------ Income before income taxes and extraordinary item 58,779 102,937 104,519 Income tax provision 21,450 33,972 16,086 - ------------------------------------------------------------------------------------------------------ Income before extraordinary item 37,329 68,965 88,433 Extraordinary item: Loss on extinguishment of debt, net of income tax benefit of $2,176 -- -- 3,552 - ------------------------------------------------------------------------------------------------------ Net income $ 37,329 $ 68,965 $ 84,881 ====================================================================================================== Basic earnings per common share: Income before extraordinary item $ 2.01 $ 3.43 $ 4.39 Extraordinary loss -- -- (0.18) - ------------------------------------------------------------------------------------------------------ Net income $ 2.01 $ 3.43 $ 4.21 ====================================================================================================== Diluted earnings per common share: Income before extraordinary item $ 1.97 $ 3.34 $ 4.29 Extraordinary loss -- -- (0.17) - ------------------------------------------------------------------------------------------------------ Net income $ 1.97 $ 3.34 $ 4.12 ====================================================================================================== Cash dividends declared per common share: Class A common shares $ 1.32 $ 1.32 $ 1.32 Class B common shares $ 1.20 $ 1.20 $ 1.20 ====================================================================================================== Basic weighted-average common shares outstanding 18,549 20,122 20,146 Dilutive effect of stock-based compensation awards 389 546 458 - ------------------------------------------------------------------------------------------------------ Diluted weighted-average common shares outstanding 18,938 20,668 20,604 ======================================================================================================
See Notes to Consolidated Financial Statements. 14 3 Consolidated Balance Sheet Springs Industries, Inc. (In thousands except share data) January 2, 1999 and January 3, 1998
ASSETS 1998 1997 Current assets: Cash and cash equivalents $ 48,127 $ 373 Accounts receivable, net 275,144 317,702 Inventories, net 385,609 420,295 Other 78,296 48,167 - ------------------------------------------------------------------------------------------------------------ Total current assets 787,176 786,537 - ------------------------------------------------------------------------------------------------------------ Property(at cost): Land and improvements 19,187 18,881 Buildings 245,616 245,241 Machinery and equipment 1,085,420 1,076,885 - ------------------------------------------------------------------------------------------------------------ Total 1,350,223 1,341,007 Accumulated depreciation (794,827) (799,765) - ------------------------------------------------------------------------------------------------------------ Property, net 555,396 541,242 - ------------------------------------------------------------------------------------------------------------ Other assets 92,760 81,481 - ------------------------------------------------------------------------------------------------------------ Total $1,435,332 $1,409,260 ============================================================================================================ LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Short-term borrowings $ -- $ 7,450 Current maturities of long-term debt 21,313 14,452 Accounts payable 98,504 92,135 Accrued wages and salaries 13,560 8,610 Accrued incentive pay and benefit plans 26,723 30,510 Other accrued liabilities 72,167 86,936 - ------------------------------------------------------------------------------------------------------------ Total current liabilities 232,267 240,093 - ------------------------------------------------------------------------------------------------------------ Noncurrent liabilities: Long-term debt 267,991 164,287 Accrued benefits and deferred compensation 179,885 174,198 Other 31,073 26,084 - ------------------------------------------------------------------------------------------------------------ Total noncurrent liabilities 478,949 364,569 - ------------------------------------------------------------------------------------------------------------ Shareowners' equity: Class A common stock- $.25 par value (10,728,594 and 12,601,757 shares issued in 1998 and 1997, respectively) 2,682 3,150 Class B common stock- $.25 par value (7,196,864 and 7,270,921 shares issued and outstanding in 1998 and 1997, respectively) 1,799 1,818 Additional paid-in capital 100,446 108,684 Retained earnings 631,943 701,354 Cost of Class A shares in treasury (98,313 and 101,091 shares in 1998 and 1997, respectively) (2,230) (2,276) Accumulated other comprehensive income (10,524) (8,132) - ------------------------------------------------------------------------------------------------------------ Total shareowners' equity 724,116 804,598 - ------------------------------------------------------------------------------------------------------------ Total $1,435,332 $1,409,260 ============================================================================================================
See Notes to Consolidated Financial Statements. 15 4 Consolidated Statement of Shareowners' Equity Springs Industries, Inc.
Accumulated Class A Class B Total Other Common Common Additional Class A Shareowners' Retained Comprehensive Stock Stock Paid-In Stock Held (In thousands) Equity Earnings Income (Loss) Issued Issued Capital in Treasury - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 30, 1995 $734,522 $616,347 $ 5,722 $3,161 $1,901 $109,840 $(2,449) Comprehensive Income: Net Income 84,881 84,881 -- -- -- -- -- Other comprehensive income, before tax: Foreign currency translation adjustment, net of reclassification adjustment (13,248) -- (13,248) -- -- -- -- Minimum pension liability adjustment (137) -- (137) -- -- -- -- Unrealized losses on securities (267) -- (267) -- -- -- -- Income tax benefit related to items of other comprehensive income 138 -- 138 -- -- -- -- -------- Total comprehensive income, net of tax 71,367 -------- Exchange of Class B common stock for Class A common stock -- -- -- 24 (24) -- -- Shares awarded under various employee plans 585 -- -- 2 -- 512 71 Dividends declared (25,695) (25,695) -- -- -- -- -- ==================================================================================================================================== Balance at December 28, 1996 $780,779 $675,533 $ (7,792) $3,187 $1,877 $110,352 $(2,378) Comprehensive Income: Net income 68,965 68,965 -- -- -- -- -- Other comprehensive income, before tax: Foreign currency translation adjustment (1,078) -- (1,078) -- -- -- -- Minimum pension liability adjustment 94 -- 94 -- -- -- -- Unrealized gains on securities, net of reclassification adjustment 1,099 -- 1,099 -- -- -- -- Income tax expense related to items of other comprehensive income (455) -- (455) -- -- -- -- -------- Total comprehensive income, net of tax 68,625 -------- Exchange of Class B common stock for Class A common stock -- -- -- 59 (59) -- -- Shares awarded under various employee plans 569 -- -- 2 -- 465 102 Shares reacquired by the Company (19,716) (17,485) -- (98) -- (2,133) -- Dividends declared (25,659) (25,659) -- -- -- -- -- ==================================================================================================================================== Balance at January 3, 1998 $804,598 $701,354 $ (8,132) $3,150 $1,818 $108,684 $(2,276) Comprehensive Income: Net income 37,329 37,329 -- -- -- -- -- Other comprehensive income, before tax: Foreign currency translation adjustment (2,362) -- (2,362) -- -- -- -- Minimum pension liability adjustment 465 -- 465 -- -- -- -- Income tax expense related to items of other comprehensive income (495) -- (495) -- -- -- -- -------- Total comprehensive income, net of tax 34,937 -------- Exchange of Class B common stock for Class A common stock -- -- -- 19 (19) -- -- Shares awarded under various employee plans 593 -- -- 3 -- 544 46 Exercise of stock options 2,441 -- -- 15 -- 2,426 -- Shares reacquired by the Company (94,816) (83,103) -- (505) -- (11,208) -- Dividends declared (23,637) (23,637) -- -- -- -- -- ==================================================================================================================================== Balance at January 2, 1999 $724,116 $631,943 $(10,524) $2,682 $1,799 $100,446 $(2,230) ====================================================================================================================================
See Notes to Consolidated Financial Statements. 16 5 Consolidated Statement Of Cash Flows Springs Industries, Inc. (In thousands) For the Fiscal Years Ended January 2, 1999, January 3, 1998 (53 weeks), and December 28, 1996
1998 1997 1996 OPERATING ACTIVITIES: Net income $ 37,329 $ 68,965 $ 84,881 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 86,951 84,565 89,422 Gains on sales of businesses and other assets (12,122) (6,047) (43,948) Deferred income taxes 3,542 7,596 (13,738) Provision for restructuring 13,388 1,800 30,375 Provision for uncollectible receivables 16,401 10,747 12,001 Impairment charge 4,783 -- -- Extraordinary loss on extinguishment of debt -- -- 5,728 Changes in operating assets and liabilities, net of effects of business acquisition and sales of businesses: Accounts receivable (189) 19,555 (42,368) Inventories 1,081 (49,399) (17,840) Accounts payable and other accrued liabilities 913 (21,184) 20,966 Accrued restructuring costs (7,305) (7,115) (4,137) Other, net (7,800) 1,057 (4,967) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 136,972 110,540 116,375 - ------------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES: Purchases of property, plant and equipment (120,451) (99,331) (75,131) Business acquisitions -- (6,429) (1,900) Notes receivable (40) (14,000) -- Principal collected on notes receivable 7,119 3,447 20 Proceeds from sales of businesses and other assets 39,686 17,857 195,371 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by investing activities (73,686) (98,456) 118,360 - ------------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES: Proceeds from (repayments of) short-term borrowings, net (7,450) 7,450 (21,900) Proceeds from long-term borrowings 125,000 1,587 2,834 Repayments of long-term debt (14,435) (7,409) (161,861) Repurchase of Class A common shares (96,206) (18,325) -- Proceeds from exercise of stock options 1,876 -- -- Cash dividends paid (24,317) (25,733) (25,695) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used by financing activities (15,532) (42,430) (206,622) - ------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and cash equivalents 47,754 (30,346) 28,113 Cash and cash equivalents at beginning of year 373 30,719 2,606 - ------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 48,127 $ 373 $ 30,719 ==============================================================================================================================
See Notes to Consolidated Financial Statements. 17 6 Notes To Consolidated Financial Statements Springs Industries, Inc. Note 1. Summary of Significant Accounting Policies: Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Springs Industries, Inc. and its subsidiaries (Springs or the Company). Intercompany balances and transactions are eliminated in consolidation. Investments in businesses in which the Company has voting interests ranging from 20 to 50 percent are accounted for using the equity method of accounting. Use of Estimates: Preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures relating to contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Revenue Recognition: Revenue from product sales is recognized at the time ownership of the goods transfers to the customer. Cash Equivalents: Cash equivalents consist of liquid investments with original maturities of three months or less when purchased. Accounts Receivable: The Company performs ongoing credit evaluations of its customers' financial condition and, typically, requires no collateral from its customers. The reserve for doubtful accounts was $11.7 million at January 2, 1999, and $14.0 million at January 3, 1998. During 1998, net write-offs of approximately $15.8 million for previously reserved accounts more than offset the current year's provision for doubtful accounts, which totaled $13.5 million. Inventories: Inventories are summarized as follows: (in thousands)
1998 1997 Standard cost (which approximates average cost) or average cost: Finished goods ............... $265,707 $280,316 In process ................... 170,836 199,600 Raw materials and supplies ... 54,624 59,381 - --------------------------------------------------------------- 491,167 539,297 Less LIFO reserve ............... (105,558) (119,002) - --------------------------------------------------------------- Total .................... $385,609 $420,295 ===============================================================
Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO) for approximately 83 percent of inventories and the average cost method for all other inventories. Average cost approximates current cost. During the fourth quarter of fiscal year 1997, the Company merged the LIFO inventory pool associated with a wholly-owned subsidiary, acquired in 1995, into the corporate pool at the same time as the subsidiary was merged into the Company. This transaction increased net income by $1.5 million, or $0.07 per diluted share. The merger of the two LIFO pools resulted from the acquired operations being integrated with the Company's operations. Goodwill and Other Intangible Assets: The cost of intangible assets is amortized on a straight-line basis over the estimated periods benefited (not exceeding 40 years). Goodwill and other intangible assets are periodically reviewed to assess recoverability. The Company's policy is to compare the carrying value of goodwill with the expected undiscounted cash flows from operations of the acquired business. Unamortized goodwill represented less than 2 percent of the Company's total assets at the end of 1998. Property: Depreciation is computed for financial reporting purposes on a straight-line basis over the estimated useful lives of the related assets, ranging from 10 to 20 years for land improvements, 20 to 40 years for buildings, and 3 to 11 years for machinery and equipment. Certain of the Company's fixed assets are leased through Industrial Revenue Bond financings and other arrangements through county and local authorities. Stock-Based Compensation: The Company measures stock-based compensation using the intrinsic value method, in accordance with Accounting Principles Board (APB) Opinion No. 25. Purchase Commitments: Periodically the Company enters into forward delivery contracts and futures contracts for the purchase of certain raw materials, consistent with the size of its business, to reduce the Company's exposure to price volatility. Unrealized gains and losses on extant futures contracts, which were not material at January 2, 1999 and January 3, 1998, are deferred and subsequently recognized in income as cost of goods sold in the same period as the hedged item. The Company does not hold or issue derivative instruments for trading purposes. Impairment of Long-Lived Assets: Long-lived assets are reviewed for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. The estimated future undiscounted cash flows associated with such assets are compared to the assets' carrying values to determine if write-downs are required. In 1998, the Company recorded a pre-tax impairment charge of approximately $4.8 million in connection with the consolidation and modernization of terry manufacturing operations. Income Taxes: The provision for income taxes includes federal, state, and foreign taxes currently payable and deferred taxes. Deferred taxes were determined using the liability method, which considers future tax consequences associated with differences between financial accounting and tax bases of assets and liabilities and gives immediate effect to changes in income tax laws upon enactment. Reclassification: Certain prior year amounts have been reclassified to con- form with the 1998 presentation. Accounting Changes: In 1998, the Company adopted several pronouncements issued by the Financial Accounting Standards Board (FASB). FASB Statement No. 130, "Reporting Comprehensive Income," requires the components of comprehensive income to be disclosed in the financial statements. FASB Statement No 131, "Disclosures about Segments of an Enterprise and Related Information," requires certain information to be reported about operating segments on a basis consistent with the Company's internal organizational structure. FASB Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," revises the disclosures for pensions and other postretirement benefits and standardizes them into a combined format. Required disclosures have been made, and applicable prior years' information has been reclassified for the impact of adopting these statements. The adoption of these statements had no impact on the Company's reported financial position, results of operations, or cash flows. 18 7 Notes To Consolidated Financial Statements Springs Industries, Inc. Recently Issued Accounting Standards: In March 1998, the Accounting Standards Executive Committee issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This standard, which will be adopted in 1999, revised the accounting for software development costs and will require the capitalization of certain costs which the Company has historically expensed. This statement is not expected to have a material impact on the Company's financial position, results of operations, or cash flows. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. This Statement will require the Company to recognize all derivatives on the balance sheet at fair value and may impact the Company's earnings depending on the instruments held at the time of adoption. The Company has not yet determined the impact FASB Statement No. 133 will have on its financial position, results of operations, or cash flows. Note 2. Reportable Segment Information: Springs operates in two reportable segments: home furnishings and specialty fabrics. The Company's principal markets and operations are in North America. The home furnishings segment manufactures, purchases for resale and markets home furnishing products, including sheets, pillowcases, bedspreads, comforters, infant and toddler bedding, draperies, shower curtains, accent and bath rugs, towels, other bath fashion accessories, drapery hardware and decorative window furnishings to all major channels of retail distribution and to institutional customers. The specialty fabrics segment manufactures, finishes, purchases for resale and markets woven and non-woven fabrics, including apparel fabrics, home-sewing fabrics, industrial fabrics, specialty and high-performance fabrics, and protective and fire retardant fabrics to manufacturers for use in a variety of end products. See Note 3 for a discussion of businesses sold during the last three years affecting the specialty fabrics segment. Summarized segment information appears on page 13 and is an integral part of the consolidated financial statements. The Company's reportable segments are strategic business units that offer different products. The reportable segments are managed separately, because they provide different products through different operating processes to different end markets. The accounting policies of each segment are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes, unusual items, interest expense, and other (income), net. Sales between these reportable segments are not material and have been eliminated in consolidation. Sales for 1998, 1997, and 1996 include sales of $320.8 million, $314.3 million, and $306.2 million, respectively, to one customer. The home furnishings segment had sales of $265.2 million, $258.3 million, and $248.4 million for 1998, 1997, and 1996, respectively, to this customer. Sales to this customer of $55.6 million, $56.0 million, and $57.8 million for 1998, 1997, and 1996, respectively, were generated in the specialty fabrics segment. Accounts receivable at January 2, 1999, and January 3, 1998, included receivables from this customer totaling $37.7 million and $40.1 million, respectively. Sales by geographic area, as defined by customer location, are as follows:
(in millions) 1998 1997 1996 United States $2,029.6 $2,078.0 $2,077.9 Canada ...... 112.4 108.3 105.5 Other ....... 38.5 39.8 37.6 - ------------------------------------------------------- Total ....... $2,180.5 $2,226.1 $2,221.0 =======================================================
Company assets located outside the United States are not material for any of the three years presented. Note 3. Divestitures: During the three years ended 1998, the Company sold four specialty fabrics businesses. Effective January 2, 1999, the Company disposed of the net assets of the Company's Springfield division in exchange for a $10 million preferred equity interest in the buyer and cash of $33 million. A receivable for the cash proceeds received on January 4, 1999, was included in other current assets on the Company's balance sheet as of the end of 1998. Effective December 19, 1998, the Company disposed of its Industrial Products division in exchange for principally $18.5 million in cash and other consideration in the form of notes receivable and a preferred equity interest in the buyer. Effective August 7, 1998, the Company sold its UltraSuede business and certain related assets of the UltraFabrics division. The Company has retained the UltraLeather portion of the UltraFabrics division, which is part of the Company's specialty fabrics segment. The combined effect of these transactions was a pretax gain of $8.4 million which is included in other (income) expense. The combined sales of these businesses included in the Company's 1998 results were $156.6 million and earnings before interest and taxes totaled approximately $14.3 million. On April 17, 1996, the Company sold Clark-Schwebel, Inc., for $193 million in cash. A gain of $50.1 million was included in other income for 1996. This business included foreign operations with respect to which a foreign currency translation adjustment of $10.9 million had accumulated at the time of the sale. This translation adjustment was included in the determination of the gain on disposition. Through the date of the divestiture, Clark-Schwebel, Inc., had 1996 sales of $68.9 million and earnings before interest and taxes of $11.3 million. 19 8 Notes To Consolidated Financial Statements Springs Industries, Inc. Note 4. Restructuring and Realignment Costs: 1996 Restructuring During the second quarter of 1996, the Company adopted a restructuring plan to consolidate and realign its fabric manufacturing operations. In connection with this plan, the Company closed three fabric manufacturing plants, added production in other plants, and increased outside purchases of grey fabric. The Company recorded a pretax charge of $30.4 million during the second quarter of 1996, which included a $16.3 million write-off of plant and equipment, a $6.6 million accrual for anticipated employment severance expenses arising from the elimination of approximately 850 positions, and a $7.5 million accrual primarily for idle plant costs and demolition costs. The following represents changes in the restructuring accruals since the adoption of the plan: (in millions)
Accrual Severance for Other Accrual Expenses - ------------------------------------------------------------- Original accrual on June 28, 1996 .. $ 6.6 $ 7.5 Cash payments ...................... (1.1) (3.0) - ------------------------------------------------------------- Accrual balance on December 28, 1996.............................. 5.5 4.5 Cash payments ...................... (3.0) (2.2) Adjustments ........................ 1.8 -- (2.0) -- - ------------------------------------------------------------- Accrual balance on January 3, 1998 . 2.3 2.3 Cash payments ...................... (0.8) (1.4) Adjustments ........................ (1.5) (0.9) - ------------------------------------------------------------- Accrual balance on January 2, 1999 . $ 0.0 $ 0.0 =============================================================
During 1997, Springs reduced the accrual for severance by $2.0 million due to lower-than-expected average severance cost per associate. The Company was able to place a greater percentage of the terminated employees in other positions within the Company than had been expected. At the same time, the Company also increased the severance accrual by $1.8 million for severance costs associated with 320 additional positions that were to be eliminated at other manufacturing facilities. During 1998, Springs again reduced the severance accrual by approximately $1.5 million due to continued favorable experience relative to the Company's earlier expectation as to the number of associates to whom severance would have to be paid. The restructuring plan was completed during the fourth quarter of 1998. The accrual for other expenses was reduced by $0.9 million, primarily due to lower- than-expected idle plant costs. The Company has incurred realignment expenses of $20.2 million, including $5.3 million in 1998, for equipment relocation and other expenses related to the 1996 plan that do not qualify as "exit costs" as defined by Emerging Issues Task Force Issue No. 94-3. 1998 Restructuring In the first quarter of 1998, the Company adopted a plan to close one of its specialty fabrics facilities, the Rock Hill Printing and Finishing Plant. At that time, the Company recorded a pretax charge of $23.0 million, which included an $11.3 million write-off of plant and equipment, a $4.0 million accrual for anticipated severance costs arising from the elimination of approximately 480 positions, and a $7.7 million accrual primarily for idle plant costs, demolition costs, and costs associated with a defined benefit plan. The following represents changes in the restructuring accruals since the adoption of the plan: (in millions)
Accrual Severance for Other Accrual Expenses - -------------------------------------------------------------- Original accrual on February 17, 1998 $ 4.0 $ 7.7 Cash payments ....................... (3.0) (1.2) Adjustments ......................... (1.0) (6.5) - -------------------------------------------------------------- Accrual balance on January 2, 1999 .. $ 0.0 $ 0.0 ==============================================================
The restructuring plan was completed during the fourth quarter of 1998. Springs reduced the severance accrual in 1998 due to lower-than-expected cost per associate. The accrual for other expenses was reduced in 1998, primarily as a result of lower-than-anticipated costs associated with a defined benefit plan and its unexpected sale on September 25, 1998, of the Rock Hill facility. As a result of the sale, the Company reversed accruals relating to idle plant costs and demolition costs of approximately $4.3 million. The Company incurred expenses of $1.3 million for equipment relocation and other realignment expenses related to the 1998 plan which do not qualify as "exit costs" as defined by Emerging Issues Task Force Issue No. 94-3. Note 5. Accrued Benefits and Deferred Compensation: The long-term portion of accrued benefits and deferred compensation were comprised of the following: (in thousands)
1998 1999 Postretirement medical benefit obligation $ 65,060 $ 68,805 Deferred compensation ................... 66,640 48,652 Other employee benefit obligations ...... 48,185 56,741 - --------------------------------------------------------------------- Total ................................ $179,885 $174,198 =====================================================================
The liabilities are long-term in nature and will be paid over time in accordance with the terms of the plans. 20 9 Notes To Consolidated Financial Statements Springs Industries, Inc. Note 6. Long-Term Debt:
Long-term debt consists of: (in thousands) 1998 1997 Note payable in quarterly installments of $4,464 from September 2001 through March 2008, interest payable at variable rates (5.6% at 1/2/99) $125,000 $ -- Senior notes payable in annual installments of $5,000 through 2006, interest rate at 9.6% ................................... 40,000 45,000 Notes payable in quarterly installments of $2,857 through May 2005, interest payable at variable rates (5.6% at 1/2/99) ......... 74,286 80,000 Notes payable in quarterly installments of $714 through September 2005, interest payable at variable rates (5.6% at 1/2/99) ................... 19,285 20,000 Industrial Revenue Bond Obligations, payable in varying annual amounts to 2019, interest at rates ranging from 3.0% to 8.3% .......... 29,857 31,115 Other .................................................................... 876 2,624 - -------------------------------------------------------------------------------------------------------- Total ................................................................. 289,304 178,739 Current maturities ....................................................... (21,313) (14,452) - -------------------------------------------------------------------------------------------------------- Long-term debt ........................................................ $267,991 $164,287 ========================================================================================================
Periodically, the Company finances its operations through the issuance of commercial paper. The Company's access to the commercial paper market is facilitated by a committed $225 million long-term revolving credit agreement provided by several banks. This revolving credit agreement will expire on December 16, 2002. The Company pays an annual commitment fee on the unused portion of this agreement. As of January 2, 1999, no borrowings were outstanding under this agreement. During 1998, the Company borrowed $125 million under a long-term credit facility at a variable rate, which is currently 5.6 percent per annum. During the third quarter of 1998, the Company entered into an interest rate swap agreement for a notional amount of $60 million to effectively fix the interest rate on $60 million of the $125 million long-term loan at 6.1 percent. In 1995, the Company entered into other interest rate swap agreements to reduce the potential impact of increases in interest rates on floating-rate, long-term debt. The interest rate swap agreements were designed to fix the interest rate on $100 million of variable rate debt at 6.7 percent. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements; however, the Company believes such counterparties will perform. At January 2, 1999, and January 3, 1998, the notional amount of swap agreements totaled $153.6 million and $100.0 million, respectively. Certain long-term debt agreements contain requirements concerning, among other things, the maintenance of working capital and tangible net worth, limitations on the incurrence of indebtedness, and restrictions on the payment of dividends, sales of assets, and/or redemption of stock. Under the most restrictive requirements on the payment of dividends, retained earnings of approximately $160 million were free of restrictions at January 2, 1999. Scheduled annual maturities of long-term debt are: 1999 - $21.3 million; 2000 - $20.6 million; 2001 - $29.1 million, 2002 - $38.1 million, 2003 - $38.1 million and varying amounts thereafter through 2019. Total interest payments in 1998, 1997 and 1996 were $19.3 million, $17.8 million, and $24.0 million, respectively. Note 7. Shareowners' Equity: As of January 2, 1999, Springs had authorized 1 million shares of $1.00 par value, voting preferred stock, none of which was outstanding. Authorized common stock consisted of 40 million shares of $.25 par value Class A stock and 20 million shares of $.25 par value Class B stock. Subject to certain exceptions, owners of Class B stock are entitled to four votes per share on matters brought before shareowners of the Company, while owners of Class A stock are entitled to one vote per share. See Note 12 for description of related parties. Cash dividends per share declared on Class A stock must equal at least 110 percent of cash dividends declared per share on Class B stock. In October 1997, the Company's Board of Directors authorized management to purchase, from time to time, up to 2 million shares of Class A common stock in the open market and in private transactions. In August 1998, the Board granted similar authority for management to purchase up to an additional 2 million shares of Class A common stock. As of January 2, 1999, the Company had repurchased 2,408,400 shares pursuant to these authorizations. Accumulated other comprehensive income or loss shown in the consolidated statement of shareowners' equity consisted of foreign currency translation adjustments of $9.5 million and a minimum pension liability of $1.0 million in 1998; foreign currency translation adjustments of $7.1 million and a minimum pension liability of $1.0 million in 1997; and foreign currency translation adjustments of $6.0 million, a minimum pension liability of $1.1 million and an unrealized loss on securities of $0.7 million in 1996. The change in unrealized gains on securities during 1997 included a reclassification adjustment of $0.7 million, net of a $0.4 million tax benefit, for losses realized in net income as a part of the gain on the sale of an investment. The change in foreign currency translation adjustments in 1996 included a reclassification adjustment of $10.9 million for currency translation gains realized in net income as a part of the gain on the sale of Clark-Schwebel, Inc. 21 10 Notes To Consolidated Financial Statements Springs Industries, Inc. Note 8. Stock-Based Compensation: The Company has an incentive stock plan ("the Plan") which was approved by the shareowners in 1991. Prior to that time, the Company maintained a deferred unit stock plan which expired in 1991 except for the shares and grants outstanding thereunder. Primary stock equivalents and incremental stock equivalents, which are similar to deferred stock and stock appreciation rights, respectively, were issued under the deferred unit stock plan. The primary stock equivalents are still outstanding; however, the holder of the incremental stock equivalents surrendered the rights to the Company during 1998 pursuant to an agreement by the Company to convert the value thereof to a deferred compensation account. The shareowners in 1991 also approved a restricted stock plan for outside directors under which an annual grant of restricted stock is made to outside directors. The Plan is designed to achieve the objectives of the long-term component of the Company's executive compensation program. The Plan provides for various stock-based Class A common stock awards, including stock options, restricted stock, performance units, and stock appreciation rights. Under the Plan, non-qualified stock options, deferred stock, and performance unit awards have been granted. Performance units are earned over a three-year cycle and are accounted for as a variable plan. The number of units ultimately earned cannot be determined until the end of the three-year cycle and is based on the Company's total shareowner return over the three-year cycle as compared to the companies in the S&P 500 index. The exercise prices of all options granted to date represent the fair market values of the shares on the dates of the grants. Options which have been granted generally become exercisable on the third anniversary of the grant date or ratably over a two-to-four year period thereafter. No portion of the grants may be exercised beyond ten years from the dates of the grants. A summary of the Company's stock options as of January 2, 1999, January 3, 1998, and December 28, 1996, and changes during the years ended on those dates is presented below:
1998 1997 1996 ----------------------------------------------------------------------------------- Weighted- Weighted- Weighted- (Shares in thousands) Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ---------------------------------------------------------------------------------------------------------------------------------- Outstanding at the beginning of the year 1,127,500 $39.53 882,500 $38.26 926,000 $37.99 Granted ................................ 632,800 34.95 250,000 44.00 15,000 47.25 Forfeited .............................. (20,002) 38.32 (5,000) 39.13 (58,500) 36.41 Exercised .............................. (60,157) 31.18 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Outstanding at end of year ............. 1,680,141 $38.11 1,127,500 $39.53 882,500 $38.26 ================================================================================================================================== Options exercisable at year end ........ 810,167 $40.05 225,809 $32.09 141,333 $30.52 ==================================================================================================================================
The following table summarizes information about the stock options outstanding at January 2, 1999:
Shares Exercisable --------------------------- Weighted- Weighted- Weighted- Range of Options Average Average Average Exercise Outstanding Remaining Exercise Exercise Prices at 1/2/99 Contractual Life Price at 1/2/99 Price - ------------------------------------------------------------------------------------------------------------------------- $29.00 166,000 2.9 years $29.00 166,000 $29.00 33.13 to 34.33 618,968 9.5 years 33.20 26,001 34.33 39.13 to 41.88 547,673 6.6 years 41.36 485,666 41.65 44.00 250,000 8.1 years 44.00 50,000 44.00 46.38 to 47.25 47,500 5.2 years 46.65 32,500 46.38 56.19 50,000 9.1 years 56.19 50,000 56.19 - ------------------------------------------------------------------------------------------------------------------------- 1,680,141 810,167 =========================================================================================================================
22 11 Notes To Consolidated Financial Statements Springs Industries, Inc. The options granted during 1998, 1997, and 1996 had a weighted-average fair value of $10.00, $14.22, and $17.79, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions:
1998 1997 1996 Expected option lives . 10 years 8 years 10 years Risk-free interest rate 5.3% 6.4% 6.9% Expected volatility ... 28.6% 28.8% 30.0% Expected dividend rate $1.32 $1.32 $1.32
The Company has awarded deferred stock awards and performance unit awards during 1998, 1997, and 1996. The performance units are earned over a three-year period, and the deferred stock awards typically vest over a five-year period. Such awards totaled 41,887 units in 1998, 71,781 units in 1997, and 117,483 units in 1996 at weighted-average grant-date fair values of $52.19, $44.57 and 44.71, respectively. Compensation expense (income) for deferred stock awards totaled approximately $(833,000), $2,718,000 and $1,107,000 for the years ended January 2, 1999, January 3, 1998, and December 28, 1996, respectively. The amounts of the Company's deferred compensation shown on the Company's balance sheet associated with these benefits, including interest and dividend credits, were $5.1 million and $7.1 million as of January 2, 1999, and January 3, 1998, respectively. The Company measures stock-based compensation using the intrinsic value method, in accordance with APB Opinion No. 25 and FASB Interpretation No. 28. Had compensation cost for the Company's stock-based compensation awards been determined at the grant dates based on the fair value method described in FASB Statement No. 123, "Accounting for Stock-Based Compensation," the Company's pro forma net income would have been $34.7 million, or $1.83 per diluted share, for 1998, $66.9 million, or $3.24 per diluted share, for 1997, and $83.5 million, or $4.05 per diluted share, for 1996. Note 9. Income Taxes: The following tables present the components of the provision for income taxes and reconciliation of the statutory U.S. income tax rate to the effective income tax rate during 1998, 1997, and 1996. Income Tax Provision: (in thousands)
1998 1997 1996 Current ............. $17,908 $26,376 $ 29,824 Deferred ............ 3,542 7,596 (13,738) - ------------------------------------------------------------- Total tax provision on income before extraordinary item ............. $21,450 $33,972 $ 16,086 =============================================================
Reconciliation to Effective Tax Rates:
1998 1997 1996 Provision at statutory U.S. tax rate ........ 35.0% 35.0% 35.0% Effective state income tax rate (excluding sale of subsidiary) .. 2.5 2.1 2.6 Effect of sale of subsidiary (including state tax) ............ -- (1.2) (18.2) Changes in valuation allowance ............ -- -- (1.4) Other ................. (1.0) (2.9) (2.6) - --------------------------------------------------------------- Total effective tax rate on income before extraordinary item .. 36.5% 33.0% 15.4% ===============================================================
Income before income taxes includes foreign income of $1.4 million, $2.6 million, and $4.9 million in 1998, 1997, and 1996, respectively. The provision for income taxes includes state income taxes of $2.3 million in 1998, $3.3 million in 1997, and $1.5 million in 1996. Springs made income tax payments of approximately $22.1 million, $27.0 million, and $32.2 million in 1998, 1997, and 1996, respectively. Temporary differences which give rise to deferred income taxes and the resulting assets and liabilities are as follows:
(in thousands) ................. 1998 1997 Employee benefit accruals ...... $ 37,141 $ 38,704 Deferred compensation .......... 33,398 31,637 Restructuring reserves ......... -- 2,650 Receivables reserves ........... 10,557 8,242 Environmental accruals ......... 3,856 3,938 Other items .................... 15,674 13,840 - ------------------------------------------------------------- Total deferred tax assets .... 100,626 99,011 - ------------------------------------------------------------- Property ....................... (83,515) (80,317) Inventories .................... (8,648) (6,167) Intangibles .................... (911) (910) Other items .................... (714) (1,237) - ------------------------------------------------------------- Total deferred tax liabilities (93,788) (88,631) - ------------------------------------------------------------- Net deferred tax asset ......... $ 6,838 $ 10,380 =============================================================
23 12 Notes To Consolidated Financial Statements Springs Industries, Inc. Note 10. Employee Benefit Plans: Substantially all associates of Springs are covered by defined contribution or defined benefit retirement plans. The Company makes contributions to defined contribution plans, and these contributions are computed as a percentage of each participant's eligible compensation. In addition, in the event that eligible participants contribute a percentage of their compensation to certain defined contribution plans, the Company matches a portion of their contributions. Company contributions to defined benefit plans are made in accordance with ERISA, and benefits are generally based upon years of service. Assets in defined benefit plans are invested in diversified equity securities, fixed income securities (including United States government obligations), real estate and money market securities. Defined contribution plan expenses for 1998, 1997, and 1996 were $19.0 million, $ 21.6 million, and $22.4 million, respectively. The net assets available for benefits under defined contribution plans had a market value of approximately $750 million as of December 31, 1998. Effective December 31, 1998, the Company merged two of its defined benefit pension plans, eliminating approximately $1.9 million of unfunded liability on a combined plan basis. Prior to the merger, the Company distributed lump-sum payments of approximately $1.9 million. A settlement gain of approximately $0.4 million was recognized in 1998. In 1998, the Company amended one of its defined benefit pension plans to cease future benefit accruals. A curtailment loss of $0.5 million was recognized in 1998. The fair value of assets in this plan approximates the projected benefit obligation. The Company also sponsors an unfunded, postretirement medical plan for eligible retirees. The Company and the retirees contribute to the plan, with contributions adjusted periodically. In 1998, the Company amended its postretirement medical plan to extend to retirees the managed care medical options that were previously available only to active associates and to limit the Company's maximum per capita cost for postretirement medical coverage to two times the current amount. These amendments decreased the postretirement benefit obligation by approximately $10 million. In addition, the Company decreased its eligibility requirement from age 65 and 25 years of service to age 60 and 10 years of service, increasing the postretirement benefit obligation by approximately $4.1 million. The following tables include summarized information on the Company's pension and postretirement medical plans for the years ended January 2, 1999, and January 3, 1998: (in thousands)
Defined Postretirement Pension Benefits Medical Benefits - ------------------------------------------------------------------------------------------------------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation at beginning of year ................... $69,152 $68,767 $ 66,847 $64,436 Service Cost .............................................. 2,021 2,058 1,474 1,769 Interest cost ............................................. 4,621 5,044 3,214 4,401 Participants' contributions ............................... -- -- 2,381 1,875 Actuarial (gains) losses .................................. 3,196 (553) (11,689) 4,525 Plan amendments, divestitures, curtailments and settlements 7,489 (2,090) (7,549) (2,910) Benefit payments .......................................... (5,894) (4,074) (8,061) (7,249) - ------------------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year ...................... $80,585 $69,152 $ 46,617 $66,847 ========================================================================================================================= Change in Plan Assets: Fair value of plan assets at beginning of year ............ $54,286 $47,584 Actual return on plan assets .............................. 9,173 8,676 Employer contributions .................................... 426 651 Benefit payments .......................................... (4,302) (2,625) Settlements ............................................... (1,850) -- - ------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year ............... $57,733 $54,286 =========================================================================================================================
Continued next page 24 13 Notes To Consolidated Financial Statements Springs Industries, Inc.
Defined Postretirement Pension Benefits Medical Benefits 1998 1997 1998 1997 Funded Status: Funded status at end of year ................................... $(22,852) $(14,866) $(46,617) $(66,847) Unrecognized actuarial (gains) losses .......................... 2,640 1,986 (16,129) (5,200) Unrecognized prior service cost ................................ (236) (7,317) (7,768) (2,586) Unrecognized transition obligation ............................. (125) (286) -- -- - ------------------------------------------------------------------------------------------------------------------------ Net amount recognized ...................................... $(20,573) $(20,483) $(70,514) $(74,633) ======================================================================================================================== Amounts Recognized in the Company's Balance Sheet: Prepaid benefit cost ........................................... $ 146 $ 1,158 $ -- $ -- Accrued benefit cost ........................................... (23,041) (24,728) (70,514) (74,633) Intangible asset ............................................... 546 847 -- -- Accumulated other comprehensive income ......................... 1,776 2,240 -- -- - ------------------------------------------------------------------------------------------------------------------------ Net amount recognized ...................................... $(20,573) $(20,483) $(70,514) $(74,633) ======================================================================================================================== Weighted Average Assumptions: Discount rate .................................................. 6.50% 6.75% 6.50% 6.75% Expected return on plan assets ................................. 8.50% 8.50% -- -- Rate of compensation increase .................................. 4.50% 4.50% -- -- Initial health care cost trend rate (1) ........................ -- -- 8.50%(2) 9.00%(2)
(1) Assumed to decrease gradually to 5.0 percent in 2005 and remain at that level thereafter. (2) 6.1 percent and 6.2 percent for HMO plans for 1998 and 1997, respectively.
Components of Net Periodic Benefit Cost: Service cost ...................................................... $ 2,021 $ 2,058 $ 1,474 $ 1,769 Interest cost ..................................................... 4,621 5,044 3,214 4,401 Actual return on assets ........................................... (4,358) (4,598) -- -- Net amortization and deferral ..................................... (962) 1,273 (1,080) (342) Termination benefit ............................................... 396 Effect of curtailment/settlement .................................. 101 -- 2,066 -- - ------------------------------------------------------------------------------------------------------------------------ Net periodic benefit cost .................................. $ 1,819 $ 3,777 $ 5,674 $ 5,828 ========================================================================================================================
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $32.9 million, $31.7 million, and $10.0 million, respectively, as of January 2, 1999, and $29.3 million, $27.9 million, and $4.8 million, respectively as of January 3, 1998. A one-percentage point change in assumed health care cost trend rates would have the following effects: (in thousands)
One Percent One Percent Increase Decrease - ------------------------------------------------------------------------ Effect on total of service and interest cost components $ 89 $ (129) Effect on postretirement benefit obligation 1,108 (1,521) - ------------------------------------------------------------------------
25 14 Notes To Consolidated Financial Statements Springs Industries, Inc. Note 11. Disclosures About Fair Value of Financial Instruments: The Company has estimated the fair values of financial instruments using available market information and appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company would realize in a current market exchange. The carrying amounts of cash and cash equivalents, accounts receivable, certain other assets, accounts payable, and short-term borrowings are reasonable estimates of their fair value at January 2, 1999 and January 3, 1998. The carrying value of notes receivable is $12.4 million at January 2, 1999, compared to an estimated fair value of $11.4 million, using interest rates based on the credit worthiness of the customers. The carrying value of notes receivable was $17.6 million at January 3, 1998, compared to an estimated fair value of $15.4 million. The estimated fair value of long-term debt at January 2, 1999, was $297.4 million, compared to a carrying value of $289.3 million. The estimated fair value of long-term debt at January 3, 1998, was $185.3 million, compared to its carrying value of $178.7 million. Fair value was estimated using interest rates that were available to the Company at those dates for issuance of debt with similar terms and remaining maturities. At January 2, 1999, and January 3, 1998, the Company had interest rate swaps with notional amounts totaling $153.6 million and $100 million, respectively. The estimated fair value of these agreements was an unrealized loss of $5.2 million at January 2, 1999, and an unrealized loss of $1.6 million at January 3, 1998, based on market prices for similar instruments. Note 12. Other Matters: Transactions with Related Parties: The Company conducts business with other companies or individuals which are considered related parties. Two members of the Board of Directors, including the Chairman and Chief Executive Officer, their family and related entities own approximately 99 percent of Springs' Class B common stock and approximately 1 percent of Class A common stock. Springs transacts business with certain companies that are controlled by these persons and related entities. In the opinion of Springs' management, the cost of services provided by these companies is not material and the services have been obtained at competitive prices or rates. Management annually reviews its conclusions concerning related party transactions with the Audit Committee of the Board of Directors. Contingencies: Springs is involved in certain administrative proceedings governed by environmental laws and regulations, including proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act. The potential costs to the Company related to all of these environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution and cleanup costs; the complexity and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs and effectiveness of alternative cleanup technologies; the determination of the Company's liability in proportion to other potentially responsible parties; and the extent, if any, to which such costs are recoverable from insurers or other parties. In connection with these proceedings, the Company estimates the range of possible losses for such matters to be between $8 million and $13 million, and has accrued an undiscounted liability of approximately $12 million, which represents management's best estimate of Springs' probable liability concerning all known environmental matters. Management believes the $12 million will be paid out over the next 10 years. This accrual has not been reduced by any potential insurance recovery to which the Company may be entitled regarding environmental matters. Environmental matters include a site listed on the United States Environmental Protection Agency's ("EPA") National Priority List where Springs is the sole responsible party. Springs, the EPA and the United States Department of Justice have executed a consent decree related to this site. Soil cleanup was completed in 1993, subject to final approval by the EPA, and the approved EPA groundwater remedy began in 1996. There are no other known sites which may involve material amounts. Springs is also involved in various other legal proceedings and claims incidental to its business. Springs is protecting its interests in all such proceedings. In the opinion of management, based on the advice of counsel, the likelihood that the resolution of the above matters would have a material adverse impact on either the financial condition or the future results of operations of Springs is remote. Subsequent Events (Unaudited): In January 1999, the Company acquired two separate businesses. On January 5, the Company acquired an additional 50 percent interest in American Fiber Industries, LLC (AFI), a manufacturer and distributor of bed pillows, mattress pads, down comforters and comforter accessories. Springs acquired its original 50 percent interest in AFI in February 1997. The cost of the remaining interest totaled approximately $15 million, subject to possible adjustments in accordance with the agreement. Effective January 23, 1999, the Company acquired Regal Rugs, Inc. (Regal) a subsidiary of Readicut International PLC. Regal manufactures bath and accent rugs for sale to department and specialty stores, national chain stores, and catalogs. The purchase price for Regal was approximately $30 million, subject to possible adjustments for asset valuation and incremental tax liabilities of the seller. 26 15 Independent Auditors' Report Springs Industries, Inc. To The Board of Directors of Springs Industries, Inc. We have audited the accompanying consolidated balance sheet of Springs Industries, Inc. (the Company) as of January 2, 1999 and January 3, 1998, and the related consolidated statements of operations, shareowners' equity and cash flows for each of the three fiscal years in the period ended January 2, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 1999 and January 3, 1998, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 2, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche, LLP Deloitte & Touche, LLP Charlotte, North Carolina February 1, 1999 27 16 Management's Report On Financial Statements Springs Industries, Inc. The management of the Company is responsible for the preparation of the consolidated financial statements and related financial information included in this annual report. The statements, which include amounts based on management's estimates, have been prepared in conformity with generally accepted accounting principles. In fulfilling the Company's responsibilities for maintaining the integrity of financial information and for safeguarding assets, Springs relies upon internal control systems designed to provide reasonable assurance that the Company's records properly reflect business transactions and that these transactions are in accordance with management's authorization. There are limitations inherent in all systems of internal accounting controls based on the recognition that the cost of such systems should not exceed the benefits to be derived. Springs believes its systems provide this appropriate balance. The Company's internal audit staff tests, evaluates, and reports on the adequacy and effectiveness of internal control systems and procedures. Management also recognizes its responsibility for conducting the Company's affairs in an ethical and socially responsible manner. Springs has communicated to its associates its intentions to maintain high standards of ethical business conduct in all of its activities. Ongoing review programs are carried out to monitor compliance with this policy. The Board of Directors pursues its oversight responsibility with respect to the Company's systems of internal control and its financial statements, in part, through an Audit Committee, which is composed solely of outside directors. The Audit Committee meets regularly with Springs' management, internal auditors, and independent auditors. Both the independent auditors and internal auditors have access to and meet privately with this Committee without the presence of management. The Company's independent auditors, Deloitte & Touche LLP, rely on the Company's internal control structure to the extent they deem appropriate and perform tests and other procedures they deem necessary to express an opinion on the fairness of the presentation of the financial statements, which management believes provides an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. /s/ James F. Zahrn James F. Zahrn Executive Vice President-- Chief Financial Officer 28 17 Management's Discussion And Analysis Of Operations And Financial Condition Springs Industries, Inc. A five-year summary of Selected Financial Data appears on pages 34 and 35. A three-year analysis of reportable segment information appears on page 13. RESULTS OF OPERATIONS 1998 Compared with 1997 Sales Net sales for the full year 1998 (52 weeks) were $2.180 billion, down two percent from the previous year's 53-week sales of $2.226 billion. The decline resulted from the shorter 1998 accounting period along with lower sales in the fourth quarter for both operating segments. Sales for the home furnishings segment totaled $1.866 billion, down less than two percent from the 53-week 1997 fiscal year. Sales growth in both window fashions (due primarily to increased volume in the home improvement retail business) and bath fashions (due to stronger rug demand) partially offset declines in sales of bed fashions and baby products. Bedding sales were lower, principally in the core solid color business with the department store trade and in certain licensed bedding products. Specialty fabrics sales of $314.4 million were almost five percent lower than the 1997 level due to last year's 53-week year and the divestitures of the UltraSuede and Industrial Products businesses in August and December 1998, respectively. Earnings Net income for the year was $37.3 million, or $1.97 per diluted share, compared to $69.0 million, or $3.34 per diluted share, in 1997. Excluding the impact of unusual items, full-year 1998 earnings would have been $50.1 million, or $2.64 per diluted share, compared to $73.5 million, or $3.56 per diluted share in 1997, a decrease of approximately 32 percent. Unusual items impacting earnings in 1998, net of taxes, included realignment expenses of $12.3 million associated with the Company's restructuring of its fabric manufacturing operations and the closing of its Rock Hill Printing and Finishing facility, an aggregate gain of $8.6 million on the sales of the Company's UltraSuede business and its Rock Hill facility, Year 2000 costs of $4.4 million, an impairment charge of $3.0 million recorded in connection with the consolidation and modernization of terry manufacturing operations, and aggregate losses of $1.7 million on the divestitures of the Industrial Products and Springfield divisions. Unusual items which impacted 1997 earnings, net of taxes, included Year 2000 expenses of $1.7 million, realignment expenses of $6.9 million related to the restructuring of fabric manufacturing operations, and a gain of $4.1 million on the sale of an investment. In the home furnishings segment, pretax operating earnings of $69.7 million declined by $40.9 million, after considering unusual items which impacted this segment's earnings. Excluding the effect of unusual items from both years, the segment's operating earnings were $38.8 million lower than the previous year. The decline in profits is due principally to lower sales volume in the core solid color bedding business to the department store trade, a decline in demand for certain licensed bedding products in the latter part of the year, close out sales, and production curtailments associated in part with the Company's efforts to reduce inventories. Additionally, profits were negatively affected by severance costs related to several of the Company's cost-cutting initiatives, and a pretax charge of $7.5 million for uncollectible receivables in the Company's window fashions business. The specialty fabrics segment's pretax operating profits were $1.5 million lower than their 1997 level, after considering the impact of unusual items. Before unusual items, which included a pretax restructuring charge of $14.9 million for the closing of the Rock Hill Printing and Finishing facility, full-year operating earnings for the specialty fabrics segment increased by $14.3 million. Improvements came in both the retail fabric and Springfield apparel fabric businesses and were attributable to a change in product mix, reduced fixed costs as a result of closing the Rock Hill facility and a decrease in selling, general and administrative expenses. Included in other income were an $11.1 million pretax gain on the sale of the Company's UltraSuede business, previously part of the Company's specialty fabrics segment, and a $2.8 million pretax gain on the sale of the Rock Hill facility. Included in other income for 1997 was a pretax gain on the sale of an investment of $6.6 million. 1997 Compared with 1996 Sales For 1997, a 53-week fiscal period, sales of $2.226 billion increased less than one percent from the previous year's sales of $2.221 billion. After adjusting for the 1996 divestiture of the Company's former subsidiary Clark-Schwebel, Inc., sales for 1997 rose more than three percent. Sales for the home furnishings segment reached a record $1.896 billion, up almost five percent from 1996. Sales for each of the principal business units within this segment exceeded the prior year amounts. Specialty fabrics sales were $329.9 million, down 20 percent from 1996. Excluding the effect of Clark-Schwebel, Inc., full year specialty fabrics sales for 1997 were lower by about four percent. Earnings Net income for 1997 was $69.0 million, or $3.34 per diluted share, compared to $84.9 million, or $4.12 per diluted share, in 1996. Excluding realignment expenses, a gain on the sale of an investment, and Year 2000 expenses, 1997 earnings amounted to $73.5 million, or $3.56 per diluted share, a 14 percent increase over 1996 earnings before unusual items of $64.6 million, or $3.13 per diluted share. Operating profits of $115.1 million in 1997 exceeded the prior year's operating profits of $79.8 million by 44 percent. Excluding restructuring and realignment expenses and Year 2000 expenses, operating profits for 1997 would have been $129.0 million, compared to $113.8 million in 1996. The home furnishings segment reported operating profits of $110.6 million, which more than doubled the previous year's earnings. Excluding restructuring and realignment expenses and Year 2000 expenses from both years, the home furnishings segment's operating earnings would have been $123.2 million, compared to $85.3 million in 1996. For 1997, the specialty fabrics segment's operating earnings fell by more than 80 percent. Excluding the earnings of Clark-Schwebel from 1996, the segment's operating earnings fell by more than 70 percent. Operating profits from sales of retail fabrics and certain woven apparel fabrics declined sharply from the prior year. Profits were impacted by lower sales of home sewing fabrics, an adverse change in product mix, and price pressures resulting from a weak 29 18 Management's Discussion And Analysis Of Operations And Financial Condition Springs Industries, Inc. retail market for apparel. Additionally, the segment experienced manufacturing inefficiencies which were acted upon by management subsequent to year end, as discussed in Note 4 to the financial statements. The increase in the effective income tax rate to 33.0 percent in 1997, compared to 15.4 percent in 1996, was primarily the result of the absence in 1996 of any federal income tax on the book gain arising from the sale of Clark-Schwebel, Inc. INFLATION AND CHANGING PRICES The replacement cost of property, plant and equipment is generally greater than the historical cost shown on the Consolidated Balance Sheet due to inflation that has occurred since the property was placed in service. Springs uses the LIFO method of accounting for approximately 83 percent of its inventories. Under this method, the cost of goods sold reported in the Consolidated Statement of Operations generally reflects current costs. CAPITAL RESOURCES AND LIQUIDITY The Company's overall cash needs for 1998 were provided from operations, asset sales, business divestitures and long-term borrowings. Debt, net of cash and cash equivalents, as a percent of total capital was 30.6 percent at January 2, 1999, compared to 23.6 percent at January 3, 1998. In 1998, the Company borrowed $125 million under a long-term credit facility at a variable rate, which is currently 5.6 percent per annum. During the third quarter of 1998, the Company entered into an interest rate swap agreement for a notional amount of $60 million to effectively fix the interest rate on $60 million of the $125 million long-term loan at 6.1 percent. In October 1997, the Company's Board of Directors authorized management to purchase, from time to time, up to 2 million shares of Class A common stock in the open market and in private transactions. In August 1998, the Board granted similar authority for management to purchase up to an additional 2 million shares of Class A common stock. As of January 2, 1999, the Company had repurchased 2,408,400 shares pursuant to these authorizations. The Company invested $120.5 million in new property, plant and equipment during 1998, primarily for manufacturing, distribution and information technology. The Company expects capital expenditures for 1999 to approximate $170 million. Management expects that cash generated by operations, cash received from the sale of the Springfield division, cash on hand at the end of 1998, and borrowings from committed bank lines and commercial paper will adequately provide for the Company's cash needs during 1999. DIVESTITURES During the three years ended 1998, the Company sold four specialty fabrics businesses. Effective January 2, 1999, the Company disposed of the net assets of the Company's Springfield division in exchange for a $10 million preferred equity interest in the buyer and cash of $33 million. A receivable for the cash proceeds received on January 4, 1999, was included in other current assets on the Company's balance sheet as of the end of 1998. Effective December 19, 1998, the Company disposed of its Industrial Products division in exchange for principally $18.5 million in cash and other consideration in the form of notes receivable and a preferred equity interest in the buyer. Effective August 7, 1998, the Company sold its UltraSuede business and certain related assets of the UltraFabrics division. The Company has retained the UltraLeather portion of the UltraFabrics division, which is part of the Company's specialty fabrics segment. The combined effect of these transactions was a pretax gain of $8.4 million which is included in other (income) expense. The combined sales of these businesses included in the Company's 1998 results were $156.6 million, and earnings before interest and taxes totaled approximately $14.3 million. On April 17, 1996, the Company sold Clark-Schwebel, Inc., for $193 million in cash. A gain of $50.1 million was included in other income for 1996. This business included foreign operations with respect to which a foreign currency translation adjustment of $10.9 million had accumulated at the time of the sale. This translation adjustment was included in the determination of the gain on disposition. Through the date of the divestiture, Clark-Schwebel, Inc., had 1996 sales of $68.9 million and earnings before interest and taxes of $11.3 million. RESTRUCTURING AND REALIGNMENT 1996 Restructuring During the second quarter of 1996, the Company adopted a restructuring plan to consolidate and realign its fabric manufacturing operations. In connection with this plan, the Company closed three fabric manufacturing plants, added production in other plants, and increased outside purchases of grey fabric. The Company recorded a pretax charge of $30.4 million during the second quarter of 1996, which included a $16.3 million write-off of plant and equipment, a $6.6 million accrual for anticipated employment severance expenses arising from the elimination of approximately 850 positions, and a $7.5 million accrual primarily for idle plant costs and demolition costs. The following represents changes in the restructuring accruals since the adoption of the plan: (in millions)
Severance Accrual for Accrual Other Expenses - ------------------------------------------------------------- Original accrual on June 28, 1996 ..... $ 6.6 $ 7.5 Cash payments ..... (1.1) (3.0) - ------------------------------------------------------------- Accrual balance on December 28, 1996 . 5.5 4.5 Cash payments ..... (3.0) (2.2) Adjustments ....... 1.8 -- (2.0) -- - ------------------------------------------------------------- Accrual balance on January 3, 1998 ... 2.3 2.3 Cash payments ..... (0.8) (1.4) Adjustments ....... (1.5) (0.9) - ------------------------------------------------------------- Accrual balance on January 2, 1999 ... $ 0.0 $ 0.0 =============================================================
30 19 Management's Discussion And Analysis Of Operations And Financial Condition Springs Industries, Inc. The plan benefited operating results by reducing the volume of linear yards and second-quality units produced, reducing the complexity of the finishing process, and increasing manufacturing flexibility with respect to the use of finished roll stock. During 1997, Springs reduced the accrual for severance by $2.0 million due to lower-than-expected average severance cost per associate. The Company was able to place a greater percentage of the terminated employees in other positions within the Company than had been expected. At the same time, the Company also increased the severance accrual by $1.8 million for severance costs associated with 320 additional positions that were to be eliminated at other manufacturing facilities. During 1998, Springs again reduced the severance accrual by approximately $1.5 million due to continued favorable experience relative to the Company's earlier expectations as to the number of associates to whom severance would have to be paid. The restructuring plan was completed during the fourth quarter of 1998. The accrual for other expenses was reduced by $0.9 million primarily due to lower- than-expected idle plant costs. The Company has incurred realignment expenses of $20.2 million, including $5.3 million in 1998, for equipment relocation and other expenses related to the 1996 plan that do not qualify as "exit costs" as defined by Emerging Issues Task Force Issue No. 94-3. 1998 Restructuring In the first quarter of 1998, the Company adopted a plan to close one of its specialty fabrics facilities, the Rock Hill Printing and Finishing Plant. At that time, the Company recorded a pretax charge of $23.0 million, which included an $11.3 million write-off of plant and equipment, a $4.0 million accrual for anticipated severance costs arising from the elimination of approximately 480 positions, and a $7.7 million accrual primarily for idle plant costs, demolition costs, and costs associated with a defined benefit plan. The expected benefits of this action included lower production costs and better utilization of existing capacity in other facilities. During 1998, the Company began to realize a reduction in product costs as a result of closing the facility. The following represents changes in the restructuring accruals since the adoption of the plan: (in millions)
Severance Accrual for Accrual Other Expenses - -------------------------------------------------------------- Original accrual on February 17, 1998 . $ 4.0 $ 7.7 Cash Payments ..... (3.0) (1.2) Adjustments ....... (1.0) (6.5) - -------------------------------------------------------------- Accrual balance on January 2, 1999 ... $ 0.0 $ 0.0 ==============================================================
The restructuring plan was completed during the fourth quarter of 1998. Springs reduced the severance accrual in 1998 due to lower-than-expected cost per associate. The accrual for other expenses was reduced in 1998, primarily as a result of lower-than-anticipated costs associated with a defined benefit plan and the unexpected sale on September 25, 1998, of the Rock Hill facility. As a result of the sale, the Company reversed accruals relating to idle plant costs and demolition costs of approximately $4.3 million. The Company incurred expenses of $1.3 million for equipment relocation and other realignment expenses related to the 1998 plan which do not qualify as "exit costs" as defined by Emerging Issues Task Force Issue No. 94-3. IMPAIRMENT CHARGE AND SEVERANCE ACCRUAL During 1998, the Company adopted a plan to invest $67 million to consolidate and modernize its Griffin, Georgia and Hartwell, Georgia towel weaving and yarn operations. Springs announced in September 1998 that under the plan it will invest over $26 million, as part of the $67 million plan, to modernize and expand production at its Griffin Plant No. 5. The Company began to consolidate production from its Griffin Plant No. 1 into its Griffin Plant No. 5 and its Hartwell, Georgia facility in January 1999, with an expected completion date of mid-1999. The Company expects that 300 positions will be eliminated as a result of the consolidation and, therefore, recorded a severance accrual of approximately $1.4 million in its 1998 earnings. The Company also recorded a pretax impairment charge of approximately $4.8 million in connection with the consolidation and modernization of terry manufacturing operations. YEAR 2000 COMPUTER ISSUE Overview The "Year 2000 Computer Issue" arises because many computer programs use only two digits to refer to a year. If uncorrected, these computer programs may not be able to distinguish between the years 1900 and 2000 and consequently may fail to operate or may produce unpredictable results. Springs has been addressing the Year 2000 Computer Issue within its information technology and non-information technology systems through a Company-wide Year 2000 Project. Non-information technology systems typically include embedded technology such as computer chips within manufacturing equipment and building security systems. (Information technology and non-information technology systems are hereinafter referred to as "information systems.") The Company's Year 2000 Project commenced in 1996 and is directed by an internal Program Management Office. In general, Springs' Year 2000 Project is proceeding on or ahead of schedule. In addition, in 1993, the Company began a series of capital investment projects to improve internal operations and customer service by consolidating and replacing certain information systems. As part of these capital projects, the Company has been replacing certain older, non-compliant information systems with Year 2000 compliant information systems. These capital projects are expected to be completed by the end of the second quarter of 1999. Year 2000 Project The Company organized its Year 2000 Project into six broad phases: (1) development of a Company-wide inventory of information systems, (2) development of Company-wide standards, processes and guidelines for remediation, testing 31 20 Management's Discussion And Analysis Of Operations And Financial Condition Springs Industries, Inc. and certification, (3) remediation, (4) testing, (5)certification, and (6) development of contingency plans, as necessary. The Company will certify an information system as Year 2000 compliant only after the information system satisfies the Company's established test criteria. The Company completed the inventory of its information systems in 1997. The Company divided the tasks of remediating information systems which would not be replaced through a capital project into two major efforts (business applications and process logic controllers) and also undertook a project to contact certain key trading partners. (a) Business Applications: This project addresses all Company business applications, such as general ledger, accounts receivable, order fulfillment and payroll, and the technical infrastructure which supports them. As of January 2, 1999, the Company has certified approximately 90 percent of its business applications' lines of code as Year 2000 compliant. The remaining lines of code are in the testing phase. The Company expects to certify all business applications and supporting technical infrastructure as Year 2000 compliant by the end of its first quarter of 1999. (b) Process Logic Controllers: This project addresses the hardware, software and associated embedded chips that are used in the operation of all facilities and manufacturing equipment used by the Company. As of January 2, 1999, approximately 90 percent of the Company's process logic controllers are Year 2000 compliant. The Company projects that the rest will be repaired or replaced by the end of its second quarter of 1999. (c) Trading Partners: This project involves identifying critical vendors and customers and communicating with them about their compliance status and plans. The Company contacted all trading partners with which it does over $100,000 in business annually, all electronic data interchange trading partners, any other critical trading partner that did not otherwise meet the criteria, and all utilities which serve the Company in order to request written information regarding each trading partner's Year 2000 compliance status. The Company has been receiving written responses which indicate whether its trading partners are or plan to become Year 2000 compliant. The Company is aware that these written responses may not accurately represent the Year 2000 compliance status of its trading partners. The Company is continuing to follow up with its trading partners and intends to develop contingency plans as necessary. Costs The total cost of the Company's Year 2000 Project is not expected to be material to the Company's financial position. The Company presently expects to incur approximately $18 million of pretax expense in connection with its Year 2000 Project. Approximately $2.8 million of pretax expense was incurred in fiscal 1997, the first year in which the Company incurred Year 2000 expenses. Expenses totaling approximately $7.1 million were incurred during 1998 related to this effort. The funds to complete the remediation efforts are expected to be provided from cash flow from operations and short-term investments. Acquisitions During January 1999, the Company acquired American Fiber Industries, LLC and Regal Rugs, Inc. The Company plans to complete a detailed inventory and assessment of the information systems in each acquired entity by the end of its first quarter of 1999. Due diligence completed prior to these acquisitions indicates that any necessary remediation or replacement of information systems should not have a material impact on the Company's estimated total Year 2000 project expenses or the Company's ability to complete its Year 2000 project prior to the end of 1999. Risks Due to the numerous uncertainties inherent in the Year 2000 Computer Issue, the Company cannot ensure, despite its ongoing communications with its trading partners, that its most important suppliers and customers will be Year 2000 compliant on time. The failure of critical suppliers or customers to timely correct their Year 2000 Computer problems could materially and adversely affect the Company's operations and financial condition, even resulting in interruption of normal business operations. The Company has implemented and certified a contingency plan to continue transacting business with electronic data interchange trading partners who do not implement the Year 2000 version of the electronic data interchange software. The Company has not completed written contingency plans for the complete business failure of its key trading partners, which at this point appears to be unlikely. The Company is able to identify alternative raw materials suppliers in the event a critical supplier fails to timely correct a Year 2000 problem, disrupting its supply of products. A failure on the part of the Company to timely complete a Year 2000 remediation project or capital project in one or more of its divisions also could result in an interruption in, or failure of, normal business operations and could materially and adversely affect the Company's financial condition. At the end of 1998, however, all projects are proceeding according to plan. The Company believes that all projects will be completed by the end of 1999. The Company will continue to monitor all Year 2000 projects and capital projects and will develop contingency plans for specific business divisions, if required. The Company is preparing contingency plans to address the possibility of information systems failures at each of its facilities. The Company expects to complete these contingency plans during its first quarter of 1999. At this point, the Company cannot determine whether any other contingency plans are necessary or whether any such plan could completely alleviate the risk to the Company of its own or a key trading partner's failure to timely become Year 2000 compliant. Forward-looking statements contained in this Year 2000 Computer Issue section should be read in conjunction with the Company's disclosures under the heading "FORWARD-LOOKING INFORMATION" on page 33. MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS Interest Rate Risk - Springs is exposed to interest rate volatility with regard to existing issuances of variable rate debt. The Company uses interest rate swaps to reduce interest rate volatility and funding costs associated with certain debt issues and to achieve a desired proportion of variable versus fixed-rate debt, based on current and projected market conditions. The table below provides information for the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average rates by expected maturity dates. 32 21 Management's Discussion And Analysis Of Operations And Financial Condition Springs Industries, Inc.
Expected Maturity Date Fair Value ---------------------- ---------- January 2, 1999 2000 2001 2002 2003 Thereafter Total 1999 - ------------------------------------------------------------------------------------------------------------------------------ (in millions) Long-term debt: Fixed rate instruments $ 5.8 $ 5.1 $ 5.1 $ 5.1 $ 5.1 $ 29.4 $ 55.6 $ 63.7 Average interest rate 9.4% 9.4% 9.4% 9.4% 9.3% 8.5% Variable rate instruments $15.5 $15.5 $24.0 $33.0 $33.0 $112.7 $233.7 $233.7 Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% - ------------------------------------------------------------------------------------------------------------------------------ Total $289.3 $297.4 ============================================================================================================================== Interest rate swaps: Pay fixed/receive variable 1995 notional amounts $14.3 $14.3 $14.3 $14.3 $14.3 $ 22.1 $ 93.6 $ (3.4) Average pay rate 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 1998 notional amounts $ 0.0 $ 0.0 $ 2.1 $ 8.6 $ 8.6 $ 40.7 $ 60.0 $ (1.8) Average pay rate 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% - ------------------------------------------------------------------------------------------------------------------------------ Total $153.6 $ (5.2) ==============================================================================================================================
Commodity Price Risk - The Company is exposed to price fluctuations related to anticipated purchases of certain raw materials, primarily cotton fiber. Springs uses a combination of forward delivery contracts and exchange-traded futures contracts, consistent with the size of its business, to reduce the Company's exposure to price volatility. Management assesses these contracts on a continuous basis to determine if contract prices will be recovered through subsequent sales. The fair value of commodity contracts held at year-end 1998 was not material, and near-term changes in commodity prices are not expected to have a material impact on the Company's future earnings or cash flows. ACCOUNTING CHANGES In 1998, the Company adopted several pronouncements issued by the Financial Accounting Standards Board (FASB). FASB Statement No. 130, "Reporting Comprehensive Income," requires the components of comprehensive income to be disclosed in the financial statements. FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires certain information to be reported about operating segments on a basis consistent with the Company's internal organizational structure. FASB Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," revises the disclosures for pensions and other postretirement benefits and standardizes them into a combined format. Required disclosures have been made, and applicable prior years' information has been reclassified for the impact of adopting these statements. The adoption of these statements had no impact on the Company's reported financial position, results of operations, or cash flows. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1998, the Accounting Standards Executive Committee issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This standard, which will be adopted in 1999, revised the accounting for software development costs and will require the capitalization of certain costs which the Company has historically expensed. This statement is not expected to have a material impact on the Company's financial position, results of operations, or cash flows. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. This Statement will require the Company to recognize all derivatives on the balance sheet at fair value and may impact the Company's earnings depending on the instruments held at the time of adoption. The Company has not yet determined what impact FASB Statement No. 133 will have on its financial position, results of operations, or cash flows. SUBSEQUENT EVENTS In January 1999, the Company acquired two separate businesses. On January 5, the Company acquired an additional 50 percent interest in American Fiber Industries, LLC (AFI), a manufacturer and distributor of bed pillows, mattress pads, down comforters and comforter accessories. Springs acquired its original 50 percent interest in AFI in February 1997. The cost of the remaining interest totaled approximately $15 million, subject to possible adjustments in accordance with the agreement. Effective January 23, 1999, the Company acquired Regal Rugs, Inc. (Regal), a subsidiary of Readicut International PLC. Regal manufactures bath and accent rugs for sale to department and specialty stores, national chain stores, and catalogs. The purchase price for Regal was approximately $30 million, subject to possible adjustments for asset valuation and incremental tax liabilities of the seller. FORWARD-LOOKING INFORMATION This annual report contains forward-looking statements that are based on management's expectations, estimates, projections, and assumptions. Words such as "expects," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements which include but are not limited to projections of expenditures, savings, completion dates, cash flows, and operating performance. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guaranties of future performance; instead, they relate to situations with respect to which certain risks and uncertainties are difficult to predict. Actual future results and trends, therefore, may differ materially from what is forecasted in forward-looking statements due to a variety of factors, including: the ability of the Company and its suppliers and customers to bring their information systems to readiness for the Year 2000 (see the "Year 2000 Computer Issue" on page 31); the health of the retail economy in general, competitive conditions, and demand for the Company's products; progress toward the Company's cost-reduction goals; unanticipated natural disasters; legal proceedings; labor matters; and the availability and price of raw materials which could be affected by weather, disease, energy costs, or other factors. 33 22 Selected Financial Data Springs Industries, Inc.
1998 1997(b) 1996 1995 1994 Summary of Operations: (in millions) Net sales ............................... $2,180.5 $2,226.1 $2,221.0 $2,223.2 $2,060.6 Income from continuing operations ....... 37.3 69.0 88.4(h) 71.6 62.2 Net income .............................. 37.3(a) 69.0(c) 84.9(d) 71.6 62.2 Class A cash dividends declared ......... 14.9 16.9 16.7 14.8 11.8 Class B cash dividends declared ......... 8.7 8.8 9.0 8.9 8.5 - -------------------------------------------------------------------------------------------------------------------------------- Per Share of Common Stock: Income from continuing operations-diluted 1.97 3.34 4.29(h) 3.69 3.48 Net income-diluted ...................... 1.97(a) 3.34(c) 4.12(d) 3.69 3.48 Class A cash dividends declared ......... 1.32 1.32 1.32 1.26 1.20 Class B cash dividends declared ......... 1.20 1.20 1.20 1.14 1.08 Shareowners' equity ..................... 40.62 40.69 38.75 36.48 33.20 Class A stock price range: High .................................. 61 54 3/4 50 1/2 44 3/4 41 Low ................................... 31 3/4 41 38 3/8 35 1/4 29 1/4 - -------------------------------------------------------------------------------------------------------------------------------- Statistical Data: Net income to net sales ................. 1.7%(a) 3.1%(c) 3.8%(d) 3.2% 3.0% Net income to average shareowners' equity 5.0%(a) 8.6%(c) 11.1%(d) 10.8% 11.2% Operating return on assets employed(e) .. 5.8% 8.6% 8.8% 9.8% 10.4% Inventory turnover(f) ................... 4.1 4.6 4.8 5.3 5.8 Accounts receivable turnover(g) ......... 6.6 6.4 6.4 6.5 6.4 Net sales divided by average assets ..... 1.5 1.6 1.5 1.5 1.6 Current ratio ........................... 3.4 3.3 3.1 2.9 2.5 Capital expenditures (in millions) ...... $ 120.5 $ 99.3 $ 75.1 $ 75.2 $ 92.6 Depreciation (in millions) .............. $ 82.3 $ 78.8 $ 80.8 $ 84.6 $ 79.7 Approximate number of shareowners ....... 2,636 2,856 3,000 3,200 3,200 Average number of associates ............ 18,000 20,100 21,700 22,600 20,300 - -------------------------------------------------------------------------------------------------------------------------------- Selected Balance Sheet Data: (in millions) Net working capital ..................... $ 554.9 $ 546.4 $ 537.4 $ 506.3 $ 373.0 Net property ............................ 555.4 541.2 534.6 614.0 555.3 Total assets ............................ 1,435.3 1,409.3 1,398.5 1,527.5 1,289.0 Long-term debt .......................... 268.0 164.3 177.6 326.9 265.4 Shareowners' equity ..................... 724.1 804.6 780.8 734.5 584.1 - --------------------------------------------------------------------------------------------------------------------------------
34 23 Selected Financial Data Springs Industries, Inc. Notes (a) Net of restructuring and realignment expenses of $12.3 million, Year 2000 expenses of $4.4 million, gains of $8.6 million on the Company's sale of its UltraSuede business and the Rock Hill facility, losses of $1.7 million on the Company's sale of its Industrial Products and Springfield divisions, and an impairment charge of $3.0 million recorded in connection with the consolidation and modernization of terry manufacturing operations. Without these unusual items, net income would have been $50.1 million, or $2.64 per diluted share, net income to net sales would have been 2.3 percent, and the return on average shareowners' equity would have been 6.7 percent. (b) Fiscal year 1997 includes 53 weeks, whereas all other years include 52 weeks. (c) Net of restructuring and realignment expenses of $6.9 million, a $4.1 million gain on the sale of an investment, and Year 2000 expenses of $1.7 million. Without these unusual items, net income would have been $73.5 million, or $3.56 per diluted share, net income to net sales would have been 3.3 percent, and the return on average shareowners' equity would have been 9.2 percent. (d) Net of restructuring and realignment expenses of $21.0 million, a gain of $50.1 million on the sale of Clark-Schwebel, Inc., an extraordinary loss, net of an income tax benefit of $2.2 million, of $3.6 million, and other write-offs. Without these unusual items, net income would have been $64.6 million, or $3.13 per diluted share, net income to net sales would have been 2.9 percent, and the return on average shareowners' equity would have been 8.5 percent. (e) Pretax income before interest expense divided by average of month-end total assets used in operations. For 1998, pretax income was net of restructuring and realignment expenses, Year 2000 expenses, gains on the Company's sales of its UltraSuede business and the Rock Hill facility, losses on the Company's sales of its Industrial Products and Springfield divisions, and an impairment charge in connection with the consolidation and modernization of terry manufacturing operations. Without these unusual items, operating return on assets employed would have been 7.2 percent. For 1997, pretax income was net of realignment expenses, a gain on the sale of an investment, and Year 2000 expenses. Without these unusual items, operating return on assets employed would have been 9.2 percent. For 1996, pretax income was net of restructuring and realignment expenses, a gain on the sale of Clark-Schwebel, Inc. and other write-offs. Without these unusual items, operating return on assets employed would have been 8.3 percent. (f) Cost of goods sold divided by average of month-end inventories. (g) Net sales divided by average of month-end receivables. (h) Differs from net income by an extraordinary loss of $3.6 million due to an early extinguishment of debt, net of an income tax benefit of $2.2 million, or $0.17 per diluted share. Note: Selected Financial Data includes the following since their respective dates of acquisition: Dundee Mills, Incorporated, May 1995; Dawson Home Fashions, Inc., May 1995; and Nanik Window Coverings Group, July 1995. Selected Financial Data also includes the following until their respective dates of disposition: Clark-Schwebel Distribution Corp., June 1994; the Company's Intek office panel fabrics business, December 1995; Clark-Schwebel, Inc., April 1996; the Company's UltraSuede business, August 1998; the Company's Industrial Products division, December 1998; and the Company's Springfield division, December 1998. 35 24 36 Quarterly Financial Data (Unaudited) Springs Industries, Inc. (In millions except per share data)
1998 ----------------------------------------------------- Quarter 1st 2nd 3rd 4th Year Net sales ..................... $ 556.7 $ 537.1 $ 578.3 $ 508.4 $ 2,180.5 Gross profit .................. $ 101.6 $ 93.2 $ 99.2 $ 90.7 $ 384.7 Income before unusual items ................ $ 13.2 $ 7.7 $ 14.7 $ 14.5 $ 50.1 Year 2000 expenses ............ (0.9) (1.4) (1.3) (0.8) (4.4) Restructuring and realignment . (15.4) (0.8) 2.8 1.1 (12.3) Sales of businesses and Rock Hill facility .......... - - 8.6 (1.7) 6.9 Impairment charge ............. - - (3.0) - (3.0) Sale of an investment ......... - - - - - - --------------------------------------------------------------------------------------- Net income .................... $ (3.1) $ 5.5 $ 21.8 $ 13.1 $ 37.3 ======================================================================================= Earnings per common share-diluted Income before unusual items ............... $ 0.66 $ 0.40 $ 0.80 $ 0.80 $ 2.64 Year 2000 expenses ............ (0.04) (0.08) (0.07) (0.05) (0.23) Restructuring and realignment . (0.78) (0.04) 0.15 0.06 (0.64) Sales of businesses and Rock Hill facility .......... - - 0.47 (0.09) 0.36 Impairment charge ............. - - (0.16) - (0.16) Sale of an investment ......... - - - - - - --------------------------------------------------------------------------------------- Net income .................... $ (0.16) $ 0.28 $ 1.19 $ 0.72 $ 1.97 ======================================================================================= 1997 ----------------------------------------------------- Quarter 1st 2nd 3rd 4th(1) Year(1) Net sales ..................... $ 543.0 $ 528.9 $ 579.3 $ 574.9 $ 2,226.1 Gross profit .................. $ 96.2 $ 98.1 $ 108.4 $ 103.2 $ 405.9 Income before unusual items ................ $ 13.1 $ 16.8 $ 25.2 $ 18.4 $ 73.5 Year 2000 expenses ............ (0.2) (0.3) (0.4) (0.8) (1.7) Restructuring and realignment . (1.7) (1.3) (1.5) (2.4) (6.9) Sales of businesses and Rock Hill facility .......... - - - - - Impairment charge ............. - - - - - Sale of an investment ......... - - 4.1 - 4.1 - ------------------------------------------------------------------------------------------ Net income .................... $ 11.2 $ 15.2 $ 27.4 $ 15.2 $ 69.0 ========================================================================================== Earnings per common share-diluted Income before unusual items ............... $ 0.64 $ 0.81 $ 1.21 $ 0.90 $ 3.56 Year 2000 expenses ............ (0.02) (0.01) (0.02) (0.05) (0.09) Restructuring and realignment . (0.08) (0.07) (0.07) (0.11) (0.33) Sales of businesses and Rock Hill facility .......... - - - - - Impairment charge ............. - - - - - Sale of an investment ......... - - 0.20 - 0.20 - ------------------------------------------------------------------------------------------ Net income .................... $ 0.54 $ 0.73 $ 1.32 $ 0.74 $ 3.34 ==========================================================================================
(1) 14 weeks for the quarter and 53 weeks for the year. DIVIDENDS AND PRICE RANGE OF COMMON STOCK
1998 1997 -------------------------------------------- ---------------------------------------------- Quarter 1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year Per share: Class A dividends declared ......... $ .33 $ .33 $ .33 $ .33 $ 1.32 $ .33 $ .33 $ .33 $ .33 $ 1.32 Class B dividends declared ......... .30 .30 .30 .30 1.20 .30 .30 .30 .30 1.20 ======================================================================================================================== Common stock prices: High ............. 58 1/16 61 46 1/2 42 1/4 61 47 1/2 54 3/4 54 53 1/16 54 3/4 Low .............. 50 1/8 45 1/4 32 7/16 31 3/4 31 3/4 41 42 7/8 43 11/16 43 13/16 41 ========================================================================================================================
EX-21 3 LIST OF SUBSIDIARIES 1 SUBSIDIARIES OF SPRINGS INDUSTRIES, INC.
Name of Subsidiary Place of Incorporation - ---------------------------------------------- ---------------------- 1. American Fiber Industries, LLC Delaware 2. Catawba Trucking Co., Inc. South Carolina 3. Lancaster International Sales Corporation South Carolina 4. Regal Rugs, Inc. Indiana 5. SIH Corp. Delaware 6. Springmaid International, Inc. South Carolina 7. Springs Canada, Inc. Ontario 8. Springs de Mexico, S.A. de C.V. Mexico 9. Springs Industries (Asia) Inc. Delaware 10. Springs Sales Corporation U.S. Virgin Islands 11. Springs Window Fashions Division, Inc. Delaware 12. Springs Window Fashions Leasing Co., Inc. South Carolina 13. Warbird Corporation Delaware
27 EX-23 4 CONSENT OF EXPERT FOR FORM S-8 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-46260 and No. 33-46261 of Springs Industries, Inc., on Form S-8 of our report dated February 1, 1999, incorporated by reference in this Annual Report on Form 10-K of Springs Industries, Inc., for the year ended January 2, 1999. DELOITTE & TOUCHE LLP Charlotte, North Carolina March 30, 1999 28 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SPRINGS INDUSTRIES, INC., FOR THE FISCAL YEAR ENDED JANUARY 2, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-02-1999 JAN-04-1998 JAN-02-1999 48,127 0 275,144 0 385,609 787,176 1,350,223 794,827 1,435,332 232,267 267,991 0 0 4,481 719,635 1,435,332 2,180,497 2,180,497 1,795,757 1,795,757 0 16,401 25,069 58,779 21,450 37,329 0 0 0 37,329 2.01 1.97
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