<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, 1998
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 30, 1998: 56,559,130 shares of Common
Stock, $.01 par value.
1
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
September 30, 1998 (Unaudited)
and December 31, 1997 3
Condensed Consolidated Statements of
Income (Unaudited); Three and Nine Months
Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows (Unaudited); Nine Months
Ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) (Unaudited);
Nine Months Ended September 30, 1998 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
2
<PAGE> 3
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................... $ 11,000 $ 17,433
Accounts receivable......................................... 121,564 92,990
Inventories................................................. 376,805 340,818
Prepaid expenses and other current assets................... 22,784 22,227
------------ -----------
Total current assets............................................. 532,153 473,468
Property, Plant and Equipment, net............................... 746,200 707,151
Other Assets
Deferred financing fees..................................... 21,875 19,231
Prepaid pension and other assets............................ 46,666 49,033
Goodwill.................................................... 36,517 37,223
------------ -----------
$ 1,383,411 $ 1,286,106
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility...................................... $ 20,432 $ 37,683
Current portion of long-term debt........................... 38,227 3,750
Accrued interest payable.................................... 26,495 6,820
Trade accounts payable...................................... 67,367 75,655
Other accounts payable and accrued liabilities.............. 153,152 137,382
------------ -----------
Total current liabilities........................................ 305,673 261,290
Long-Term Debt................................................... 1,275,000 1,146,250
Noncurrent Liabilities
Deferred income taxes....................................... 219,999 217,178
Other liabilities........................................... 79,587 84,402
------------ -----------
Total noncurrent liabilities..................................... 299,586 301,580
Stockholders' Equity (Deficit)................................... (496,848) (423,014)
------------ -----------
$ 1,383,411 $ 1,286,106
============ ===========
</TABLE>
See accompanying notes
3
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ----------------------------
1998 1997 1998 1997
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales .......................................... $473,231 $458,979 $ 1,308,918 $1,211,882
Cost of goods sold ................................. 338,783 336,865 961,677 904,325
-------- -------- ----------- ----------
Gross earnings ................................ 134,448 122,114 347,241 307,557
Selling, general and administrative expenses ....... 55,135 52,914 170,952 156,736
-------- -------- ----------- ----------
Operating earnings ............................ 79,313 69,200 176,289 150,821
Interest expense ................................... 25,840 26,312 79,079 75,022
Other expense, net ................................. 155 700 887 2,244
-------- -------- ----------- ----------
Income from continuing operations before income
tax expense and extraordinary item ...... 53,318 42,188 96,323 73,555
Income tax expense ................................. 19,225 15,668 34,750 27,382
-------- -------- ----------- ----------
Income from continuing operations before
extraordinary item ...................... 34,093 26,520 61,573 46,173
Income from discontinued operations ................ - 390 - 2,625
Gain on sale of discontinued operations ............ - 6,138 - 6,138
Extraordinary item - loss on early extinguishment
of debt (net of tax benefit of $28,474) ....... - - (50,621) -
-------- -------- ----------- ----------
Net income .................................... $ 34,093 $ 33,048 $ 10,952 $ 54,936
======== ======== =========== ==========
Basic net income (loss) per common share:
Continuing operations ......................... $ .59 $ .43 $ 1.06 $ .75
Discontinued operations ....................... - .01 - .04
Gain on sale of discontinued operations ....... - .10 - .10
Extraordinary item - loss on early
extinguishment of debt .................. - - (.87) -
-------- -------- ----------- ----------
Net income per common share ................... $ .59 $ .54 $ .19 $ .89
======== ======== =========== ==========
Diluted net income (loss) per common share:
Continuing operations ........................ $ .57 $ .42 $ 1.02 $ .73
Discontinued operations ...................... - .01 - .04
Gain on sale of discontinued operations ...... - .10 - .10
Extraordinary item - loss on early
extinguishment of debt .................. - - (.84) -
-------- -------- ----------- ----------
Net income per common share ................... $ .57 $ .53 $ .18 $ .87
======== ======== =========== ==========
Basic average common shares outstanding ............ 57,356 60,742 58,160 61,552
Dilutive effect of stock options and
stock bonus plan ........................ 2,299 1,686 2,248 1,634
-------- -------- ----------- ----------
Diluted average common shares outstanding .......... 59,655 62,428 60,408 63,186
======== ======== =========== ==========
</TABLE>
See accompanying notes
4
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 10,952 $ 54,936
Adjustment to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and other amortization ........... 62,638 60,734
Gain on sale of discontinued operations ....... - (6,138)
Deferred income taxes ......................... 3,314 25,487
Changes in working capital .................... (40,349) (108,542)
Other - net ................................... 183 (17,524)
Extraordinary item - loss on early
extinguishment of debt ................... 79,095 -
----------- ---------
Net cash provided by operating activities ................ 115,833 8,953
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................ (101,649) (105,983)
Net proceeds from sale of business .................. - 120,980
Net proceeds from sale of assets .................... 573 393
Purchase of businesses .............................. - (57,170)
----------- ---------
Net cash used for investing activities ................... (101,076) (41,780)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings .................................... 913,919 978,799
Repayments .................................... (781,170) (885,011)
Principal payments on long-term debt ................ (986,773) -
Net proceeds from Trade Receivables Program ......... 5,660 5,399
Purchase of common stock for treasury ............... (91,315) (46,709)
Proceeds from sale of notes ......................... 1,000,000 -
Proceeds from issuance of stock ..................... 2,764 4,315
Fees associated with refinancing .................... (84,275) -
----------- ---------
Net cash provided by (used for) financing activities ..... (21,190) 56,793
----------- ---------
Net increase (decrease) in cash and cash equivalents ..... (6,433) 23,966
Cash and cash equivalents at beginning of period ......... 17,433 14,029
----------- ---------
Cash and cash equivalents at end of period ............... $ 11,000 $ 37,995
=========== =========
</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 PENSION
COMMON PAR TREASURY STOCK ACCUMULATED LIABILITY
SHARES VALUE SHARES AMOUNT DEFICIT ADJUSTMENT
------ ------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ............... 70,296 $337,069 (10,895) $(134,223) $(625,047) $(813)
Exercise of management stock
options including tax benefit .... 541 3,257 (55) - - -
Issuance of stock pursuant to Stock
Bonus Plan including tax benefit - 851 212 2,421 - -
Purchase of treasury shares ......... - - (3,197) (91,315) - -
Net income .......................... - - - - 10,952 -
------ -------- ------- --------- --------- -----
Balance, September 30, 1998 .............. 70,837 $341,177 (13,935) $(223,117) $(614,095) $(813)
====== ======== ======= ========= ========= =====
<CAPTION>
TOTAL
-------
<S> <C>
Balance, December 31, 1997 ............... $(423,014)
Exercise of management stock
options including tax benefit .... 3,257
Issuance of stock pursuant to Stock
Bonus Plan including tax benefit 3,272
Purchase of treasury shares ......... (91,315)
Net income .......................... 10,952
---------
Balance, September 30, 1998 .............. $(496,848)
=========
</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, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. The
Company adopted Statement No. 130, Reporting Comprehensive Income, effective
January 1, 1998. 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, 1997.
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, 1998 and December 31,
1997 (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Finished goods $181,320 $154,539
Work in progress 151,360 139,410
Raw materials and supplies 55,353 58,876
LIFO reserve (11,228) (12,007)
-------- --------
$376,805 $340,818
======== ========
</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,
1998 1997
------------- ------------
<S> <C> <C>
Short-term indebtedness:
Senior Credit Facility ....................... $ 20,432 $ 37,683
8 3/4% Senior Notes due 2001 ................. 15,428 -
9 3/8% Senior Subordinated Debentures due 2005 22,799 -
9% Sinking Fund Debentures due 2017 .......... - 3,750
---------- ----------
$ 58,659 $ 41,433
========== ==========
Long-term indebtedness:
Senior Credit Facility ....................... $ 275,000 $ 125,000
7 7/8% Senior Notes due 2005 ................. 525,000 -
7 7/8% Senior Notes due 2008 ................. 475,000 -
8 3/4% Senior Notes due 2001 ................. - 400,000
9 3/8% Senior Subordinated Debentures due 2005 - 550,000
9% Sinking Fund Debentures due 2017 .......... - 71,250
---------- ----------
$1,275,000 $1,146,250
========== ==========
</TABLE>
On April 29, 1998, the Company announced cash tender offers and consent
solicitations for all of its outstanding 8 3/4% Senior Notes due 2001 and its
9 3/8% Senior Subordinated Debentures due 2005. The tender offers were
consummated on June 9, 1998. The Company purchased the tendered notes with the
proceeds from the issuance of $525 million of its 7 7/8% Senior Notes due 2005
and $475 million of its 7 7/8% Senior Notes due 2008 and with the proceeds from
the refinancing of its existing Senior Credit Facility with an amended and
restated Senior Credit Facility that provided for a term of 6 1/2 years and an
increased commitment to $550 million. The issuance of the new notes and the
amendment and restatement of the Senior Credit Facility were also consummated
on June 9, 1998. On June 10, 1998, the Company announced the redemption of its
9% Sinking Fund Debentures due 2017 and the redemption was consummated on July
9, 1998 with available borrowings under the Senior Credit Facility. During the
third quarter of 1998, the Company amended the Senior Credit Facility to
provide for an increased commitment to $575 million.
The Company's Senior Credit Facility with certain lenders (collectively, the
"Banks") consists of a $575 million revolving credit facility ("Revolver") due
November 30, 2004. The Company has included $275 million of Revolver in
long-term debt at September 30, 1998 because the Company
8
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS (CONTINUED)
intends that at least that amount would remain outstanding during the next
twelve months. Borrowing availability under the Senior Credit Facility was
reduced by approximately $35.6 million of outstanding letters of credit at
September 30, 1998.
At the option of the Company, interest under the Senior Credit Facility will be
payable either at the prime rate or at LIBOR plus 0.75%. Upon the Company
achieving certain ratios of EBITDA (as defined) to cash interest expense,
interest rates can be reduced up to 0.5%. At September 30, 1998, the interest
rates under this facility were reduced 0.25% to LIBOR plus 0.5%. The Company
pays a facility fee in an amount equal to 0.25% of each Bank's commitment under
the Revolver. The loans under the Senior Credit Facility are secured by the
pledge of all the stock of the Company's material subsidiaries and a first
priority lien on substantially all of the assets of the Company, other than the
Company's accounts receivable.
The 7 7/8% Senior Notes due 2005 and 7 7/8% Senior Notes due 2008 (together, the
"Notes") are general unsecured obligations of the Company and rank pari passu
in right of payment with all existing or future unsecured and unsubordinated
indebtedness of the Company and senior in right of payment to all subordinated
indebtedness of the Company.
The Notes bear interest at the rate of 7 7/8% per annum, payable semi-annually
on June 15 and December 15 of each year, commencing December 15, 1998. The
Notes are redeemable, in whole or in part, at any time at the option of the
Company at 100% of the principal amount thereof plus the Make-Whole Premium (as
defined) plus accrued and unpaid interest, if any, to the date of purchase. In
addition, in the event of a Change of Control (as defined), the Company will be
required to make an offer to purchase the notes at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase.
The Company's credit agreements contain a number of customary covenants
including, among others, restrictions on the incurrence of indebtedness,
transactions with affiliates and certain asset dispositions. Certain provisions
require the Company to maintain certain financial ratios, and a minimum
interest coverage ratio. A minimum consolidated net worth (as defined) is also
required.
At September 30, 1998 and December 31, 1997, $117.4 million and $111.8 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.
9
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. DISCONTINUED OPERATIONS
On August 27, 1997 the Company closed a transaction pursuant to which WestPoint
Stevens sold its subsidiaries AIH Inc., Alamac Knit Fabrics, Inc. and Alamac
Enterprises Inc. (collectively, "Alamac Knit Fabrics subsidiary" or "Alamac"),
other than cash, accounts receivable of approximately $42.5 million and a yarn
mill located in Whitmire, S.C., to Dyersburg Corporation for approximately $126
million. The Whitmire facility was transferred by the Company to Home Fashions
to support the Company's expansion of its sheeting production capacity. As a
result of the transaction, the Company now reports the Alamac Knit Fabrics
subsidiary as a discontinued operation and the accompanying financial
statements have been adjusted and restated accordingly.
The condensed consolidated statements of income relating to the discontinued
operations are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net sales ......................... $34,635 $ 162,428
Gross earnings .................... 3,479 19,951
Operating earnings ................ 1,897 9,189
Interest expense .................. 1,401 5,533
Income from discontinued operations
before income tax expense ... 547 3,993
Income tax expense ................ 157 1,368
Income from discontinued operations $ 390 $ 2,625
Gain on sale of discontinued
operations, net of taxes of
$3,605....................... $ 6,138 $ 6,138
</TABLE>
5. ACCOUNTING POLICIES NOT YET ADOPTED
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and for Hedging Activities. Statement No. 133 provides a
comprehensive standard for the recognition and measurement of derivatives and
hedging activities. Statement No. 133 requires all derivatives to be recorded
on the balance sheet at fair value and establishes "special accounting" for the
different types of hedges. Though the accounting treatment and criteria for
each type of hedge is unique, they all result in recognizing offsetting changes
in value or cash flows of both the hedge and the hedged item in earnings in the
same period. Changes in the fair value of derivatives that do not meet the
hedge criteria are included in earnings in the period of the change.
10
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. ACCOUNTING POLICIES NOT YET ADOPTED (CONTINUED)
In April 1998, AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. Start-up costs, including organizational costs, are expensed as
incurred under the SOP. Upon adoption, the SOP requires the write-off, as a
cumulative effect of a change in accounting principle, of any previously
capitalized start-up or organizational costs.
The Company plans to adopt Statement No. 133, in 2000 and SOP 98-5 in 1999, but
has not yet completed its analysis of the impact, if any, that Statement No.
133 may have on its financial statements. The adoption of SOP 98-5 will not
have a material impact on the Company's financial statements.
11
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
During the second quarter of 1998, the Company entered into a series of
financing transactions pursuant to which the Company reduced interest expense,
extended debt maturities and improved financial flexibility. The components of
the financing transactions included (i) the sale of $525 million of 7 7/8%
Senior Notes due 2005 and $475 million of 7 7/8% Senior Notes due 2008, (ii) the
tender offers and consent solicitations for all outstanding 8 3/4% Senior Notes
due 2001 and 9 3/8% Senior Subordinated Debentures due 2005, (iii) the
redemption of the 9% Sinking Fund Debentures due 2017 and (iv) the amendment
and restatement of the existing bank revolving credit agreement to provide for
a term of 6 1/2 years and an increased commitment to $550 million. During the
third quarter of 1998, the Company amended the bank revolving credit agreement
to provide for an increased commitment to $575 million. See Note 3 -
Indebtedness and Financial Arrangements in the Notes to Condensed Consolidated
Financial Statements for additional information concerning the Company's
financing transactions.
Year 2000
General Description of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date- sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
In 1994, the Company began a company-wide project to replace all existing
information systems with improved systems launched from a newer technology
infrastructure, and as a by-product, make the new systems Year 2000 compliant.
The Company presently believes that with replacements and modifications of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing and implementation. To date, the
Company has completed its assessment of all systems that could be significantly
affected by the Year 2000. The completed assessment indicated that most of the
Company's significant information technology systems could be affected.
12
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
General Description of the Year 2000 Issue (continued)
That assessment also indicated that in some cases software and hardware
(embedded chips) used in production and manufacturing systems (hereafter also
referred to as operating equipment) are also at risk. Affected systems include
automated assembly lines and related robotics technologies used in various
aspects of the manufacturing process. However, based on a review of its product
line, the Company has determined that all of the products it has sold and will
continue to sell do not require remediation to be Year 2000 compliant.
Accordingly, the Company does not believe that the Year 2000 presents a
material exposure as it relates to the Company's products. In addition, the
Company has gathered information about the Year 2000 compliance status of its
significant customers, suppliers and subcontractors and continues to monitor
their compliance.
Status of Progress in Becoming Year 2000 Compliant
For its information technology exposures, to date the Company is approximately
95% complete on the remediation phase and expects to complete this phase no
later than January 31, 1999. Once software is replaced or reprogrammed for a
system and a working model has been completed, the Company begins testing and
implementation. These phases run concurrently for different systems. To date,
the Company has completed approximately 90% of its testing and has implemented
approximately 75% of its remediated systems. Completion of the testing phase for
all significant systems is expected by February 28, 1999, with all remediated
systems expected to be fully tested and implemented by June 30, 1999.
The remediation of operating equipment is significantly less difficult than the
remediation of the information technology systems because of the purchase of
Year 2000 compliant equipment acquired during the Company's recent 5 year
capital expenditure program. As such, the Company is approximately 75% complete
in its remediation phase of operating equipment that contains chip-based
technology. The task of testing equipment or obtaining vendor assurances of
readiness is also approximately 75% complete. The Company expects to complete
its remediation efforts by March 31, 1999. Testing and implementation of
affected equipment is expected to be 100% complete by June 30, 1999.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000 Issue
The Company has surveyed key production, non-production, service, utility and
communication suppliers to determine their state of readiness. Responses
indicate most key vendors plan to be compliant in a timely manner. EDI
interfaces with suppliers are being tested, and early results indicate the
Company's supplier interfaces and procurement systems are compliant. However,
there can be no assurance that suppliers' systems, or their suppliers' systems,
upon which the Company relies, will be ready in a timely manner and will not
have a material effect on the Company.
13
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Nature and Level of Importance of Third Parties and Their Exposure
to the Year 2000 Issue (continued)
The Company has surveyed key customers who electronically interface with the
Company via EDI to determine their state of readiness and plan for testing
compliant interfaces. Responses indicate some key customers plan to be compliant
and able to test compliant interfaces. However, there can be no assurance that
all customers' systems, upon which the Company relies, will be ready in a timely
manner and will not have a material effect on the Company.
To date, the Company is not aware of any third party with a Year 2000 Issue that
would materially impact the Company's results of operations, liquidity or
capital resources. However, the Company has no means of ensuring that third
parties will be Year 2000 ready. The inability of third parties to complete
their Year 2000 resolution process in a timely fashion could materially impact
the Company. The effect of non-compliance by third parties is not determinable.
Costs, Risks and Contingency Plans for the Year 2000 Issue
The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, test and implement the software and
operating equipment for Year 2000 modifications. The total cost of the Year 2000
project is estimated at $650,000 and is being funded through operating cash
flows. To date, the Company estimates it has incurred approximately $300,000
(expensed for personal computers associated with new operating equipment),
related to all phases of the Year 2000 project and not related to the systems
improvement project started in 1994. The total remaining project costs are
attributable to the purchase of new personal computer systems for operating
equipment, which will be expensed.
The Company has a high dependence on computer processes such as electronic order
and shipment information that automatically drive business processes, bar codes
that cannot be reproduced manually, and machinery containing advanced technology
requiring computerized controls. The Company's business transaction volume is
concentrated among a few customers who also have a high dependence upon
computers.
Management of the Company believes it has an effective program in place to
address the Year 2000 Issue in a timely manner. In the event that the Company
does not complete all necessary phases of the Year 2000 program, the Company may
be unable to forecast demand for its products, pay its associates and report
business activity, as effectively. In addition, disruptions in the economy
generally resulting from Year 2000 Issues could have a material effect upon the
Company.
14
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Costs, Risks and Contingency Plans for the Year 2000 Issue (continued)
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, use of manual systems, stock piling necessary items and maintaining
sufficiently trained staff for repairing unforeseen problems as they are
discovered.
The costs of the Year 2000 project and the date on which management of the
Company believes it will complete Year 2000 modifications are based on
management's best estimates, which are derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes and similar
uncertainties.
15
<PAGE> 16
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations: Three and Nine Months Ended September 30, 1998
The table below sets forth net sales, gross earnings, operating earnings,
interest expense, income from continuing operations, income from discontinued
operations, gain on sale of discontinued operations, extraordinary item - loss
on early extinguishment of debt and net income of the Company for the three and
nine months ended September 30, 1998 and 1997. See Note 4 - Discontinued
Operations in the Notes to Condensed Consolidated Financial Statements for
information concerning the Company's discontinued operations. The following
discussion is limited to an analysis of the results of continuing operations (in
millions of dollars and as percentages of net sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales............................................ $473.2 $459.0 $1,308.9 $1,211.9
Gross earnings....................................... $134.4 $122.1 $ 347.2 $ 307.5
Operating earnings................................... $ 79.3 $ 69.2 $ 176.3 $ 150.8
Interest expense..................................... $ 25.9 $ 26.3 $ 79.1 $ 75.0
Income from continuing operations.................... $ 34.1 $ 26.5 $ 61.6 $ 46.2
Income from discontinued operations.................. - 0.4 - 2.6
Gain on sale of discontinued operations.............. - 6.1 - 6.1
Extraordinary item - loss on early
extinguishment of debt.......................... - - (50.6) -
------ ------ -------- --------
Net income........................................... $ 34.1 $ 33.0 $ 11.0 $ 54.9
Gross margins........................................ 28.4% 26.6% 26.5% 25.4%
Operating margins.................................... 16.8% 15.1% 13.5% 12.4%
</TABLE>
16
<PAGE> 17
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, 1998
NET SALES. Net sales for the three months ended September 30, 1998 increased
$14.2 million, or 3.1%, to $473.2 million compared with net sales of $459
million for the three months ended September 30, 1997. The increase in net
sales resulted primarily from higher unit volume in the 1998 period compared
with the 1997 period.
GROSS EARNINGS/MARGINS. Gross earnings for the three months ended September 30,
1998 of $134.4 million increased $12.3 million, or 10.1%, compared with $122.1
million for the same period of 1997 and reflect gross margins of 28.4% in the
1998 period compared with 26.6% in the 1997 period. Gross earnings and margins
increased in the third quarter of 1998 primarily as a result of the increase in
unit volume, a better mix of products sold and lower raw material costs
offsetting cost increases related to depreciation expense and wages.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $2.2 million, or 4.2%, in the third quarter of 1998 compared with
the same period last year, and as a percentage of net sales represent 11.7% in
the 1998 period and 11.5% in the 1997 period. The increase in selling, general
and administrative expenses in the third quarter of 1998 was due primarily to
higher selling, administrative and warehousing/shipping expense.
Operating earnings for the three months ended September 30, 1998 were $79.3
million, or 16.8% of sales, and increased $10.1 million, or 14.6%, compared
with operating earnings of $69.2 million, or 15.1% of sales, for the same
period of 1997. The increase resulted from the increase in gross earnings
offset somewhat by the increase in selling, general and administrative expenses
discussed above.
INTEREST EXPENSE. Interest expense for the three months ended September 30,
1998 of $25.9 million decreased $0.4 million compared with interest expense for
the three months ended September 30, 1997. The decrease was due primarily to
lower interest rates as a result of the financing transactions in the second
quarter of 1998 offset somewhat by higher average debt levels in the 1998 third
quarter compared with the corresponding 1997 average debt levels.
OTHER EXPENSE, NET. Other expense, net in the third quarter of 1998 of $0.2
million decreased $0.5 million compared with the 1997 period and consists
primarily of the amortization of deferred financing fees of $0.7 million in the
1998 period compared with $1 million in the 1997 period less certain
miscellaneous income items in both periods.
17
<PAGE> 18
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, 1998 (CONTINUED)
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and nondeductible items.
INCOME FROM CONTINUING/DISCONTINUED OPERATIONS. Income from continuing
operations for the third quarter of 1998 was $34.1 million, or $.57 per share
diluted, compared with income from continuing operations of $26.5 million, or
$.42 per share diluted, for the same period of last year.
Income from discontinued operations for the third quarter of 1997 was $0.4
million, or $.01 per share diluted.
GAIN ON SALE OF DISCONTINUED OPERATIONS. During the third quarter of 1997, the
Company recorded a gain on the sale of its Alamac Knit Fabrics subsidiary of
$6.1 million, or $.10 per share diluted.
NET INCOME. Net income for the third quarter of 1998 was $34.1 million, or $.57
per share diluted, compared with net income of $33 million, or $.53 per share
diluted, for the same period of last year.
Diluted per share amounts are based on 59.7 million and 62.4 million average
shares outstanding for the 1998 and 1997 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.
18
<PAGE> 19
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, 1998
NET SALES. Net sales for the nine months ended September 30, 1998 increased $97
million, or 8%, to $1,308.9 million compared with net sales of $1,211.9 million
for the nine months ended September 30, 1997. The increase in net sales
resulted primarily from higher unit volume in the 1998 period compared with the
1997 period.
GROSS EARNINGS/MARGINS. Gross earnings for the nine months ended September 30,
1998 of $347.2 million increased $39.7 million, or 12.9%, compared with $307.5
million for the same period of 1997 and reflect gross margins of 26.5% in the
1998 period compared with 25.4% in the 1997 period. Gross earnings and margins
increased in the first nine months of 1998 primarily as a result of the
increase in unit volume, a better mix of products sold and lower raw material
costs offsetting cost increases related to depreciation expense and wages.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $14.2 million, or 9.1%, in the first nine months of 1998 compared
with the same period last year, and as a percentage of net sales represent
13.1% in the 1998 period and 12.9% in the 1997 period. The increase in selling,
general and administrative expenses in the first nine months of 1998 was due
primarily to higher selling, administrative and warehousing/shipping expense.
Operating earnings for the nine months ended September 30, 1998 were $176.3
million, or 13.5% of sales, and increased $25.5 million, or 16.9%, compared
with operating earnings of $150.8 million, or 12.4% of sales, for the same
period of 1997. The increase resulted from the increase in gross earnings
offset somewhat by the increase in selling, general and administrative expenses
discussed above.
INTEREST EXPENSE. Interest expense for the nine months ended September 30, 1998
of $79.1 million increased $4.1 million compared with interest expense for the
nine months ended September 30, 1997. The increase was due primarily to higher
average debt levels in the 1998 first nine months compared with the
corresponding 1997 average debt levels offset somewhat by lower interest rates
as a result of the financing transactions in the second quarter of 1998.
OTHER EXPENSE, NET. Other expense, net in the first nine months of 1998 of $0.9
million decreased $1.3 million compared with the 1997 period and consists
primarily of the amortization of deferred financing fees of $2.5 million in the
1998 period compared with $2.9 million in the 1997 period less certain
miscellaneous income items in both periods.
19
<PAGE> 20
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, 1998 (CONTINUED)
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and nondeductible items.
INCOME FROM CONTINUING/DISCONTINUED OPERATIONS. Income from continuing
operations for the first nine months of 1998 was $61.6 million, or $1.02 per
share diluted, compared with income from continuing operations of $46.2
million, or $.73 per share diluted, for the same period of last year.
Income from discontinued operations for the first nine months of 1997 was $2.6
million, or $.04 per share diluted.
GAIN ON SALE OF DISCONTINUED OPERATIONS. During the third quarter of 1997, the
Company recorded a gain on the sale of its Alamac Knit Fabrics subsidiary of
$6.1 million, or $.10 per share diluted.
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT. As a result of the
refinancing transactions discussed above, the Company recorded an extraordinary
charge of $50.6 million after taxes of $28.5 million in the second quarter of
1998 related to the early extinguishment of debt and consisted primarily of
tender premiums and the write-off of deferred debt fees.
NET INCOME. Net income for the first nine months of 1998 was $11 million, or
$.18 per share diluted, compared with net income of $54.9 million, or $.87 per
share diluted, for the same period of last year.
Diluted per share amounts are based on 60.4 million and 63.2 million average
shares outstanding for the 1998 and 1997 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.
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.
20
<PAGE> 21
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 30,
1998, the maximum commitment under the Senior Credit Facility was $575 million
and the Company had unused borrowing availability under the Senior Credit
Facility totaling approximately $217 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 $152 million in
1997 on capital expenditures and intends to invest approximately $147 million
in 1998.
During the first nine months of 1998 the Company purchased approximately 3.2
million shares under its various stock repurchase programs, at an average price
of $28.57 per share. The Board of Directors has approved the purchase of up to
sixteen million shares of the Company's common stock, subject to the Company's
debt limitations. At September 30, 1998, approximately 2.6 million shares
remained to be purchased under these programs.
Cash contributions to the Company's pension plans in 1998 are estimated to
total approximately $3 million, compared with actual cash contributions in 1997
of $17.3 million.
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, 1998 and December 31, 1997, $117.4 million
and $111.8 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 1998 is estimated to total approximately $6.7 million, compared with
$7.6 million in 1997, and will be charged to selling, general and
administrative expenses.
Debt service requirements for interest payments in 1998 are estimated to total
approximately $106 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $107.4 million in 1997. There are
no debt service requirements related to required principal amortization during
the remainder of 1998. On June 10, 1998, the Company announced the redemption
of its 9% Sinking Fund Debentures due 2017 and the redemption was consummated
on July 9, 1998 with available borrowings under the Senior Credit Facility.
Untendered 8 3/4% Senior
21
<PAGE> 22
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Notes due 2001 and 9 3/8% Senior Subordinated Debentures due 2005 will be
redeemed on December 15, 1998 with available borrowings under the Senior Credit
Facility.
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.
22
<PAGE> 23
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
23
<PAGE> 24
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ------------------------------------------------
<S> <C>
10.61 Letter Amendment Agreement, dated as of July 31,
1998, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited,
NationsBank, N.A., as agent and other financial
institutions party thereto.
27 Financial Data Schedule (for SEC use only)
</TABLE>
b.) No report on Form 8-K was filed by the Company during the quarter ended
September 30, 1998.
24
<PAGE> 25
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
Date: November 13, 1998 /s/ Morgan M. Schuessler
----------------- ------------------------------
Morgan M. Schuessler
Executive Vice President-Finance
and Chief Financial Officer
25
<PAGE> 26
WESTPOINT STEVENS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------ ------
<S> <C> <C>
10.61 Letter Amendment Agreement, dated as of July 31, 1998, 28
among the Company, WestPoint Stevens (UK) Limited,
WestPoint Stevens (Europe) Limited, NationsBank, N.A.,
as agent and other financial institutions party thereto.
27 Financial Data Schedule (for SEC use only) 39
</TABLE>
26
<PAGE> 1
EXHIBIT 10.61
AMENDMENT AGREEMENT
This Amendment Agreement, dated as of July 31, 1998 (this
"Agreement"), is among WESTPOINT STEVENS INC., a Delaware corporation (the
"Borrower"), WESTPOINT STEVENS (UK) LIMITED, WESTPOINT STEVENS (EUROPE)
LIMITED, each of the Existing Banks (as defined below) signatories hereto,
NATIONSBANK, N.A., as Administrative Agent (the "Agent") for the Existing Banks
and NATIONAL WESTMINSTER BANK PLC ("NatWest").
RECITALS:
A. Pursuant to that certain Second Amended and Restated Credit
Agreement, dated as of June 9, 1998 among the Borrower, WestPoint Stevens (UK)
Limited and WestPoint Stevens (Europe) Limited (collectively, the "Foreign
Borrowers"), the lending and financial institutions party thereto (the
"Existing Banks"), and the Agent, as amended by that certain letter agreement
dated as of June 10, 1998 among the Borrower, the Foreign Borrowers, the
Existing Banks, and the Agent (as amended, the "Existing Credit Agreement"),
the Existing Banks have agreed to make revolving loan and letter of credit
facilities available to the Borrower and the Foreign Borrowers.
B. The Borrower and the Foreign Borrowers have requested that the
Existing Banks agree to amend the Existing Credit Agreement to increase the
aggregate Revolving Committed Amount by $25,000,000 and to add NatWest as a
Bank under the Existing Credit Agreement.
C. The Existing Banks are willing to modify the Existing Credit
Agreement as requested by the Borrower and the Foreign Borrowers upon the terms
and conditions of this Agreement.
NOW, THEREFORE, based upon the foregoing, and for good and valuable
consideration, the sufficiency and receipt of which is hereby acknowledged, the
parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the following meanings:
"Amended Credit Agreement" means the Existing Credit Agreement
as amended hereby.
"Effective Date" shall have the meaning ascribed to such term
in Subpart 4.1.
<PAGE> 2
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the meanings provided in the Amended Credit
Agreement.
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Effective Date,
the Existing Credit Agreement is hereby amended in accordance with this Part
II. Except as so amended, the Existing Credit Agreement shall continue in full
force and effect.
SUBPART 2.1 Amendment to Section 2.1(a). Section 2.1(a) of
the Existing Credit Agreement is amended by replacing the phrase and amount
"FIVE HUNDRED FIFTY MILLION DOLLARS ($550,000,000)" with the new phrase and
amount "FIVE HUNDRED SEVENTY-FIVE MILLION DOLLARS ($575,000,000)".
SUBPART 2.2 Amendment to Section 2.2(a). Section 2.2(a) of
the Existing Credit Agreement is amended by replacing the phrase and amount
"FIVE HUNDRED FIFTY MILLION DOLLARS ($550,000,000)" with the new phrase and
amount "FIVE HUNDRED SEVENTY-FIVE MILLION DOLLARS ($575,000,000)".
SUBPART 2.3 Addition of NatWest to Signature Page. The
signature pages of the Existing Credit Agreement are amended by adding
"NATIONAL WESTMINSTER BANK" as an additional Bank, immediately following the
signature block of Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch in the Existing Credit Agreement.
SUBPART 2.4 Amendment to Schedule 2.1. Schedule 2.1 of the
Existing Credit Agreement is deleted and replaced with a new Schedule 2.1 in
the form and content of Exhibit "A" attached to this Agreement and incorporated
herein by reference.
PART III
JOINDER OF NATWEST
Upon the Effective Date as set forth in Section 4.1 hereof, each of
NatWest, the Borrower, the Foreign Borrowers, the Existing Banks, and the Agent
hereby acknowledges, agrees and confirms that, NatWest will be deemed to be a
party to each of the Amended Credit Agreement and the Collateral Trust
Agreement and a "Bank" for all purposes of the Amended Credit Agreement and the
Collateral Trust Agreement, and shall have all of the rights and obligations of
a Bank thereunder as if it had originally executed the Existing Credit
Agreement and the Collateral Trust Agreement. NatWest hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Amended Credit Agreement and the Collateral Trust
Agreement. Natwest (i) confirms that it has received a copy of the Existing
Credit Agreement, together with copies of the financial statements referred to
in Section 7.1 thereof, and such other documents and information as it has
deemed appropriate to
2
<PAGE> 3
make its own credit analysis and decision to enter into this Agreement; (ii)
agrees that it will, independently and without reliance upon the Agent, any
other Bank or the Trustee, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Amended Credit Agreement; (iii) agrees
that it will perform in accordance with their respective terms all of the
obligations that either the Amended Credit Agreement or the Collateral Trust
Agreement requires to be performed by it as a Bank; and (iv) appoints and
authorizes the Agent and the Trustee to take such action as Agent and Trustee
under the Amended Credit Agreement and the Collateral Trust Agreement,
respectively, including without limitation the exercise of such powers and
discretion under the Amended Credit Agreement or the Collateral Trust Agreement
as are delegated to the Agent or the Trustee by the terms thereof, together
with such powers and discretion as are reasonably incidental thereto.
PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1 Effective Date. The other amendments effected by this
Agreement shall be and become effective as of the date hereof when (i) all of
the conditions set forth in this Subpart 4.1 shall have been satisfied and (ii)
the Required Banks, the Borrower, the Foreign Borrower, and NatWest shall have
duly executed counterparts of this Agreement and provided original copies
thereof to the Agent.
SUBPART 4.1.1. Closing Certificate. The Agent shall have
received a certificate from the Borrower and the Foreign Borrowers
certifying that (i) no Default or Event of Default exists as of the
Effective Date, and (ii) the representations and warranties of the
Borrower and the Foreign Borrowers made in or pursuant to the Credit
Documents are true in all material respects on and as of the Effective
Date.
SUBPART 4.1.2. Guarantors Consent. Each of the Guarantors
shall have executed the Consent included in the signature pages of
this Agreement, and the Agent shall have received such Consent
executed by each Guarantor.
SUBPART 4.1.3. Mortgage Modifications. The Agent shall have
received from the Borrower, where necessary or appropriate in the
reasonable judgment of the Agent upon advice of counsel, duly executed
modifications of the Mortgage Instruments. The Mortgage Instruments
shall be modified to reflect the increase in the Revolving Committed
Amount effected by this Agreement. The Agent, the Trustee and the
Borrower may provide in such modifications of the Mortgage Instruments
for the prospect of future increases in the Revolving Committed
Amount, but any such future increases shall, in each instance, be
subject to the specific approval by each of the Banks.
SUBPART 4.1.4. Corporate Action. The Borrower shall deliver
to the Agent certified copies of all corporate action taken by each
Credit Party approving this Agreement and each of the documents
executed and delivered in connection herewith (including,
3
<PAGE> 4
without limitation, a certificate setting forth the resolutions of the
Board of Directors of each Credit Party adopted in respect of the
transactions contemplated by this Agreement.)
SUBPART 4.1.5. Documentation. The Existing Banks, NatWest and
the Agent shall have received all information, and such counterpart
originals or such certified or other copies of such originals, as they
may reasonably request, and all legal matters incident to the
transactions contemplated by this Agreement shall be satisfactory to
the counsel for the Agent.
PART V
MISCELLANEOUS
SUBPART 5.1 Cross-References. References in this Agreement to any Part
or Subpart are, unless otherwise specified, to such Part or Subpart of this
Agreement.
SUBPART 5.2 Instrument Pursuant to Existing Credit Agreement. This
Agreement is a document executed pursuant to the Existing Credit Agreement and
shall (unless otherwise expressly indicated therein) be construed, administered
and applied in accordance with the terms and provisions of the Existing Credit
Agreement.
SUBPART 5.3 Credit Documents. Each of the Borrower and the Foreign
Borrowers hereby confirms and agrees that the Credit Documents are, and shall
continue to be, in full force and effect, except as amended hereby, except
that, on and after the Effective Date, references in each Credit Document to
the "Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Existing Credit Agreement shall mean the Amended Credit
Agreement.
SUBPART 5.4. Representations and Warranties. Each of the Borrower and
the Foreign Borrowers hereby represents and warrants that (i) it has the
requisite corporate power and authority to execute, deliver and perform this
Agreement, (ii) it is duly authorized to, and has been authorized by all
necessary corporate action, to execute, deliver and perform this Agreement,
(iii) it has no claims, counterclaims, offsets, or defenses to the Credit
Documents and the performance of its obligations thereunder, (iv) the
representations and warranties contained in Section 6 of the Existing Credit
Agreement are, subject to the limitations set forth therein, true and correct
in all material respects on and as of the date hereof as though made on and as
of such date (except for those which expressly relate to an earlier date or
those which relate to specific schedules, the changes to which do not represent
a Material Adverse Effect), (v) no event of default under any other agreement,
document or instrument to which it is a party will occur as a result of the
transactions contemplated hereby, and (vi) as of the date of this Agreement, no
Event of Default or Defaults exists.
SUBPART 5.5. Costs and Expenses. The Borrower hereby agrees to pay on
demand all costs and expenses (including without limitation the reasonable fees
and expenses of counsel to the Agent) incurred by the Agent in connection with
the negotiation, preparation, execution, and delivery of this Agreement and the
enforcement or preservation of any rights and remedies of the Banks and the
Agent hereunder.
4
<PAGE> 5
SUBPART 5.6. Counterparts, Effectiveness, Etc. This Agreement may be
executed by the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but one and
the same agreement.
SUBPART 5.7. Captions. The captions in this Agreement are inserted
only as a matter of convenience and for reference and in no way define, limit
or describe the scope of this Agreement or any provision hereof.
SUBPART 5.8 Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SUBPART 5.9. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
[Remainder of this page intentionally left blank.]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective duly authorized officers as of the day and year
first above written.
THE BORROWER: WESTPOINT STEVENS INC.,
a Delaware corporation
By:_______________________
Name:_____________________
Title:______________________
THE FOREIGN BORROWERS: WESTPOINT STEVENS (UK) LIMITED
By:_______________________
Name:_____________________
Title:______________________
WESTPOINT STEVENS (EUROPE)
LIMITED
By:_______________________
Name:_____________________
Title:______________________
THE BANKS: NATIONSBANK, N.A., individually
in its capacity as a Bank and in
its capacity as Agent and Trustee
By:________________________
Name:______________________
Title:_____________________
[Signatures Continued]
6
<PAGE> 7
THE FIRST NATIONAL BANK OF
CHICAGO
By:________________________
Name:______________________
Title:_____________________
THE BANK OF NEW YORK
By:________________________
Name:______________________
Title:_____________________
SCOTIABANC INC.
By:________________________
Name:______________________
Title:_____________________
WACHOVIA BANK, N.A.
By:________________________
Name:______________________
Title:_____________________
[Signatures Continued]
7
<PAGE> 8
SOCIETE GENERALE
By:________________________
Name:______________________
Title:_____________________
ABN AMRO BANK, N.V.
By:________________________
Name:______________________
Title:_____________________
By:________________________
Name:______________________
Title:_____________________
SUNTRUST BANK, ATLANTA
By:________________________
Name:______________________
Title:_____________________
By:________________________
Name:______________________
Title:_____________________
FIRST UNION NATIONAL BANK
By:________________________
Name:______________________
Title:_____________________
FLEET BANK, N.A.
By:________________________
Name:______________________
Title:_____________________
[Signatures Continued]
8
<PAGE> 9
AMSOUTH BANK
By:________________________
Name:______________________
Title:_____________________
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"Rabobank Nederland", New York Branch
By:________________________
Name:______________________
Title:_____________________
By:________________________
Name:______________________
Title:_____________________
NATIONAL WESTMINSTER BANK
PLC
By:________________________
Name:______________________
Title:_____________________
[Signatures Continued]
9
<PAGE> 10
CONSENT TO AGREEMENT
Each of the undersigned Subsidiary Guarantors, as a party to one or
more of the Credit Documents, hereby acknowledges the execution and delivery of
the Amendment Agreement dated as of July 31, 1998, hereby confirms and agrees
that each Credit Document to which it is a party is, and shall continue to be,
in full force and effect, and hereby ratifies and confirms in all respects its
obligations thereunder. This Consent may be executed by the parties hereto in
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same instrument.
WEST POINT-PEPPERELL ENTERPRISES, INC.
By:____________________________
Name:__________________________
Title:_________________________
J. P. STEVENS & CO., INC.
By:____________________________
Name:__________________________
Title:_________________________
J. P. STEVENS ENTERPRISES, INC.
By:____________________________
Name:__________________________
Title:_________________________
WESTPOINT STEVENS STORES, INC.
By:____________________________
Name:__________________________
Title:_________________________
ALAMAC HOLDINGS INC.
By:____________________________
Name:__________________________
Title:_________________________
ALAMAC SUB HOLDINGS INC.
By:____________________________
Name:__________________________
Title:_________________________
10
<PAGE> 11
EXHIBIT "A"
SCHEDULE 2.1(A)
Schedule of Banks and Commitments
<TABLE>
<CAPTION>
Revolving Revolving Foreign Currency LOC
Committed Commitment Loan Committed Committed
Bank Amount Percentage Amount Amount
---- --------- ---------- ------ ------
<S> <C> <C> <C> <C>
NationsBank, N.A. $ 51,111,111.12 8.888888890% $ 4,444,444.45 $ 4,444,444.45
The First National Bank of Chicago $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
ScotiaBanc Inc. $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
The Bank of New York $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
Wachovia Bank, N.A. $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
ABN Amro Bank, N.V. $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
Societe Generale $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
SunTrust Bank, Atlanta $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
First Union National Bank $ 51,111,111.11 8.888888889% $ 4,444,444.44 $ 4,444,444.44
Fleet Bank, N.A. $ 35,000,000.00 6.086956522% $ 3,043,478.26 $ 3,043,478.26
Rabobank Nederland $ 30,000,000.00 5.217391304% $ 2,608,695.65 $ 2,608,695.65
AmSouth Bank $ 25,000,000.00 4.347826087% $ 2,173,913.04 $ 2,173,913.04
National Westminster Bank $ 25,000,000.00 4.347826087% $ 2,173,913.04 $ 2,173,913.04
--------------- ------------- -------------- --------------
$575,000,000.00 100.000000% $50,000,000.00 $50,000,000.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the condensed
consolidated balance sheet as of September 30, 1998 and the condensed
consolidated statement of operations for the nine months ended September 30,
1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,000
<SECURITIES> 0
<RECEIVABLES> 143,694
<ALLOWANCES> 22,130
<INVENTORY> 376,805
<CURRENT-ASSETS> 532,153
<PP&E> 1,163,136
<DEPRECIATION> 416,936
<TOTAL-ASSETS> 1,383,411
<CURRENT-LIABILITIES> 305,673
<BONDS> 1,275,000
0
0
<COMMON> 708
<OTHER-SE> (497,556)
<TOTAL-LIABILITY-AND-EQUITY> 1,383,411
<SALES> 1,308,918
<TOTAL-REVENUES> 1,308,918
<CGS> 961,677
<TOTAL-COSTS> 961,677
<OTHER-EXPENSES> 887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,079
<INCOME-PRETAX> 96,323
<INCOME-TAX> 34,750
<INCOME-CONTINUING> 61,573
<DISCONTINUED> 0
<EXTRAORDINARY> (50,621)
<CHANGES> 0
<NET-INCOME> 10,952
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
