<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 JUNE 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 July 31, 1998: 57,547,568 shares of Common Stock,
$.01 par value.
1
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
June 30, 1998 (Unaudited) and
December 31, 1997 3
Condensed Consolidated Statements of
Income (Unaudited); Three and Six
Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows (Unaudited); Six Months
Ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) (Unaudited);
Six Months Ended June 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 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................... $ 9,334 $ 17,433
Accounts receivable .......................... 106,887 92,990
Inventories .................................. 392,764 340,818
Prepaid expenses and other current assets .... 19,827 22,227
----------- -----------
Total current assets .............................. 528,812 473,468
Property, Plant and Equipment, net ................ 720,036 707,151
Other Assets
Deferred financing fees ...................... 22,565 19,231
Prepaid pension and other assets ............. 46,248 49,033
Goodwill ..................................... 36,753 37,223
----------- -----------
$ 1,354,414 $ 1,286,106
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility ....................... $ 14,419 $ 37,683
Current portion of long-term debt ............ 109,477 3,750
Accrued interest payable ..................... 7,356 6,820
Trade accounts payable ....................... 65,288 75,655
Other accounts payable and accrued liabilities 143,918 137,382
----------- -----------
Total current liabilities ......................... 340,458 261,290
Long-Term Debt .................................... 1,230,000 1,146,250
Noncurrent Liabilities
Deferred income taxes ........................ 202,365 217,178
Other liabilities ............................ 81,847 84,402
----------- -----------
Total noncurrent liabilities ...................... 284,212 301,580
Stockholders' Equity (Deficit) .................... (500,256) (423,014)
----------- -----------
$ 1,354,414 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 436,981 $395,802 $ 835,687 $752,903
Cost of goods sold ................................. 323,709 299,588 622,894 567,460
--------- -------- --------- --------
Gross earnings ................................ 113,272 96,214 212,793 185,443
Selling, general and administrative expenses ....... 60,729 53,104 115,817 103,822
--------- -------- --------- --------
Operating earnings ............................ 52,543 43,110 96,976 81,621
Interest expense ................................... 27,535 25,301 53,239 48,710
Other expense, net ................................. 331 760 732 1,544
--------- -------- --------- --------
Income from continuing operations before income
tax expense and extraordinary item ...... 24,677 17,049 43,005 31,367
Income tax expense ................................. 8,900 6,371 15,525 11,714
--------- -------- --------- --------
Income from continuing operations before
extraordinary item ...................... 15,777 10,678 27,480 19,653
Income from discontinued operations ................ -- 1,102 -- 2,235
Extraordinary item - loss on early extinguishment
of debt (net of tax benefit of $28,474) ....... (50,621) -- (50,621) --
--------- -------- --------- --------
Net income (loss) ............................. $ (34,844) $ 11,780 $ (23,141) $ 21,888
========= ======== ========= ========
Basic net income (loss) per common share:
Continuing operations ......................... $ .27 $ .18 $ .47 $ .32
Discontinued operations ....................... -- .01 -- .03
Extraordinary item - loss on early
extinguishment of debt .................. (.87) -- (.87) --
--------- -------- --------- --------
Net income (loss) per common share ............ $ (.60) $ .19 $ (.40) $ .35
========= ======== ========= ========
Diluted net income (loss) per common share:
Continuing operations ......................... $ .26 $ .17 $ .45 $ .31
Discontinued operations ....................... -- .01 -- .03
Extraordinary item - loss on early
extinguishment of debt .................. (.83) -- (.83) --
--------- -------- --------- --------
Net income (loss) per common share ............ $ (.57) $ .18 $ (.38) $ .34
========= ======== ========= ========
Basic average common shares outstanding ............ 58,238 61,802 58,571 61,948
Dilutive effect of stock options and
stock bonus plan ........................ 2,366 1,644 2,217 1,608
--------- -------- --------- --------
Diluted average common shares outstanding .......... 60,604 63,446 60,788 63,556
========= ======== ========= ========
</TABLE>
See accompanying notes
4
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................... $ (23,141) $ 21,888
Adjustment to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and other amortization ........... 41,464 40,298
Deferred income taxes ......................... (14,345) 11,114
Changes in working capital .................... (59,976) (105,941)
Other - net ................................... 2,306 (11,003)
Extraordinary item - loss on early
extinguishment of debt ................... 79,095 --
----------- ---------
Net cash provided by (used for) operating activities ..... 25,403 (43,644)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................ (54,621) (74,654)
Net proceeds from sale of assets .................... 512 256
Purchase of businesses .............................. -- (57,170)
----------- ---------
Net cash used for investing activities ................... (54,109) (131,568)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings .................................... 468,419 826,129
Repayments .................................... (386,683) (628,305)
Principal payments on long-term debt ................ (915,523) --
Net proceeds from Trade Receivables Program ......... (3,490) (5,315)
Purchase of common stock for treasury ............... (59,850) (28,815)
Proceeds from sale of notes ......................... 1,000,000 --
Proceeds from issuance of stock ..................... 2,009 3,576
Fees associated with refinancing .................... (84,275) --
----------- ---------
Net cash provided by financing activities ................ 20,607 167,270
----------- ---------
Net decrease in cash and cash equivalents ................ (8,099) (7,942)
Cash and cash equivalents at beginning of period ......... 17,433 14,029
----------- ---------
Cash and cash equivalents at end of period ............... $ 9,334 $ 6,087
=========== =========
</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, 1997 ............... 70,296 $337,069 (10,895) $(134,223) $(625,047) $(813) $(423,014)
Exercise of management stock
options including tax benefit .... 306 2,477 (18) -- -- -- 2,477
Issuance of stock pursuant to Stock
Bonus Plan including tax benefit -- 851 212 2,421 -- -- 3,272
Purchase of treasury shares ......... -- -- (2,210) (59,850) -- -- (59,850)
Net income .......................... -- -- -- -- (23,141) -- (23,141)
------ -------- ------- --------- --------- ----- ---------
Balance, June 30, 1998 ................... 70,602 $340,397 (12,911) $(191,652) $(648,188) $(813) $(500,256)
====== ======== ======= ========= ========= ===== =========
</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 six month periods ended June
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 June 30, 1998 and December 31, 1997
(in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Finished goods $201,233 $154,539
Work in progress 145,088 139,410
Raw materials and supplies 56,785 58,876
LIFO reserve (10,342) (12,007)
-------- --------
$392,764 $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>
JUNE 30, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
Short-term indebtedness:
Senior Credit Facility $ 14,419 $ 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 71,250 3,750
---------- ----------
$ 123,896 $ 41,433
========== ==========
Long-term indebtedness:
Senior Credit Facility $ 230,000 $ 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
---------- ----------
Total indebtedness per balance sheet $1,230,000 $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.
The Company's Senior Credit Facility with certain lenders (collectively, the
"Banks") consists of a $550 million revolving credit facility ("Revolver") due
November 30, 2004. The Company has included $230 million of Revolver in
long-term debt at June 30, 1998 because the Company intends
8
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS (CONTINUED)
that at least that amount would remain outstanding during the next twelve
months. Borrowing availability under the Senior Credit Facility was reduced by
approximately $27.9 million of outstanding letters of credit at June 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 June 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 June 30, 1998 and December 31, 1997, $108.3 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 SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales......................................... $66,103 $127,793
Gross earnings.................................. 8,627 16,472
Operating earnings............................. 3,682 7,292
Interest expense................................ 2,140 4,132
Income from discontinued operations
before income tax expense.............. 1,706 3,446
Income tax expense............................ 604 1,211
Income from discontinued operations...... $ 1,102 $ 2,235
</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 98-2 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 98-2 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. See Note 3 -
Indebtedness and Financial Arrangements in the Notes to Condensed Consolidated
Financial Statements for additional information concerning the Company's
financing transactions.
RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 1998
The table below sets forth net sales, gross earnings, operating earnings,
interest expense, income from continuing operations, income from discontinued
operations, extraordinary item - loss on early extinguishment of debt and net
income (loss) of the Company for the three and six months ended June 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $ 437.0 $ 395.8 $ 835.7 $ 752.9
Gross earnings ......................... $ 113.3 $ 96.2 $ 212.8 $ 185.4
Operating earnings ..................... $ 52.6 $ 43.1 $ 97.0 $ 81.6
Interest expense ....................... $ 27.5 $ 25.3 $ 53.2 $ 48.7
Income from continuing operations ...... $ 15.8 $ 10.7 $ 27.5 $ 19.7
Income from discontinued operations .... -- 1.1 -- 2.2
Extraordinary item - loss on early
extinguishment of debt ............ (50.6) -- (50.6) --
-------- -------- -------- --------
Net income (loss) ...................... $ (34.8) $ 11.8 $ (23.1) $ 21.9
Gross margins .......................... 25.9% 24.3% 25.5% 24.6%
Operating margins ...................... 12.0% 10.9% 11.6% 10.8%
</TABLE>
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: THREE MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales for the three months ended June 30, 1998 increased $41.2
million, or 10.4%, to $437 million compared with net sales of $395.8 million for
the three months ended June 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 June 30, 1998
of $113.3 million increased $17.1 million, or 17.7%, compared with $96.2 million
for the same period of 1997 and reflect gross margins of 25.9% in the 1998
period compared with 24.3% in the 1997 period. Gross earnings and margins
increased in the second 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 $7.6 million, or 14.4%, in the second quarter of 1998 compared with
the same period last year, and as a percentage of net sales represent 13.9% in
the 1998 period and 13.4% in the 1997 period. The increase in selling, general
and administrative expenses in the second quarter of 1998 was due primarily to
higher selling, advertising and warehousing/shipping expense.
Operating earnings for the three months ended June 30, 1998 were $52.6 million,
or 12% of sales, and increased $9.5 million, or 21.9%, compared with operating
earnings of $43.1 million, or 10.9% 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 June 30, 1998 of
$27.5 million increased $2.2 million compared with interest expense for the
three months ended June 30, 1997. The increase was due primarily to higher
average debt levels in the 1998 second quarter compared with the corresponding
1997 average debt levels.
OTHER EXPENSE, NET. Other expense, net in the second quarter of 1998 of $0.3
million decreased $0.4 million compared with the 1997 period and consists
primarily of the amortization of deferred financing fees of $0.8 million in the
1998 period compared with $0.9 million in the 1997 period less certain
miscellaneous income items in both periods.
13
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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 JUNE 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 second quarter of 1998 was $15.8 million, or $.26 per share
diluted, compared with income from continuing operations of $10.7 million, or
$.17 per share diluted, for the same period of last year.
Income from discontinued operations for the second quarter of 1997 was $1.1
million, or $.01 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 (LOSS). The net loss for the second quarter of 1998 was $34.8
million, or $.57 per share diluted, compared with net income of $11.8 million,
or $.18 per share diluted, for the same period of last year.
Diluted per share amounts are based on 60.6 million and 63.4 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.
14
<PAGE> 15
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales for the six months ended June 30, 1998 increased $82.8
million, or 11%, to $835.9 million compared with net sales of $752.7 million for
the six months ended June 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 six months ended June 30, 1998 of
$212.8 million increased $27.4 million, or 14.7%, compared with $185.4 million
for the same period of 1997 and reflect gross margins of 25.5% in the 1998
period compared with 24.6% in the 1997 period. Gross earnings and margins
increased in the first six 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 $12 million, or 11.6%, in the first six months of 1998 compared
with the same period last year, and as a percentage of net sales represent 13.9%
in the 1998 period and 13.8% in the 1997 period. The increase in selling,
general and administrative expenses in the first six months of 1998 was due
primarily to higher selling expense, advertising expense and
warehousing/shipping expense.
Operating earnings for the six months ended June 30, 1998 were $97 million, or
11.6% of sales, and increased $15.4 million, or 18.8%, compared with operating
earnings of $81.6 million, or 10.8% 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 six months ended June 30, 1998 of
$53.2 million increased $4.5 million compared with interest expense for the six
months ended June 30, 1997. The increase was due primarily to higher average
debt levels in the 1998 first six months compared with the corresponding 1997
average debt levels.
OTHER EXPENSE, NET. Other expense, net in the first six months of 1998 of $0.7
million decreased $0.8 million compared with the 1997 period and consists
primarily of the amortization of deferred financing fees of $1.8 million in the
1998 period compared with $1.9 million in the 1997 period less certain
miscellaneous income items in both periods.
15
<PAGE> 16
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 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 six months of 1998 was $27.5 million, or $.45 per share
diluted, compared with income from continuing operations of $19.7 million, or
$.31 per share diluted, for the same period of last year.
Income from discontinued operations for the first six months of 1997 was $2.2
million, or $.03 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 (LOSS). The net loss for the first six months of 1998 was $23.1
million, or $.38 per share diluted, compared with net income of $21.9 million,
or $.34 per share diluted, for the same period of last year.
Diluted per share amounts are based on 60.8 million and 63.6 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.
16
<PAGE> 17
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 July 31,
1998, the maximum commitment under the Senior Credit Facility was $550 million
and the Company had unused borrowing availability under the Senior Credit
Facility totaling approximately $198 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 $145 million in
1998.
During the first six months of 1998 the Company purchased approximately 2.2
million shares under its various stock repurchase programs, at an average price
of $27.08 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 June 30, 1998, approximately 3.6 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 June 30, 1998 and December 31, 1997, $108.3 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 $6.9 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
17
<PAGE> 18
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.
18
<PAGE> 19
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.
19
<PAGE> 20
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Stockholders was held on May 13, 1998. At
the 1998 Annual Meeting, the following matters were voted upon by the
stockholders:
1. Election of three directors to serve for a term of three years.
2. Approval of Amendment and Restatement of the Company's Certificate of
Incorporation.
3. Ratification of appointment of Ernst & Young LLP, independent certified
public accountants, as auditors of the Company for fiscal 1998.
The following is a table setting forth the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non votes, as to each
of the above matters:
1. Election of Directors
<TABLE>
<CAPTION>
Authority
Nominee For Withheld
--------------- ---------- ---------
<S> <C> <C>
Hugh M. Chapman 53,073,242 370,278
John G. Hudson 53,071,351 372,169
Joseph L. Jennings, Jr. 53,046,495 397,025
2. Approval of Amendment and Restatement of the Company's Certificate of
Incorporation
For Against Abstain
---------- --------- -------
44,450,674 8,910,425 56,827
3. Appointment of Ernst & Young LLP
For Against Abstain
---------- ------- -------
53,385,833 15,759 41,928
</TABLE>
20
<PAGE> 21
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------
27 Financial Data Schedule
b.) No report on Form 8-K was filed by the Company during the quarter ended
June 30, 1998.
21
<PAGE> 22
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
Date: August 13, 1998 -----------------------------------
Morgan M. Schuessler
Executive Vice President-Finance
and Chief Financial Officer
22
<PAGE> 23
WESTPOINT STEVENS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------ ------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET OF WESTPOINT STEVENS, INC. AS OF JUNE 30, 1998 AND
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,334
<SECURITIES> 0
<RECEIVABLES> 129,100
<ALLOWANCES> 22,213
<INVENTORY> 392,764
<CURRENT-ASSETS> 528,812
<PP&E> 1,117,024
<DEPRECIATION> 396,988
<TOTAL-ASSETS> 1,354,414
<CURRENT-LIABILITIES> 340,458
<BONDS> 1,230,000
0
0
<COMMON> 706
<OTHER-SE> (500,962)
<TOTAL-LIABILITY-AND-EQUITY> 1,354,414
<SALES> 835,687
<TOTAL-REVENUES> 835,687
<CGS> 622,894
<TOTAL-COSTS> 622,894
<OTHER-EXPENSES> 732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,239
<INCOME-PRETAX> 43,005
<INCOME-TAX> 15,525
<INCOME-CONTINUING> 27,480
<DISCONTINUED> 0
<EXTRAORDINARY> (50,621)
<CHANGES> 0
<NET-INCOME> (23,141)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.38)
</TABLE>
