<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, 2000
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 August 8, 2000: 49,670,667 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, 2000 (Unaudited) and
December 31, 1999 3
Condensed Consolidated Statements of
Operations (Unaudited); Three and
Six Months Ended June 30, 2000
and June 30, 1999 4
Condensed Consolidated Statements of Cash
Flows (Unaudited); Six Months
Ended June 30, 2000 and
June 30, 1999 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) (Unaudited);
Six Months Ended June 30, 2000 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ........................ $ 587 $ 162
Accounts receivable .............................. 126,487 85,419
Inventories ...................................... 429,674 448,887
Prepaid expenses and other current assets ........ 11,527 13,842
------------ ------------
Total current assets .................................. 568,275 548,310
Property, Plant and Equipment, net .................... 769,505 840,712
Other Assets
Deferred financing fees .......................... 18,118 19,362
Prepaid pension and other assets ................. 71,760 62,857
Goodwill ......................................... 46,782 69,433
------------ ------------
$ 1,474,440 $ 1,540,674
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility ........................... $ 217,108 $ 89,803
Accrued interest payable ......................... 5,067 4,336
Trade accounts payable ........................... 63,907 94,036
Other accounts payable and accrued liabilities ... 130,437 127,059
------------ ------------
Total current liabilities ............................. 416,519 315,234
Long-Term Debt ........................................ 1,475,000 1,375,000
Noncurrent Liabilities
Deferred income taxes ............................ 241,037 284,003
Other liabilities ................................ 61,714 64,457
------------ ------------
Total noncurrent liabilities .......................... 302,751 348,460
Stockholders' Equity (Deficit) ........................ (719,830) (498,020)
------------ ------------
$ 1,474,440 $ 1,540,674
============ ============
</TABLE>
See accompanying notes
3
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WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................................... $ 462,039 $ 453,520 $ 909,854 $ 895,037
Cost of goods sold .......................... 408,741 335,238 740,126 663,276
---------- ---------- ---------- ----------
Gross earnings ......................... 53,298 118,282 169,728 231,761
Selling, general and
administrative expenses ................. 61,621 61,907 124,170 126,092
Restructuring and impairment charge ......... 95,876 -- 95,876 --
---------- ---------- ---------- ----------
Operating earnings (loss) .............. (104,199) 56,375 (50,318) 105,669
Interest expense ............................ 30,236 25,140 59,263 49,394
Other expense, net .......................... 5,799 585 6,328 1,175
---------- ---------- ---------- ----------
Income (loss) before income tax
expense (benefit) ................ (140,234) 30,650 (115,909) 55,100
Income tax expense (benefit) ................ (50,450) 11,075 (41,675) 19,900
---------- ---------- ---------- ----------
Net income (loss) ...................... $ (89,784) $ 19,575 $ (74,234) $ 35,200
========== ========== ========== ==========
Basic net income (loss) per
common share ........................... $ (1.81) $ .35 $ (1.50) $ .63
========== ========== ========== ==========
Diluted net income (loss) per
common share ........................... $ (1.81) $ .34 $ (1.50) $ .61
========== ========== ========== ==========
Basic average common shares outstanding ..... 49,592 55,737 49,613 55,727
Dilutive effect of stock options
and stock bonus plan ............. -- 1,919 -- 1,822
---------- ---------- ---------- ----------
Diluted average common shares outstanding ... 49,592 57,656 49,613 57,549
========== ========== ========== ==========
</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,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (74,234) $ 35,200
Adjustment to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and other amortization .................. 41,188 44,387
Deferred income taxes ................................ (42,556) 17,812
Changes in working capital ........................... (49,764) (90,313)
Other - net .......................................... (8,850) (1,947)
Restructuring and impairment charge .................. 95,876 --
---------- ----------
Net cash provided by (used for) operating activities ............ (38,340) 5,139
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (32,383) (39,657)
Net proceeds from sale of assets ........................... 402 227
---------- ----------
Net cash used for investing activities ........................ (31,981) (39,430)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrows .............................................. 835,735 462,810
Repayments ........................................... (608,430) (394,914)
Net proceeds from Trade Receivables Program ................ (3,000) --
Purchase of common stock for treasury ...................... (61,203) (36,515)
Proceeds from issuance of stock ............................ 8,891 3,706
Cash dividends paid ........................................ (101,247) (1,141)
---------- ----------
Net cash provided by financing activities ....................... 70,746 33,946
---------- ----------
Net increase (decrease) in cash and cash equivalents ............ 425 (345)
Cash and cash equivalents at beginning of period ................ 162 527
---------- ----------
Cash and cash equivalents at end of period ...................... $ 587 $ 182
========== ==========
</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
EXCESS OF TREASURY STOCK
COMMON PAR -----------------------
SHARES VALUE SHARES AMOUNT
------ ----------- -------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 2000 ............. 71,100 $361,504 (18,859) $(363,972)
Comprehensive income:
Net income ................... -- -- -- --
Foreign currency
translation adjustment ...
Comprehensive income ............
Exercise of management
stock options including
tax benefit .................. -- 4,148 754 5,251
Issuance of stock pursuant
to Stock Bonus Plan
including tax expense ........ -- 1,858 248 2,602
Amortization of
compensation ................. -- -- -- --
Purchase of treasury shares ..... -- -- (3,573) (61,203)
Cash dividends .................. -- -- -- --
Stock dividends pursuant
to Stock Bonus Plan .......... -- -- -- --
------ -------- -------- ---------
Balance, June 30, 2000 ............... 71,100 $367,510 (21,430) $(417,322)
====== ======== ======== =========
<CAPTION>
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE UNEARNED
DEFICIT INCOME (LOSS) COMPENSATION TOTAL
----------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, January 1, 2000 ............. $(484,378) $ (2,112) $ (9,062) $ (498,020)
Comprehensive income:
Net income ................... (74,234) -- -- (74,234)
Foreign currency
translation adjustment ... 80 80
----------
Comprehensive income ............ (74,154)
----------
Exercise of management
stock options including
tax benefit .................. -- -- -- 9,399
Issuance of stock pursuant
to Stock Bonus Plan
including tax expense ........ -- -- -- 4,460
Amortization of
compensation ................. -- -- 937 937
Purchase of treasury shares ..... -- -- -- (61,203)
Cash dividends .................. (101,247) -- -- (101,247)
Stock dividends pursuant
to Stock Bonus Plan .......... (2) -- -- (2)
--------- -------- -------- ----------
Balance, June 30, 2000 ............... $(659,861) $ (2,032) $ (8,125) $ (719,830)
========= ======== ======== ==========
</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
only 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, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000. 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, 1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. 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, 2000 and December 31, 1999
(in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Finished goods $ 190,310 $ 203,364
Work in progress 180,778 188,778
Raw materials and supplies 58,586 60,164
LIFO reserve -- (3,419)
---------- ----------
$ 429,674 $ 448,887
========== ==========
</TABLE>
7
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS
Indebtedness is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Short-term indebtedness:
Senior Credit Facility $ 217,108 $ 89,803
========== ==========
Long-term indebtedness:
Senior Credit Facility $ 475,000 $ 375,000
7 7/8% Senior Notes due 2005 525,000 525,000
7 7/8% Senior Notes due 2008 475,000 475,000
---------- ----------
$1,475,000 $1,375,000
========== ==========
</TABLE>
The Company has included $475 million of Revolver in long-term debt at June 30,
2000 because the Company intends that at least that amount would remain
outstanding during the next twelve months.
On June 30, 2000 and December 31, 1999, $151.0 million and $154.0 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.
5. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGE
On June 28, 2000 the Company announced that its Board of Directors had approved
the new Eight Point Program, which was created to be the guiding discipline for
the Company in a global economy. The Board also approved a $195 million pre-tax
restructuring, impairment and other charge ($125 million net of taxes) to cover
the cost of implementing the program in the second, third and fourth quarters of
2000. The Eight Point Program addresses the following points: 1) rationalize
manufacturing; 2) reduce overhead; 3) increase global sourcing; 4) improve
inventory utilization; 5) enhance supply chain and logistics; 6) expand brands;
7) explore new licensing opportunities; and 8) improve capital structure.
8
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WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGE (CONTINUED)
During the second quarter of 2000 the Company conducted an intense evaluation of
its manufacturing process flow and capacity and how they relate to market
demand. The Company adopted a plan to close certain manufacturing plants and
consolidate manufacturing operations in an arrangement that will reduce costs
and enable more efficient production. The Company also evaluated its internal
support and administrative functions and adopted a plan to consolidate as well
as outsource certain internal support and administrative functions.
The cost of the manufacturing rationalization and certain overhead reduction
costs were reflected in a restructuring and impairment charge of $95.9 million,
before taxes, in the second quarter of 2000. The components of the restructuring
and impairment charge included $64.2 million for the impairment of fixed assets,
$23.7 million for the impairment of goodwill and other assets and $8 million in
reserves to cover cash expenses related to severance benefits of $4.6 million
and other exit costs including lease terminations of $3.4 million.
The following is a summary of activity in the related reserves (in millions):
<TABLE>
<CAPTION>
OTHER EXIT
SEVERANCE COSTS AND LEASE
BENEFITS TERMINATIONS
--------- ---------------
<S> <C> <C>
Second Quarter Restructuring and Impairment Charge $ 4.6 $ 3.4
Payments (1.1) --
------ -----
Balance at June 30, 2000 $ 3.5 $ 3.4
====== =====
</TABLE>
During the second quarter of 2000 other expenses related to the Eight Point
Program of $72.3 million, before taxes, were recognized including inventory
writedowns of $62.2 million and claims of $5 million both reflected in cost of
goods sold and other costs of $5.1 million reflected in other expense, net.
The Company expects to incur additional charges aggregating $26.8 million,
before taxes, during the third and fourth quarters of 2000 related to severance
benefits, relocation of machinery, training and other costs in connection with
the Eight Point Program.
9
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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 SIX MONTHS ENDED JUNE 30, 2000
The tables below present the Company's proforma operating results before
restructuring and actual results for the three and six months ended June 30,
2000 and June 30, 1999 (in thousands of dollars).
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------
2000 1999
-------------------------------------------- ----------
PROFORMA RESTRUCTURING
BEFORE AND OTHER
RESTRUCTURING ITEMS ACTUAL ACTUAL
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................................... $ 462,039 $ -- $ 462,039 $ 453,520
Cost of goods sold .......................... 341,538 67,203 408,741 335,238
---------- ---------- ---------- ----------
Gross earnings ........................ 120,501 (67,203) 53,298 118,282
Selling, general and administrative
expenses ................................. 61,621 -- 61,621 61,907
Restructuring and impairment charge ......... -- 95,876 95,876 --
---------- ---------- ---------- ----------
Operating earnings (loss) ............. 58,880 (163,079) (104,199) 56,375
Interest expense ............................ 30,236 -- 30,236 25,140
Other expense, net .......................... 679 5,120 5,799 585
---------- ---------- ---------- ----------
Income (loss) before income
tax expense (benefit) ............. 27,965 (168,199) (140,234) 30,650
Income tax expense (benefit) ................ 10,100 (60,550) (50,450) 11,075
---------- ---------- ---------- ----------
Net income (loss) ..................... $ 17,865 $ (107,649) $ (89,784) $ 19,575
========== ========== ========== ==========
Basic net income (loss) per common
share .................................... $ .36 $ (1.81) $ .35
========== ========== ==========
Diluted net income (loss) per common
share .................................... $ .36 $ (1.81) $ .34
========== ========== ==========
</TABLE>
10
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 2000 (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------
2000 1999
------------------------------------------ ----------
PROFORMA RESTRUCTURING
BEFORE AND OTHER
RESTRUCTURING ITEMS ACTUAL ACTUAL
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................................... $ 909,854 $ -- $ 909,854 $ 895,037
Cost of goods sold .......................... 672,923 67,203 740,126 663,276
---------- ---------- ---------- ----------
Gross earnings ........................ 236,931 (67,203) 169,728 231,761
Selling, general and administrative
expenses ................................. 124,170 -- 124,170 126,092
Restructuring and impairment charge ......... -- 95,876 95,876 --
---------- ---------- ---------- ----------
Operating earnings (loss) ............. 112,761 (163,079) (50,318) 105,669
Interest expense ............................ 59,263 -- 59,263 49,394
Other expense, net .......................... 1,208 5,120 6,328 1,175
---------- ---------- ---------- ----------
Income (loss) before income
tax expense (benefit) ............. 52,290 (168,199) (115,909) 55,100
Income tax expense (benefit) ................ 18,875 (60,550) (41,675) 19,900
---------- ---------- ---------- ----------
Net income (loss) ..................... $ 33,415 $ (107,649) $ (74,234) $ 35,200
========== ========== ========== ==========
Basic net income (loss) per common
share .................................... $ .67 $ (1.50) $ .63
========== ========== ==========
Diluted net income (loss) per common
share .................................... $ .67 $ (1.50) $ .61
========== ========== ==========
</TABLE>
11
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WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 2000 (CONTINUED)
IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES. As a result of a strategic review
of the Company's businesses, manufacturing and other facilities, and products in
the second quarter of 2000 the Company's Board of Directors approved a $195
million pre-tax charge ($125 million net of tax) to cover the cost of
implementing an Eight Point Program that is designed to streamline operations
and improve profitability. The total amount of the charges recorded in the
second quarter of 2000 was $168.2 million. Of this total, $67.2 million was
reflected in cost of goods sold, the majority of which reflected inventory
write-offs and $5.0 million in reserves for accounts receivable. Another $95.9
million reflected a reduction in goodwill and fixed assets in addition to
severance benefits and other exit costs. Lastly, a $5.1 million charge to other
expense reflected other related costs. The Company estimates the implementation
of the Eight Point Program will generate annual savings of $29 million pre-tax.
(See Note 5 in Notes to Condensed Consolidated Financial Statements.)
NET SALES. Net sales for the three months ended June 30, 2000, increased $8.5
million, or 1.9%, to $462.0 million compared with net sales of $453.5 million
for the three months ended June 30, 1999 primarily as a result of growth in unit
volume. Excluding Star Wars related promotional sales of $15.3 million in 1999,
ongoing revenues increased 5.4% led by growth in revenues in the Liebhardt Mills
basic bedding division, blankets and sheets, as well as a modest improvement in
towels and sales growth at Company owned retail stores.
GROSS EARNINGS/MARGINS. Excluding charges associated with the Eight Point
Program, gross earnings for the three months ended June 30, 2000 increased $2.2
million, or 1.9%, to $120.5 million compared with $118.3 million for the same
period of 1999 and reflect gross margins of 26.1% in both the 2000 and 1999
periods. Gross earnings increased primarily as a result of the increase in sales
volume. Gross margins were flat as lower cotton costs were offset by a less
favorable product mix coupled with increases in other manufacturing costs.
Included in the cost of goods sold in the second quarter of 2000 are charges
associated with the Eight Point Program of $67.2 million, the majority of which
reflected inventory write-offs and $5 million in reserves for accounts
receivable. Including the charges, gross earnings for the three months ended
June 30, 2000 decreased $65.0 million, or 54.9%, to $53.3 million compared with
$118.3 million for the same period of 1999.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
decreased $286,000, or 0.5%, in the second quarter of 2000 compared with the
same period of last year, and as a percentage of net sales represent 13.3% in
the 2000 period and 13.7% in the 1999 period. The decrease in selling, general
and administrative expenses in the second quarter of 2000 was primarily due to
continued cost reduction efforts.
12
<PAGE> 13
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, 2000 (CONTINUED)
Before charges associated with the Eight Point Program, operating earnings for
the second quarter of 2000 increased 4.4% to $58.9 million, or 12.7% of sales,
compared with operating earnings of $56.4 million, or 12.4% of sales, for the
same period in 1999. The increase in operating earnings resulted from the
increase in gross earnings and the decrease in selling, general and
administrative expenses discussed above. Operating earnings for the three months
ended June 30, 2000, with the charges, were a loss of $104.2 million, compared
to $56.4 million in the same period of 1999. A separate line item reflected a
$95.9 million reduction in goodwill and fixed assets in addition to severance
benefits and other exit costs.
INTEREST EXPENSE. Interest expense for the three months ended June 30, 2000 of
$30.2 million increased $5.1 million compared with the interest expense of $25.1
million for the three months ended June 30, 1999. The increase was due primarily
to higher interest rates on the Company's variable rate bank debt and higher
average debt levels in the second quarter of 2000 compared with corresponding
1999 average debt levels.
OTHER EXPENSE, NET. Other expense, net consisted primarily of the amortization
of deferred financing fees of $0.8 million in 2000 and $0.7 million in 1999,
less certain miscellaneous income items in both periods.
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, before charges associated with the Eight Point Program,
decreased $1.7 million, or 8.7%, to $17.9 million, or $0.36 per share diluted,
from $19.6 million, or $0.34 per share diluted, in the same period of last year.
After the charges, net income for the second quarter of 2000 was a loss of $89.8
million, or ($1.81) per share diluted, compared with net income of $19.6
million, or $0.34 per share diluted, for the same period of last year.
Diluted per share amounts are based on 49.6 million and 57.6 million average
shares outstanding for the 2000 and 1999 periods, respectively. The decrease in
average shares outstanding was primarily the result of the purchase by the
Company of shares under the stock repurchase programs.
13
<PAGE> 14
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, 2000 (CONTINUED)
NET SALES. Net sales for the six months ended June 30, 2000, increased $14.8
million, or 1.7%, to $909.9 million compared with net sales of $895.0 million
for the six months ended June 30, 1999. The increase in net sales resulted
primarily from increases in sales from sheets, accessories, blankets and the
Company owned retail stores.
GROSS EARNINGS/MARGINS. Excluding charges associated with the Eight Point
Program, gross earnings for the six months ended June 30, 2000 increased $5.2
million, or 2.2%, to $236.9 million compared with $231.8 million for the same
period of 1999 and reflect margins of 26.0% in the 2000 period and 25.9% in the
1999 period. Gross earnings and margins increased primarily as a result of
favorable cotton costs and additional sales volume in blankets and Company owned
retail stores. Gross earnings for the six months ended June 30, 2000, after the
charges, decreased $62.0 million, or 26.8%, to $169.7 million compared with
$231.8 million for the same period of 1999.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
decreased by $1.9 million, or 1.5%, in the first six months of 2000 compared
with the same period of last year, and as a percentage of net sales represent
13.6% in the 2000 period and 14.1 % in the 1999 period. The decrease in selling,
general and administrative expenses in the first six months of 2000 was
primarily due to continued cost reduction efforts.
Before charges associated with the Eight Point Program, operating earnings for
the six months ended June 30, 2000 increased 6.7% to $112.8 million, or 12.4% of
sales, compared with operating earnings of $105.7 million, or 11.8% of sales,
for the same period in 1999. The increase in operating earnings resulted from
the increase in gross earnings and the decrease in selling, general and
administrative expenses discussed above. Including charges associated with the
Eight Point Program, operating earnings for the first six months of 2000 were a
loss of $50.3 million, compared to $105.7 million in the same period of 1999. A
separate line item reflected a $95.9 million reduction in goodwill and fixed
assets in addition to severance benefits and other exit costs.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 2000 of
$59.3 million increased $9.9 million compared with the interest expense of $49.4
million for the six months ended June 30, 1999. The increase was due primarily
to higher interest rates on the Company's variable rate bank debt and higher
average debt levels in the first six months of 2000 compared with corresponding
1999 average debt levels.
OTHER EXPENSE, NET. Other expense, net consisted primarily of the amortization
of deferred financing fees of $1.5 million in 2000 and $1.4 million in 1999,
less certain miscellaneous income items in both periods.
14
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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: SIX MONTHS ENDED JUNE 30, 2000 (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. Before charges associated with the Eight Point Program, net income
decreased $1.8 million, or 5.1%, to $33.4 million, or $0.67 per share diluted,
from $35.2 million, or $0.61 per share diluted, in the same period of last year.
Net income for the first six months of 2000, including the charges, was a loss
of $74.2 million, or ($1.50) per share diluted, compared with net income of
$35.2 million, or $0.61 per share diluted, for the same period of last year.
Diluted per share amounts are based on 49.6 million and 57.5 million average
shares outstanding for the 2000 and 1999 periods, respectively. The decrease in
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.
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 August 4,
2000, 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 $108 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).
15
<PAGE> 16
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'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 $148.6 million
in 1999 on capital expenditures and intends to invest approximately $75 million
in 2000. The Board of Directors approved the payment of a quarterly cash
dividend of $.02 per share which was paid on March 1, 2000 and June 1, 2000 plus
a special dividend of $2.00 per share which was paid on June 1, 2000 totaling
approximately $101.2 million.
During the first six months of 2000, the Company purchased approximately 3.6
million shares under its various stock repurchase programs, at an average price
of $17.13 per share. The Board of Directors has approved the purchase of up to
twenty-seven million shares of the Company's common stock, subject to the
Company's debt limitations. At June 30, 2000, approximately 3.9 million shares
remained to be purchased under these programs.
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, 2000 and December 31, 1999, $151 million and $154
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 2000
is estimated to total approximately $8.7 million, compared with $8.8 million in
1999, and will be charged to selling, general and administrative expenses.
Debt service requirements for interest payments in 2000 are estimated to total
approximately $120 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $104.1 million in 1999. The
Company's long-term indebtedness has no scheduled principal payment requirement
during 2000.
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 to
enable it to meet its anticipated debt service requirements.
16
<PAGE> 17
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 14, 2000, seven individual suits, entitled Matthew Lubrano v.
WestPoint Stevens Inc., et al., Crandon Capital Partners v. Holcombe T. Green,
et al., John McMullen v. WestPoint Stevens Inc., et al., David Frankel v. M.
Katherine Dwyer, et al., Norman Geller v. WestPoint Stevens Inc., et al., Pal
Green v. WestPoint Stevens Inc., et al., and Whitney Smith v. WestPoint Stevens
Inc., et al. were filed against the Company and certain of its directors in the
Court of Chancery of the State of Delaware in and for New Castle County,
challenging, on various legal grounds, a proposal from Holcombe T. Green, Jr.,
Chairman and Chief Executive Officer of the Company, and certain affiliates to
acquire the Company in a leveraged buyout transaction. On May 19, 2000 the
Company announced that the proposed transaction had been cancelled. The Company
believes that the allegations contained in the complaints are without merit and
intends to contest the action vigorously on behalf of itself and its directors.
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 rededication 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.
17
<PAGE> 18
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders was held on June 29, 2000. At
the 2000 Annual Meeting, the following matters were voted upon by the
stockholders:
1. Election of two directors to serve for a term of three years.
2. Approval of the WestPoint Stevens Inc. Omnibus Stock Incentive
Plan (as amended).
3. Approval of the WestPoint Stevens Inc. Senior Management
Incentive Plan.
4. Ratification of appointment of Ernst & Young LLP, independent
certified public accountants, as auditors of the Company for
fiscal 2000.
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>
Holcombe T. Green, Jr. 36,107,183 3,027,406
John F. Sorte 36,978,204 2,156,385
</TABLE>
2. Approval of the WestPoint Stevens Inc. Omnibus Stock Incentive
Plan (as amended)
<TABLE>
<CAPTION>
For Against Abstain
---------- --------- -------
<S> <C> <C>
31,512,831 7,263,252 358,506
</TABLE>
3. Approval of the WestPoint Stevens Inc. Senior Management
Incentive Plan
<TABLE>
<CAPTION>
For Against Abstain
---------- --------- -------
<S> <C> <C>
36,216,662 2,414,685 503,242
</TABLE>
4. Appointment of Ernst & Young LLP
<TABLE>
<CAPTION>
For Against Abstain
---------- --------- -------
<S> <C> <C>
38,771,919 316,406 46,264
</TABLE>
18
<PAGE> 19
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 Third Amendment dated as of May 30, 2000, among the Company,
WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
Limited, NationsBank, N.A. as agent and the other financial
institutions party thereto.
10.2 WestPoint Stevens Inc. Omnibus Stock Incentive Plan (As
Amended), incorporated by reference to the Company's 2000
Proxy Statement (Commission File No. 0-21496) filed by the
Company with the Commission.
27 Financial Data Schedule (for SEC use only)
</TABLE>
b.) The Company filed a Current Report on Form 8-K dated April 5, 2000,
announcing that its Annual Meeting of Stockholders, scheduled to be
held on May 10, 2000, had been postponed in order to prepare for a
Special Meeting of Stockholders, to be scheduled at a later date, for
the purpose of considering and voting on a proposal to adopt and
approve the Plan of Recapitalization announced on March 24, 2000.
The Company filed a Current Report on Form 8-K dated May 24, 2000,
announcing that its Board of Directors had voted to terminate its Plan
of Recapitalization, that its Board had stopped the Company's
exploration of strategic alternatives previously announced, that the
Board had declared a special dividend of $2.00 per share in addition to
the regular dividend of $.02 per share, that the Board approved the
resumption of its open-market share repurchase program with
authorization to purchase up to 3.9 million shares of Company common
stock, and that the Company's Annual Meeting of Stockholders had been
rescheduled for June 29, 2000.
The Company filed a Current Report on Form 8-K dated June 30, 2000,
announcing that its Board approved a projected new Eight Point Program
and a $195 million pre-tax restructuring charge to cover the cost of
implementing the Eight Point Program in the second, third and fourth
quarters of 2000.
19
<PAGE> 20
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
hereunto duly authorized.
WESTPOINT STEVENS INC.
--------------------------------
REGISTRANT
/s/ David C. Meek
--------------------------------
David C. Meek
Executive Vice President-Finance
and Chief Financial Officer
Date: August 14, 2000
20
<PAGE> 21
WESTPOINT STEVENS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
------ ------
<S> <C> <C>
10.1 Third Amendment Agreement dated as of May 30, 2000, among the
Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
(Europe) Limited, NationsBank, N.A. as agent and the other
financial institutions party thereto.
10.2 WestPoint Stevens Inc. Omnibus Stock Incentive Plan (As
Amended), incorporated by reference to the Company's 2000
Proxy Statement (Commission File No. 0-21496) filed by the
Company with the Commission.
27 Financial Data Schedule (for SEC use only)
</TABLE>
21
