<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, 1999
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, 1999: 53,389,926 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:
September 30, 1999 (Unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of
Income (Unaudited); Three and Nine
Months Ended September 30, 1999
and September 30, 1998 4
Condensed Consolidated Statements of Cash
Flows (Unaudited); Nine Months
Ended September 30, 1999 and
September 30, 1998 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) (Unaudited);
Nine Months Ended September 30, 1999 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................... $ 161 $ 527
Accounts receivable .......................... 110,980 70,086
Inventories .................................. 436,666 381,022
Prepaid expenses and other current assets .... 20,137 18,051
----------- -----------
Total current assets .............................. 567,944 469,686
Property, Plant and Equipment, net ................ 791,198 776,939
Other Assets
Deferred financing fees ...................... 20,100 21,102
Prepaid pension and other assets ............. 55,628 52,257
Goodwill ..................................... 69,890 71,227
----------- -----------
$ 1,504,760 $ 1,391,211
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility ....................... $ 154,181 $ 60,400
Accrued interest payable ..................... 24,228 4,777
Trade accounts payable ....................... 57,611 85,908
Other accounts payable and accrued liabilities 145,993 140,423
----------- -----------
Total current liabilities ......................... 382,013 291,508
Long-Term Debt .................................... 1,275,000 1,275,000
Noncurrent Liabilities
Deferred income taxes ........................ 270,848 236,328
Other liabilities ............................ 70,678 75,827
----------- -----------
Total noncurrent liabilities ...................... 341,526 312,155
Stockholders' Equity (Deficit) .................... (493,779) (487,452)
----------- -----------
$ 1,504,760 $ 1,391,211
=========== ===========
</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,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ....................................... $ 503,065 $ 473,231 $ 1,398,102 $ 1,308,918
Cost of goods sold .............................. 359,303 338,783 1,022,579 961,677
----------- ----------- ----------- -----------
Gross earnings ............................. 143,762 134,448 375,523 347,241
Selling, general and administrative expenses .... 57,192 55,135 183,284 170,952
----------- ----------- ----------- -----------
Operating earnings ......................... 86,570 79,313 192,239 176,289
Interest expense ................................ 26,268 25,840 75,662 79,079
Other expense, net .............................. 659 155 1,834 887
----------- ----------- ----------- -----------
Income before income tax expense and
extraordinary item ................... 59,643 53,318 114,743 96,323
Income tax expense .............................. 21,500 19,225 41,400 34,750
----------- ----------- ----------- -----------
Income before extraordinary item ........... 38,143 34,093 73,343 61,573
Extraordinary item - loss on early extinguishment
of debt (net of tax benefit of $28,474) .... -- -- -- (50,621)
----------- ----------- ----------- -----------
Net income ................................. $ 38,143 $ 34,093 $ 73,343 $ 10,952
=========== =========== =========== ===========
Basic net income (loss) per common share:
Income before extraordinary item ........... $ .69 $ .59 $ 1.32 $ 1.06
Extraordinary item - loss on early
extinguishment of debt ............... -- -- -- (.87)
----------- ----------- ----------- -----------
Net income per common share ................ $ .69 $ .59 $ 1.32 $ .19
=========== =========== =========== ===========
Diluted net income (loss) per common share:
Income before extraordinary item ........... $ .67 $ .57 $ 1.28 $ 1.02
Extraordinary item - loss on early
extinguishment of debt ............... -- -- -- (.84)
----------- ----------- ----------- -----------
Net income per common share ................ $ .67 $ .57 $ 1.28 $ .18
=========== =========== =========== ===========
Basic average common shares outstanding ......... 55,134 57,356 55,569 58,160
Dilutive effect of stock options and
stock bonus plan ..................... 1,460 2,299 1,689 2,248
----------- ----------- ----------- -----------
Diluted average common shares outstanding ....... 56,594 59,655 57,258 60,408
=========== =========== =========== ===========
</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,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................... $ 73,343 $ 10,952
Adjustment to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and other amortization ...... 64,421 62,638
Deferred income taxes .................... 38,386 3,314
Changes in working capital ............... (108,594) (40,349)
Other - net .............................. (6,410) 183
Extraordinary item - loss on early
extinguishment of debt .............. -- 79,095
----------- -----------
Net cash provided by operating activities ........... 61,146 115,833
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................... (78,264) (101,649)
Net proceeds from sale of assets ............... 497 573
----------- -----------
Net cash used for investing activities ............ (77,767) (101,076)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings ............................... 698,621 913,919
Repayments ............................... (604,840) (781,170)
Principal payments on long-term debt ........... -- (986,773)
Net proceeds from Trade Receivables Program .... 10,000 5,660
Purchase of common stock for treasury .......... (90,630) (91,315)
Proceeds from sale of notes .................... -- 1,000,000
Proceeds from issuance of stock ................ 5,368 2,764
Dividends paid ................................. (2,264) --
Fees associated with refinancing ............... -- (84,275)
----------- -----------
Net cash provided by (used for) financing activities. 16,255 (21,190)
----------- -----------
Net decrease in cash and cash equivalents ........... (366) (6,433)
Cash and cash equivalents at beginning of period .... 527 17,433
----------- -----------
Cash and cash equivalents at end of period .......... $ 161 $ 11,000
=========== ===========
</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 ACCUMULATED
EXCESS OF TREASURY STOCK OTHER
COMMON PAR ------------------ ACCUMULATED COMPREHENSIVE
SHARES VALUE SHARES AMOUNT DEFICIT INCOME(LOSS) TOTAL
------ ----- ------ ------ ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 ....................... 70,862 $ 343,437 (14,577) $(242,844) $(585,115) $ (2,930) $(487,452)
Comprehensive income:
Net income ................................. -- -- -- -- 73,343 -- 73,343
Foreign currency translation adjustment .... 684 684
---------
Comprehensive income .......................... 74,027
---------
Exercise of management stock options
including tax benefit ...................... 238 7,480 327 (213) -- -- 7,267
Issuance of stock pursuant to Stock
Bonus Plan including tax benefit ......... -- 2,080 295 3,193 -- -- 5,273
Purchase of treasury shares ................... -- -- (3,425) (90,630) -- -- (90,630)
Cash dividends ($.04 per share) ............... -- -- -- -- (2,264) -- (2,264)
--------- --------- --------- --------- --------- --------- ---------
Balance, September 30, 1999 .................... 71,100 $ 352,997 (17,380) $(330,494) $(514,036) $ (2,246) $(493,779)
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes
6
<PAGE> 7
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
only 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, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. Effective January 1, 1999, the
Company adopted Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use and the impact on its financial
statements was immaterial. 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,
1998.
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, 1999 and December 31,
1998 (in thousands of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Finished goods $ 195,091 $ 170,896
Work in progress 183,075 160,995
Raw materials and supplies 58,500 59,466
LIFO reserve -- (10,335)
--------- ---------
$ 436,666 $ 381,022
========= =========
</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,
1999 1998
------------- ------------
<S> <C> <C>
Short-term indebtedness:
Senior Credit Facility
Revolver $ 154,181 $ 60,400
============= ============
Long-term indebtedness:
Senior Credit Facility
Revolver $ 275,000 $ 275,000
7 7/8% Senior Notes due 2005 525,000 525,000
7 7/8% Senior Notes due 2008 475,000 475,000
------------- ------------
$ 1,275,000 $ 1,275,000
============= ============
</TABLE>
On September 30, 1999 and December 31, 1998, $155.0 million and $145.0 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.
During the second quarter of 1999, the Company increased availability under the
Senior Credit Facility from $575 million to $800 million. The conditions of the
increased revolver continue as previously stated, including the revolver
expiration date of November 30, 2004. The increased borrowing availability is to
support the Company's growth plans and strategy in the future, if required.
4. STOCKHOLDERS' EQUITY (DEFICIT)
The Board of Directors has approved the payment of a quarterly cash dividend of
$.02 per share payable on December 1, 1999 to shareholders of record as of
November 15, 1999.
On October 29, 1999, the Company commenced a tender offer for up to 3,000,000
shares of its common stock, representing approximately 6% of the outstanding
shares of the Company. The offer is being made by means of a "Dutch Auction" in
which WestPoint stockholders have the opportunity to sell a portion or all of
their shares to WestPoint at a price of not greater than $22.00 nor less than
$19.00 per share. The offer will expire at 5:00 P.M., New York City time, on
Tuesday, November 30, 1999, unless extended by WestPoint. Neither the Company
nor the Board of Directors of the Company is making any recommendation to
shareholders as to whether they should tender any shares pursuant to the offer.
None of the directors or executive officers of the Company intend to tender
shares pursuant to the offer.
8
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 has been mitigated.
System components that are vital to the successful continuance of our core
business activity have been remediated, tested, implemented and confirmed as
Year 2000 compliant.
The Company's plan to resolve the Year 2000 Issue involved 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 were affected. 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) were also at risk. Affected systems included 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 determined that none of the products it has sold and will continue to
sell required remediation to be Year 2000 compliant. Accordingly, the Company
does not believe that the Year 2000 Issue 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
The Company has completed its original plan for addressing the Year 2000 Issue.
Having completed the assessment, remediation, testing and implementation phases
of its plan, management believes the Company's computer systems and technical
infrastructure are Year 2000 compliant.
9
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
Status of Progress in Becoming Year 2000 Compliant (continued)
Embedded chip technology in our manufacturing facilities has been remediated,
tested and implemented as required. WestPoint Stevens Year 2000 efforts will
continue through 1999, with an emphasis on quality assurance.
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 key vendors are Year 2000 compliant or will be in a timely manner. EDI
interfaces with major suppliers have been tested, implemented and confirmed as
Year 2000 compliant. However, there can be no assurance that all 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.
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 received from a majority of key customers
indicate that they expect to be compliant in a timely manner and some have been
able to test compliant interfaces. The Company supports Year 2000 compliant EDI
versions and has successfully completed Year 2000 EDI tests with customers.
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
will 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.
Costs, Risks and Contingency Plans for the Year 2000 Issue
The Company has utilized 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 to date has been
approximately $750,000 and has been funded through operating cash flows. The
remaining expenditures through 1999 relating to Year 2000 are expected to be
immaterial.
10
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
Costs, Risks and Contingency Plans for the Year 2000 Issue (continued)
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 effectively mitigated the Year 2000
risk in its information technology systems and operating systems. However,
disruptions in the economy generally resulting from Year 2000 Issues could have
a material effect upon the Company.
The Company has completed contingency plans that address potential needs during
the actual transition of operations on January 1, 2000.
The Company completed a business impact analysis in 1995 which established
critical processes, inventoried resources, assessed the risk and mitigation
plans relative to potential business disruptions resulting from natural
disasters, system outages and other occurrences. By adding other business units
and Year 2000 specific hazards and contingencies, the Company has finalized its
Year 2000 business continuity plan.
The costs of the Year 2000 project and its effective completion are based on
management's best information, which is derived utilizing numerous assumptions,
including the continued availability of certain resources and other factors,
however, results could differ materially from those anticipated.
11
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
The table below is a summary of the Company's operating results for the three
and nine months ended September 30, 1999 and September 30, 1998 (in millions of
dollars and as percentages of net sales).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales ........................ $ 503.1 $ 473.2 $1,398.1 $1,308.9
Gross earnings ................... $ 143.7 $ 134.4 $ 375.5 $ 347.2
Operating earnings ............... $ 86.5 $ 79.3 $ 192.2 $ 176.3
Interest expense ................. $ 26.3 $ 25.9 $ 75.7 $ 79.1
Income before extraordinary item.. $ 38.1 $ 34.1 $ 73.3 $ 61.6
Extraordinary item - loss on early
extinguishment of debt ...... -- -- -- (50.6)
------- ------- -------- --------
Net income ....................... $ 38.1 $ 34.1 $ 73.3 $ 11.0
Gross margins .................... 28.6% 28.4% 26.9% 26.5%
Operating margins ................ 17.2% 16.8% 13.7% 13.5%
</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 SEPTEMBER 30, 1999
NET SALES. Net sales for the three months ended September 30, 1999 increased
$29.9 million, or 6.3%, to $503.1 million compared with net sales of $473.2
million for the three months ended September 30, 1998. Excluding the sales of
Liebhardt Mills, which was acquired during the fourth quarter of 1998, net sales
increased approximately 3.5%. The increase in net sales resulted primarily from
higher unit volume in the 1999 period compared with the 1998 period and the
acquisition of Liebhardt Mills.
GROSS EARNINGS/MARGINS. Gross earnings for the three months ended September 30,
1999 of $143.7 million increased $9.3 million, or 6.9%, compared with $134.4
million for the same period of 1998 and reflect gross margins of 28.6% in the
1999 period and 28.4% in the 1998 period. Gross earnings and margins increased
in the third quarter of 1999 primarily as a result of the increase in unit
volume and a better mix of products sold.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased $2.1 million, or 3.7%, in the third quarter of 1999 compared with the
same period last year, and as a percentage of net sales represent 11.4% in the
1999 period and 11.7% in the 1998 period. The increase in selling, general and
administrative expenses in the third quarter of 1999 was due primarily to the
acquisition of Liebhardt Mills along with higher warehousing/shipping expense
related to the higher unit volume.
Operating earnings for the three months ended September 30, 1999 were $86.5
million, or 17.2% of sales, and increased $7.2 million, or 9.1%, compared with
operating earnings of $79.3 million, or 16.8% of sales, for the same period of
1998. The increase in operating earnings 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, 1999
of $26.3 million increased $0.4 million compared with interest expense for the
three months ended September 30, 1998. The increase in interest expense was due
primarily to higher average debt levels in the 1999 third quarter compared with
the corresponding 1998 average debt levels offset somewhat by lower interest
rates on the Company's variable rate bank debt.
OTHER EXPENSE, NET. Other expense, net in the third quarter of 1999 of $0.6
million increased $0.4 million compared with the 1998 period and consists
primarily of the amortization of deferred financing fees of $0.7 million in both
the 1999 and 1998 periods, less certain miscellaneous income items in both
periods.
13
<PAGE> 14
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, 1999 (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.
NET INCOME. Net income for the third quarter of 1999 was $38.1 million, or $.67
per share diluted, compared with net income of $34.1 million, or $.57 per share
diluted, for the same period of last year.
Diluted per share amounts are based on 56.6 million and 59.7 million average
shares outstanding for the 1999 and 1998 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: NINE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES. Net sales for the nine months ended September 30, 1999 increased
$89.2 million, or 6.8%, to $1,398.1 million compared with net sales of $1,308.9
million for the nine months ended September 30, 1998. Excluding the sales of
Liebhardt Mills, which was acquired during the fourth quarter of 1998, net sales
increased approximately 3.8%. The increase in net sales resulted primarily from
higher unit volume in the 1999 period compared with the 1998 period and the
acquisition of Liebhardt Mills.
GROSS EARNINGS/MARGINS. Gross earnings for the nine months ended September 30,
1999 of $375.5 million increased $28.3 million, or 8.1%, compared with $347.2
million for the same period of 1998 and reflect gross margins of 26.9% in the
1999 period and 26.5% in the 1998 period. Gross earnings and margins increased
in the first nine months of 1999 primarily as a result of the increase in unit
volume and a better mix of products sold.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased $12.4 million, or 7.2%, in the first nine months of 1999 compared with
the same period last year, and as a percentage of net sales represent 13.1% in
both the 1999 and 1998 periods. The increase in selling, general and
administrative expenses in the first nine months of 1999 was due primarily to
the acquisition of Liebhardt Mills along with higher warehousing/shipping
expense related to the higher unit volume.
Operating earnings for the nine months ended September 30, 1999 were $192.2
million, or 13.7% of sales, and increased $15.9 million, or 9%, compared with
operating earnings of $176.3 million, or 13.5% of sales, for the same period of
1998. The increase in operating earnings 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, 1999
of $75.7 million decreased $3.4 million compared with interest expense for the
nine months ended September 30, 1998. The decrease in interest expense was due
primarily to lower interest rates as a result of the refinancing transactions in
the second quarter of 1998 offset somewhat by higher average debt levels in the
1999 first nine months compared with the corresponding 1998 average debt levels.
OTHER EXPENSE, NET. Other expense, net in the first nine months of 1999 of $1.8
million increased $0.9 million compared with the 1998 period and consists
primarily of the amortization of deferred financing fees of $2.1 million in the
1999 period and $2.5 million in the 1998 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: NINE MONTHS ENDED SEPTEMBER 30, 1999 (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 BEFORE EXTRAORDINARY ITEM. Income before extraordinary item for the first
nine months of 1999 was $73.3 million, or $1.28 per share diluted, compared with
income before extraordinary item of $61.6 million, or $1.02 per share diluted,
for the same period of last year.
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT. 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. As a result of the financing transactions,
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 1999 was $73.3 million, or
$1.28 per share diluted, compared with net income of $11 million, or $.18 per
share diluted, for the same period of last year.
Diluted per share amounts are based on 57.3 million and 60.4 million average
shares outstanding for the 1999 and 1998 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 October 30,
1999, the maximum commitment under the Senior Credit Facility was $800 million
and the Company had unused borrowing availability under the Senior Credit
Facility totaling approximately $382 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. During
the second quarter of 1999, the Company increased availability under the Senior
Credit Facility from $575 million to $800 million. The conditions of the
increased revolver continue as previously stated, including the revolver
expiration date of November 30, 2004. The increased borrowing availability is to
support the Company's growth plans and strategy in the future, if required.
The Company's principal uses of cash for the next several years will be
operating expenses, capital expenditures, stock repurchases and debt service
requirements related primarily to interest payments. The Company spent
approximately $147.5 million in 1998 on capital expenditures and intends to
invest approximately $152 million in 1999. The Board of Directors approved the
payment of quarterly cash dividends of $.02 per share, which were paid on June
1, 1999 and September 1, 1999 totaling approximately $2.3 million, and has
approved the payment of a quarterly cash dividend of $.02 per share payable on
December 1, 1999 to shareholders of record as of November 15, 1999.
During the first nine months of 1999, the Company purchased approximately 3.4
million shares under its various stock repurchase programs, at an average price
of $26.46 per share. In September 1999, the Board of Directors approved the
purchase of up to four million additional shares of the Company's common stock,
subject to the Company's debt limitations, which brings the total shares that
have been approved for purchase to twenty-three million shares. At September 30,
1999, approximately 5.5 million shares remained to be purchased under these
programs representing approximately 10.2% of the outstanding shares.
On October 29, 1999, the Company commenced a tender offer for up to 3,000,000
shares of its common stock, representing approximately 6% of the outstanding
shares of the Company. The offer is being made by means of a "Dutch Auction" in
which WestPoint stockholders have the opportunity to sell a portion or all of
their shares to WestPoint at a price of not greater than $22.00 nor less than
$19.00 per share. The offer will expire at 5:00 P.M., New York City time, on
Tuesday, November 30, 1999, unless extended by WestPoint. Neither the Company
nor the Board of Directors of the Company is making any recommendation to
shareholders as to whether they should tender any shares pursuant to the offer.
None of the directors or executive officers of the Company intend to tender
shares pursuant to the offer.
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)
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, 1999 and December 31, 1998, $155 million and
$145 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 1999
is estimated to total approximately $7.8 million, compared with $6.5 million in
1998, and will be charged to selling, general and administrative expenses.
Debt service requirements for interest payments in 1999 are estimated to total
approximately $103.6 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $107.7 million in 1998. The
Company's long-term indebtedness has no scheduled principal payment requirement
during 1999.
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, operating expenses and stock
repurchases 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------------------------------
<S> <C>
10.1 Letter Amendment Agreement, dated as of August 31, 1999, 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, 1999.
20
<PAGE> 21
WESTPOINT STEVENS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WESTPOINT STEVENS INC.
----------------------
Registrant
/s/ Morgan M. Schuessler
-----------------------------------------
Morgan M. Schuessler
Executive Vice President-Finance
and Chief Financial Officer
Date: November 12, 1999
21
<PAGE> 22
WESTPOINT STEVENS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Number
- ------ ------
<S> <C> <C>
10.1 Letter Amendment Agreement, dated as of
August 31, 1999, 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>
22
<PAGE> 1
EXHIBIT 10.1
August 31, 1999
WESTPOINT STEVENS INC.
507 West Tenth Street
West Point, Georgia 31833
Attention: Mr. Morgan M. Schuessler
Re: Revision of Definition of "Maximum Restricted Payment Amount"
and Minimum Net Worth Covenant
Dear Sirs:
Reference is made to that certain Second Amended and Restated Credit Agreement,
dated as of June 9, 1998, among WestPoint Stevens Inc. ("Borrower"), WestPoint
Stevens (UK) Limited and WestPoint Stevens (Europe) Limited (the "Foreign
Borrowers"), the various banks and lending institutions party thereto (the
"Banks"), and NationsBank, N.A. as agent (now known as Bank of America, N.A.,
the "Agent") for the Banks (as amended from time to time, the "Credit
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Credit Agreement.
By their signatures below, the Borrower, the Foreign Borrowers and the Required
Banks hereby agree that the existing definition of "Maximum Restricted Payment
Amount" in Section 1.1 of the Credit Agreement shall be amended to read in its
entirety as follows:
"Maximum Restricted Payment Amount" means the sum of (i)
$251,374,000, plus (ii) 50% of the Consolidated Net Income from and
after September 30, 1999 until any relevant measurement date, plus
(iii) the Net Cash Proceeds received by the Borrower from the exercise
of stock warrants or options by current or former employees or
directors of the Borrower in respect of Capital Stock of the Borrower
from and after June 30, 1999.
By their signatures below, the Borrower, the Foreign Borrowers and the Required
Banks hereby agree that Section 7.11(a) be amended to read in its entirety as
follows:
<PAGE> 2
WestPoint Stevens, Inc.
August 31, 1999
Page 2
Minimum Consolidated Net Worth. Have a Consolidated Net Worth as of the
last day of each fiscal quarter of not less than (i) $90,000,000, (ii)
increased on a cumulative basis as of the end of each fiscal quarter of the
Consolidated Parties, commencing with the fiscal quarter ending June 30,
1998, by an amount equal to forty percent (40%) of Consolidated Net Income
(to the extent positive) for the fiscal quarter then ended, and (iii)
further increased on a cumulative basis by fifty percent (50%) of
Consolidated Net Income (to the extent positive) for the period October 1,
1998 through September 30, 1999.
By their signatures below, each of the Subsidiary Guarantors acknowledges and
consents to this revision in the definition of "Maximum Restricted Payment
Amount" and this amendment to section 7.11(a). Each Subsidiary Guarantor agrees
that these modifications to the Credit Agreement do not operate to reduce or
discharge any of such Subsidiary's obligations under any of the Collateral
Documents.
Until this letter agreement shall have been executed by the Borrower, the
Foreign Borrowers, the Subsidiary Guarantors, and the Required Banks, it shall
not be effective in revising the definition of "Maximum Restricted Payment
Amount" or section 7.11(a) of the Credit Agreement. Except for the revision to
the definition of "Maximum Restricted Payment Amount" and the amendment to
section 7.11(a), each effected hereby upon the execution of this letter
agreement by the Borrower, the Foreign Borrowers, the Subsidiary Guarantors,
and the Required Banks, the Credit Agreement shall remain in full force and
effect.
Please execute this letter agreement and cause each of the Foreign Borrowers
and the Subsidiary Guarantors to execute this letter agreement, and return such
completed signature pages to the Agent at your earliest convenience.
Sincerely,
BANK OF AMERICA, N.A., formerly
known as NationsBank, N.A., in its
capacity as the Agent
By: /s/ David H. Dinkins
-------------------------------------
DAVID H. DINKINS
Title: Vice President
---------------------------------
ACKNOWLEDGED AND AGREED:
WESTPOINT STEVENS INC.
By: /s/ Morgan M. Schuessler
------------------------------------
Morgan M. Schuessler
Title: Executive Vice President-Finance &
Chief Financial Officer
----------------------------------
[Signatures Continued]
<PAGE> 3
WestPoint Stevens Inc.
August 31, 1999
Page 3
WESTPOINT STEVENS (UK) LIMITED
By: Morgan M. Schuessler
---------------------------------------
Morgan M. Schuessler
Title: Director, Vice President & Treasurer
------------------------------------
WESTPOINT STEVENS (EUROPE) LIMITED
By: Morgan M. Schuessler
---------------------------------------
Morgan M. Schuessler
Title: Director, Vice President & Treasurer
------------------------------------
WESTPOINT STEVENS STORES, INC.
By: Morgan M. Schuessler
---------------------------------------
Morgan M. Schuessler
Title: Vice President & Treasurer
------------------------------------
J.P. STEVENS & CO., INC.
By: Morgan M. Schuessler
---------------------------------------
Morgan M. Schuessler
Title: Vice President & Treasurer
------------------------------------
WESTPOINT-PEPPERELL ENTERPRISES, INC.
By: Edward J. Jones
---------------------------------------
Edward J. Jones
Title: Vice President & Assistant Treasurer
------------------------------------
J.P. STEVENS ENTERPRISES, INC.
By: Edward J. Jones
---------------------------------------
Edward J. Jones
Title: Vice President & Assistant Treasurer
------------------------------------
[Signatures Continued]
<PAGE> 4
WestPoint Stevens Inc.
August 31, 1999
Page 4
LIEBHARDT, INC.
By: Morgan M. Schuessler
-------------------------------------
Morgan M. Schuessler
Title: Vice President & Treasurer
----------------------------------
BANK OF AMERICA, N.A.,
formerly known as NationsBank, N.A., as a Bank
By: David H. Dinkins
-------------------------------------
DAVID H. DINKINS
Title: Vice President
----------------------------------
THE BANK OF NEW YORK
By: Robert Santoriello
-------------------------------------
Robert Santoriello
Title: Assistant Vice President
----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: James F. Gable
-------------------------------------
Title: ASSISTANT VICE PRESIDENT
----------------------------------
SCOTIABANC INC.
By: William E. Zarrett
-------------------------------------
William E. Zarrett
Title: Senior Relationship Manager
----------------------------------
[Signatures Continued]
<PAGE> 5
WestPoint Stevens Inc.
August 31, 1999
Page 5
WACHOVIA BANK, N.A.
By: /s/
----------------------------------------
Title: Senior Vice President
-------------------------------------
SOCIETE GENERALE
By:
-----------------------------------------
Title:
--------------------------------------
ABN AMRO BANK, N.V.
By:
-----------------------------------------
Title:
--------------------------------------
SUNTRUST BANK, ATLANTA
By: /s/ Laura Kahn
----------------------------------------
LAURA KAHN
Title: DIRECTOR, SENIOR RELATIONSHIP MANAGER
-------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
FIRST UNION NATIONAL BANK
By: /s/
----------------------------------------
Title: SVP
-------------------------------------
[Signatures Continued]
<PAGE> 6
WestPoint Stevens Inc.
August 31, 1999
Page 6
FLEET BANK, N.A.
By: /s/
------------------------------------
Title: Vice President
---------------------------------
AMSOUTH BANK
By: /s/
------------------------------------
Title: Vice President
---------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
NATIONAL WESTMINSTER BANK PLC
By:
------------------------------------
Title:
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 130,701
<ALLOWANCES> 19,721
<INVENTORY> 436,666
<CURRENT-ASSETS> 567,944
<PP&E> 1,280,380
<DEPRECIATION> 489,182
<TOTAL-ASSETS> 1,504,760
<CURRENT-LIABILITIES> 382,013
<BONDS> 1,275,000
0
0
<COMMON> 711
<OTHER-SE> (494,490)
<TOTAL-LIABILITY-AND-EQUITY> 1,504,760
<SALES> 1,398,102
<TOTAL-REVENUES> 1,398,102
<CGS> 1,022,579
<TOTAL-COSTS> 1,022,579
<OTHER-EXPENSES> 1,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,662
<INCOME-PRETAX> 114,743
<INCOME-TAX> 41,400
<INCOME-CONTINUING> 73,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,343
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.28
</TABLE>
