-----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, Erbl5tNoAiyRwXUUiyCTFMfHqx/TU2R60gah8p5n7hOPQyl2uXMo47iwr1Q22fjU 6emIZGwqPLZNGxLNVcpZZw== 0000950144-01-505867.txt : 20010815 0000950144-01-505867.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950144-01-505867 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05315 FILM NUMBER: 1711268 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-Q 1 g71061e10-q.txt SPRINGS INDUSTRIES, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-Q For the Quarter Ended June 30, 2001 Commission File Number 1-5315 ------------------------------------- SPRINGS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) SOUTH CAROLINA 57-0252730 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 205 North White Street Fort Mill, South Carolina 29715 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (803) 547-1500 ------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes [X] No [ ] ------------------------------------- As of August 8, 2001, there were 10,816,710 shares of Class A Common Stock and 7,151,563 shares of Class B Common Stock of Springs Industries, Inc. outstanding. ------------------------------------- There are 23 pages in the sequentially numbered, manually signed original of this report. -1- 2 TABLE OF CONTENTS TO FORM 10-Q PART I - FINANCIAL INFORMATION
ITEM PAGE - ---- ---- 1. FINANCIAL STATEMENTS 3 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 14 FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
PART II - OTHER INFORMATION
ITEM PAGE - ---- ---- 6. EXHIBITS AND REPORTS ON FORM 8-K 22 SIGNATURES 23
-2- 3 PART I - FINANCIAL INFORMATION ITEM 1.- FINANCIAL STATEMENTS SPRINGS INDUSTRIES, INC. Condensed Consolidated Statements of Operations and Retained Earnings (In thousands except per share amounts) (Unaudited)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED ----------------------------- --------------------------------- JUNE 30, JULY 1, JUNE 30, JULY 1, 2001 2000 2001 2000 --------- --------- ----------- ----------- Operations Net sales $ 546,942 $ 573,128 $ 1,117,322 $ 1,166,352 Cost and expenses: Cost of goods sold 446,133 456,994 916,150 935,161 Selling, general and administrative expenses 65,430 72,946 133,243 147,264 Provision for uncollectible receivables 1,223 1,282 3,507 2,297 Restructuring and realignment (income) expenses (500) 2,890 (500) 2,890 Expenses related to recapitalization proposal 1,231 -- 3,481 -- Interest expense 6,338 8,018 13,923 15,894 Other expense (income), net 192 139 (200) 57 --------- --------- ----------- ----------- Total 520,047 542,269 1,069,604 1,103,563 --------- --------- ----------- ----------- Income before income taxes 26,895 30,859 47,718 62,789 Income tax provision 9,945 11,415 17,645 23,238 --------- --------- ----------- ----------- Net income $ 16,950 $ 19,444 $ 30,073 $ 39,551 ========= ========= =========== =========== Basic earnings per common share $ 0.94 $ 1.08 $ 1.68 $ 2.21 ========= ========= =========== =========== Diluted earnings per common share $ 0.93 $ 1.06 $ 1.65 $ 2.16 ========= ========= =========== =========== Cash dividends declared per common share: Class A common shares $ 0.33 $ 0.33 $ 0.66 $ 0.66 ========= ========= =========== =========== Class B common shares $ 0.30 $ 0.30 $ 0.60 $ 0.60 ========= ========= =========== =========== Basic weighted-average common shares outstanding 17,959 17,923 17,947 17,917 Dilutive effect of stock- based compensation awards 360 408 320 352 --------- --------- ----------- ----------- Diluted weighted-average common shares outstanding 18,319 18,331 18,267 18,269 ========= ========= =========== =========== RETAINED EARNINGS Retained earnings at beginning of period $ 729,931 $ 692,580 $ 722,515 $ 678,170 Net income 16,950 19,444 30,073 39,551 Cash dividends declared (5,714) (5,699) (11,421) (11,396) --------- --------- ----------- ----------- Retained earnings at end of period $ 741,167 $ 706,325 $ 741,167 $ 706,325 ========= ========= =========== ===========
See Notes to Condensed Consolidated Financial Statements. -3- 4 SPRINGS INDUSTRIES, INC. Condensed Consolidated Balance Sheets (In thousands except share data) (Unaudited)
JUNE 30, DECEMBER 30, 2001 2000 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 11,372 $ 2,862 Accounts receivable, net 293,889 291,050 Inventories, net 511,944 508,067 Other 45,171 34,386 ----------- ----------- Total current assets 862,376 836,365 ----------- ----------- Property 1,511,981 1,477,941 Accumulated depreciation (901,061) (860,019) ----------- ----------- Property, net 610,920 617,922 ----------- ----------- Goodwill and other assets, net 125,701 129,859 ----------- ----------- Total assets $ 1,598,997 $ 1,584,146 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 40,525 $ 24,700 Current maturities of long-term debt 34,102 25,216 Accounts payable 114,218 106,728 Accrued wages and salaries 16,429 9,431 Accrued incentive pay and benefit plans 16,918 28,735 Income taxes payable 13,611 7,879 Other accrued liabilities 68,398 68,318 ----------- ----------- Total current liabilities 304,201 271,007 ----------- ----------- Noncurrent liabilities: Long-term debt 261,122 283,280 Accrued benefits and deferred compensation 165,110 176,113 Other 36,893 33,959 ----------- ----------- Total noncurrent liabilities 463,125 493,352 ----------- ----------- Shareholders' equity: Class A common stock - $.25 par value (10,903,185 and 10,867,988 shares issued in fiscal 2001 and 2000, respectively) 2,726 2,717 Class B common stock - $.25 par value (7,151,563 and 7,154,763 shares issued and outstanding in fiscal 2001 and 2000, respectively) 1,788 1,789 Additional paid-in capital 105,527 104,181 Retained earnings 741,167 722,515 Cost of Class A common stock in treasury (88,544 and 91,216 shares in fiscal 2001 and 2000, respectively) (2,032) (2,085) Accumulated other comprehensive loss (17,505) (9,330) ----------- ----------- Total shareholders' equity 831,671 819,787 ----------- ----------- Total liabilities and shareholders' equity $ 1,598,997 $ 1,584,146 =========== ===========
See Notes to Condensed Consolidated Financial Statements. -4- 5 SPRINGS INDUSTRIES, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
TWENTY-SIX WEEKS ENDED --------------------------- JUNE 30, JULY 1, 2001 2000 -------- -------- OPERATING ACTIVITIES: Net income $ 30,073 $ 39,551 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 56,417 52,812 Restructuring and realignment (income) expenses (500) 2,890 Provision for uncollectible receivables 3,507 2,297 Losses on sales of property, net 765 672 Changes in operating assets and liabilities, net of effects of business acquisition: Accounts receivable (6,346) (16,436) Inventories (3,604) (38,710) Accounts payable and other accrued liabilities 6,741 (16,244) Accrued restructuring costs (1,068) -- Other, net (16,743) (6,865) -------- -------- Net cash provided by operating activities 69,242 19,967 -------- -------- INVESTING ACTIVITIES: Purchases of property (35,181) (53,302) Business acquisition (12,389) -- Principal collected on notes receivable 265 952 Net proceeds from sales of property 26 753 -------- -------- Net cash used for investing activities (47,279) (51,597) -------- -------- FINANCING ACTIVITIES: Proceeds from short-term borrowings, net 15,825 20,950 Proceeds from long-term debt 30,000 90,000 Repayments of long-term debt (43,272) (63,721) Proceeds from exercise of stock options 1,118 119 Payment of cash dividends (17,124) (17,090) -------- -------- Net cash (used for) provided by financing activities (13,453) 30,258 -------- -------- Net increase (decrease) in cash and cash equivalents 8,510 (1,372) Cash and cash equivalents at beginning of period 2,862 4,210 -------- -------- Cash and cash equivalents at end of period $ 11,372 $ 2,838 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Noncash activities: Change in fair value of cash flow hedging instruments $(12,899) $ -- -------- -------- Income tax effect related to change in fair value of cash flow hedging instruments $ 4,902 $ -- -------- --------
See Notes to Condensed Consolidated Financial Statements. -5- 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Significant Accounting Policies: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six week periods ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 29, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Reports on Forms 10-K and 10-K/A for the year ended December 30, 2000 (the "2000 Annual Report") of Springs Industries, Inc. ("Springs" or the "Company"). Use of Estimates: Preparation of the Company's condensed consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported a mounts of assets and liabilities, disclosures relating to contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates and assumptions. Reclassifications: Certain prior-year amounts have been reclassified to conform to the fiscal 2001 presentation. Segment Reporting: The Company's operations have been aggregated into one reportable segment in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company evaluates its performance based on profit from operations, which is defined as net sales less cost of goods sold, selling, general, and administrative expenses, and the provision for uncollectible receivables. Profit from operations and the reconciliation to the Company's consolidated income before income taxes for the thirteen and twenty-six week periods ended June 30, 2001 and July 1, 2000 were as follows: (in thousands)
Thirteen Weeks Ended Twenty-Six Weeks Ended ---------------------- ---------------------- June 30, July 1, June 30, July 1, 2001 2000 2001 2000 -------- ------- -------- ------- Profit from operations $ 34,156 $41,906 $ 64,422 $81,630 Restructuring and realignment (income) expenses (500) 2,890 (500) 2,890 Expenses related to recapitalization proposal 1,231 -- 3,481 -- Interest expense 6,338 8,018 13,923 15,894 Other expense (income), net 192 139 (200) 57 -------- ------- -------- ------- Income before income taxes $ 26,895 $30,859 $ 47,718 $62,789 ======== ======= ======== =======
Accounting Changes: Effective December 31, 2000 (fiscal 2001), the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB -6- 7 Statement No. 133)." See Note 11, Derivative Financial Instruments, for further discussion. Recently Issued Accounting Standards: In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have a significant impact on its financial position, results of operations and cash flows. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective December 30, 2001 (fiscal 2002). SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position, results of operations and cash flows. For the twenty-six weeks ended June 30, 2001, the Company recorded $1.4 million of amortization expense related to goodwill and $0.4 million of amortization expense related to other intangible assets. 2. Accounts Receivable: The Company performs ongoing credit evaluations of its customers' financial conditions and, typically, requires no collateral from its customers. The Company's reserve for doubtful accounts was $9.7 million at June 30, 2001, compared to $9.4 million at December 30, 2000. The increase in the reserve for doubtful accounts at June 30, 2001 reflects a year-to-date provision for doubtful accounts of $3.5 million and net write-offs of approximately $3.2 million for previously reserved accounts. The reserve for doubtful accounts was $9.5 million at July 1, 2000, compared to $9.7 million at January 1, 2000. The decrease in the reserve for doubtful accounts reflected a year-to-date provision for doubtful accounts of $2.3 million and net write-offs of approximately $2.5 million for previously reserved accounts. 3. Inventories: Inventories are summarized as follows: (in thousands)
June 30, December 30, 2001 2000 --------- ------------ Standard cost (which approximates current cost): Finished goods $ 334,926 $ 314,629 In process 205,057 213,855 Raw materials and supplies 63,607 64,241 --------- --------- 603,590 592,725 Less LIFO reserve (91,646) (84,658) --------- --------- Total $ 511,944 $ 508,067 ========= =========
-7- 8 4. Acquisitions: Effective January 2, 2001, the Company acquired certain assets of Maybank Textile Corp. ("Maybank"), a manufacturer of rug yarn. Prior to the acquisition, Maybank was a supplier to Springs, its largest customer. The acquisition included all of the assets used by Maybank to supply yarn to Springs. The purchase price was approximately $12.4 million. The acquisition was accounted for as a purchase in accordance with APB 16, and the operating results for the acquired business have been included in the Company's consolidated financial statements since the January 2, 2001, acquisition date. The purchase price was allocated to the assets acquired based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, which totaled $2.0 million, has been recorded as goodwill and is currently being amortized on a straight-line basis over 20 years. Due to the supplier-customer relationship between Maybank and Springs prior to the acquisition, pro-forma operating results are not materially different than previously reported results. On August 7, 2000, the Company acquired certain assets and operations of a Mexican maquiladora (a business enterprise which provides preferential import and tax treatment for goods transferred between Mexico and the United States), which fabricates window blinds, and a related U.S. distribution operation. The purchase price was approximately $5.7 million. The acquisition was accounted for as a purchase in accordance with APB 16, and the operating results for the acquired business have been included in the Company's consolidated financial statements since the August 7, 2000, acquisition date. The purchase price was allocated to the assets acquired based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, which totaled $3.9 million, has been recorded as goodwill and is currently being amortized on a straight-line basis over 20 years. The pro-forma impact on sales and operating profits for 2000 was not material. See Note 1, Basis of Presentation and Significant Accounting Policies, for a discussion of SFAS 141 and SFAS 142, and the impact on accounting for goodwill in future periods. 5. Restructuring and Realignment Expenses: In December 2000, the Company announced a restructuring plan to eliminate certain production at its Katherine and Elliott bedding plants in South Carolina, beginning in February 2001. The plan eliminates some narrow loom weaving, which is not compatible with newer fabrication equipment, at the Katherine plant and outdated yarn spinning at the Katherine and Elliott plants. The Company recorded a charge of $2.4 million in fiscal 2000, which included a $1.1 million accrual for severance costs arising from the elimination of an estimated 326 manufacturing positions and a $1.3 million impairment charge for disposal of machinery and equipment. Impairment was determined by comparing the net book value against estimated sales value less costs to sell. In the second quarter of 2001, the severance accrual was reduced by $0.5 million due to the Company's ability to place a greater-than-expected number of associates affected by the restructuring plan elsewhere within the Company. The restructuring plan is expected to be completed during the fourth quarter of 2001. -8- 9 Changes in the restructuring accruals since the adoption of the plan are as follows: (in millions)
Severance Asset Accrual Impairment --------- ---------- Original accrual as of December 6, 2000 $ 1.1 $ 1.3 Cash payments (0.4) -- Charged against assets -- (1.3) Adjustment (0.5) -- ------ ------ Accrual balance as of June 30, 2001 $ 0.2 $ 0.0 ====== ======
In the second quarter of 2000, the Company adopted a plan to phase out production and close plants in Griffin and Jackson, Georgia, which manufactured certain baby apparel products, and to phase out yarn production for terry towels at its No. 2 plant in Griffin, Georgia beginning in August 2000. The Company recorded a charge of $2.9 million, which included a $2.4 million accrual for severance costs arising from the elimination of an estimated 426 manufacturing positions, a $0.3 million impairment charge for machinery and equipment to be sold, and a $0.2 million accrual for estimated idle plant costs. These charges relate primarily to the baby products facilities since costs related to the terry yarn facility were not significant. The restructuring plan was completed during the first quarter of 2001. Changes in the restructuring accruals since the adoption of the plan are as follows: (in millions)
Idle Severance Asset Plant Accrual Impairment Costs --------- ---------- ------ Original accrual as of June 2, 2000 $ 2.4 $ 0.3 $ 0.2 Cash payments (2.4) -- (0.2) Charged against assets -- (0.3) -- ------ ------ ------ Accrual balance as of March 31, 2001 $ 0.0 $ 0.0 $ 0.0 ====== ====== ======
6. Goodwill: The Company had net goodwill of $61.9 million and $61.0 million at June 30, 2001, and December 30, 2000, respectively. These amounts are net of accumulated amortization of $18.1 million at June 30, 2001, and $16.7 million at December 30, 2000. See Note 1, Basis of Presentation and Significant Accounting Policies, for a discussion of SFAS 141 and SFAS 142 and the impact on accounting for goodwill in future periods and Note 4, Acquisitions, for a description of the goodwill from the fiscal 2001 and 2000 acquisitions. -9- 10 7. Accrued Benefits and Deferred Compensation: The long-term portion of accrued benefits and deferred compensation was comprised of the following: (in thousands)
June 30, December 30, 2001 2000 -------- ------------ Postretirement medical benefit obligation $ 52,008 $ 56,287 Deferred compensation 58,230 65,681 Other employee benefit obligations 54,872 54,145 -------- -------- Total $165,110 $176,113 ======== ========
The liabilities are long term in nature and will be paid over time in accordance with the terms of the plans. 8. Financing Arrangements: During the first quarter of 2001, the Company borrowed an additional $65.0 million through its existing long-term revolving credit facility, $35.0 million of which was classified as short-term borrowings. In the second quarter of 2001, the Company repaid the $35.0 million classified as short-term borrowings and an additional $35.0 million that was classified as long-term debt under this facility. The remaining $55.0 million balance outstanding under this facility has been classified as long-term debt. This activity reflects the Company's seasonal use of cash in the first quarter and positive cash flows in the second quarter. The LIBOR-based weighted-average interest rate on this agreement was 4.1 percent as of June 30, 2001. The majority of the Company's existing financing arrangements will be refinanced if the proposed recapitalization transaction (refer to Note 13, Proposed Recapitalization Transaction) is completed. 9. Comprehensive Income: (in thousands, net of taxes)
Thirteen Weeks Ended Twenty-Six Weeks Ended --------------------------- --------------------------- June 30, July 1, June 30, July 1, 2001 2000 2001 2000 -------- -------- -------- -------- Net income $ 16,950 $ 19,444 $ 30,073 $ 39,551 Foreign currency translation adjustment 343 (868) (179) (716) SFAS 133 change in accounting transition adjustment -- -- 339 -- Change in fair value of cash flow hedging instruments (1,630) -- (8,336) -- -------- -------- -------- -------- Comprehensive income $ 15,663 $ 18,576 $ 21,897 $ 38,835 ======== ======== ======== ========
In the first quarter of 2001, the Company recorded the cumulative effect of a change in accounting adjustment to other comprehensive income of $0.5 million ($0.3 million net of taxes) related to the adoption of SFAS 133. See Note 11, Derivative Financial Instruments, for additional discussion of the adoption of SFAS 133. -10- 11 10. Income Taxes: The Company's provision for income taxes for fiscal 2001 is based on an estimated 37 percent effective tax rate. This estimated effective tax rate does not take into consideration the proposed recapitalization transaction (refer to Note 13, Proposed Recapitalization Transaction). If the proposed recapitalization transaction is completed, the effective tax rate for the year will be higher than currently estimated due to the treatment of certain merger-related expenses. The effective tax rate for 2000 was also 37 percent. 11. Derivative Financial Instruments: Effective December 31, 2000 (fiscal 2001), the Company adopted SFAS 133, as amended by Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of SFAS 133)." This statement, as amended, requires the Company to recognize all derivatives on the Consolidated Balance Sheets at fair value, with changes in fair value recognized in earnings unless specific criteria are met for derivatives in qualifying hedging transactions. Changes in fair value of derivatives in qualifying cash flow hedging transactions are reflected in accumulated other comprehensive loss and reclassified into earnings at the time the corresponding hedged transaction is recognized in earnings. The Company uses derivative instruments to reduce exposure to interest rate and commodity price risks. 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 achieve a desired proportion of variable versus fixed-rate debt, based on current and projected market conditions, and to hedge the changes in future cash flows based on interest rate fluctuations. 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, the volume of which the Company believes is consistent with the size of its business and the expected volume of its purchases, to reduce the Company's exposure to changes in future cash flows due to cotton price volatility. The Company is also exposed to price fluctuations related to anticipated purchases of natural gas. Springs utilizes commodity swap contracts to fix the price it pays for natural gas for a significant portion of its expected utilization and thereby reduces the Company's exposure to changes in future cash flows due to natural gas price volatility. The Company's derivatives consisted of cotton futures contracts, a natural gas commodity swap contract and interest rate swap contracts which were designated in cash flow hedging relationships as of the SFAS 133 adoption date. As a result of this adoption, in the first quarter of 2001 the Company recorded the cumulative effect of a change in accounting adjustment to other comprehensive income of $0.5 million ($0.3 million net of taxes). The Company recorded the following activity in accumulated other comprehensive loss during the thirteen and twenty-six week periods ended June 30, 2001: (in thousands, net of taxes) -11- 12
Thirteen Twenty-Six Weeks Ended Weeks Ended June 30, 2001 June 30, 2001 ------------- ------------- Accumulated other comprehensive loss related to cash flow hedging relationships at beginning of period $(6,367) $ -- SFAS 133 change in accounting transition adjustment -- 339 Amounts reclassified from accumulated other comprehensive loss to earnings (366) (1,565) Change in fair value of interest rate swaps 1,227 (1,222) Change in fair value of natural gas commodity swaps (537) (512) Change in fair value of cotton futures (1,954) (5,037) ------- ------- Accumulated other comprehensive loss related to cash flow hedging relationships at end of period $(7,997) $(7,997) ======= =======
The Company estimates that $5.9 million (net of tax) of the amount recorded in accumulated other comprehensive loss is expected to be reclassified to earnings during the next twelve months. Ineffectiveness from natural gas cash flow hedges was reflected in cost of goods sold in the Consolidated Statement of Operations during the second quarter and first six months of 2001, and was not material. At June 30, 2001, the Company's derivatives recognized in the Consolidated Balance Sheet consisted of an $8.1 million cotton futures liability recorded in other accrued liabilities, a $3.9 million interest rate swap liability recorded in other noncurrent liabilities and a $0.9 million natural gas commodity swap liability recorded in other accrued liabilities. All derivatives recognized as of June 30, 2001, were designated in cash flow hedging relationships. The Company is hedging commodity price exposure on cotton through December 2002, and natural gas through December 2001. 12. Contingencies: During the second quarter of 2000, the Company received a $3.0 million sales and use tax assessment from the state of Wisconsin. Management performed an initial analysis of the several tax issues raised in the assessment, evaluated the basis for the claimed underpayment of tax, estimated the potential for settlement, and accrued approximately $2.2 million. During the third and fourth quarters of 2000, the Company engaged consultants to assist in the evaluation of the assessment and negotiation with the state of Wisconsin. Springs was able to challenge several of the positions taken by the state and provided additional documentation that significantly reduced the Company's tax exposure. During the first quarter of 2001, the Company reached a settlement with the state of Wisconsin for approximately $0.5 million. As a result of this settlement, the Company was able to reverse approximately $1.7 million during the first quarter of 2001, which is reflected in selling, general and administrative expenses in the Consolidated Statement of Operations. As disclosed in its 2000 Annual Report, Springs is involved in certain administrative proceedings governed by environmental laws and regulations, including proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act. The potential costs to the Company related to all of these environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution and cleanup costs; the complexity -12- 13 and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs and effectiveness of alternative cleanup technologies; the determination of the Company's liability in proportion to other potentially responsible parties; and the extent, if any, to which such costs are recoverable from insurers or other parties. In connection with these proceedings, the Company estimates the range of possible losses to be between $5.3 million and $14.0 million and has accrued an undiscounted liability of approximately $8.4 million as of June 30, 2001, which represents management's best estimate of Springs' probable liability concerning all known environmental matters. Management believes the $8.4 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 that the Company presently believes may involve material expenditures. Springs is also involved in various legal proceedings and claims incidental to its business. Springs is protecting its interests in all such proceedings. In the opinion of management, based on the advice of counsel, the likelihood that the resolution of the above matters would have a material adverse impact on either the financial condition or the future results of operations of Springs is remote. 13. Proposed Recapitalization Transaction: On April 24, 2001, Springs' Board of Directors approved a definitive recapitalization agreement with Heartland Springs Investment Company, an affiliate of Heartland Industrial Partners, L.P. ("Heartland"), a private equity firm. Upon completion of the recapitalization, which would be accomplished through a merger between Springs and the Heartland affiliate, each public shareholder of Springs would receive $46.00 per share in cash and Springs would become privately held by the Close family, whose ownership interest in Springs' common stock would increase from approximately 41 percent to approximately 56 percent, and Heartland, whose ownership interest in Springs' common stock would be approximately 44 percent. The recapitalization agreement will require the approval of two-thirds of the outstanding Class A and Class B shares of Springs, with each share casting one vote per share. In addition, the recapitalization agreement will require the approval of a majority of votes cast by shareholders whose shares are being converted into cash (with the Class A and Class B shares voting together as a single class with each having one vote per share). A shareholders' meeting to vote on the proposed transaction has been scheduled for September 5, 2001. The completion of the proposed recapitalization is subject to certain other conditions, including the availability of funding and other customary closing conditions. -13- 14 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Springs Industries, Inc. ("Springs" or "the Company") is engaged in manufacturing, marketing, selling and distributing home furnishings products. The Company's product line includes sheets, pillows, pillowcases, bedspreads, comforters, mattress pads, baby bedding and infant apparel, towels, shower curtains, bath and accent rugs, other bath fashion accessories, over-the-counter home-sewing fabrics, drapery hardware, and hard and soft decorative window fashions. The Company's emphasis on the home furnishings market has developed into the following strategic initiatives: focus on key accounts; brand investment and expansion; manufacturing and purchasing efficiencies; supply chain management and global sourcing. The Company continues to see the benefits of these strategic initiatives. The focus on key accounts has resulted in increases in our top ten customer sales, despite the slowdown in the retail economy and inventory adjustments by many retailers. Springs' manufacturing and purchasing initiatives have helped to mitigate the impact of higher raw material and energy costs and the effects of production curtailments to adjust inventory levels. On February 20, 2001, the Company was presented with a proposal from the Close family, which owns approximately 41 percent of Springs' common stock, and Heartland Industrial Partners, L.P. ("Heartland"), a private equity firm, to take the Company private in a recapitalization transaction (the "proposed recapitalization transaction"). The Company's Board of Directors formed a special committee of independent directors on February 22, 2001, to evaluate the proposed recapitalization transaction on behalf of the Company's shareholders. The special committee recommended, and on April 24, 2001, the Board of Directors approved, the proposed recapitalization transaction. See the PROPOSED RECAPITALIZATION TRANSACTION section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion. RESULTS OF OPERATIONS Sales Net sales for the second quarter of 2001 were $546.9 million, down 4.6 percent from the second quarter of 2000. Sales to the Company's key mass merchant, specialty store and home improvement accounts increased, with top ten customer sales increasing approximately 6.7 percent over the second quarter of 2000. The increase in sales to key customers was offset by a lower volume of sales to department stores, smaller specialty stores and institutional customers, and lower sales of window fashions products to distributors and fabricators, resulting in the overall decrease in net sales. Net sales for the second quarter of 2000 also included sales under the Disney license, which was not renewed for fiscal 2001. Compared to the second quarter of 2000, sales of bedding products were lower, while sales of bath products were higher, in 2001. Similar changes in sales volume and mix were experienced in the first quarter of 2001, resulting in the decrease in year-to-date net sales to $1.117 billion, 4.2 percent lower than the prior year. Earnings Net income for the second quarter of 2001 was $17.0 million, or $0.93 per diluted share, compared to $19.4 million, or $1.06 per diluted share in the second quarter of 2000. Net income for the second quarter of 2001 included a pretax charge of $1.2 million primarily for legal fees associated with the proposed recapitalization transaction. Additionally, second-quarter net income included $0.5 million of pre-tax income in 2001 and $2.9 million of pre-tax expense in 2000 related to -14- 15 previously announced plans to restructure manufacturing operations at certain facilities. See the RESTRUCTURING AND REALIGNMENT EXPENSES section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion. Operating earnings for the second quarter of 2001 were lower than the second quarter of 2000 due to the decrease in sales volume and a decrease in the Company's gross margin for the second quarter, from 20.3 percent in 2000 to 18.4 percent in 2001. The gross margin percentage is calculated by dividing net sales less costs of goods sold, by net sales. Several factors contributed to the lower gross margin percentage in 2001. The margins in the second quarter of 2001 were negatively impacted by the continuation of the trend experienced during the three previous quarters of higher levels of off-quality and closeout product sales, and by a higher mix of lower-margin bath products, compared to the prior year. Raw material costs, due primarily to lower cotton rebates in the current quarter, and energy costs, principally for natural gas, were higher in the second quarter of 2001 than in the prior year. Lower manufacturing volumes, due to efforts to reduce inventory levels, resulted in greater levels of under-absorbed overhead when compared to the second quarter of 2000. Selling, general and administrative expenses were lower in the second quarter of 2001 than in the second quarter of 2000, primarily reflecting: (i) adjustments to incentive compensation expense due to this year's lower earnings; and (ii) lower spending on advertising. In addition, the second-quarter 2000 selling, general and administrative expenses included a $2.2 million accrual related to a state sales and use tax assessment from the state of Wisconsin. Net income for the first six months of 2001 was $30.1 million, or $1.65 per diluted share, compared to last year's $39.6 million, or $2.16 per diluted share. Net income for the first six months of 2001 included pretax charges of $3.5 million that primarily consisted of financial advisory and legal fees associated with the proposed recapitalization transaction. Additionally, net income for the first six months included $0.5 million of pre-tax income in 2001 and $2.9 million of pre-tax expense in 2000 related to previously announced plans to restructure manufacturing operations at certain facilities. See the RESTRUCTURING AND REALIGNMENT EXPENSES section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion. Operating earnings for the first six months of 2001 were lower than prior year due to the decrease in sales volume and a decrease in the Company's gross margin, from 19.8 percent in 2000 to 18.0 percent in 2001. This decrease in the gross margin percentage for the first six months of the year reflects the impact of the previously discussed second-quarter factors, which had a similar effect on first quarter results. Selling, general and administrative expenses were lower in the first half of 2001, compared to the first half of 2000 due to several factors. During the second quarter of 2001, the Company reversed its incentive compensation accruals to reflect the current year's lower earnings. The Company's spending on advertising in the first six months of 2000 was higher than current year levels, due to the promotion of the Springmaid(R) brand rollout to the mass merchant channel. Selling, general and administrative expenses in the first six months of both years also reflect the impact of a state sales and use tax assessment. During the second quarter of 2000, the Company received a $3.0 million sales and use tax assessment from the state of Wisconsin. Management performed an initial analysis of the several tax issues raised in the assessment, evaluated the basis for the claimed underpayment of tax, estimated the potential for settlement, and accrued approximately $2.2 million. During the third and fourth quarters of 2000, the Company engaged consultants to assist in the evaluation of the assessment and negotiation with the state of Wisconsin. Springs was able to challenge several of -15- 16 the positions taken by the state and provided additional documentation that significantly reduced the Company's tax exposure. During the first quarter of 2001, the Company reached a settlement with the state of Wisconsin for approximately $0.5 million. As a result of this settlement, the Company was able to reverse approximately $1.7 million during the first quarter of 2001. Fees for consulting services performed through the settlement were approximately $0.5 million. The net effect on year-to-date 2001 earnings was an increase of approximately $1.3 million. The higher year-to-date provision for uncollectible receivables in 2001 reflects the adverse effects on certain retail customers from the general slowdown in the retail economy. Income Taxes The Company's provision for income taxes for fiscal 2001 is based on an estimated 37 percent effective tax rate. This estimated effective tax rate does not take into consideration the proposed recapitalization transaction. Refer to the PROPOSED RECAPITALIZATION TRANSACTION section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion. If the proposed recapitalization transaction is completed, the effective tax rate for the year will be higher than currently estimated due to the treatment of certain merger-related expenses. The effective tax rate for 2000 was also 37 percent. RESTRUCTURING AND REALIGNMENT EXPENSES In December 2000, the Company announced a restructuring plan to eliminate certain production at its Katherine and Elliott bedding plants in South Carolina, beginning in February 2001. The plan eliminates some narrow loom weaving, which is not compatible with newer fabrication equipment, at the Katherine plant and outdated yarn spinning at the Katherine and Elliott plants. The Company recorded a charge of $2.4 million in fiscal 2000, which included a $1.1 million accrual for severance costs arising from the elimination of an estimated 326 manufacturing positions and a $1.3 million impairment charge for disposal of machinery and equipment. Impairment was determined by comparing the net book value against estimated sales value less costs to sell. In the second quarter of 2001, the severance accrual was reduced by $0.5 million due to the Company's ability to place a greater-than-expected number of associates affected by the restructuring plan elsewhere within the Company. As a result of the plan, the Company expects that its annual operating costs will be improved by approximately $3.5 million. Including one-time transition costs and a partial-year benefit, operating costs in 2001 are expected to be improved by approximately $3.2 million. The restructuring plan is expected to be completed by the fourth quarter of 2001. Changes in the restructuring accruals since the adoption of the plan are as follows: (in millions)
Severance Asset Accrual Impairment --------- ---------- Original accrual as of December 6, 2000 $ 1.1 $ 1.3 Cash payments (0.4) -- Charged against assets -- (1.3) Adjustment (0.5) -- ------ ------ Accrual balance as of June 30, 2001 $ 0.2 $ 0.0 ====== ======
In the second quarter of 2000, the Company adopted a plan to phase out production and close plants in Griffin and Jackson, Georgia, which manufactured certain baby -16- 17 apparel products, and to phase out yarn production for terry towels at its No. 2 plant in Griffin, Georgia beginning in August 2000. The Company has replaced the baby products production by outsourcing from low-cost providers. The terry yarn production at the Griffin No. 2 plant has been transferred to the Company's Griffin No. 5 and Hartwell, Georgia plants, where recent investment in new manufacturing technology allows terry yarn to be produced more competitively. In connection with this plan, the Company recorded a charge of $2.9 million, which included a $2.4 million accrual for severance costs arising from the elimination of an estimated 426 manufacturing positions, a $0.3 million impairment charge for machinery and equipment to be sold, and a $0.2 million accrual for estimated idle plant costs. These charges relate primarily to the baby products facilities since costs related to the terry yarn facility were not significant. The restructuring plan was completed during the first quarter of 2001. The expected benefits of this plan include lower product costs and better utilization of existing capacity in other facilities. As a result, the Company realized savings from lower product costs of approximately $2.1 million during the second half of 2000, and expects to realize approximately $3.8 million of savings in fiscal 2001. Changes in the restructuring accruals since the adoption of the plan are as follows: (in millions)
Idle Severance Asset Plant Accrual Impairment Costs --------- ---------- ------- Original accrual as of June 2, 2000 $ 2.4 $ 0.3 $ 0.2 Cash payments (2.4) -- (0.2) Charged against assets -- (0.3) -- ------ ------ ------ Accrual balance as of March 31, 2001 $ 0.0 $ 0.0 $ 0.0 ====== ====== ======
CAPITAL RESOURCES AND LIQUIDITY During the first quarter of 2001, the Company borrowed an additional $65.0 million through its existing long-term revolving credit facility, $35.0 million of which was classified as short-term borrowings. In the second quarter of 2001, the Company repaid the $35.0 million classified as short-term borrowings and an additional $35.0 million that was classified as long-term debt under this facility. The remaining $55.0 million balance outstanding under this facility has been classified as long-term debt. This activity reflects the Company's seasonal use of cash in the first quarter and positive cash flows in the second quarter. The LIBOR-based weighted-average interest rate on this agreement was 4.1 percent as of June 30, 2001. Springs expects that positive operating cash flows for the remaining quarters of the year will be more than sufficient to provide for the approximately $110.0 million of expected capital expenditures for 2001 and allow the Company to make its scheduled repayments of long-term debt, resulting in positive cash flows for the year. The majority of the Company's existing financing arrangements will be refinanced if the proposed recapitalization transaction is completed. Refer to the PROPOSED RECAPITALIZATION TRANSACTION section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion. -17- 18 ACQUISITIONS Effective January 2, 2001, the Company acquired certain assets of Maybank Textile Corp. ("Maybank"), a manufacturer of rug yarn. Prior to the acquisition, Maybank was a supplier to Springs, its largest customer. The acquisition included all of the assets used by Maybank to supply yarn to Springs. The purchase price was approximately $12.4 million. The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"), and the operating results for the acquired business have been included in the Company's consolidated financial statements since the January 2, 2001, acquisition date. The purchase price was allocated to the assets acquired based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, which totaled $2.0 million, has been recorded as goodwill and is currently being amortized on a straight-line basis over 20 years. Due to the supplier-customer relationship between Maybank and Springs prior to the acquisition, pro-forma operating results are not materially different than previously reported results. On August 7, 2000, the Company acquired certain assets and operations of a Mexican maquiladora (a business enterprise which provides preferential import and tax treatment for goods transferred between Mexico and the United States), which fabricates window blinds, and a related U.S. distribution operation. The purchase price was approximately $5.7 million. The acquisition was accounted for as a purchase in accordance with APB 16, and the operating results of the acquired business have been included in the Company's consolidated financial statements since the August 7, 2000, acquisition date. The purchase price was allocated to the assets acquired based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, which totaled $3.9 million, has been recorded as goodwill and is currently being amortized on a straight-line basis over 20 years. The pro-forma impact on sales and operating profits for 2000 was not material. See RECENTLY ISSUED ACCOUNTING STANDARDS for a discussion of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), and the impact on accounting for goodwill in future periods. MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS Refer to the ACCOUNTING CHANGES section of Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impact of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") on market risk sensitive instruments and positions. Interest Rate Risk: Springs is exposed to interest rate volatility with regard to existing issuances of variable rate debt. The Company uses interest rate swaps to reduce interest rate volatility and funding costs associated with certain debt issues, and to achieve a desired proportion of variable versus fixed-rate debt, based on current and projected market conditions. The fair value of the Company's interest rate swap contracts as of June 30, 2001, was a loss of $3.9 million, which is recorded in other noncurrent liabilities with an offsetting after-tax amount recognized in accumulated other comprehensive loss. The fair value of these instruments increased during the second quarter, due to increases in long-term interest rates. 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 -18- 19 exposure to price volatility. The fair value of cotton futures contracts held as of June 30, 2001 was a loss of $8.1 million, which is recorded in other accrued liabilities with an offsetting after-tax amount recognized in accumulated other comprehensive loss. The loss recognized related to cotton futures contracts has increased during the second quarter due to an increase in the number of cotton futures contracts held and lower market prices for cotton. The Company is also exposed to price fluctuations related to anticipated purchases of natural gas. The Company utilizes commodity swap contracts to fix the price it pays for natural gas for a significant portion of its expected utilization and thereby reduce the Company's exposure to changes in future cash flows due to natural gas price volatility. The fair value of the Company's natural gas swap contracts at June 30, 2001 was a loss of $0.9 million, which is recorded in other accrued liabilities with an offsetting after-tax amount recognized in accumulated other comprehensive loss. Foreign Exchange Risk: The Company is exposed to foreign exchange risks to the extent of adverse fluctuations in certain exchange rates, primarily the Canadian dollar and Mexican peso. The Company does not believe that reasonably possible near-term changes in foreign currencies will result in a material impact on future earnings or cash flows. ACCOUNTING CHANGES Effective December 31, 2000 (fiscal 2001), the Company adopted SFAS 133, as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement No. 133)." This statement, as amended, requires the Company to recognize all derivatives on the Consolidated Balance Sheets at fair value, with changes in fair value recognized in earnings unless specific criteria are met for derivatives in qualifying hedging transactions. Changes in fair value of derivatives in qualifying cash flow hedging transactions are reflected in accumulated other comprehensive loss and reclassified into earnings at the time the corresponding hedged transaction is recognized in earnings. The Company's derivatives consisted of cotton futures contracts, a natural gas commodity swap contract and interest rate swap contracts which were designated in cash flow hedging relationships as of the SFAS 133 adoption date. As a result of this adoption, in the first quarter of 2001 the Company recorded a natural gas commodity swap asset of $2.1 million, interest rate swap liabilities of $1.6 million, an immaterial cotton futures liability, and the cumulative effect of a change in accounting adjustment to other comprehensive income of $0.5 million ($0.3 million net of taxes). RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, which requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have a significant impact on its financial position, results of operations and cash flows. In July 2001, the FASB issued SFAS 142, which is effective December 30, 2001 (fiscal 2002). SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The -19- 20 Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position, results of operations and cash flows. For the twenty-six weeks ended June 30, 2001, the Company recorded $1.4 million of amortization expense related to goodwill and $0.4 million of amortization expense related to other intangible assets. PROPOSED RECAPITALIZATION TRANSACTION On April 24, 2001, Springs' Board of Directors approved a definitive recapitalization agreement with Heartland Springs Investment Company, an affiliate of Heartland Industrial Partners, L.P., a private equity firm. Upon completion of the recapitalization, which would be accomplished through a merger between Springs and the Heartland affiliate, each public shareholder of Springs would receive $46.00 per share in cash and Springs would become privately held by the Close family, whose ownership interest in Springs' common stock would increase from approximately 41 percent to approximately 56 percent, and Heartland, whose ownership interest in Springs' common stock would be approximately 44 percent. The recapitalization agreement will require the approval of two-thirds of the outstanding Class A and Class B shares of Springs, with each share casting one vote per share. In addition, the recapitalization agreement will require the approval of a majority of votes cast by shareholders whose shares are being converted into cash (with the Class A and Class B shares voting together as a single class with each having one vote per share). A shareholders' meeting to vote on the proposed transaction has been scheduled for September 5, 2001. The completion of the proposed recapitalization is subject to certain other conditions, including the availability of funding and other customary closing conditions. FORWARD LOOKING INFORMATION This Form 10-Q report contains forward-looking statements that are based on management's expectations, estimates, projections, and assumptions. Words such as "expects," "believes," "estimates," and variations of such words and similar expressions are often used to identify such forward-looking statements which include but are not limited to projections of sales, expenditures, savings, completion dates, cash flows, and operating performance. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guaranties of future performance; instead, they relate to situations with respect to which certain risks and uncertainties are difficult to predict. Actual future results and trends, therefore, may differ materially from what is predicted in forward-looking statements due to a variety of factors, including: the health of the retail economy in general, competitive conditions and demand for the Company's products; progress toward the Company's manufacturing and purchasing efficiency initiatives; unanticipated natural disasters; legal proceedings; labor matters; and the availability and price of raw materials which could be affected by weather, disease, energy costs, or other factors. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. -20- 21 ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is incorporated by reference from this Form 10-Q under the caption "Market Risk Sensitive Instruments and Positions" of Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations." -21- 22 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K During the quarter ended June 30, 2001, the Company filed a Current Report on Form 8-K dated April 24, 2001, announcing that the Company's board of directors had followed the unanimous recommendation of a special committee of independent directors and approved a proposed recapitalization transaction whereby members of the Close family and Heartland Industrial Partners, L.P., would take Springs private. No financial statements were filed with the report. See the PROPOSED RECAPITALIZATION TRANSACTION section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion. -22- 23 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, Springs Industries, Inc. has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. SPRINGS INDUSTRIES, INC. By: /s/Charles M. Metzler -------------------------------- Charles M. Metzler Vice President-Controller (Duly Authorized Officer and Principal Accounting Officer) DATED: August 14, 2001 -23- -----END PRIVACY-ENHANCED MESSAGE-----