-----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, S1wPQ+1JMIKo3yc+k70MmGTr4t900IpBsdXzcLD7ZAU9lRm+KiwcTtziZa10pMyZ OIO/Y+ByAIJ1p1ppVv1hXg== 0000950144-00-003963.txt : 20000411 0000950144-00-003963.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950144-00-003963 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000329 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: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05315 FILM NUMBER: 582705 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 1, 2000 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 17, 2000, was $403,775,085. ================================================================================ As of March 17, 2000, there were 10,756,773 shares of Class A Common Stock and 7,155,363 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 1,2000 (Parts I & II) ================================================================================ Specified Portions of Proxy Statement to Security Holders dated March 22, 2000 (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 DISCLOSURES ABOUT MARKET RISK 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 indicated otherwise. In connection with the Company's sale of four of its specialty fabrics businesses during 1998 and the first quarter of 1999, Springs realigned its internal organizational structure during the first quarter of 1999 to reflect the Company's strategic focus on the home furnishings market, resulting in one reportable segment, which is the home furnishings segment. The Company's operations are engaged in the manufacturing, marketing and sale of textile and nontextile home furnishing products. The home furnishings segment's operating results for 1998 and 1997 have been restated to include the Company's Retail and Specialty Fabrics unit's operating results, which were previously included in its former specialty fabrics segment. Prior to 1999, the Company's specialty fabrics segment was engaged in the manufacturing and marketing of printed and dyed fabrics sold to retail stores and manufacturers. For information on the amounts of revenue, operating profit and identifiable assets attributable to the home furnishings and specialty fabrics segments for each of the last three fiscal years, see pages 17 and 18 of the Company's Annual Report to Shareholders (the "Annual Report"), which is incorporated herein by reference. 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. The Company believes that the factors contributing to 4 5 Springs' industry position are its highly automated manufacturing facilities, its well-known brands, and its ability to offer a wide array of home furnishings in coordinating fashions and designs to large retailers. Consolidated sales in 1999 were $2.220 billion and net income was $69.0 million. Before an unusual item of $0.6 million (after-tax) for Year 2000 expenses, 1999 net income was $69.6 million. The Company manufactures, purchases for resale and markets home furnishing products, including sheets, pillows, pillowcases, bedspreads, comforters, mattress pads, baby bedding and infant apparel, towels, shower curtains, bath and accent rugs, other bath fashion accessories, over-the-counter home-sewing fabrics, drapery hardware, and hard and soft decorative window fashions. 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, home improvement stores, 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 57 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. 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"). 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 $35 million. Both of these acquisitions reflect Springs' continuing strategic emphasis on increasing sales through acquisitions that complement the Company's extensive line of home furnishings. For additional details of the acquisitions described above, see page 27 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition," which is incorporated herein by reference. 5 6 During the past two years, Springs has sold four specialty fabrics businesses and a significant specialty fabrics manufacturing facility. More specifically: - - On August 7, 1998, the Company sold its UltraSuede business and certain related assets of its UltraFabrics business. - - 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 former specialty fabrics segment. - - Effective December 19, 1998, the Company sold its Industrial Products business 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 divested business. - - Effective January 2, 1999, Springs sold its Springfield apparel fabrics business for a $10 million preferred equity interest in the divested business and cash of $33 million. - - Effective March 31, 1999, Springs sold its UltraFabrics business. For additional details of the divestitures described above, see page 27 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition," which is incorporated herein by reference. Home furnishing products, consisting primarily of textile bedding products, textile and non-textile bath products, window fashions, and over-the-counter home-sewing fabric, represented 100%, 92.4%, and 91.8% of consolidated revenues for each of 1999, 1998, and 1997, respectively. Specialty fabric products, consisting primarily of apparel fabric and high performance fabric, represented 7.6% and 8.2% of consolidated revenues for each of 1998 and 1997, 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 future results of operations. The Company considers its trademarks to be materially important to its business. The Company sells bed and bath products under the Wamsutta(R), Springmaid(R), Performance(TM), Regal(R) and Dundee(R) brands, over-the-counter home-sewing fabric under the Springmaid(R) and Daisy Kingdom(R) brands, and decorative window products under the Graber(R), Bali(R), Nanik(R), FashionPleat(R), Maestro(TM) and 6 7 CrystalPleat(R) brands. The Wabasso(R) and Texmade(R) brands are used for bed products sold in Canada. The trademarks are protected, in part, through United States and foreign trademark registrations. The Company also has multiple license agreements with The Walt Disney Company. These agreements expire at various future dates through 2001. Management believes it will be able to renew these agreements for terms of one to three years. Home furnishing products are also sold under private brand names of certain customers. In 1999, the Company's requirements for cash to finance working capital were provided from operations, asset sales, business divestitures and available credit facilities. For additional details on asset sales, see page 26 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition." Management expects that cash generated by operations and borrowings from bank lines will adequately provide for the Company's cash needs during 2000. Trade receivables are generally collected in 60 days or less. The Company's top ten customers represent approximately 60% of total sales; however, the total customer base is very large. While the Company has no reason to believe that it 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. In 1999, consolidated sales to Wal-Mart Stores, Inc., were approximately 20% 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 1, 2000, amounted to approximately $136 million. The unfilled order position at January 2, 1999, was approximately $177 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 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 factors such 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. 7 8 The Company estimates the range of possible losses for such matters to be between $7 million and $15 million, and has accrued an undiscounted liability of approximately $11 million, which represents management's best estimate of Springs' probable liability concerning all known environmental matters. Management believes the $11 million will be paid out over the next 15 years. This accrual has not been reduced by any potential insurance recovery to which the Company may be entitled regarding environmental matters. Approximately 18,500 associates were employed by Springs and its subsidiaries at the end of 1999. Springs' international sales accounted for approximately 6.7% of total sales in 1999, 6.9% in 1998, and 6.7% in 1997. The bulk of Springs' sales outside of the United States is made in Canada. During each of the last three years, less than 5% of the Company's assets have been located outside of the United States. ITEM 2. PROPERTIES The Company owns its Executive Office Building and an additional office building in Fort Mill, South Carolina. The Company leases offices and showrooms in New York City and additional space in other cities for administrative 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 products. Springs currently has 41 manufacturing plants. Of these: 21 manufacture bedding products, such as sheets, comforters, pillows and mattress covers; 12 manufacture bath products such as towels, bath rugs, and shower curtains; five manufacture decorative window products; and three manufacture infant bedding and apparel. Of these plants: 13 are in South Carolina; 12 in Georgia; two in each of Alabama, California, North Carolina, Pennsylvania, and Wisconsin; and one in each of Indiana, Mississippi, Nevada, Oklahoma, Tennessee, and Virginia. Springs considers all plants to be well maintained and generally in good operating condition. 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. 8 9 ITEM 3. LEGAL PROCEEDINGS The Company operates a towel finishing plant in Griffin, Georgia, which discharges treated wastewater into a creek located near the plant. Because the plant is unable to meet certain provisions of its National Pollutant Discharge Elimination System ("NPDES") permit for the discharge, the Company negotiated a consent order in 1997 with the Georgia Environmental Protection Division ("EPD"), which required the Company to achieve compliance by December 6, 1999. Although the Company developed alternative methods for achieving compliance with the NPDES requirements, compliance could not be achieved by December 6, 1999, because of regulatory constraints. On December 3, 1999, the EPD issued an administrative order that allows the Company to continue operating the plant for two years. The order contemplates a change in the Georgia environmental rules that would allow site-specific exceptions based on appropriate scientific evaluations that provide adequate protection to the environment and would require the Company to apply for an appropriate permit modification following adoption of the rule change. The EPD has proposed the rule change allowing site-specific exceptions and has proposed that the Company be granted an exception for the Griffin Plant. A public hearing was held on the proposed rule change on March 14, 2000, and another public hearing is scheduled for April 20, 2000. The Company believes the rule change will be proposed in late April 2000 to the Georgia Department of Natural Resources Board for adoption. EPD also issued a consent order in February 2000 which provides for certain penalties because of the inability of the Company to comply with its NPDES permit by December 6, 1999. The consent order imposed stipulated penalties of $10,000 for failure to comply with the December 6, 1999, deadline for compliance and $32,000 for certain violations between September 1998 and June 1999. The order also imposes additional monthly and quarterly penalties of up to a maximum of $68,000 per year for failure to satisfy certain provisions of the NPDES permit after December 7, 1999. Additional information required by this Item is incorporated by reference from the Notes to Consolidated Financial Statements, Note 15. - Other Matters, found on page 25 of the Annual Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None reportable. 9 10 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 - ----------------------------------------------------------------------------------------------------------------- Jeffrey A. Atkins 51 Executive Vice President and Chief Financial Officer (August 1999 to present). Chief Executive Officer, Pete's Brewing Co. (1997 to August 1998). Chief Financial Officer, Pete's Brewing Co. (December 1996 to August 1998). Vice President-Corporate Planning & Strategy, Quaker Oats Co. (March 1995 to December 1996). Crandall C. Bowles 52 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). Gracie P. Coleman 48 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).
10 11 John R. Cowart 49 Senior Vice President-Purchasing (August 1999 to present). Director of Sourcing-Europe, General Electric (October 1997 to August 1999). Director of Sourcing-Asia, General Electric (May 1996 to October 1997). General Manager-Sourced Products, General Electric (September 1994 to May 1996). C. Powers Dorsett 55 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 56 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). Ray Greer 46 Senior Vice President and Chief Information Officer (October 1999 to present). Vice President-Information Technology, Philips China Electronics Group (1998 to October 1999). General Manager-Information Technology, Philips China Electronics Group (1996-1998). Principal, IBM Corporation (1992-1996). Samuel J. Ilardo 44 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).
11 12 Stephen P. Kelbley 57 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). Charles M. Metzler 47 Vice President - Controller (February 1996 to present). Controller - Springs Canada, Inc. (September 1992 to January 1996). Thomas P. O'Connor 54 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 39 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).
Crandall C. 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. 12 13 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 17, 2000, there were approximately 2,451 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 32 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 30 and 31 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 26 through 29 of the Annual Report under the caption "Management's Discussion and Analysis of Operations and Financial Condition." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item is incorporated by reference from pages 28 and 29 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 13 14 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 32 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 Information about directors required by this Item is incorporated by reference from pages 2 through 4 of the Company's Proxy Statement to Shareholders dated March 22, 2000 (the "Proxy Statement") under the captions "Directors, Nominees, and Election of Directors" and "Information Regarding the Board of Directors." 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." ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is incorporated by reference from pages 5 through 11 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," and "Performance Graph." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this Item is incorporated by reference from pages 13 and 14 of the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management." 14 15 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this Item is incorporated by reference from page 14 of the Proxy Statement under the caption "Transactions With Certain Persons." 15 16 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: (i) Consolidated Statement of Operations for the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998 (Annual Report page 13). (ii) Consolidated Balance Sheet as of January 1, 2000, and January 2, 1999 (Annual Report page 14). (iii) Consolidated Statement of Shareholders' Equity as of January 1, 2000, January 2, 1999, and January 3, 1998 (Annual Report page 15). (iv) Consolidated Statement of Cash Flows for the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998 (Annual Report page 16). (v) Notes to Consolidated Financial Statements (Annual Report pages 17 through 25). (vi) Independent Auditors' Report (Annual Report page 12). 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: None. 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," "believes," "estimates," and variations of such words and similar expressions are often used to identify such forward-looking statements which include but are not limited to projections of expenditures, savings, completion dates, cash flows, and operating performance. Such forward-looking statements are made pursuant to the safe-harbor provisions of 16 17 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 forecast in forward-looking statements due to a variety of factors, including: the health of the retail economy in general, competitive conditions, and demand for the Company's products; progress toward the Company's cost-reduction goals; unanticipated natural disasters; legal proceedings; Year 2000-related computer issues; 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/Jeffrey A. Atkins ------------------------------------- Jeffrey A. Atkins Executive Vice President and Chief Financial Officer Date: March 27, 2000 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 27, 2000 President & Chief Executive Officer and Director (Principal Executive Officer) Date: March 27, 2000 By: /s/John L. Clendenin By: /s/Leroy S. Close ------------------------------- --------------------------------- John L. Clendenin, Director Leroy S. Close, Director Date: March 27, 2000 Date: March 27, 2000 By: /s/Charles W. Coker By: /s/William G. Kelley ------------------------------- --------------------------------- Charles W. Coker, Director William G. Kelley, Director Date: March 27, 2000 Date: March 27, 2000 18 19 By: /s/John H. McArthur By: /s/Aldo Papone ------------------------------- ------------------------------------ John H. McArthur, Director Aldo Papone, Director Date: March 27, 2000 Date: March 27, 2000 By: /s/Robin B. Smith By: /s/Sherwood H. Smith, Jr. ------------------------------- ------------------------------------ Robin B. Smith, Director Sherwood H. Smith, Jr., Director Date: March 27, 2000 Date: March 27, 2000 By: /s/Stewart Turley ------------------------------- Stewart Turley, Director Date: March 27, 2000 By: /s/Jeffrey A. Atkins By: /s/Charles M. Metzler ------------------------------- ----------------------------------- Jeffrey A. Atkins Charles M. Metzler, Executive Vice President and Vice President-Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) Date: March 27, 2000 Date: March 27, 2000 19 20 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC ---------------------------------------------------------------- EXHIBITS * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 20 21 EXHIBIT INDEX Item (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. (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. 21 22 (b) Springs' Deferred Compensation Plan, as amended and restated on August 18, 1994, incorporated by reference from Form 10-Q filed November 14, 1994. (c) Springs' Supplemental Executive Retirement Plan, incorporated by reference from Form 10-Q filed May 12, 1997. Amendment No. 1 effective January 1, 1999, filed herewith. (d) 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. (e) 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. (f) Springs' 1999 Deferred Compensation Plan for Outside Directors, incorporated by reference from Form S-8 filed June 17, 1999. (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. 22 23 (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 Company's shareholders on April 19, 1999, 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. (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' 1999 Achievement Incentive Plan effective January 3, 1999, filed herewith. (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. 23 24 (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 after September 1995, and under the 1999 Incentive Stock Plan incorporated by reference from Form 10-K filed March 27, 1998. (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) Form of agreement used in conjunction with grants of deferred stock awards under the 1999 Incentive Stock Plan, filed herewith. (s) Form of agreement used in conjunction with grants of restricted stock awards under the 1999 Incentive Stock Plan, filed herewith. (t) Financial Planning Policy for certain executives of the Company, incorporated by reference from Form 10-K filed March 27, 1998. (13) Pages 12 through 32 of the 1999 Annual Report to Shareholders, which have been expressly incorporated by reference. (21) List of Subsidiaries of Springs. (23) Consent of independent auditors for Form S-8 Registration Statements for 1991 Incentive Stock Plan, 1991 Restricted Stock Plan for Outside Directors, 1999 Deferred Compensation Plan for Outside Directors, and 1999 Incentive Stock Plan. (27) Financial Data Schedule (for SEC purposes) 24 EX-10.(C) 2 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 Exhibit 10(c) AMENDMENT 1999-1 SPRINGS INDUSTRIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN THIS AMENDMENT dated this the 24th day of March 2000 to the SPRINGS INDUSTRIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (hereinafter called the "Plan") adopted by SPRINGS INDUSTRIES, INC. (hereinafter called the "Employer"); WHEREAS, the Employer has adopted and maintains the Plan as a non-qualified supplemental retirement plan for the benefit of certain employees; and WHEREAS, Section 6.01 of the Plan authorizes the amendment of the terms of the Plan by the Employer. NOW, THEREFORE, the Plan is hereby amended effective January 1, 1999 as follows: 1. Section 3.01(b)(i) and (ii) is deleted and the following new Section 3.01(b)(i) and (ii) is substituted in lieu thereof: "(i) 50% of the Participant's old-age insurance benefits at age 65 under the Social Security Act, computed as if the Participant had no further earnings after the date of his retirement hereunder ("Retirement Date"). (ii) The deemed income amount as of the Participant's Retirement Date (determined as a single life annuity for the Participant) that is the actuarial equivalent to the Participant's aggregate vested account balances as of his Retirement date in the profit sharing fund account and the savings fund Company matching account under (a) the Springs of Achievement Partnership Plan and any defined contribution retirement plan maintained by a subsidiary of the Company, (b) the Springs of Achievement Excess Benefits Partnership Plan and (c) the Company's Deferred Compensation Plan. [A] The deemed income amount under this Section 3.01(b)(ii) for the profit sharing fund account under the plans shall be determined by applying to the Participant's account balance in each such plan such actuarial methods and assumptions as the Committee may from time to time approve. [B] The deemed income amount under this Section 3.01(b)(ii) for the savings fund Company matching account under the plans shall be determined by applying to the Participant's account balance in the Company 2 matching account in each plan such actuarial methods and assumptions as the Committee may from time to time approve." 2. Section 3.03(a) is deleted and the following new Section 3.03(a) is substituted in lieu thereof: Sections 3.03 (a) A Participant becomes vested in Supplemental Benefits only upon attainment of age fifty-five (55) and completion of ten (10) year of Credited Service. Upon termination of employment after such vesting, a Participant shall be considered to be retired under this Plan and, as of the month following termination or employment, shall begin receiving his or her Supplemental Benefits. If the Participant has attained age sixty-two (62), no reduction in the amount of his Target Benefit shall be made. If a Participant retires hereunder prior to age sixty-two (62), the Participant's Target Benefit shall be reduced by five percent (5%) for each full year, and 5 1/2% for each full month, by which the Participant's Retirement Date precedes the Participant's sixty-second birthday; provided, however, there shall be no reduction in the Participant's Target Benefit if: (i) The Participant has attained age (60) and the sum of the Participant's Credited Service and age equals or exceeds 85; or (ii) The Participant has attained age 55, but not age 60, and the sum of the Participant's Credited Service and age equals or exceeds 90 and the Company's chief executive officer has authorized in writing the retirement of the Participant under the Plan without a reduction in the Target Benefit." The officers of the Employer are authorized and directed to insert copies of this amendment in the file copy of the Plan available for inspection by Participants upon request. IN WITNESS WHEREOF, the Employer has caused this Amendment to be executed the day and year written above. SPRINGS INDUSTRIES, INC. Employer By: /s/ Gracie P. Coleman ------------------------------------- Gracie P. Coleman Senior Vice President-Human Resources ATTEST: /s/ Robert W. Sullivan - ---------------------- Robert W. Sullivan Assistant Secretary EX-10.(L) 3 1999 ACHIEVEMENT INCENTIVE PLAN 1 EXHIBIT 10(l) SPRINGS INDUSTRIES, INC. 1999 ACHIEVEMENT INCENTIVE PLAN 1. PURPOSE. The purpose of the Achievement Incentive Plan (the "Plan") is to provide key employees of Springs Industries, Inc. (the "Company") and its affiliates with incentive compensation based upon level of achievement of financial and other performance criteria. The Company believes the Plan will enhance the ability of the Company and its affiliates to attract individuals of exceptional managerial and administration talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends. 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Award" shall mean a cash payment. (b) "Board" shall mean the Board of Directors of the Company. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor thereto. (d) "Compensation Committee" shall mean the Management Compensation and Organization Committee of the Board (or any successor committee). (e) "CMC" shall mean the Corporate Management Committee of the Company. (f) "Key Employee" shall mean any exempt salaried employee of the Company or any affiliate in a salary grade of 11 or higher. (g) "Participant" shall mean any person selected by the Compensation Committee to participate in the Plan. (h) "Performance Year" shall mean the fiscal year in which a Participant provides services on account of which the Award is made. (i) "Salary Committee" shall mean the Salary Committee of the CMC. (j) "Target Award" shall mean an Award level that may be paid if certain performance criteria are achieved in the Performance Year. 3. ELIGIBILITY. Key Employees employed in active service by the Company or by any of its subsidiaries or affiliates, if designated by the Salary Committee, during a Performance Year are eligible to be Participants under the Plan for such Performance Year. 4. AWARDS-GENERAL. The Salary Committee shall establish Target Awards at the beginning of each Performance Year for Participants who are not members of the CMC. The Compensation Committee will establish Target Awards at the beginning of each Performance 26 2 Year for Participants who are members of the CMC and shall establish the corporate financial performance criteria to be applicable to Awards for such Performance Year. The corporate financial performance criteria utilized by the Compensation Committee may be based on earnings per share; other corporate financial objectives, such as return on assets or profits from operations; customer satisfaction indicators; operational efficiency measures; and other measurable objectives tied to the Company's success or such other criteria as the Compensation Committee shall determine. A Participant must be employed by the Company or its subsidiary or affiliate on the last day of a Performance Year to be eligible to receive an Award for the year except in the case of termination of employment during the Performance Year for death, retirement, total disability, as defined in the Company's Long Term Disability Plan, or economic termination, as defined in the Company's Springs of Achievement Partnership Plan. The Award amount with respect to a Participant may be determined entirely on achievement of corporate financial performance targets established by the Compensation Committee or in part on achievement of financial performance targets and in part on achievement of personal objectives (including business unit financial objectives) as determined by the Compensation Committee or, in the case of Participants who are not members of the Corporate Management Committee, as determined by the Salary Committee. Awards will be made following the end of each Performance Year. Awards shall be paid as soon as practicable after the Performance Year, except to the extent that a Participant has made an election to defer the receipt of such Award pursuant to the Company's Deferred Compensation Plan. The determination of the Award amount for each Participant shall be made at the end of each Performance Year and may be less than (including no Award) or greater than the Target Award, subject to limitations established by the Compensation Committee. The Salary Committee may in special circumstances make bonus awards to Participants who are not members of the CMC from time to time in its sole discretion, and the Compensation Committee may in special circumstances make bonus awards to CMC members from time to time in its sole discretion. 5. OTHER CONDITIONS. (a) No person shall have any claim to an Award under the Plan and there is no obligation for uniformity of treatment of Participants under the Plan. Awards under the Plan may not be assigned or alienated. (b) Neither the Plan nor any action taken hereunder shall be construed as giving to any Participant the right to be retained in the employ of the Company or any affiliate. (c) The Company or any affiliate shall have the right to deduct from any Award to be paid under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment. 6. DESIGNATION OF BENEFICIARIES. A participant may, if the Compensation Committee permits, designate a beneficiary or beneficiaries to receive all or part of the Award 27 3 which may be made to the Participant, or may be payable, after such Participant's death. A designation of beneficiary shall be made in accordance with procedures specified by the Company and may be replaced by a new designation or may be revoked by the Participant at any time. In case of the Participant's death, an Award with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under the applicable law) shall be paid to the designated beneficiary or beneficiaries. Any Award granted or payable to a Participant who is deceased and not subject to such a designation shall be distributed to the Participant's estate. If there shall be any question as to the legal right of any beneficiary to receive an Award under the Plan, the amount in question may be paid to the estate of the Participant, in which event the Company or its affiliates shall have no further liability to anyone with respect to such amount. 7. PLAN ADMINISTRATION. (a) The Compensation Committee shall have full discretionary power to administer and interpret the Plan and to establish rules for its administration (including the power to delegate authority to others to act for and on behalf of the Compensation Committee). In making any determinations under or referred to in the Plan, the Compensation Committee (and its delegates, if any) shall be entitled to rely on opinions, reports or statements of employees of the Company and its affiliates and of counsel, public accountants and other professional or expert persons. (b) The Plan shall be governed by the laws of the State of South Carolina and applicable Federal law. 8. MODIFICATION OR TERMINATION OF PLAN. The Compensation Committee may modify or terminate the Plan at any time, effective at such date as the Compensation Committee may determine. The Senior Vice President - Human Resources of the Company or her delegate with the concurrence of the General Counsel of the Company or his delegate (or, in each case, any successor to either of such officer's responsibilities), shall be authorized to make minor or administrative changes in the Plan or changes required by or made desirable by law or government regulation. Such a modification may affect present and future Participants. For purposes of this Section, a change to the Plan that affects any Award to a Covered Employee shall not be a minor or administrative change. 9. ADOPTION AND EFFECTIVE DATE. This Plan was adopted by the Board of Directors of the Company at a meeting held on February 11, 1999, effective January 3, 1999. 28 EX-10.(R) 4 DEFERRED STOCK AWARD AGREEMENT 1 Exhibit 10(r) DEFERRED STOCK AWARD AGREEMENT THIS DEFERRED STOCK AWARD AGREEMENT (the "Agreement") is made and entered into as of ____________, between Springs Industries, Inc., a South Carolina corporation ("Springs"), and ___________________________ (the "Participant"). THE PARTIES AGREE AS FOLLOWS: 1. GRANT. Springs hereby grants to Participant a Deferred Stock Award (the "Award") to receive in the future up to _______ shares of Springs' Class A Common Stock, $.25 par value, ("Common Stock") subject to the terms, restrictions and conditions set forth herein and in the Incentive Stock Plan (the "Plan"). The Plan is incorporated into and made a part of this Agreement, and a copy is available upon request in writing to the Corporate Secretary of Springs. Capitalized terms in this Agreement shall have the same meaning as defined in the Plan. 2.1 VESTING. Except as otherwise provided in Sections 2.2 and 2.3 below, Participant's right to receive shares of Common Stock shall vest upon Participant's continuous, active employment with Springs (including employment with Springs' subsidiaries) in accordance with the following schedule: (a) if full-time, active employment terminates before __________, then Participant shall not be entitled to receive any shares of Common Stock; (b) if full-time, active employment terminates on or after __________, and before _________, Participant shall be vested in the right to receive _____ shares of Common Stock and shall forfeit all other rights; (c) if full-time, active employment terminates on or after ________, and before __________, Participant shall be vested in the right to receive _____ shares of Common Stock and shall forfeit all other rights; -1- 2 (d) if full-time, active employment terminates on or after ________, and before __________, Participant shall be vested in the right to receive ______ shares of Common Stock and shall forfeit all other rights; (e) if full-time, active employment terminates on or after ______, and before ________, Participant shall be vested in the right to receive ______ shares of Common Stock and shall forfeit all other rights; (f) if full-time, active employment terminates on or after _______, Participant shall be vested in the right to receive _____ shares of Common Stock. 2.2 ECONOMIC TERMINATION, TOTAL AND PERMANENT DISABILITY, DEATH OR RETIREMENT. Subject to Section 2.3 below, Participant's right to receive all _____ shares of Common Stock shall vest if Participant shall be involuntarily terminated from full-time, active employment with Springs and any of its subsidiaries as a result of an Economic Termination as defined in Section 2.4 below or if Participant's full-time, active employment with Springs and its subsidiaries terminates as a result of Participant's Total and Permanent Disability or Retirement, as such terms are defined in Section 2.4 below, or as a result of Participant's death. 2.3 NON-COMPETITION COVENANTS. (a) Participant's right to receive shares of Common Stock and distributions from Participant's dividend account described in Section 3 below shall not be vested, and shall be completely forfeited, if Participant breaches any of his covenants under Section 2.3(b) below; other than such a forfeiture of shares of Common Stock and distributions from the dividend account, this Agreement shall not be deemed to give the Company any remedy for breach by Participant of any of the covenants set forth in Section 2.3(b). Participant may advise the Committee of future employment intentions after termination of Participant's employment with Springs and its subsidiaries and the Committee -2- 3 may, in its sole discretion, waive forfeiture as to rights to receive any or all of the shares of Common Stock. (b) Participant agrees that for the period ending two years after termination of full-time, active employment with the Company and its subsidiaries (the "Employment Termination Date"), he will not, directly or indirectly, by or through any other person or entity, enter into or conduct any business in competition with the businesses of Springs and its subsidiaries as it shall be conducted on the Employment Termination Date (the "Businesses"). Specifically, without limitation, Participant covenants and agrees that during such period he will not, except in the proper performance of his duties as employee of Springs and its subsidiaries in the ordinary course of their business: (i) own or become involved as an employee or otherwise, in owning, managing, advising or working for, any corporation, partnership, association, joint venture, sole proprietorship, or other entity which is engaged in any way in any of the Businesses; (ii) make a loan to, or guarantee the obligations of, any such entity or business or make a loan to, or guarantee the obligations of, any owner, partner, or shareholder thereof; (iii) request, induce, or attempt to influence any supplier of goods or services to Springs or its subsidiaries with respect to any of the Businesses to curtail or cancel any business it transacts with Springs or its subsidiaries; (iv) request, induce, or attempt to influence any actual or potential customers of Springs or its subsidiaries with respect to any of the Businesses, to curtail or cancel any business they may transact with Springs or its subsidiaries, or solicit business similar -3- 4 to any of the Businesses from any actual or potential customer of Springs or its subsidiaries; or (v) request, induce, or attempt to influence any employee of Springs or its subsidiaries to terminate his or her employment with Springs or its subsidiaries. Participant covenants and agrees not to use or disclose any Confidential Information to any person or entity (except in the proper performance of his duties as employee of Springs or its subsidiaries in the ordinary course of business), unless compelled to disclose such information by judicial or administrative process. As used herein "Confidential Information" shall mean all information of any kind concerning any of the Businesses or concerning Springs or its subsidiaries, or any of their assets, properties, personnel or rights, except information which is or becomes generally known or available to the public without a breach of this agreement and without a breach of any other obligation of Participant to Springs or its subsidiaries. 2.4 DEFINITIONS. (a) "Economic Termination" shall mean when a Participant's full-time, active employment with Springs and its subsidiaries is severed by Springs or its subsidiaries due to plant or facility closings, technology changes, reorganizations within Springs or its subsidiaries, or adverse economic or business conditions. (b) "Retirement" means a severance from the full-time, active employment of Springs or its subsidiaries by reason of retirement pursuant to the provisions of the Springs of Achievement Partnership Plan or any other retirement plan of Springs or its subsidiaries. (c) "Total and Permanent Disability" means a physical or mental condition of Participant resulting from bodily injury, disease, or mental disorder which renders Participant incapable of continuing his usual and customary employment with Springs and its subsidiaries. The disability of Participant shall be determined by a licensed physician chosen by Springs. -4- 5 3. DIVIDEND ACCOUNT. Springs will establish a dividend account in respect of Participant's Award. The dividend account will be credited with dividend equivalents and interest in accordance with the following procedures: 3.1 As of the payment date for each dividend paid on the Common Stock with a record date occurring after _________, and prior to the date of Participant's termination of full-time, active employment, there shall be credited to Participant's dividend account an amount determined by multiplying the amount of cash dividend per share of Common Stock declared for such dividend record date by ________. As of the payment date for each dividend with a record date occurring after the date of Participant's termination of full-time, active employment and prior to the final distribution from the Participant's dividend account, there shall be credited to Participant's dividend account an amount determined by multiplying the amount of the cash dividend per share of Common Stock declared for such dividend record date by the number of shares of Common Stock as to which Participant has a vested right to receive and which have not been distributed to Participant as of the record date. Amounts equivalent to dividends which are credited to Participant's dividend account hereunder shall be distributed as provided in Section 4 below. 3.2 At the end of each calendar quarter subsequent to the quarter in which the first credit is made to Participant's dividend account pursuant to Section 3.1 above, there shall further be credited to the dividend account an additional amount determined by multiplying the credit balance in the dividend account as of the beginning of such quarter (reduced by distributions, if any, from such account during such quarter) by the prime rate of interest per annum, as defined below, in effect on the 15th day of the last month of such quarter. The prime rate of interest to be credited as aforesaid shall be the prime rate publicly announced and charged by Wachovia Bank of North Carolina, N.A. (or its successor) to its existing customers or, in the absence of such public announcement by such bank, the prime rate quoted in the money rates column of The Wall Street Journal. Amounts credited to dividend accounts hereunder shall be distributed to Participant as provided in Section 4 below. -5- 6 3.3 Participant's right to receive distributions from the dividend account shall vest in accordance with the vesting schedule set forth in Section 2 above with respect to the shares of Common Stock, subject to further forfeiture in accordance with Section 2.3 above. The amounts credited to Participant's dividend account shall be forfeited at termination of Participant's employment to the extent not vested. 4. DISTRIBUTIONS. Subject to Section 2.3 above, distributions of Common Stock that Participant is entitled to receive pursuant to this Agreement and the Plan and amounts credited to Participant's dividend account in which Participant is vested shall be made upon termination of Participant's full-time, active employment with Springs and its subsidiaries in three (3) approximately equal annual installments, commencing as soon as practicable in the month next following the second anniversary of Participant's termination of full-time, active employment with Springs and its subsidiaries. The three distributions from the dividend account shall be as follows: (i) the first distribution shall be one-third of the amount in the Participant's dividend account on the second anniversary of the Participant's termination of employment; (ii) the second distribution shall be one-half of the amount in the Participant's dividend account on the third anniversary date; and (iii) the third distribution shall be the amount remaining in the Participant's dividend account on the fourth anniversary date; provided, however, if Participant's termination of employment shall occur because of Participant's Total and Permanent Disability, then the distributions shall be made in three (3) approximately equal annual installments commencing on the January 31st next following the date of termination of Participant's employment with the distributions from the Participant's dividend account being made as follows: (i) the first distribution shall be one-third of the amount in the Participant's dividend account on the January 31st next following the date of termination of Participant's employment; (ii) the second distribution shall be one-half of the amount in the Participant's dividend account on the first anniversary of such January 31st; and (iii) the third distribution shall be the amount remaining in the Participant's dividend account on the second anniversary of such January 31st; provided further, however, if Participant's termination of employment shall occur because of -6- 7 Participant's death or if Participant dies following termination of employment but before completion of distribution of Participant's Common Stock and dividend account, then distribution of Participant's Common Stock and dividend account or the balance thereof shall be made in one distribution on the January 31st next following the date of Participant's death. 5. WITHHOLDING. Whenever Participant is entitled to a distribution of Common Stock, Springs may require Participant to remit to Springs or a subsidiary of Springs an amount sufficient to satisfy any federal, state and local withholding tax requirements. Cash distributions from Participant's dividend account shall be net of an amount sufficient to satisfy any federal, state and local withholding tax requirements. Participant may elect with respect to a distribution of Common Stock to surrender or authorize Springs to withhold shares of Common Stock (valued at fair market value on the date of surrender or withholding of the Common Stock) in satisfaction of such withholding requirements (the "Stock Surrender Withholding Election") in accordance with the terms and conditions of the Plan. In addition, upon vesting, the value of Deferred Stock that becomes vested is subject to FICA taxation. Springs is authorized to withhold the Participant's portion of the FICA tax from Participant's salary. 6. SUBJECT TO PLAN. This Agreement, Participant's Deferred Stock Award hereunder, and Participant's rights to receive distributions from the dividend account are subject to the terms and conditions of the Plan. 7. TRANSFERABILITY. This Award is not transferable or assignable by Participant. Rights in connection with this Award may be exercised during Participant's lifetime only by Participant or Participant's legal representative or guardian. 8. RIGHTS AS A SHAREHOLDER. Participant shall have no rights as a shareholder with respect to any shares covered by this Award until the date of issuance to Participant of a stock certificate for such shares. 9. ADJUSTMENT OF SHARES. Subject to the other restrictions in the Plan and this Agreement, Springs shall make appropriate adjustments in the number and kind of shares subject to this Agreement. -7- 8 10. RESTRICTION ON ISSUANCE OF SHARES. Springs shall not be obligated to issue any Common Stock pursuant to this Agreement if such issuance would result in the violation of any laws, including the Act or any applicable state securities laws (the "State Acts"). As provided in the Plan, if the offering of shares with respect to which the Award is being exercised is not registered under the Act or the State Acts, but an exemption is available which requires an investment representation or other representation, Participant shall, as a condition to receipt of Common Stock, be required to execute such documents as may be necessary in the opinion of counsel for Springs to comply with the Act and the State Acts. Stock certificates evidencing such unregistered shares acquired upon receipt of the Award shall bear a restrictive legend in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws: This stock certificate and the shares represented hereby have not been registered under the Securities Act of 1933, as amended (the "Act"), nor under any state securities laws and shall not be transferred at any time in the absence of (i) an effective registration statement under the Act and applicable state securities laws with respect to such shares at such time or (ii) an opinion of counsel satisfactory to the Company and its counsel, to the effect that such transfer at such time will not violate the Act or any applicable state securities law. 11. NO EMPLOYMENT RIGHTS. This Agreement shall not confer upon Participant any right with respect to the continuance of employment by Springs or its subsidiaries, or affect the right of Springs or any of its subsidiaries to terminate such employment at any time. 12. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of South Carolina. 13. NOTICES. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, to the following address, or any other address specified by notice duly given: -8- 9 To Participant as follows: -------------------------- -------------------------- -------------------------- To Springs as follows: Springs Industries, Inc. 205 North White Street Fort Mill, SC 29715 Attention: Corporate Secretary SPRINGS INDUSTRIES, INC. By: ----------------------------------------- Title: -------------------------------------- PARTICIPANT -------------------------------------------- Date: ---------------------- -9- EX-10.(S) 5 RESTRICTED STOCK AWARD 1 Exhibit 10(s) RESTRICTED STOCK AWARD AGREEMENT This is an Agreement dated as of _____________ (the "Grant Date") between Springs Industries, Inc., a South Carolina corporation, ("Springs") and _________________ (the "Participant"). BACKGROUND: The Participant is currently serving as ________________ of Springs. Springs currently has in effect the Springs' 1999 Incentive Stock Plan (the "Plan") which provides for the grant of Restricted Stock Awards of shares of Class A Common Stock, $.25 par value, of Springs (the "Common Stock") subject to certain restrictions as an incentive for valued employees of Springs and its subsidiaries. Springs desires to grant a Restricted Stock Award to the Participant pursuant to the Plan. AGREEMENT: Pursuant to the Plan the parties hereto do hereby agree as follows: 1. Springs hereby grants to the Participant a Restricted Stock Award of _________ (_______) shares of Common Stock (the "Shares") subject to the terms of the Plan and this Agreement. 2. The Shares are subject to the following restrictions: a. None of the Shares may be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered by the Participant until these restrictions have expired with respect to such Shares as provided in paragraph 3 below. Participant's rights in connection with this Award may be exercised during Participant's lifetime only by Participant or by Participant's legal representative or guardian. b. If at any time the Participant's full-time, active employment with Springs terminates prior to the expiration of these restrictions pursuant to paragraph 3 as to any of the Shares for any reason that does not cause these restrictions to expire as provided in paragraph 3, such Shares shall immediately be forfeited to Springs, and the Participant shall have no further rights with respect thereto. -1- 2 3. The restrictions contained in paragraph 2 with respect to any of the Shares that have not been previously forfeited as provided herein shall expire on the earliest to occur of any of the following: a. Upon termination of the Participant's employment with Springs by reason of death or Total and Permanent Disability as such term is defined in paragraph 10 below, or b. Upon the continued full-time, active employment of Participant with Springs through __________, the restrictions with respect to ____ of the Shares shall expire, or c. Upon the continuous full-time, active employment of Participant with Springs through __________, the restrictions with respect to the balance of the Shares shall expire, or d. Upon receipt by the Participant of written notice from the Management Compensation and Organization Committee of the Board of Directors of Springs (the "Compensation Committee") that the restrictions have been terminated. 4. For purposes of this Agreement, the Participant's full-time, active employment by Springs shall be deemed to terminate upon the first day on which he is no longer employed on a full-time, active basis with Springs or a subsidiary of Springs. A termination of full-time, active employment shall not be deemed to occur by reason of a transfer of Participant between Springs and a subsidiary of Springs or between two subsidiaries of Springs or if Participant is on a leave of absence from Springs or a subsidiary of Springs which has been approved by Springs' chief human resources officer. 5. Whenever Participant is entitled to a distribution of Common Stock as a result of the termination of restrictions with respect to any Shares, Springs shall have the right to require Participant to remit to Springs or a subsidiary of Springs an amount sufficient to satisfy any federal, state, and local withholding tax requirements. Participant may elect with respect to a distribution of Common Stock to surrender or authorize Springs to withhold shares of Common Stock (valued at fair market value on the date of surrender or withholding of the Common Stock) in satisfaction of such withholding requirements (the "Stock Surrender Withholding Election") in accordance with the terms and conditions of the Plan. 6. The Participant agrees to endorse one or more stock powers for the Shares and agrees that a legend reflecting the restrictions contained in this Agreement shall be placed on any certificate for the Shares subject to such restrictions as required by the Plan. -2- 3 7. The Participant shall be entitled to receive any dividends paid with respect to any Shares which have not been forfeited; provided, however, that no dividends shall be payable to or for the benefit of the Participant with respect to record dates occurring prior to the Grant Date, or with respect to record dates occurring on or after the date, if any, on which the Participant has forfeited the Shares. The Participant shall be entitled to vote any Shares which have not been forfeited to the same extent as would have been applicable to the Participant if the Participant was then vested in the Shares; provided, however, that the Participant shall not be entitled to vote the Shares with respect to record dates for such voting rights arising prior to the Grant Date, or with respect to record dates occurring on or after the date, if any, on which the Participant has forfeited the Shares. 8. All certificates issued for the Shares shall be registered in Participant's name and shall be held by the Secretary of Springs so long as the restrictions set forth in paragraph 2 have not expired. Upon the expiration of such restrictions, the certificates for such amount of the Shares as to which the restrictions have expired, net of the number of Shares withheld to satisfy mandatory tax withholding requirements, shall be delivered to the Participant. If this Agreement requires forfeiture of any of the Shares to Springs, the Secretary shall take appropriate action to cancel the certificates for the forfeited Shares and restore the forfeited Shares to authorized but unissued shares of Common Stock. 9. The Plan is incorporated into and made a part of this Agreement, and this Agreement is subject to the terms of the Plan. Capitalized terms, unless otherwise defined herein, shall have the same meaning as defined in the Plan. 10. "Total and Permanent Disability" means a physical or mental condition of Participant resulting from bodily injury, disease, or mental disorder which renders Participant incapable of continuing his usual and customary employment with Springs and its subsidiaries. The disability of Participant shall be determined by a licensed physician chosen by Springs. 11. This Agreement shall not be deemed to confer upon Participant any right with respect to continued employment with Springs or any subsidiary of Springs or affect the right of Springs or any of its subsidiaries to terminate such employment at any time. 12. This Agreement shall be governed and construed in accordance with the laws of the State of South Carolina. 13. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered personally, or when received, if mailed to the party to whom notice is to be given -3- 4 by certified mail, return receipt requested, postage prepaid, to the following address or any other address specified by notice duly given: To Participant as follows: ------------------------------- ------------------------------- ------------------------------- To Springs as follows: Springs Industries, Inc. 205 North White Street Fort Mill, SC 29715 Attention: Corporate Secretary SPRINGS INDUSTRIES, INC. By: -------------------------------- Title: ----------------------------- PARTICIPANT ----------------------------------- (Name) Date: ____________________ -4- EX-13 6 1999 ANNUAL REPORT TO SHAREHOLDERS (PAGES 12-32) 1 EXHIBIT 13 12 Management's Report on Financial Statements The management of the Company is responsible for the preparation of the consolidated financial statements and related financial information included in this annual report. The statements, which include amounts based on management's estimates, have been prepared in conformity with accounting principles generally accepted in the United States of America. 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/ Jeffrey A. Atkins Jeffrey A. Atkins Executive Vice President -- Chief Financial Officer Independent Auditors' Report To the Board of Directors of Springs Industries, Inc. We have audited the accompanying consolidated balance sheet of Springs Industries, Inc. (the Company) as of January 1, 2000 and January 2, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 1, 2000. 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 auditing standards generally accepted in the United States of America. 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 1, 2000 and January 2, 1999, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Charlotte, North Carolina January 31, 2000 2 13 CONSOLIDATED STATEMENT OF OPERATIONS Springs Industries, Inc. (In thousands except per share data) For the Fiscal Years Ended January 1, 2000, January 2, 1999, and January 3, 1998 (53 weeks)
OPERATIONS 1999 1998 1997 NET SALES ............................................. $ 2,220,403 $ 2,180,497 $ 2,226,075 Cost and expenses: Cost of goods sold ................................ 1,800,903 1,795,757 1,820,131 Selling, general and administrative expenses ...... 278,174 263,806 266,194 Provision for uncollectible receivables ........... 7,297 16,401 10,747 Restructuring and realignment expenses ............ -- 19,948 11,137 Year 2000 expenses ................................ 1,012 7,067 2,751 Interest expense .................................. 26,520 25,069 18,583 Other income ...................................... (8,497) (16,588) (9,814) Other expense ..................................... 3,766 10,258 3,409 Total ........................................ 2,109,175 2,121,718 2,123,138 Income before income taxes ............................ 111,228 58,779 102,937 Income tax provision .................................. 42,267 21,450 33,972 NET INCOME .................................. $ 68,961 $ 37,329 $ 68,965 ============================================================================================================ BASIC EARNINGS PER COMMON SHARE ....................... $ 3.86 $ 2.01 $ 3.43 ============================================================================================================ DILUTED EARNINGS PER COMMON SHARE ..................... $ 3.80 $ 1.97 $ 3.34 ============================================================================================================ 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 ...... 17,869 18,549 20,122 Dilutive effect of stock-based compensation awards .... 299 389 546 DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING .... 18,168 18,938 20,668 ============================================================================================================
See Notes to Consolidated Financial Statements. 3 14 CONSOLIDATED BALANCE SHEET Springs Industries, Inc. (In thousands except share data) January 1, 2000 and January 2, 1999
1999 1998 ASSETS CURRENT ASSETS: Cash and cash equivalents ...................................... $ 4,210 $ 48,127 Accounts receivable, net ....................................... 302,210 265,263 Inventories, net ............................................... 479,328 387,988 Other .......................................................... 37,669 76,834 - ------------------------------------------------------------------------------------------------------- Total current assets ...................................... 823,417 778,212 - ------------------------------------------------------------------------------------------------------- PROPERTY (AT COST): Land and improvements .......................................... 19,046 19,187 Buildings ...................................................... 239,968 245,616 Machinery and equipment ........................................ 1,193,863 1,079,149 - ------------------------------------------------------------------------------------------------------- Total ..................................................... 1,452,877 1,343,952 Accumulated depreciation ....................................... (827,234) (794,298) - ------------------------------------------------------------------------------------------------------- Property, net ............................................. 625,643 549,654 - ------------------------------------------------------------------------------------------------------- GOODWILL AND OTHER ASSETS .......................................... 125,938 97,585 - ------------------------------------------------------------------------------------------------------- TOTAL .................................................... $ 1,574,998 $ 1,425,451 ======================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings .......................................... $ 35,450 $ -- Current maturities of long-term debt ........................... 21,203 21,313 Accounts payable ............................................... 106,569 104,796 Accrued wages and salaries ..................................... 11,190 13,560 Accrued incentive pay and benefit plans ........................ 42,702 26,723 Income taxes payable ........................................... 18,101 5,523 Other accrued liabilities ...................................... 65,206 50,471 - ------------------------------------------------------------------------------------------------------- Total current liabilities ................................. 300,421 222,386 - ------------------------------------------------------------------------------------------------------- NONCURRENT LIABILITIES: Long-term debt ................................................. 283,534 267,991 Accrued benefit and deferred compensation ...................... 179,472 179,885 Other .......................................................... 36,700 31,073 - ------------------------------------------------------------------------------------------------------- Total noncurrent liabilities .............................. 499,706 478,949 - ------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Class A common stock - $.25 par value (10,844,536 and 10,728,594 shares issued in 1999 and 1998, respectively) ................ 2,712 2,682 Class B common stock - $.25 par value (7,156,663 and 7,196,864 shares issued and outstanding in 1999 and 1998, respectively) 1,789 1,799 Additional paid-in capital ..................................... 103,584 100,446 Retained earnings .............................................. 678,170 631,943 Cost of Class A stock in treasury (95,850 and 98,313 shares in 1999 and 1998, respectively) .............................. (2,181) (2,230) Accumulated other comprehensive loss ........................... (9,203) (10,524) - ------------------------------------------------------------------------------------------------------- Total shareholders' equity ................................ 774,871 724,116 - ------------------------------------------------------------------------------------------------------- TOTAL .................................................... $ 1,574,998 $ 1,425,451 =======================================================================================================
See Notes to Consolidated Financial Statements. 4 15 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Springs Industries, Inc.
(In thousands) Accumulated For the Fiscal Years Ended Total Other Additional Class A January 1, 2000, January 2, 1999, Shareholders' Retained Comprehensive Class A Class B Paid-In Stock Held and January 3, 1998 (53 weeks) Equity Earnings Income (Loss) Common Stock Common Stock Capital in Treasury - ------------------------------------------------------------------------------------------------------------------------------------ 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) Comprehensive Income: Net income ...................... 68,961 68,961 -- -- -- -- -- Other comprehensive income, before tax: Foreign currency translation adjustment .................. 910 -- 910 -- -- -- -- Minimum pension liability adjustment .................. 689 -- 689 -- -- -- -- Income tax expense related to items of other comprehensive income ........ (278) -- (278) -- -- -- -- --------- Total comprehensive income, net of tax .................. 70,282 --------- Exchange of Class B common stock for Class A common stock ........ -- -- -- 10 (10) -- -- Shares awarded under various employee plans .................. 933 -- -- 6 -- 878 49 Exercise of stock options .......... 2,274 -- -- 14 -- 2,260 -- Dividends declared ................. (22,734) (22,734) -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 2000 ......... $ 774,871 $ 678,170 $ (9,203) $ 2,712 $ 1,789 $ 103,584 $(2,181) ===================================================================================================================================
See Notes to Consolidated Financial Statements. 5 16 CONSOLIDATED STATEMENT OF CASH FLOWS Springs Industries, Inc. (In thousands) For the Fiscal Years Ended January 1, 2000, January 2, 1999, and January 3, 1998 (53 weeks)
OPERATING ACTIVITIES: 1999 1998 1997 Net income ............................................. $ 68,961 $ 37,329 $ 68,965 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................... 101,292 86,951 84,565 Gains on sales of businesses, property and other assets ....................... (2,989) (7,339) (6,047) Deferred income taxes ............................. (4,364) 3,542 7,596 Provision for restructuring ....................... -- 13,388 1,800 Provision for uncollectible receivables ........... 7,297 16,401 10,747 Changes in operating assets and liabilities, net of effects of business acquisitions and sales of businesses: Accounts receivable ........................... (39,329) 11,316 19,555 Inventories ................................... (72,293) 1,081 (49,399) Accounts payable and other accrued liabilities 23,881 (10,592) (21,184) Accrued restructuring costs ................... -- (7,305) (7,115) Other, net .................................... (8,956) (13,218) 1,057 - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities ......... 73,500 131,554 110,540 - -------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchases of property .................................. (166,817) (115,033) (99,331) Business acquisitions, net of cash acquired ............ (52,513) -- (6,429) Notes receivable ....................................... (610) (40) (14,000) Principal collected on notes receivable ................ 7,979 7,119 3,447 Net proceeds from sales of businesses, property and other assets ................................... 67,860 39,686 17,857 - -------------------------------------------------------------------------------------------------------- Net cash used for investing activities ............ (144,101) (68,268) (98,456) - -------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from (repayments of) short-term borrowings, net .................................... 34,229 (7,450) 7,450 Proceeds from long-term debt ........................... 80,000 125,000 1,587 Repayments of long-term debt ........................... (66,911) (14,435) (7,409) Repurchase of Class A common shares .................... -- (96,206) (18,325) Proceeds from exercise of stock options ................ 2,073 1,876 -- Payment of cash dividends .............................. (22,707) (24,317) (25,733) - -------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities ...................................... 26,684 (15,532) (42,430) - -------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................... (43,917) 47,754 (30,346) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ....................................... 48,127 373 30,719 - -------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR ......... $ 4,210 $ 48,127 $ 373 ======================================================================================================== CASH PAID DURING THE YEAR FOR: Interest ............................................... $ 21,433 $ 19,279 $ 17,808 - -------------------------------------------------------------------------------------------------------- Income taxes ........................................... $ 36,024 $ 22,119 $ 27,009 - --------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17 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 goods are delivered to the customer. CASH AND 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 $9.7 million at January 1, 2000, and $11.7 million at January 2, 1999. During 1999, net write-offs of approximately $9.3 million for previously-reserved accounts more than offset the current year's provision for doubtful accounts, which totaled $7.3 million. INVENTORIES: Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO) for approximately 69 percent and 83 percent of inventories at January 1, 2000 and January 2, 1999, respectively. The decrease in inventories valued using LIFO is due primarily to 1999 acquisitions. See Note 3, Acquisitions and Divestitures. The first-in, first-out method (FIFO) is used for all other inventories. GOODWILL AND OTHER ASSETS: The cost of goodwill and other intangible assets is amortized on a straight-line basis over the estimated periods benefited, typically 20 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. Other intangible assets consist of trade names, patents and copyrights. 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 with 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, "Accounting for Stock Issued to Employees." 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 outstanding futures contracts, which were not material at January 1, 2000 and January 2, 1999, 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 recoverable. The estimated future undiscounted cash flows associated with such assets are compared to the assets' carrying values to determine if write-downs are required. Pretax impairment charges of approximately $3.0 million and $6.0 million in 1999 and 1998, respectively, were recorded in the Other Expense line item in the Consolidated Statement of 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 years' amounts have been reclassified to conform with the 1999 presentation. ACCOUNTING CHANGES: In 1999, the Company adopted the American Institute of Certified Public Accountants' Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This standard revised the accounting for software development costs and requires the capitalization of certain costs which the Company has historically expensed as incurred. The adoption of this statement resulted in an increase to 1999 net income of $1.2 million, or $0.07 per diluted share, from the capitalization of costs that would have been expensed in previous years. In accordance with this standard, costs incurred prior to the initial adoption have not been retroactively adjusted. RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities. This statement will require the Company to recognize all derivatives on the Consolidated Balance Sheet at fair value, and may impact the Company's earnings depending on the instruments held at the time of adoption. The Company will be required to adopt this standard beginning in its 2001 fiscal year, and is in the process of determining the impact of this standard on its financial position, results of operations and cash flows. NOTE 2. REPORTABLE SEGMENT INFORMATION: Prior to the first quarter of 1999, Springs had two reportable segments: home furnishings and specialty fabrics. The home furnishings segment manufactures, purchases for resale, and markets home furnishings products. The specialty fabrics segment manufactured, finished, purchased for resale, and marketed woven and non-woven fabrics. During 1998 and the first quarter of 1999, the Company sold four of its specialty fabrics businesses. See Note 3, Acquisitions and Divestitures, for additional discussion of businesses sold. Following these divestitures, Springs realigned its internal organizational structure during the first quarter of 1999 to reflect the Company's strategic focus on the home furnishings market, resulting in one reportable segment, the home furnishings segment. The segment's operating results have been restated to include the Company's Retail and Specialty Fabrics unit's operating results, which were previously included in the specialty fabrics segment. The Company offers a variety of related products including sheets, pillows, pillowcases, bedspreads, comforters, mattress pads, baby bedding and infant apparel, shower curtains, accent and bath rugs, towels, other bath fashion accessories, home-sewing fabrics, draperies, drapery hardware, and decorative window furnishings. The operating results of the divested specialty fabrics businesses are included in the specialty fabrics category for the prior years. 7 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Springs Industries, Inc. The Company's accounting policies are described in Note 1, Summary of Significant Accounting Policies. The Company evaluates its performance based on profit or loss from operations before income taxes, unusual items, interest expense, and other income, net. Its principal markets and operations are in the United States. Based on the current organizational structure, sales and profit from operations before unusual items for the reportable segments are as follows:
(in millions) 1999 1998 1997(1) TRADE SALES: Home furnishings ................ $2,220.4 $2,014.7 $2,043.2 Specialty fabrics ............... -- 165.8 182.9 - ------------------------------------------------------------------------- TOTAL ........................ $2,220.4 $2,180.5 $2,226.1 ========================================================================= PROFIT FROM OPERATIONS BEFORE UNUSUAL ITEMS: (2) Home furnishings ................ $ 134.0 $ 88.9 $ 117.8 Specialty fabrics ............... -- 15.6 11.2 - ------------------------------------------------------------------------- Total ........................ 134.0 104.5 129.0 ========================================================================= Restructuring and realignment expenses (3) ....... -- 19.9 11.1 Year 2000 expenses(3) ........... 1.0 7.1 2.8 Interest expense ................ 26.5 25.0 18.6 Other income, net (4) ........... (4.7) (6.3) (6.4) - ------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES ................. $ 111.2 $ 58.8 $ 102.9 ========================================================================= TOTAL ASSETS AT YEAR END: Home furnishings ................ $1,575.0 $1,326.6 $1,321.5 Specialty fabrics ............... -- 50.8 87.4 Cash and cash equivalents(5) .................. -- 48.1 0.4 - ------------------------------------------------------------------------- TOTAL ........................ $1,575.0 $1,425.5 $1,409.3 ========================================================================= CAPITAL EXPENDITURES: Home furnishings ................ $ 166.8 $ 112.7 $ 94.0 Specialty fabrics ............... -- 2.3 5.3 - ------------------------------------------------------------------------- TOTAL ........................ $ 166.8 $ 115.0 $ 99.3 ========================================================================= DEPRECIATION AND AMORTIZATION: Home furnishings ................ $ 101.3 $ 82.4 $ 77.2 Specialty fabrics ............... -- 4.6 7.4 - ------------------------------------------------------------------------- TOTAL ........................ $ 101.3 $ 87.0 $ 84.6 =========================================================================
(1) Fiscal year 1997 was 53 weeks, whereas fiscal years 1999 and 1998 were 52 weeks. (2) Profit from operations before unusual items represents sales less cost of goods sold, selling, general and administrative expenses, and provision for uncollectible receivables. (3) In 1998, restructuring and realignment expenses totaling $19.9 million were charged to the home furnishings segment, and Year 2000 expenses totaling $6.8 million and $0.3 million were charged to the home furnishings segment and the specialty fabrics segment, respectively. In 1997, realignment expenses totaling $10.2 million and $0.9 million and Year 2000 expenses totaling $2.6 million and $0.2 million were charged to the home furnishings segment and the specialty fabrics segment, respectively. (4) In 1998, an impairment charge of $4.8 million was charged to the home furnishings segment. In 1997, home furnishings earnings included a $4.1 million gain on the sale of an investment. (5) In 1999, all of the Company's assets, including cash and cash equivalents, are reported in the home furnishings segment. In 1998 and 1997, cash and cash equivalents were not allocated to the reportable segments. Sales for 1999, 1998, and 1997 include sales of $450.4 million, $320.8 million, and $314.3 million, respectively, to one customer and are included in the home furnishings segment. Accounts receivable at January 1, 2000, and January 2, 1999, included receivables from this customer totaling $47.2 million and $37.7 million, respectively. Sales by geographic area, as defined by customer location, are as follows:
(in millions) 1999 1998 1997 United States ................. $2,072.0 $2,031.5 $2,078.0 Canada ........................ 117.7 113.3 108.3 Other ......................... 30.7 35.7 39.8 - -------------------------------------------------------------------- TOTAL ...................... $2,220.4 $2,180.5 $2,226.1 ====================================================================
Company assets located outside the United States are not material for any of the three years presented. Note 3. Acquisitions and Divestitures: During 1999 and 1998, the Company acquired two home furnishings businesses and sold four specialty fabrics businesses. On January 23, 1999, the Company acquired Regal Rugs, Inc. ("Regal"). Regal imports and manufactures bath and accent rugs for sale to department and specialty stores, national chain stores, and catalog retailers. The purchase price was approximately $35 million. The acquisition was accounted for as a purchase in accordance with APB Opinion No. 16, "Business Combinations" ("APB 16"), and Regal's operating results have been included in the Company's consolidated financial statements since the January 23, 1999, acquisition date. The purchase price was allocated to the assets acquired and to the liabilities assumed based on their estimated fair value at the date of acquisition. On January 5, 1999, the Company acquired the remaining 50 percent interest in American Fiber Industries, LLC ("AFI"), a manufacturer and distributor of bed pillows, mattress pads, down comforters and comforter accessories. Springs acquired its original 50 percent interest in AFI in February 1997 and had been accounting for the original investment under the equity method. The purchase 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19 Springs Industries, Inc. price for the remaining interest totaled approximately $15 million. The Company has accounted for the remaining interest as a step-acquisition in accordance with APB 16, whereby the purchase price was allocated to the assets acquired and to the liabilities assumed based on 50 percent of their estimated fair value on the date of acquisition. In addition, AFI's operating results have been included in the Company's consolidated financial statements since the January 5, 1999, acquisition date. The excess of the purchase price for both transactions over the fair value of net assets acquired, which totaled $34.3 million, has been recorded as goodwill and is being amortized on a straight-line basis over 20 years. Because Regal and AFI were acquired in January, 1999, substantially all of their 1999 operating results have been included in Springs' 1999 Consolidated Statement of Operations. The following unaudited pro forma financial information presents the combined results of operations for Springs, Regal and AFI as if the acquisitions had been effective as of the beginning of 1998, after giving effect to certain adjustments, including amortization of goodwill, additional depreciation expense and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had Springs, Regal and AFI constituted a single entity during 1998. Such pro forma results would present net sales of $2.277 billion, net income of $39.7 million and diluted earnings per share of $2.09 for 1998. During 1999 and 1998, the Company sold four specialty fabrics businesses. Effective March 31, 1999, the Company sold its UltraFabrics business and there was no material gain on the sale. The first quarter 1999 sales and earnings before interest and taxes of the UltraFabrics business were not material. Effective January 2, 1999, the Company disposed of the net assets of the Company's Springfield business in exchange for a $10 million preferred equity interest in the divested business 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. The Company has committed to provide the divested business with certain commission finishing services and a limited amount of yarn for a period of 10 years. Springs does not believe that the terms of this commitment will have a material impact on future earnings. Effective December 19, 1998, the Company disposed of its Industrial Products business 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 divested business. Effective August 7, 1998, the Company sold its UltraSuede business and certain related assets of the UltraFabrics business in exchange for approximately $15 million in cash. The combined effect of the 1998 transactions was a pretax gain of $8.4 million, which is included in other income. The combined sales of the four specialty fabrics businesses included in the Company's 1998 results were $165.8 million, and after-tax earnings totaled approximately $9.5 million. NOTE 4. RESTRUCTURING AND REALIGNMENT COSTS: 1998 RESTRUCTURING In the first quarter of 1998, the Company adopted a plan to close the Rock Hill (SC) 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 property, 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 and demolition costs. The following represents changes in the restructuring accruals since the adoption of the plan:
Accrual (in millions) 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. In 1998, the severance accrual was reduced due to lower-than-expected costs per associate and the accrual for other expenses was reduced, primarily due to the sale on September 25, 1998, of the Rock Hill facility. As a result of the sale, which management considered as an unlikely possibility at the time the plant was closed, the Company reversed accruals relating to idle plant and demolition costs by approximately $4.3 million. In 1998, 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, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." 1996 RESTRUCTURING During 1996, the Company adopted a restructuring plan to consolidate and realign its fabric manufacturing operations. During 1998, the severance accrual associated with the plan was reduced by approximately $1.5 million due to lower-than-expected severance costs and the accrual for other expenses was reduced by $0.9 million, primarily due to lower-than-expected idle plant costs. The restructuring plan was completed during the fourth quarter of 1998. The Company incurred realignment expenses of $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. NOTE 5. INVENTORIES: Inventories are summarized as follows:
(in thousands) STANDARD COST (WHICH APPROXIMATES CURRENT COST): 1999 1998 Finished goods .................................... $ 328,383 $ 268,086 In process ........................................ 181,323 170,836 Raw materials and supplies ........................ 64,293 54,624 - --------------------------------------------------------------------------------------- 573,999 493,546 Less LIFO reserve ................................. (94,671) (105,558) - --------------------------------------------------------------------------------------- TOTAL .......................................... $ 479,328 $ 387,988 =======================================================================================
9 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Springs Industries, Inc. NOTE 6. GOODWILL: The Company had net goodwill of $60.2 million and $26.7 million at January 1, 2000, and January 2, 1999, respectively. These amounts are net of accumulated amortization of $13.6 million at January 1, 2000, and $10.9 million at January 2, 1999. See Note 3, Acquisitions and Divestitures, for a description of the good-will from 1999 acquisitions. NOTE 7. ACCRUED BENEFITS AND DEFERRED COMPENSATION: The long-term portion of accrued benefits and deferred compensation was comprised of the following:
(in thousands) 1999 1998 Postretirement medical benefit obligation $ 62,097 $ 65,060 Deferred compensation ................... 68,132 66,640 Other employee benefit obligations ...... 49,243 48,185 - ----------------------------------------------------------------------------- TOTAL ................................ $179,472 $179,885 =============================================================================
The liabilities are long-term in nature and will be paid over time in accordance with the terms of the plans. NOTE 8. FINANCING ARRANGEMENTS: The Company has access to short-term financing for operations through various uncommitted credit facilities. As of January 1, 2000, the Company had short-term borrowings of $35.5 million outstanding through these uncommitted credit facilities at a weighted-average interest rate of 6.3 percent. Long-term debt consists of:
(in thousands) 1999 1998 Revolving credit agreement, due December 2002, interest payable at LIBOR-based variable rates (6.4% at 1/1/2000) ........................................... $ 35,000 $ -- Note payable in quarterly installments of $4,464 from September 2001 through June 2008, interest payable at LIBOR-based variable rates (6.5% at 1/1/2000) 125,000 125,000 Senior notes payable in annual installments of $5,000 through July 2006, interest rate at 9.6% ....................................................... 35,000 40,000 Notes payable in quarterly installments of $2,857 through May 2005, interest payable at LIBOR-based variable rates (6.4% at 1/1/2000) .................... 62,857 74,286 Notes payable in quarterly installments of $714 through September 2005, interest payable at LIBOR-based variable rates (6.4% at 1/1/2000) .................... 16,429 19,285 Industrial Revenue Bond Obligations, payable in varying annual amounts through 2019, interest at rates ranging from 3.0% to 8.3% ........... 28,603 29,857 Other .......................................................................... 1,848 876 - ------------------------------------------------------------------------------------------------------------- Total ....................................................................... 304,737 289,304 Current maturities ............................................................. (21,203) (21,313) - ------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT .............................................................. $283,534 $267,991 =============================================================================================================
The Company has the ability to obtain financing 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 a 0.1 percent annual facility fee related to this agreement. As of January 1, 2000, $35.0 million in borrowings were outstanding under this agreement. The LIBOR-based weighted-average interest rate on the revolving credit agreement was 6.4 percent as of January 1, 2000. During 1998, the Company borrowed $125 million under a long-term credit facility at a variable rate based on LIBOR, which was 6.5 percent as of January 1, 2000. 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 at 6.1 percent on $60 million of the $125 million note payable in June 2008. 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 at 6.7 percent on $100 million of notes payable in May 2005 and September 2005. The Company is exposed to credit losses in the event of nonperformance by the counterparties to the swap agreements; however, the Company believes 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21 Springs Industries, Inc. such counterparties will perform. At January 1, 2000, and January 2, 1999, the notional amount of these swap agreements totaled $139.3 million and $153.6 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. The Company is in compliance with the requirements of these agreements as of January 1, 2000. Under the most restrictive requirements on the payment of dividends, retained earnings of approximately $154 million were free of restrictions at January 1, 2000. Scheduled annual maturities of long-term debt are $21.2 million in 2000, $29.6 million in 2001, $73.6 million in 2002, $38.3 million in 2003, $38.0 million in 2004, and varying amounts thereafter through 2019. NOTE 9. LEASES: The Company leases certain office space, facilities, and equipment under operating leases. During 1999, the Company sold its New York City office building for $29.5 million and leased back a portion of the building for a ten-year term. The result of the sale-leaseback was a pretax gain of $1.5 million recorded in other income and the deferral of an additional $17.8 million pretax gain, which will be amortized over the operating lease term. Future scheduled minimum lease payments under noncancelable operating leases are as follows:
(in thousands) FISCAL YEAR AMOUNT 2000 ............................. $13,832 2001 ............................. 11,158 2002 ............................. 8,545 2003 ............................. 6,488 2004 ............................. 4,696 Thereafter ....................... 17,589 ---------------------------------------------- TOTAL ............................ $62,308 ==============================================
Total rent expense was $21.3 million in 1999, $19.0 million in 1998 and $18.3 million in 1997. NOTE 10. SHAREHOLDERS' EQUITY: As of January 1, 2000, Springs had authorized 1,000,000 shares of $1.00 par value, voting preferred stock, none of which was outstanding. Authorized common stock consisted of 40,000,000 shares of $.25 par value Class A stock and 20,000,000 shares of $.25 par value Class B stock. Subject to certain exceptions, owners of Class B stock are entitled to four votes per share on matters brought before shareholders of the Company, while owners of Class A stock are entitled to one vote per share. 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. See Note 15, Other Matters, for a description of related parties. The Company's Board of Directors authorized the Company to purchase, from time to time, up to 4 million shares of Class A common stock in the open market and in private transactions. As of January 2, 1999, the Company had repurchased 2,408,400 shares pursuant to this authorization. No shares were repurchased during 1999. Accumulated other comprehensive income or loss shown in the Consolidated Statement of Shareholders' Equity consisted of foreign currency translation adjustments of $8.5 million and a minimum pension liability of $0.7 million in 1999; foreign currency translation adjustments of $9.5 million and a minimum pension liability of $1.0 million in 1998; and foreign currency translation adjustments of $7.1 million and a minimum pension liability of $1.0 million in 1997. 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. NOTE 11. STOCK-BASED COMPENSATION: The Company has a stock-based incentive plan ("the Plan") which 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, deferred stock, restricted stock, performance units, and stock appreciation rights. Under the Plan, stock options have been granted with exercise prices equal to the Company's stock price on the grant date. Generally, the options granted cannot be exercised until at least three years after the grant date, and generally expire ten years after the grant date. The deferred stock awards typically vest over a five-year period. The restrictions on the stock typically lapse over a two or three year period. Performance units which have been granted are subject to a three-year performance cycle and are accounted for as a variable plan. The number of units ultimately earned are determined at the end of the three-year cycle based on the Company's total shareholder return over the three-year cycle as compared to the companies in the S&P 500 index. 11 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Springs Industries, Inc. A summary of the Company's stock options as of January 1, 2000, January 2, 1999, and January 3, 1998, and changes during the years ended on those dates is presented below:
1999 1998 1997 ------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Options Exercise Price Options Exercise Price Options Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at the beginning of the year 1,680,141 $38.11 1,127,500 $39.53 882,500 $38.26 Granted ................................ 473,000 37.84 632,800 34.95 250,000 44.00 Forfeited .............................. (97,799) 39.01 (20,002) 38.32 (5,000) 39.13 Exercised .............................. (55,334) 35.37 (60,157) 31.18 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ OUTSTANDING AT END OF YEAR .......... 2,000,008 $38.08 1,680,141 $38.11 1,127,500 $39.53 ==================================================================================================================================== OPTIONS EXERCISABLE AT YEAR END ..... 822,904 $40.16 810,167 $40.05 225,809 $32.09 ====================================================================================================================================
The following table summarizes information about the stock options outstanding at January 1, 2000:
Options Exercisable -------------------------- Weighted- Weighted- Weighted- Range of Options Average Average Average Exercise Outstanding Remaining Exercise Exercise Prices at 1/1/00 Contractual Life Price at 1/1/00 Price - ------------------------------------------------------------------------------------------------------------ $ 29.00 141,000 1.9 years $ 29.00 141,000 $ 29.00 30.44 to 34.33 622,168 8.6 years 33.17 60,068 33.71 36.63 to 38.44 409,500 9.9 years 38.26 -- -- 39.13 80,340 5.1 years 39.13 56,836 39.13 39.75 to 44.00 659,000 6.4 years 42.56 477,000 42.20 46.38 to 47.25 38,000 4.5 years 46.72 38,000 46.72 56.19 50,000 8.1 years 56.19 50,000 56.19 - ------------------------------------------------------------------------------------------------------------ TOTAL 2,000,008 822,904 ============================================================================================================
The options granted during 1999, 1998, and 1997 had a weighted-average fair value of $12.67, $10.00 and $14.22, 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:
1999 1998 1997 Expected option lives .................. 10 years 10 years 8 years Weighted average risk-free interest rate 6.2% 5.3% 6.4% Expected volatility .................... 32.5% 28.6% 28.8% Expected dividend rate ................. $ 1.32 $ 1.32 $ 1.32
The Company awarded deferred stock awards, restricted stock and performance unit awards during 1999, 1998, and 1997. Such awards totaled 21,380 deferred and restricted shares, and 53,893 performance units in 1999, 6,210 deferred and restricted shares, and 35,677 performance units in 1998, and 20,230 deferred and restricted shares, and 51,551 performance units in 1997, at weighted-average grant-date fair values of $39.46, $52.19 and $44.57, respectively. Compensation expense (income) for deferred stock, restricted stock and performance unit awards totaled approximately $1,587,000, $(80,000) and $2,718,000 for the years ended January 1, 2000, January 2, 1999 and January 3, 1998, 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 $6.3 million and $5.1 million as of January 1, 2000, and January 2, 1999, 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 $67.1 million, or $3.69 per diluted share, for 1999, $34.7 million, or $1.83 per diluted share, for 1998, and $66.9 million, or $3.24 per diluted share, for 1997. 12 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Springs Industries, Inc. NOTE 12. INCOME TAXES: The following tables present the components of the provision for income taxes and reconciliation of the statutory United States income tax rate to the effective income tax rate during 1999, 1998, and 1997.
INCOME TAX PROVISION: (in thousands) 1999 1998 1997 Current .................. $ 46,631 $17,908 $26,376 Deferred ................. (4,364) 3,542 7,596 - --------------------------------------------------------------------- TOTAL .................. $ 42,267 $21,450 $33,972 ===================================================================== RECONCILIATION TO EFFECTIVE TAX RATES: 1999 1998 1997 Provision at statutory U.S. tax rate ........... 35.0% 35.0% 35.0% Effective state income tax rate (excluding sale of subsidiary) ..... 2.9 2.5 2.1 Effect of sale of subsidiary (including state tax) .............. -- -- (1.2) Other .................... 0.1 (1.0) (2.9) - --------------------------------------------------------------------- TOTAL .................. 38.0% 36.5% 33.0% =====================================================================
Income before income taxes includes foreign income of $1.7 million, $1.4 million, and $2.6 million in 1999, 1998, and 1997, respectively. The provision for income taxes includes state income taxes of $5.0 million, $2.3 million, and $3.3 million in 1999, 1998, and 1997, respectively. Temporary differences which give rise to deferred income taxes and the resulting assets and liabilities are as follows:
(in thousands) 1999 1998 Employee benefit accruals .............. $ 36,242 $ 37,141 Deferred compensation .................. 34,784 33,398 Receivables reserves ................... 11,443 10,557 Environmental accruals ................. 3,964 3,856 Deferred income ........................ 6,703 -- Other items ............................ 13,756 15,674 - ---------------------------------------------------------------------------- Total deferred tax assets ............ 106,892 100,626 - ---------------------------------------------------------------------------- Property ............................... (85,378) (83,515) Inventories ............................ (8,129) (8,648) Intangibles ............................ (815) (911) - ---------------------------------------------------------------------------- Other items ............................ (1,368) (714) - ---------------------------------------------------------------------------- Total deferred tax liabilities ....... (95,690) (93,788) - ---------------------------------------------------------------------------- NET DEFERRED TAX ASSET .............. $ 11,202 $ 6,838 ============================================================================
NOTE 13. 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 the Employee Retirement Income Security Act, and benefits are generally based upon the participant's years of service and compensation level. 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. The Company provides eligible executives retirement benefits under nonqualified supplemental executive retirement plans (SERP's). 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. Defined contribution plan expenses for 1999, 1998, and 1997 were $21.7 million, $19.0 million, and $21.6 million, respectively. The net assets available for benefits under defined contribution plans had a market value of $786.7 million as of December 31, 1999. In 1999, the Company amended one of its SERP plans to cease future benefit accruals and recognized a curtailment gain of $1.9 million. Regal, which the Company acquired in 1999, has two defined benefit plans and a SERP plan. These plans have a combined projected benefit obligation, accumulated benefit obligation and fair value of plan assets of $6.8 million, $6.1 million and $5.7 million as of January 1, 2000, respectively. Effective December 31, 1998, the Company merged two of its defined benefit pension plans together, 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 to plan participants. 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. During 1999, settlement payments of approximately $45.1 million were distributed to participants in the plan. The Company amended its postretirement medical plan effective January 1, 1999, 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 Company's 1998 per capita cost. These amendments decreased the postretirement benefit obligation by approximately $10 million. In addition, the Company amended the plan to decrease the eligibility requirement from age 62 and at least 25 years of service, to age 60 and at least 10 years of service, resulting in an increase in the postretirement benefit obligation of $4.1 million. 13 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Springs Industries, Inc. The following tables include summarized information on the Company's pension and postretirement plans for the years ended January 1, 2000, and January 2, 1999:
(in thousands) Defined Post retirement Pension Benefits Medical Benefits ------------------------------------------------ CHANGE IN BENEFIT OBLIGATION: 1999 1998 1999 1998 --------- --------- --------- --------- Benefit obligation at beginning of year ......................... $ 80,585 $ 69,152 $ 46,617 $ 66,847 Service cost ................................................... 701 2,021 1,538 1,474 Interest cost .................................................. 4,798 4,621 3,132 3,214 Participants' contributions .................................... -- -- 2,602 2,381 Actuarial (gains) losses ....................................... (7,138) 3,196 (3,763) (11,689) Acquisition .................................................... 7,493 -- -- -- Plan amendments, divestitures, curtailments and settlements .... (43,239) 7,489 -- (7,549) Special termination benefits .................................... 478 -- -- -- Benefit payments ................................................ (2,796) (5,894) (8,746) (8,061) - ------------------------------------------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR ........................... $ 40,882 $ 80,585 $ 41,380 $ 46,617 =================================================================================================================== CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year .............. $ 57,733 $ 54,286 Actual return on plan assets ................................ 596 9,173 Acquisition ................................................. 5,612 -- Employer contributions ...................................... 1,888 426 benefit payments ............................................. (2,796) (4,302) Settlements ................................................. (45,120) (1,850) - ----------------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR ................ $ 17,913 $ 57,733 ========================================================================================= FUNDED STATUS: Funded status at end of year ................................ $(22,969) $(22,852) $(41,380) $(46,617) Unrecognized actuarial (gains) losses ....................... (2,093) 2,640 (20,085) (16,129) Unrecognized prior service cost ............................. 3,035 (236) (6,607) (7,768) Unrecognized transition obligation .......................... (86) (125) -- -- - ------------------------------------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED ................................... $(22,113) $(20,573) $(68,072) $(70,514) =================================================================================================================== AMOUNTS RECOGNIZED IN THE COMPANY'S BALANCE SHEET: Prepaid benefit cost ......................................... $ -- $ 146 $ -- $ -- Accrued benefit cost ......................................... (24,757) (23,041) (68,072) (70,514) Intangible asset ............................................ 1,558 546 -- -- Accumulated other comprehensive loss ........................ 1,086 1,776 -- -- - ------------------------------------------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED ................................... $(22,113) $(20,573) $(68,072) $(70,514) =================================================================================================================== WEIGHTED AVERAGE ASSUMPTIONS: Discount rate ............................................... 7.75% 6.50% 7.75% 6.50% Expected return on plan assets .............................. 8.50% 8.50% -- -- Rate of compensation increase ............................... 4.50% 4.50% -- -- Initial health care cost trend rate (1) (2) ................. -- -- 8.00% 8.50% COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost ................................................ $ 701 $ 2,021 $ 1,538 $ 1,474 Interest cost ............................................... 4,798 4,621 3,132 3,214 Actual return on assets ..................................... (3,226) (4,358) -- -- Amortization of prior service cost .......................... 521 -- -- -- Amortization of transition obligation ....................... (39) -- -- -- Net amortization and deferral ............................... 78 (962) (968) (1,080) Special termination Benefit cost ............................. 478 396 -- -- Effect of curtailment/settlement ............................ (1,911) 101 -- 2,066 - ------------------------------------------------------------------------------------------------------------------- NET PERIODIC BENEFIT COST ................................ $ 1,400 $ 1,819 $ 3,702 $ 5,674 ===================================================================================================================
(1) Assumed to decrease gradually to 5.0 percent in 2005 and remain at that level thereafter. (2) 6.0 percent and 6.1 percent for HMO plans for 1999 and 1998, respectively. 14 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Springs Industries, Inc. The Company had unfunded defined benefit plans with a total projected benefit obligation and accumulated benefit obligation of $24.3 million and $23.6 million, respectively, as of January 1, 2000. The Company had under-funded defined benefit plans with a projected benefit obligation, accumulated benefit obligation and fair value of plan assets of $32.9 million, $31.7 million, and $10.0 million, respectively as of January 2, 1999. 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 ........... $ 78 $ (113) ========= ========= Effect on postretirement benefit obligation ...................... $ 973 $ (1,336) ========= =========
NOTE 14. 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 1, 2000, and January 2, 1999. The carrying value of notes receivable is $3.7 million at January 1, 2000, compared to an estimated fair value of $3.4 million, using interest rates based on the credit worthiness of the customers. The carrying value of notes receivable was $12.4 million at January 2, 1999, compared to an estimated fair value of $11.4 million. The carrying value of long-term debt at January 1, 2000, was $304.7 million, compared to an estimated fair value of $309.6 million. The carrying value of long-term debt at January 2, 1999, was $289.3 million, compared to an estimated fair value of $297.4 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 1, 2000, and January 2, 1999, the Company had interest rate swaps with notional amounts totaling $139.3 million and $153.6 million, respectively. The estimated fair value of these agreements was an unrealized gain of $3.4 million at January 1, 2000, and an unrealized loss of $5.2 million at January 2, 1999, based on market prices for similar instruments. The fair value of exchange-traded futures contracts held at year-end 1999 and 1998 was not material. NOTE 15. 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 99.9 percent of Springs' Class B common stock and 1.0 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 and to these companies is not material and the services have been obtained or supplied at competitive prices or rates. Management annually reviews its conclusions concerning related party transactions with the Audit Committee of the Board of Directors. COMMITMENTS: The Company has entered into a ten-year operating agreement to provide certain commission finishing services and supply limited amounts of yarn to one of the divested specialty fabrics businesses. This agreement specifies that Springs provide the services and yarn to the divested specialty fabrics business at Springs' cost, with a small premium over cost after the third year of the agreement. The Company does not believe that this agreement will have a material impact on its results of operations. 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 $7 million and $15 million, and has accrued an undiscounted liability of approximately $11 million, which represents management's best estimate of Springs' probable liability concerning all known environmental matters. Management believes the $11 million will be paid out over the next 15 years. This accrual has not been reduced by any potential insurance recovery to which the Company may be entitled regarding environmental matters. Environmental matters include a site listed on the United States Environmental Protection Agency's ("EPA") National Priority List where Springs is the sole responsible party. Springs, the EPA and the United States Department of Justice have executed a consent decree related to this site. Soil cleanup was completed in 1993, subject to final approval by the EPA, and the approved EPA groundwater remedy began in 1996. There are no other known sites which the Company presently believes may involve material 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. 15 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION Springs Industries, Inc. A five-year summary of Selected Financial Data appears on pages 30 and 31. RESULTS OF OPERATIONS GENERAL In connection with Springs Industries, Inc.'s (Springs or the Company) divestiture of four of its specialty fabrics businesses, including its UltraFabrics business in March 1999, Springs realigned its internal organizational structure during the first quarter of 1999 to reflect the Company's strategic focus on the home furnishings market, resulting in one reportable segment. The home furnishings segment's operating results for 1998 and 1997 have been restated to include the Company's Retail and Specialty Fabrics unit's operating results, which were previously included in its former specialty fabrics segment. Please refer to Note 2, Reportable Segment Information, and the Divestitures section of Management's Discussion and Analysis of Operations and Financial Condition, for additional discussion. During the first quarter of 1999, and in conjunction with the Company's increasing focus on the home furnishings market, Springs acquired the remaining 50 percent interest in American Fiber Industries, LLC ("AFI"), a manufacturer and distributor of bed pillows, mattress pads, down comforters and comforter accessories, and Regal Rugs, Inc. ("Regal"), an importer and manufacturer of bath and accent rugs. Please refer to the Acquisitions section of Management's Discussion and Analysis of Operations and Financial Condition for additional discussion. 1999 COMPARED WITH 1998 SALES Consolidated sales for 1999 were $2.220 billion, two percent higher than the previous year's $2.180 billion. Consolidated sales for 1998 included $165.8 million of sales from the divested specialty fabrics businesses. Excluding the divested businesses, sales for 1999 represent an increase of 10 percent over 1998 sales of $2.015 billion. The improvement in sales reflects the contribution of $112.6 million in sales from the Company's acquisitions of Regal and AFI, as well as stronger sales to mass merchants and specialty stores, and sales to one of the Company's divested specialty fabrics businesses. These increases were partially offset by lower sales of licensed juvenile and institutional products. EARNINGS Consolidated net income was $69.0 million, or $3.80 per diluted share, for 1999, compared to $37.3 million, or $1.97 per diluted share, for 1998. The only unusual item impacting 1999 was $0.6 million of after-tax Year 2000 expense, whereas 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 (SC) 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 businesses. Excluding unusual items, net income for 1999 would have been $69.6 million, or $3.83 per diluted share, compared to $50.1 million, or $2.64 per diluted share, in 1998. Consolidated net income for 1998 included $9.5 million of after-tax operating earnings from the divested specialty fabrics businesses. Excluding the results of the divested specialty fabrics businesses and unusual items, after-tax earnings were $69.6 million, or $3.83 per diluted share, in 1999, compared to $40.6 million, or $2.14 per diluted share, in 1998. The improvement in 1999 earnings reflects the benefits of improved sales volume noted above, ongoing cost-reduction initiatives, and improved product mix due primarily to lower sales of off-quality and closeout goods during the fourth quarter of 1999. The Company expects that these off-quality and closeout goods will be sold in the first half of 2000. The earnings increase in 1999 occurred primarily in bedding products, where volumes and margins improved compared to 1998's disappointing results. Cost of goods sold for 1999 included the benefit of after-tax insurance proceeds of $2.0 million received during the fourth quarter from the settlement of a business interruption claim related to a warehouse ore which occurred in the first quarter of 1999. Net income for 1998 included the impact of a third-quarter after-tax provision for employee severance expenses of $3.3 million and a second-quarter after-tax charge for uncollectible window fashions receivables of $4.7 million. OTHER INCOME AND EXPENSE During the third quarter of 1999, the Company sold its New York City office building for $29.5 million and leased back a portion of the building for a ten-year term. The result of the sale-leaseback was a pretax gain of $1.5 million recorded in other income, and the deferral of an additional $17.8 million pretax gain, which will be amortized over the operating lease term. Other income for 1999 also included pretax income of $4.3 million from the sale of previously-closed manufacturing facilities. Other income for 1998 included the previously-mentioned gains on the sales of the Company's UltraSuede business and Rock Hill facility. Other expense included pretax impairment charges totaling approximately $3.0 million and $1.2 million in 1999 and 1998, respectively, in connection with various types of property that management identified for sale or other disposal. In 1998, the Company recognized a $4.8 million pretax impairment charge in connection with the consolidation and modernization of terry manufacturing operations. The terry manufacturing consolidation and modernization was originally projected to be completed by mid-1999, but as a result of unexpected delays, the project is now expected to be completed in mid-2000. The Company also recognized pretax losses in 1998 totaling $2.7 million on the divestitures of the Industrial Products and Springfield businesses. 1998 COMPARED WITH 1997 SALES Net sales for 1998 were $2.180 billion, down two percent from the previous year's sales of $2.226 billion. Sales for the home furnishings segment in 1998 (52 weeks) totaled $2.015 billion, down less than two percent from the prior year due primarily to the 53-week year in 1997 and weaker demand for products in the fourth quarter of 1998. Sales growth in both window fashions products, due primarily to increased volume in the home improvement retail business, and bath fashions, resulting from stronger rug demand, partially offset declines in sales of bed fashions and baby products. Bedding sales were lower in 1998, principally in the department store trade and in certain licensed bedding products. Specialty fabrics sales of $165.8 million were nine percent lower than 1997 due to the 53-week year and the divestitures of the UltraSuede and Industrial Products businesses in August and December 1998, respectively. EARNINGS Net income for 1998 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 1998 unusual items discussed previously, 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 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. 16 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION Springs Industries, Inc. In the home furnishings segment, after-tax operating earnings in 1998 of $35.6 million declined by $33.6 million from the prior year, including unusual items which impacted this segment's earnings. Excluding the effect of unusual items from both years, the segment's 1998 operating earnings were $17.9 million lower than the previous year. The decline in profits was due principally to lower sales volume in the department store trade, a decline in demand for certain licensed bedding products in the latter part of the year, closeout sales, and production curtailments associated in part with the Company's efforts to reduce inventories. Additionally, 1998 profits were negatively affected by the previously-discussed severance costs and by the provision for window fashions uncollectible receivables. The specialty fabrics segment's after-tax operating profits in 1998 were $3.2 million higher than their 1997 level, including the impact of unusual items. Before unusual items, 1998 full-year after-tax operating earnings for the segment increased by $2.7 million. Improvements came from a change to a more profitable mix of products and a decrease in selling, general and administrative expenses in the Springfield apparel fabric business. OTHER INCOME AND EXPENSE Other income for 1998 included the previously-discussed gain on the sales of the Company's UltraSuede business and the Rock Hill facility. Included in other income for 1997 was a pretax gain on the sale of an investment of $6.6 million. Other expense in 1998 increased due to the previously-mentioned impairment charges. INFLATION AND CHANGING PRICES The replacement cost of property 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 last-in, first-out method (LIFO) of accounting for approximately 69 percent of its inventories. This percentage has decreased from 83 percent in the prior year due primarily to the acquisitions of Regal and AFI. 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 1999 were provided from operations, asset sales, business divestitures and available credit facilities. Total debt, net of cash and cash equivalents, as a percent of total capital was 30.2 percent at January 1, 2000, compared to 25.0 percent at January 2, 1999. In 1999, the Company utilized various credit facilities consisting of a revolving credit agreement and uncommitted credit facilities. At January 1, 2000, $35 million was outstanding under the revolving credit agreement at a LIBOR-based weighted-average rate of 6.4 percent and $35.5 million was outstanding under the uncommitted credit facilities at a weighted-average rate of 6.3 percent. In 1998, the Company borrowed $125 million under a long-term credit facility at a variable rate based on LIBOR, which was 6.5 percent as of January 1, 2000. During the third quarter of 1998, the Company entered into an interest rate swap agreement for a notional amount of $60 million to effectively ox the interest rate on $60 million of the $125 million long-term loan at 6.1 percent. The Company invested $166.8 million in new property during 1999, primarily in the areas of manufacturing, distribution and information technology. The Company expects capital expenditures for 2000 to be approximately $150 million. Management expects that cash generated by operations and borrowings from bank lines will adequately provide for the Company's cash needs during 2000. The Company's Board of Directors authorized the Company to purchase, from time to time, up to 4 million shares of Class A common stock in the open market and in private transactions. As of January 2, 1999, the Company had repurchased 2,408,400 shares pursuant to this authorization. No shares were repurchased during 1999. ACQUISITIONS On January 23, 1999, the Company acquired Regal at a purchase price of approximately $35 million. The acquisition was accounted for as a purchase in accordance with APB Opinion No. 16, "Business Combinations" ("APB 16"), and Regal's operating results have been included in the Company's consolidated financial statements since the January 23, 1999, acquisition date. The purchase price was allocated to the assets acquired and to the liabilities assumed based on their estimated fair value at the date of acquisition. On January 5, 1999, the Company acquired the remaining 50 percent interest in AFI. Springs acquired its original 50 percent interest in AFI in February 1997 and had been accounting for the original investment under the equity method. The purchase price for the remaining interest totaled approximately $15 million. The Company has accounted for the remaining interest as a step- acquisition in accordance with APB 16, whereby the purchase price was allocated to the assets acquired and to the liabilities assumed based on 50 percent of their estimated fair value on the date of acquisition. In addition, AFI's operating results have been included in the Company's consolidated financial statements since the January 5, 1999, acquisition date. The excess of the purchase price for both acquisitions over the fair value of net assets acquired, which totaled $34.3 million, has been recorded as good-will and is being amortized on a straight-line basis over 20 years. Because Regal and AFI were acquired in January, 1999, substantially all of their 1999 operating results have been included in Springs' 1999 Consolidated Statement of Operations. The following unaudited pro forma financial information presents the combined results of operations for Springs, Regal and AFI as if the acquisitions had been effective as of the beginning of 1998, after giving effect to certain adjustments, including amortization of goodwill, additional depreciation expense and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had Springs, Regal and AFI constituted a single entity during 1998. Such pro forma results would present net sales of $2.277 billion, net income of $39.7 million and diluted earnings per share of $2.09 for 1998. DIVESTITURES During 1999 and 1998, the Company sold four specialty fabrics businesses. Effective March 31, 1999, the Company sold its UltraFabrics business and there was no material gain on the sale. The first quarter 1999 sales and earnings before interest and taxes of the UltraFabrics business were not material. Effective January 2, 1999, the Company disposed of the net assets of the Company's Springfield business in exchange for a $10 million preferred equity interest in the divested business 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. The Company has committed to provide the divested business with certain commission finishing services and limited amounts of yarn for a period of 10 years. Springs does not believe that the terms of this commitment will have a material impact on future earnings. Effective December 19, 1998, the Company disposed of its Industrial Products business 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 divested business. Effective August 7, 1998, the Company sold its UltraSuede business and certain related assets of the UltraFabrics business in exchange for approximately $15 million in cash. The combined effect of the 1998 transactions was a pretax gain of $8.4 million which is included in other income. The combined sales of the four specialty fabrics businesses included in the Company's 1998 results were $165.8 million, and after-tax earnings totaled approximately $9.5 million. 17 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION Springs Industries, Inc. RESTRUCTURING AND REALIGNMENT 1998 RESTRUCTURING In the first quarter of 1998, the Company adopted a plan to close the Rock Hill (SC) 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 property, 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 and demolition costs. The expected benefits of this action included lower production costs and better utilization of existing capacity in other facilities. The Company realized a reduction in product costs in 1998 and 1999 as a result of closing the facility. The following represents changes in the restructuring accruals since the adoption of the plan:
Severance Accrual for (in millions) 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. In 1998, the severance accrual was reduced by $1.0 million due to a lower-than-expected cost per associate and the accrual for other expenses was reduced primarily due to the sale on September 25, 1998, of the Rock Hill facility. As a result of the sale, which management considered as an unlikely possibility at the time the plant was closed, the Company reversed accruals relating to idle plant and demolition costs by approximately $4.3 million. In 1998 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, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." 1996 RESTRUCTURING During 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 plan benefited operating results by reducing the volume of linear yards and second-quality units produced, by reducing the complexity of the finishing process, and by increasing manufacturing flexibility with respect to the use of finished roll stock. During 1998, the severance accrual associated with the plan was reduced by approximately $1.5 million due to lower-than-expected severance costs and the accrual for other expenses was reduced by $0.9 million primarily due to lower-than-expected idle plant costs. The restructuring plan was completed during the fourth quarter of 1998. The Company incurred realignment expenses of $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. 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 as of January 1, 2000 and January 2, 1999. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. The weighted-average variable interest rates, at the respective expected maturity dates, are presented assuming that the projected weighted-average variable interest rates will be the same as the weighted-average variable interest rates as of January 1, 2000 and January 2, 1999, respectively. For interest rate swaps, the table presents notional amounts and weighted-average rates by expected maturity dates.
January 1, 2000 Expected Maturity Date Fair Value ---------------------- ---------- January 1, (in millions) 2000 2001 2002 2003 2004 Thereafter Total 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt: Fixed rate instruments ...... $ 5.7 $ 5.5 $ 5.6 $ 5.3 $ 5.0 $ 24.4 $ 51.5 $ 56.4 Average interest rate .... 9.5% 9.4% 9.4% 9.4% 9.3% 8.3% Variable rate instruments ... $ 15.5 $ 24.1 $ 68.0 $ 33.0 $ 33.0 $ 79.6 $ 253.2 $ 253.2 Average interest rate .... 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL ................ $ 304.7 $ 309.6 ================================================================================================================================== Interest rate swaps: Pay fixed/receive variable 1995 notional amounts ....... $ 14.3 $ 14.3 $ 14.3 $ 14.3 $ 14.3 $ 7.8 $ 79.3 $ 0.8 Average pay rate ......... 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 1998 notional amounts ....... $ 0.0 $ 2.1 $ 8.6 $ 8.6 $ 8.6 $ 32.1 $ 60.0 $ 2.6 Average pay rate ......... 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL ................ $ 139.3 $ 3.4 ==================================================================================================================================
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION 29 Springs Industries, Inc.
January 2, 1999 Expected Maturity Date Fair Value (in millions) ---------------------- ---------- January 2, 1999 2000 2001 2002 2003 Thereafter Total 1999 - ----------------------------------------------------------------------------------------------------------------------------------- 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 exchange-traded futures contracts held at year-end 1999 and 1998 was not material. Near-term changes in the price of cotton fiber are not expected to have a material impact on the Company's future earnings or cash flows. Foreign Exchange Risk - The Company is exposed to foreign exchange risk to the extent of adverse fluctuations in certain exchange rates, primarily the Canadian dollar and Mexican peso. The Company does not believe that reasonably possible near-term changes in foreign currencies will result in a material effect on future earnings, financial position or cash flows of the Company. YEAR 2000 COMPUTER ISSUE The Company completed its Year 2000 Project and has not experienced any significant disruptions in operations as a result of the Year 2000 Computer Issue. None of the Company's vendors or customers have indicated that they have experienced any significant Year 2000 related business interruptions. Although the Company has not experienced and does not anticipate any significant Year 2000 disruptions, because of the uncertainties inherent with the Year 2000 Computer Issue, the Company cannot ensure that it will not experience a Year 2000 related issue in the future. Approximately $1.0 million, $7.1 million and $2.8 million of pretax expense was incurred in 1999, 1998 and 1997, respectively, related to Springs' Year 2000 Project. If any costs are incurred in 2000 related to this issue, they are not expected to be material. ACCOUNTING CHANGES In 1999, the Company adopted the American Institute of Certified Public Accountants' Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This standard revised the accounting for software development costs and requires the capitalization of certain costs which the Company has historically expensed as incurred. The adoption of this statement resulted in an increase to 1999 net income of $1.2 million, or $0.07 per diluted share, from the capitalization of costs that would have been expensed in previous years. In accordance with this standard, costs incurred prior to the initial adoption have not been retroactively adjusted. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities. This statement will require the Company to recognize all derivatives on the Consolidated Balance Sheet at fair value, and may impact the Company's earnings depending on the instruments held at the time of adoption. The Company will be required to adopt this standard beginning in its 2001 fiscal year, and is in the process of determining the impact of this standard on its financial position, results of operations and cash flows. 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 often used 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 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; Year 2000-related computer issues; labor matters; and the availability and price of raw materials which could be affected by weather, disease, energy costs, or other factors. 19 30 Selected Financial Data Springs Industries, Inc.
1999 1998 1997 (c) 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS: (in millions) Net sales ................................... $ 2,220.4 $ 2,180.5 $ 2,226.1 $ 2,221.0 $ 2,223.2 Income from continuing operations ........... 69.0 37.3 69.0 88.4(i) 71.6 Net income .................................. 69.0(a) 37.3(b) 69.0(d) 84.9(e) 71.6 Class A cash dividends declared ............. 14.1 14.9 16.9 16.7 14.8 Class B cash dividends declared ............. 8.6 8.7 8.8 9.0 8.9 PER SHARE OF COMMON STOCK: Income from continuing operations-diluted ... $ 3.80 $ 1.97 $ 3.34 $ 4.29(i) $ 3.69 Net income-diluted .......................... 3.80(a) 1.97(b) 3.34(d) 4.12(e) 3.69 Class A cash dividends declared ............. 1.32 1.32 1.32 1.32 1.26 Class B cash dividends declared ............. 1.20 1.20 1.20 1.20 1.14 Shareholders' equity ........................ 43.28 40.62 40.69 38.75 36.48 Class A stock price range: High ..................................... 43 5/8 61 54 3/4 50 1/2 44 3/4 Low ...................................... 27 1/16 31 3/4 41 38 3/8 35 1/4 - ----------------------------------------------------------------------------------------------------------------------------------- STATISTICAL DATA: Net income to net sales ..................... 3.1%(a) 1.7%(b) 3.1%(d) 3.8%(e) 3.2% Net income to average shareholders' equity .. 9.2%(a) 5.0%(b) 8.6%(d) 11.1%(e) 10.8% Operating return on assets employed(f) ...... 9.1% 5.8% 8.6% 8.8% 9.8% Inventory turnover(g) ....................... 4.2 4.1 4.6 4.8 5.3 Accounts receivable turnover(h) ............. 6.9 6.6 6.4 6.4 6.5 Net sales divided by average assets ......... 1.5 1.5 1.6 1.5 1.5 Current ratio ............................... 2.7 3.5 3.3 3.1 2.9 Capital expenditures (in millions) .......... $ 166.8 $ 115.0 $ 99.3 $ 75.1 $ 75.2 Depreciation (in millions) .................. $ 90.5 $ 81.9 $ 78.8 $ 80.8 $ 84.6 Approximate number of shareholders .......... 2,548 2,636 2,856 3,000 3,200 Average number of associates ................ 18,300 18,000 20,100 21,700 22,600 - --------------------------------------------------------------------------------------------------------------------------------- SELECTED BALANCE SHEET DATA: (in millions) Net working capital ......................... $ 523.0 $ 555.8 $ 546.4 $ 537.4 $ 506.3 Net property ................................ 625.6 549.7 541.2 534.6 614.0 Total assets ................................ 1,575.0 1,425.5 1,409.3 1,398.5 1,527.5 Long-term debt .............................. 283.5 268.0 164.3 177.6 326.9 Shareholders' equity ........................ 774.9 724.1 804.6 780.8 734.5 - ---------------------------------------------------------------------------------------------------------------------------------
20 SELECTED FINANCIAL DATA 31 Springs Industries, Inc. NOTES: (a) Net of Year 2000 expenses of $0.6 million. Without this unusual item, net income would have been $69.6 million, or $3.83 per diluted share, net income to sales would have been 3.1 percent, and the return on average shareholders' equity would have been 9.3 percent. (b) 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 businesses, and an impairment charge of $3.0 million recorded in connection with the Company's decision to close a terry manufacturing facility. 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 shareholders' equity would have been 6.7 percent. (c) Fiscal year 1997 includes 53 weeks, whereas all other fiscal years include 52 weeks. (d) 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 shareholders' equity would have been 9.2 percent. (e) 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 shareholders' equity would have been 8.5 percent. (f) Pretax income before interest expense divided by average of month-end total assets used in operations. For 1999, pretax income was net of Year 2000 expenses. Without this unusual item, operating return on assets employed would have been 9.2 percent. 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 businesses, and an impairment charge in connection with the Company's decision to close a terry manufacturing facility. 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. (g) Cost of goods sold divided by average of month-end inventories. (h) Net sales divided by average of month-end receivables. (i) 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; certain assets of Dawson Home Fashions, Inc., May 1995; Nanik Window Covering business, July 1995; American Fiber Industries, LLC, January 1999; and Regal Rugs, Inc., January 1999. Selected Financial Data also includes the following until their respective dates of disposition: 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 business, December 1998; the Company's Springfield business, December 1998; and the Company's UltraFabrics business, March 1999. 21 32 Quarterly Financial Data (Unaudited) Springs Industries, Inc. (In millions except per share data)
1999 QUARTER 1ST 2ND 3RD 4TH YEAR - ------- Net sales ................. $ 584.0 $ 544.9 $ 562.9 $528.6 $2,220.4 Gross profit .............. $ 102.1 $ 98.4 $ 107.0 $112.0 $ 419.5 Income before unusual items ............ $ 15.5 $ 13.5 $ 18.1 $ 22.5 $ 69.6 Year 2000 expenses ........ (0.3) (0.2) (0.1) -- (0.6) Restructuring and realignment ............. -- -- -- -- -- Sales of businesses and Rock Hill facility ...... -- -- -- -- -- Impairment charge ......... -- -- -- -- -- - ----------------------------------------------------------------------------------------- NET INCOME ............. $ 15.2 $ 13.3 $ 18.0 $ 22.5 $ 69.0 ========================================================================================= EARNINGS PER COMMON SHARE-DILUTED: Net income before unusual items ........... $ 0.86 $ 0.74 $ 0.99 $ 1.23 $ 3.83 Year 2000 expenses ........ (0.02) (0.01) -- -- (0.03) Restructuring and realignment ............. -- -- -- -- -- Sales of businesses and Rock Hill facility ...... -- -- -- -- -- Impairment charge ......... -- -- -- -- -- - ----------------------------------------------------------------------------------------- NET INCOME ............. $ 0.84 $ 0.73 $ 0.99 $ 1.23 $ 3.80 ========================================================================================= DIVIDENDS AND PRICE RANGE OF COMMON STOCK 1999 QUARTER 1ST 2ND 3RD 4TH YEAR - ------- (per share) Class A dividends declared ................ $ .33 $ .33 $ .33 $.33 $ 1.32 Class B dividends declared ................ .30 .30 .30 .30 1.20 COMMON STOCK PRICES: High .................... 42 1/2 43 5/8 43 5/16 43 7/16 43 5/8 Low ..................... 27 1/16 27 13/16 33 11/16 32 15/16 27 1/16 ========================================================================================= 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) - -------------------------------------------------------------------------------------------- NET INCOME ............. $ (3.1) $ 5.5 $ 21.8 $ 13.1 $ 37.3 ============================================================================================ EARNINGS PER COMMON SHARE-DILUTED: Net 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) - -------------------------------------------------------------------------------------------- NET INCOME ............. $ (0.16) $ 0.28 $ 1.19 $ 0.72 $ 1.97 ============================================================================================ DIVIDENDS AND PRICE RANGE OF COMMON STOCK 1998 QUARTER 1ST 2ND 3RD 4TH YEAR - ------- (per share) Class A dividends declared ................ $ .33 $ .33 $ .33 $ .33 $ 1.32 Class B dividends declared ................ .30 .30 .30 .30 1.20 - -------------------------------------------------------------------------------------------- COMMON STOCK PRICES: High .................... 58 1/16 61 46 1/2 42 1/4 61 Low ..................... 50 1/8 45 1/4 32 7/16 31 3/4 31 3/4 ============================================================================================
EX-21 7 LIST OF SUBSIDIARIES 1 EXHIBIT 21 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. New Fashion Sierra, Inc. 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 Inversiones Limitada Chile 10. Springs Industries (Asia) Inc. Delaware 11. Springs Licensing Group, Inc. South Carolina 12. Springs Sales Corporation U.S. Virgin Islands 13. Springs Window Fashions Division, Inc. Delaware 14. Springs Window Fashions Leasing Co., Inc. South Carolina 15. Warbird Corporation Delaware
29 EX-23 8 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-46260, No. 33-46261, No. 33-80887, and No. 33-80889 of Springs Industries, Inc., on Form S-8 of our report dated January 31, 2000, incorporated by reference in this Annual Report on Form 10-K of Springs Industries, Inc., for the year ended January 1, 2000. DELOITTE & TOUCHE LLP Charlotte, North Carolina March 27, 2000 EX-27 9 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 1, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-01-2000 JAN-03-1999 JAN-01-2000 4,210 0 302,210 9,712 479,328 823,417 1,452,877 827,234 1,574,998 300,421 283,534 0 0 4,501 770,370 1,574,998 2,220,403 2,220,403 1,800,903 1,800,903 0 7,297 26,520 111,228 42,267 68,961 0 0 0 68,961 3.86 3.80
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