<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-21496
WESTPOINT STEVENS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3498354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
507 WEST TENTH STREET
WEST POINT, GEORGIA 31833
(Address of principal executive offices, including Zip Code)
(706) 645-4000
(Registrant's telephone number, including area code)
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 the past 90 days.
Yes X No
---- ----
Common shares outstanding at October 21, 1996: 31,013,158 shares of Common
Stock, $.01 par value.
1
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
September 30, 1996 (Unaudited)
and December 31, 1995 3
Condensed Consolidated Statements of
Operations (Unaudited); Three and Nine
Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows (Unaudited); Nine Months
Ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) (Unaudited);
Nine Months Ended September 30, 1996 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................... $ 5,197 $ 7,987
Accounts receivable .......................... 103,790 82,933
Inventories .................................. 319,705 320,468
Prepaid expenses and other current assets .... 13,264 19,506
----------- -----------
Total current assets .............................. 441,956 430,894
Property, Plant and Equipment, net ................ 675,763 684,185
Other Assets
Deferred financing fees ...................... 24,078 26,987
Investments and other assets ................. 899 902
----------- -----------
$ 1,142,696 $ 1,142,968
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility ....................... $ 47,500 $ 73,000
Accrued interest payable ..................... 26,284 6,643
Trade accounts payable ....................... 53,389 75,020
Other accounts payable and accrued liabilities 171,503 160,532
----------- -----------
Total current liabilities ......................... 298,676 315,195
Long-Term Debt .................................... 1,075,000 1,075,000
Noncurrent Liabilities
Deferred income taxes ........................ 152,586 136,755
Other liabilities ............................ 105,505 121,955
----------- -----------
Total noncurrent liabilities ...................... 258,091 258,710
Stockholders' Equity (Deficit) .................... (489,071) (505,937)
----------- -----------
$ 1,142,696 $ 1,142,968
=========== ===========
</TABLE>
See accompanying notes
3
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------------
1996 1995 1996 1995
-------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales .................................. $464,785 $ 454,347 $1,268,763 $ 1,227,094
Cost of goods sold ......................... 352,559 345,838 975,795 941,392
-------- --------- ---------- -----------
Gross earnings ........................ 112,226 108,509 292,968 285,702
Selling, general and administrative expenses 51,931 52,329 153,459 154,547
Amortization of excess reorganization value -- 59,229 -- 177,675
-------- --------- ---------- -----------
Operating earnings (loss) ............. 60,295 (3,049) 139,509 (46,520)
Interest expense ........................... 25,797 25,501 77,171 76,425
Other expense, net ......................... 661 806 2,011 2,276
-------- --------- ---------- -----------
Income (loss) from operations before
income tax expense ............... 33,837 (29,356) 60,327 (125,221)
Income tax expense ......................... 12,125 11,500 21,925 20,500
-------- --------- ---------- -----------
Net income (loss) ..................... $ 21,712 $ (40,856) $ 38,402 $ (145,721)
======== ========= ========== ===========
Net income (loss) per common share ......... $ .68 $ (1.26) $ 1.20 $ (4.43)
======== ========= ========== ===========
Average number of common and common
equivalent shares outstanding ......... 31,825 32,551 31,882 32,876
======== ========= ========== ===========
</TABLE>
See accompanying notes
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................ $ 38,402 $ (145,721)
Adjustment to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Amortization of excess reorganization value -- 177,675
Depreciation and other amortization .... 58,586 65,541
Deferred income taxes .................. 16,149 17,938
Changes in working capital ............. (23,748) (79,011)
Other - net ............................ (13,474) (9,165)
----------- -----------
Net cash provided by operating activities ......... 75,915 27,257
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................... (50,643) (54,440)
Net proceeds from sale of assets ............. 415 3,012
----------- -----------
Net cash used for investing activities ............ (50,228) (51,428)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings ............................. 418,000 351,500
Repayments ............................. (443,500) (335,000)
Net proceeds from Trade Receivables Program .. 20,045 32,672
Purchase of common stock for treasury ........ (24,125) (27,052)
Proceeds from issuance of stock .............. 1,103 2,486
Redemption of purchase rights ................ -- (33)
----------- -----------
Net cash provided by (used for) financing activities (28,477) 24,573
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,790) 402
Cash and cash equivalents at beginning of period .. 7,987 1,956
----------- -----------
Cash and cash equivalents at end of period ........ $ 5,197 $ 2,358
=========== ===========
</TABLE>
See accompanying notes
5
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK
AND CAPITAL
IN MINIMUM
EXCESS OF TREASURY STOCK PENSION
COMMON PAR --------------------- ACCUMULATED LIABILITY
SHARES VALUE SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
------ --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ............... 34,597 $ 327,850 (2,621) $ (41,051) $(760,733) $ (32,003) $(505,937)
Exercise of management stock
options including tax benefit .... 92 1,303 -- -- -- -- 1,303
Issuance of stock pursuant to Stock
Bonus Plan including tax benefit -- 16 60 1,270 -- -- 1,286
Purchase of treasury shares ......... -- -- (1,068) (24,125) -- -- (24,125)
Net income .......................... -- -- -- -- 38,402 -- 38,402
------ --------- -------- --------- --------- --------- ---------
Balance, September 30, 1996 .............. 34,689 $ 329,169 (3,629) $ (63,906) $(722,331) $ (32,003) $(489,071)
====== ========= ======== ========= ========= ========= =========
</TABLE>
See accompanying notes
6
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K for WestPoint Stevens Inc. (the "Company") for the
year ended December 31, 1995.
2. INVENTORIES
The Company uses the last-in, first-out ("LIFO") method of accounting for
substantially all inventories for financial reporting purposes. Interim
determinations of LIFO inventories are necessarily based on management's
estimates of year-end inventory levels and costs. Subsequent changes in these
estimates, including the final year-end LIFO determination, and the effect of
such changes on earnings are recorded in the interim periods in which they
occur.
Inventories consisted of the following at September 30, 1996 and December 31,
1995 (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Finished goods $ 144,285 $ 145,790
Work in progress 125,880 123,878
Raw materials and supplies 75,509 68,138
LIFO reserve (25,969) (17,338)
----------- -----------
$ 319,705 $ 320,468
=========== ===========
</TABLE>
7
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS
Indebtedness is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Short-term indebtedness
Senior Credit Facility
Revolver $ 47,500 $ 73,000
=========== ===========
Long-term indebtedness
Senior Credit Facility
Revolver $ 50,000 $ 50,000
8-3/4% Senior Notes due 2001 400,000 400,000
9-3/8% Senior Subordinated Debentures
due 2005 550,000 550,000
9% Sinking Fund Debentures due 2017 75,000 75,000
----------- -----------
$ 1,075,000 $ 1,075,000
=========== ===========
</TABLE>
At September 30, 1996 and December 31, 1995, $141 million and $121 million,
respectively, of accounts receivable had been sold pursuant to a trade
receivables program (the "Trade Receivables Program") and the sale is reflected
as a reduction of accounts receivable in the accompanying Condensed Consolidated
Balance Sheets.
8
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
The table below sets forth net sales, gross earnings, operating earnings (loss),
interest expense and net income (loss) of the Company for the three and nine
months ended September 30, 1996 and 1995 (in millions of dollars and as
percentages of net sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------------
1996 1995 1996 1995
-------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales:
Home Fashions ........................ $ 412.7 $ 400.4 $ 1,102.7 $ 1,051.6
Alamac Knits Subsidiary .............. 52.1 54.0 166.1 175.5
-------- --------- ---------- -----------
Total ................................ $ 464.8 $ 454.4 $ 1,268.8 $ 1,227.1
Gross earnings ............................. $ 112.3 $ 108.5 $ 293.0 $ 285.7
Operating earnings (loss) .................. $ 60.3 $ (3.0) $ 139.5 $ (46.5)
Interest expense ........................... $ 25.8 $ 25.5 $ 77.2 $ 76.4
Net income (loss) .......................... $ 21.7 $ (40.9) $ 38.4 $ (145.7)
Gross margin ............................... 24.1% 23.9% 23.1% 23.3%
Operating earnings (loss) before
amortization of excess reorganization
value:
Home Fashions .................. $ 59.3 $ 58.3 $ 135.9 $ 128.1
Alamac Knits Subsidiary ........ 1.0 (2.1) 3.6 3.1
-------- --------- ---------- -----------
Total .......................... $ 60.3 $ 56.2 $ 139.5 $ 131.2
Operating margins before amortization of excess
reorganization value:
Home Fashions .................. 14.4% 14.6% 12.3% 12.2%
Alamac Knits Subsidiary ........ 2.0% --% 2.2% 1.8%
Total .......................... 13.0% 12.4% 11.0% 10.7%
</TABLE>
9
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1996
NET SALES. Net sales for the three months ended September 30, 1996 increased
$10.4 million, or 2.3%, to $464.8 million compared with net sales of $454.4
million for the three months ended September 30, 1995. Home Fashions net sales
of $412.7 million were $12.3 million, or 3.1%, higher than net sales for the
third quarter of 1995, and resulted primarily from higher unit volume in the
1996 period compared with the 1995 period. Alamac Knits Subsidiary net sales of
$52.1 million were $1.9 million, or 3.5%, lower than net sales for the third
quarter of 1995, and resulted primarily from lower unit volume offset somewhat
by better pricing in the 1996 period compared with the 1995 period.
GROSS EARNINGS/MARGINS. Gross earnings for the three months ended September 30,
1996 of $112.3 million increased $3.8 million, or 3.4%, compared with $108.5
million for the same period of 1995 and reflect gross margins of 24.1% in the
1996 period compared with 23.9% in the 1995 period. Gross earnings and gross
margins increased in the third quarter of 1996 primarily as a result of the
increase in Home Fashions unit volume and better pricing for Alamac Knits
Subsidiary offset somewhat by a wage increase effective at the beginning of the
second quarter, higher raw material costs and lower Alamac Knits Subsidiary unit
volume compared with the same period last year.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
decreased $0.4 million in the third quarter of 1996 compared with the same
period last year, and as a percentage of net sales represent 11.2% in 1996 and
11.5% in 1995. The decrease in the third quarter of 1996 is due primarily to
lower selling and trade receivables program expenses along with lower
administrative expenses offset somewhat by higher advertising expense in the
third quarter of 1996 compared with the same period last year.
Operating earnings were $60.3 million in the third quarter of 1996 compared with
an operating loss of $3 million for the third quarter of 1995 which includes the
amortization of excess reorganization value of $59.3 million. Operating earnings
increased as a result of the increase in gross earnings, the decrease in
selling, general and administrative expenses, and the complete amortization of
excess reorganization value in 1995 as discussed herein.
INTEREST EXPENSE. Interest expense for the three months ended September 30, 1996
of $25.8 million increased $0.3 million compared with interest expense for the
three months ended September 30, 1995. The increase is due primarily to higher
average debt levels in the 1996 third quarter compared with the corresponding
1995 average debt levels offset somewhat by lower interest rates on the
Company's variable rate bank debt.
10
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1996 (CONTINUED)
OTHER EXPENSE, NET. Other expense, net in the third quarter of 1996 of $0.6
million decreased $0.2 million compared with the 1995 period and consists
primarily of the amortization of deferred financing fees of $1 million less
certain miscellaneous income items.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes, nondeductible items and the
effects of amortization of excess reorganization value in 1995.
NET INCOME. Net income for the third quarter of 1996 was $21.7 million, or $.68
per share. In the third quarter of 1995, the net loss was $40.9 million, or
$1.26 per share, including amortization of excess reorganization value of $59.3
million, or $1.82 per share. Excess reorganization value was completely
amortized in 1995.
Per share amounts are based on 31.8 million and 32.6 million average common and
common equivalent shares outstanding for the 1996 and 1995 periods,
respectively. The decrease in the average shares outstanding was primarily the
result of the purchase by the Company of shares under the stock repurchase
programs.
OPERATING EARNINGS BEFORE CERTAIN CHARGES. Operating earnings for the three
months ended September 30, 1996 were $60.3 million, or 13% of sales, and
increased $4.1 million, or 7.3%, compared with operating earnings (before the
amortization of excess reorganization value) of $56.2 million, or 12.4% of
sales, for the same period of 1995. The increase resulted from the increase in
gross earnings and decrease in selling, general and administrative expenses
discussed above. Home Fashions operating earnings for the third quarter of 1996
increased 1.7% to $59.3 million compared with $58.3 million for the same period
of 1995 and reflect operating margins of 14.4% in 1996 and 14.6% in 1995. Alamac
Knits Subsidiary operating earnings for the third quarter of 1996 were $1
million and were significantly better than the operating loss of $2.1 million in
the third quarter of 1995.
11
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: NINE MONTHS ENDED SEPTEMBER 30, 1996
NET SALES. Net sales for the nine months ended September 30, 1996 increased
$41.7 million, or 3.4%, to $1,268.8 million compared with net sales of $1,227.1
million for the nine months ended September 30, 1995. Home Fashions net sales of
$1,102.7 million were $51.1 million, or 4.9%, higher than net sales for the
first nine months of 1995, and resulted primarily from higher unit volume in the
1996 period compared with the 1995 period. Alamac Knits Subsidiary net sales of
$166.1 million were $9.4 million, or 5.3%, lower than net sales for the first
nine months of 1995, and resulted primarily from lower unit volume and pricing
in the 1996 period compared with the 1995 period.
GROSS EARNINGS/MARGINS. Gross earnings for the nine months ended September 30,
1996 of $293 million increased $7.3 million, or 2.5%, compared with $285.7
million for the same period of 1995 and reflect gross margins of 23.1% in the
1996 period compared with 23.3% in the 1995 period. Gross earnings increased in
the first nine months of 1996 primarily as a result of the increase in Home
Fashions unit volume offset somewhat by a wage increase effective the beginning
of the second quarter, higher raw material costs and lower Alamac Knits
Subsidiary unit volume and pricing compared with the same period last year.
Gross margins in 1996 decreased slightly compared with last year primarily as a
result of the wage increase and higher raw material costs.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
decreased $1.1 million in the first nine months of 1996 compared with the same
period last year, and as a percentage of net sales represent 12.1% in 1996 and
12.6% in 1995. The decrease in the first nine months of 1996 is due primarily to
lower selling and trade receivables program expenses along with lower
administrative expenses offset somewhat by higher warehousing/shipping and
advertising expenses.
Operating earnings were $139.5 million in the first nine months of 1996 compared
with an operating loss of $46.5 million for the first nine months of 1995 which
includes the amortization of excess reorganization value of $177.7 million.
Operating earnings increased as a result of the increase in gross earnings,
decrease in selling, general and administrative expenses and the complete
amortization of excess reorganization value in 1995 as discussed herein.
INTEREST EXPENSE. Interest expense for the nine months ended September 30, 1996
of $77.2 million increased $0.8 million compared with interest expense for the
nine months ended September 30, 1995. The increase is due primarily to higher
average debt levels in the 1996 first nine months compared with the
corresponding 1995 average debt levels offset somewhat by lower interest rates
on the Company's variable rate bank debt.
12
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: NINE MONTHS ENDED SEPTEMBER 30, 1996 (CONTINUED)
OTHER EXPENSE, NET. Other expense, net in the first nine months of 1996 of $2
million decreased $0.3 million compared with the 1995 period and consists
primarily of the amortization of deferred financing fees of $2.9 million less
certain miscellaneous income items.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes, nondeductible items and the
effects of amortization of excess reorganization value in 1995.
NET INCOME. Net income for the first nine months of 1996 was $38.4 million, or
$1.20 per share. In the first nine months of 1995, the net loss was $145.7
million, or $4.43 per share, including amortization of excess reorganization
value of $177.7 million, or $5.40 per share. Excess reorganization value was
completely amortized in 1995.
Per share amounts are based on 31.9 million and 32.9 million average common and
common equivalent shares outstanding for the 1996 and 1995 periods,
respectively. The decrease in the average shares outstanding was primarily the
result of the purchase by the Company of shares under the stock repurchase
programs.
OPERATING EARNINGS BEFORE CERTAIN CHARGES. Operating earnings for the nine
months ended September 30, 1996 were $139.5 million, or 11% of sales, and
increased $8.3 million, or 6.4%, compared with operating earnings (before the
amortization of excess reorganization value) of $131.2 million, or 10.7% of
sales, for the same period of 1995. The increase resulted from the increase in
gross earnings and decrease in selling, general and administrative expenses
discussed above. Home Fashions operating earnings for the first nine months of
1996 increased 6.1% to $135.9 million compared with $128.1 million for the same
period of 1995 and reflect operating margins of 12.3% in 1996 and 12.2% in 1995.
Alamac Knits Subsidiary operating earnings for the first nine months of 1996
were $3.6 million compared with $3.1 million for the first nine months of 1995
and reflect operating margins of 2.2% in 1996 and 1.8% in 1995.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on its sales or profitability.
13
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are expected to be cash from its
operations and funds available under the Senior Credit Facility. At October 21,
1996, the maximum commitment under the Senior Credit Facility was approximately
$350 million and the Company had unused borrowing availability under the Senior
Credit Facility totaling approximately $257 million. The Senior Credit Facility
contains covenants which, among other things, limit indebtedness and require the
maintenance of certain financial ratios and minimum net worth as defined.
The Company's principal uses of cash for the next several years will be
operating expenses, capital expenditures and debt service requirements related
primarily to interest payments. The Company spent approximately $102 million in
1995 on capital expenditures and intends to invest approximately $95 million in
1996.
During the first nine months of 1996 the Company purchased approximately 1.1
million shares under the various stock repurchase programs, at an average price
of $22.60 per share. In August 1996 the Board of Directors approved the purchase
of up to one million additional shares of the Company's common stock, subject to
the Company's debt limitation, which brings the total shares that have been
approved for purchase to five million shares. At September 30, 1996,
approximately 1.8 million shares remained to be purchased.
Cash contributions in 1996 to the Company's pension plans are estimated to total
approximately $21.3 million compared with actual contributions in 1995 of $14.4
million, including the effect of the changes in the actuarial assumptions
relating to the Company's pension plans.
The Company, through a "bankruptcy remote" receivables subsidiary, has a Trade
Receivables Program which provides for the sale of accounts receivable, on a
revolving basis. At September 30, 1996 and December 31, 1995, $141 million and
$121 million, respectively, had been sold under this program and the sale is
reflected as a reduction of accounts receivable in the accompanying Condensed
Consolidated Balance Sheets. The cost of the Trade Receivables Program in 1996
is estimated to total approximately $8 million and will be charged to selling,
general and administrative expenses.
Debt service requirements for interest payments in 1996 are estimated to total
approximately $103 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $101.2 million in 1995. There are no
debt service requirements in 1996 related to scheduled principal amortization.
14
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Upon emergence from bankruptcy on September 16, 1992, the Company experienced an
"ownership change," within the meaning of Section 382 of the Internal Revenue
Code (the "Code"), that resulted in an annual limitation on the Company's
prospective utilization of its net operating loss ("NOL") carryforwards. Since
such ownership change, the Company has experienced significant transfers of
shares of Common Stock by five-percent stockholders (within the meaning of the
Code). As a result, it is possible that future events (such as the purchase or
sale of shares by five-percent stockholders) may cause the Company to experience
a second ownership change. In that event, the Company's prospective utilization
of its NOLs may be further limited.
Management believes that cash from the Company's operations and borrowings under
its credit agreement will provide the funding necessary to meet the Company's
anticipated requirements for capital expenditures and operating expenses and to
enable it to meet its anticipated debt service requirements.
15
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WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 12, 1995, the United States District Court, Eastern District of North
Carolina, granted final approval of the settlement of a class action lawsuit
against J. P. Stevens & Co., Inc. ("Stevens"). The action involved claims of
racial discrimination in hiring, promotion and placement dating to the late
1960's. West Point - Pepperell, Inc., predecessor to the Company, assumed
liability for this litigation upon its acquisition of Stevens. The settlement
requires payment of $20 million to the class, payable in three equal
installments, plus certain other fees and costs. Payments of the first two
installments have been made; the remaining installment is due January 1, 1997.
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and non-hazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. Certain of the Company's facilities (including certain facilities no
longer owned or utilized by the Company) have been cited or are being
investigated with respect to alleged violations of such laws and regulations.
The Company believes that it has adequately provided in its financial statements
for any expenses and liabilities that may result from such matters. The Company
also is insured with respect to certain of such matters. The Company's
operations are governed by laws and regulations relating to employee safety and
health which, among other things, establish exposure limitations for cotton
dust, formaldehyde, asbestos and noise, and regulate chemical and ergonomic
hazards in the workplace. Although the Company does not expect that compliance
with any such laws and regulations will adversely affect the Company's
operations, there can be no assurance such regulatory requirements will not
become more stringent in the future or that the Company will not incur
significant costs in the future to comply with such requirements.
The Company and its subsidiaries are involved in various other legal
proceedings, both as plaintiff and as defendant, which are normal to its
business.
It is the opinion of management that the aforementioned actions and claims, if
determined adversely to the Company, will not have a material adverse effect on
the financial condition or operations of the Company taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended September 30, 1996.
16
<PAGE> 17
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION
In connection with the provisions of the Private Securities Litigation Reform
Act of 1995 (the "Reform Act") the Registrant may include Forward Looking
Statements (as defined in the Reform Act) in oral or written public statements
issued by or on behalf of the Registrant. These Forward Looking Statements may
include, among other things, plans, objectives, projections, anticipated future
economic performance or assumptions and the like which are subject to risks and
uncertainties. The actual results or outcomes may differ materially from those
discussed in the Forward Looking Statements. Such risks and uncertainties may be
attributable to important factors which include but are not limited to the
following: product margins may vary from those projected; raw material prices
may vary from those assumed; additional reserves may be required for bad debts,
returns, allowances, governmental compliance costs, or litigation; there may be
changes in the performance of financial markets; unanticipated natural disasters
could have a material impact upon results of operations; there may be changes in
the general economic conditions which affect customer payment practices or
consumer spending; competition for retail and wholesale customers, pricing and
transportation of products may vary from time to time due to seasonal variations
or otherwise; customer preferences for other companies' products can be affected
by competition, or general market demand for domestic or imported goods; there
could be an unanticipated loss of a material customer, or a material license;
the availability and price of raw materials could be affected by weather,
disease, energy costs or other factors; and the ability to project risk factors
may vary. In addition, consideration should be given to any other risks
discussed in other documents filed by the Registrant with the Securities and
Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- -----------------------------------------------
<S> <C>
11 Statement re: Computation of earnings per share
27 Financial Data Schedule(for SEC use only)
</TABLE>
b.) The Company filed a current report on Form 8-K dated August 23, 1996
reporting under Item 5 the important factors which may cause actual
results to vary from those which may be discussed in Forward Looking
Statements (as defined in the Private Securities Reform Act of 1995)
issued by or on behalf of WestPoint Stevens Inc.
17
<PAGE> 18
WESTPOINT STEVENS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WESTPOINT STEVENS INC.
----------------------
Registrant
/s/ Morgan M. Schuessler
----------------------
Morgan M. Schuessler
Executive Vice President-Finance
and Chief Financial Officer
18
<PAGE> 19
WESTPOINT STEVENS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------ ------
<S> <C> <C>
11 Statement re: Computation of earnings per share 20
27 Financial Data Schedule 21
</TABLE>
19
<PAGE> 1
WESTPOINT STEVENS INC.
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------------
1996 1995 1996 1995
-------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 31,285 32,551 31,392 32,876
Shares issuable under 1995
Key Employee Stock Bonus Plan 43 -- 57 --
Net effect of dilutive stock options
- based on the treasury stock
method using average market price 497 -- 433 --
-------- --------- ---------- -----------
Total 31,825 32,551 31,882 32,876
======== ========= ========== ===========
Net income (loss) $ 21,712 $ (40,856) $ 38,402 $ (145,721)
======== ========= ========== ===========
Per share amount $ .68 $ (1.26) $ 1.20 $ (4.43)
======== ========= ========== ===========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,197
<SECURITIES> 0
<RECEIVABLES> 126,043
<ALLOWANCES> 22,253
<INVENTORY> 319,705
<CURRENT-ASSETS> 441,956
<PP&E> 985,551
<DEPRECIATION> (309,788)
<TOTAL-ASSETS> 1,142,696
<CURRENT-LIABILITIES> 298,676
<BONDS> 1,075,000
0
0
<COMMON> 346
<OTHER-SE> (489,417)
<TOTAL-LIABILITY-AND-EQUITY> 1,142,696
<SALES> 1,268,763
<TOTAL-REVENUES> 1,268,763
<CGS> 975,795
<TOTAL-COSTS> 975,795
<OTHER-EXPENSES> 2,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,171
<INCOME-PRETAX> 60,327
<INCOME-TAX> 21,925
<INCOME-CONTINUING> 38,402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,402
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
