FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 1-11438
WORLDTEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1789271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
212 12th Avenue, N.E., Hickory, North Carolina 28601
(Address of principal executive offices) (Zip Code)
(704) 328-5381
(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 ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Date Class Shares Outstanding
---- ----- ------------------
<S> <C> <C>
September 30, 1996 Common Stock 14,473,271
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
INDEX
-----
Page Number
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PART I - Financial Information
<S> <C>
Consolidated Balance Sheets at September 30, 1
1996 (Unaudited) and December 31, 1995
Consolidated Statements of Income 2
(Unaudited) for the Nine Months and
Three Months Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows 3
(Unaudited) for the Nine Months Ended
September 30, 1996 and 1995
Notes to Consolidated Financial 4
Statements (Unaudited)
Management's Discussion and Analysis of 5-7
Financial Condition and Results of Operations
PART II - Other Information 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 5,291 $ 1,845
Accounts and notes receivable, less allowance for doubtful accounts of
$2,821 in 1996 and $2,623 in 1995 42,532 38,619
Inventories:
Raw materials 12,124 12,728
Work-in-process 6,018 5,429
Finished goods 15,009 15,503
Prepaid expenses and other current assets 1,267 1,756
--------- ---------
Total current assets 82,241 75,880
Property, plant and equipment, at cost:
Land 2,486 2,538
Buildings and leasehold improvements 30,682 29,729
Machinery and equipment 92,602 84,598
--------- ---------
125,770 116,865
Less accumulated depreciation and amortization 34,920 32,874
--------- ---------
Property, plant and equipment - net 90,850 83,991
Other assets 4,945 4,724
Cost in excess of net assets of acquired businesses, net of accumulated
amortization of $6,884 in 1996 and $6,126 in 1995 28,243 29,794
--------- ---------
$ 206,279 $ 194,389
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,496 $ 2,179
Accounts and notes payable - trade and other liabilities 28,992 25,510
Income taxes payable 1,628 3,045
--------- ---------
Total current liabilities 33,116 30,734
Long-term debt 73,497 69,441
Deferred income taxes 16,054 15,275
--------- ---------
Total liabilities 122,667 115,450
Stockholders' equity:
Preferred stock -- --
Common stock 147 147
Paid-in capital 29,918 29,913
Retained earnings 54,381 45,973
Cumulative foreign translation adjustment 98 3,817
Treasury stock, at cost (932) (911)
--------- ---------
Total stockholders' equity 83,612 78,939
Commitments and contingencies --------- ---------
$ 206,279 $ 194,389
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
UNAUDITED
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 155,189 $ 142,809 $ 50,150 $ 47,314
Cost of goods sold 126,200 118,117 41,186 39,496
----------- ----------- ----------- -----------
Gross profit 28,989 24,692 8,964 7,818
Selling & administration expense 11,536 10,988 3,588 3,524
----------- ----------- ----------- -----------
Operating profit 17,453 13,704 5,376 4,294
Interest expense (4,291) (4,074) (1,488) (1,551)
Other income (expense) - net 356 (256) 129 (171)
----------- ----------- ----------- -----------
Income before income taxes 13,518 9,374 4,017 2,572
Provision for income taxes 5,111 4,481 1,536 2,177
------------ ----------- ----------- -----------
Net income $ 8,407 $ 4,893 $ 2,481 $ 395
=========== =========== =========== ===========
Net income per share $ 0.58 $ 0.34 $ 0.17 $ 0.03
=========== =========== =========== ===========
Weighted average shares outstanding 14,620 14,558 14,669 14,613
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
UNAUDITED
Nine Months Ended
September 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,407 $ 4,893
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,534 4,238
Provision for losses on accounts receivable 274 598
Deferred income taxes 1,227 1,344
Change in assets and liabilities:
Accounts and notes receivable (5,441) (6,512)
Inventories (329) 3,171
Prepaid expenses and other current assets 431 (1,050)
Accounts and notes payable - trade and other current liabilities 3,496 1,379
Income taxes payable (1,245) (655)
-------- --------
Net cash provided by operating activities 11,354 7,406
-------- --------
Cash flows from investing activities:
Capital expenditures (12,837) (6,131)
Purchase of Fibrexa, S.A., net of cash acquired -- (4,045)
Other investing activities (123) (34)
-------- --------
Net cash used in investing activities (12,960) (10,210)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit arrangements 15,160 6,871
Payments under line of credit arrangements (14,572) (6,808)
Borrowings under revolving credit facility 94,700 37,610
Payments on revolving credit facility (83,380) (28,820)
Stock issued or (reacquired), net (16) --
Other debt payments and financing activities (6,754) (6,082)
-------- --------
Net cash provided by financing activities 5,138 2,771
-------- --------
Effects of exchange rate changes on cash (86) (74)
-------- --------
Net increase (decrease) in cash 3,446 (107)
Cash at beginning of year 1,845 3,151
-------- --------
Cash at end of period $ 5,291 $ 3,044
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,237 $ 4,524
======== ========
Income taxes $ 5,749 $ 2,481
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position and
results of operations for the interim periods reported hereon. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's annual report for the fiscal year ended
December 31, 1995. The December 31, 1995 amounts included in the financial
statements are derived from December 31, 1995 audited financial statements
and notes thereto.
See accompanying notes to consolidated financial statements.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Sales for the nine months ended September 30, 1996 were $155.2 million and
earnings were $8.4 million compared with sales of $142.8 million and earnings of
$4.9 million for the comparable period in 1995. Earnings per share were $.58 for
the 1996 nine month period compared with $.34 in 1995. Sales for the quarter
ended September 30, 1996 were $50.2 million and net income was $2.5 million
compared to sales of $47.3 million and net income of $.4 million for the
comparable 1995 period. Earnings per share were $.17 for the third quarter of
1996, compared to $.03 in the 1995 period.
The following table sets forth the percentages which certain income and expense
items bear to net sales:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Gross margin 18.7% 17.3% 17.9% 16.5%
Selling and administration expense 7.4% 7.7% 7.2% 7.4%
----- ----- ----- -----
Operating profit 11.3% 9.6% 10.7% 9.1%
Interest expense (2.8%) (2.8%) (3.0%) (3.3%)
Other income (expense) - net .2% (.2%) .3% .4%
----- ----- ----- -----
Income before income taxes 8.7% 6.6% 8.0% 5.4%
----- ----- ----- -----
</TABLE>
For the nine months ended September 30, 1996, sales increased by $12.4 million
or 8.7% compared to the nine months ended September 30, 1995. For the quarter
ended September 30, 1996, sales increased by $2.8 million or 6% compared to the
1995 quarter.
Sales from North American operations decreased 2.3% and increased 7% for the
nine months and the three months ended September 30, 1996 from the corresponding
periods in 1995. Sales from French operations increased 10.2% and 5.6% for the
nine months and three months ended September 30, 1996 from the corresponding
periods in 1995. Sales from South American operations, acquired by the Company
in April 1995, were 6.7% and 7.2% of consolidated sales for the nine months and
the three months ended September 30, 1996.
The volume decreases for the nine months of 1996 in North America resulted
primarily because of slower retail sales for pantyhose that contain covered yarn
and continued competitive pressures caused by excess capacity. The volume
improvement in North American sales for the three months ended September 30,
1996 over the prior year third quarter resulted primarily from the expansion
into non-panty hose end-uses. Sales from the French operations increased over
the prior year same period due primarily to increased demand at the retail level
for woven fabrics containing covered yarn. The continued expansion in end-use
applications has enabled the Company to increase sales in the European markets.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Gross profit margins increased primarily because the Company's fixed expenses
were spread over higher sales. The increase was also attributable to the margin
contributed by the Colombian operation which was acquired in April, 1995.
Selling and administrative expenses decreased as a percentage of net sales
because the fixed component of these expenses were spread over a higher sales
base.
Interest expense for the nine months ended September 30, 1996, increased due to
increased borrowings of revolving credit for capital requirements within the
U.S. operations and increased borrowings resulting from the acquisition of
Fibrexa. Interest expense for the three months ended September 30, 1996,
decreased due to lower interest rates resulting primarily from decreases in the
prime rate.
The Company had an effective income tax rate of 37.8% and 38.2% for the nine
months and the three months ended September 30, 1996 compared to 47.8% and 84.6%
for the same periods in 1995. In July 1995, the French parliament enacted a
provision increasing the tax rate from 33.33% to 36.67%. The 1995 quarter
included an increase to the beginning of the year deferred tax liability of $ .9
million and an increase to reflect the increase in taxes on current year income
of $ .4 million. These adjustments increased the 1995 effective tax rate by
approximately 13.6% for the nine months and 49.7% for the three months ended
September 30, 1995.
Liquidity; Capital Resources
- -----------------------------
The Company meets both its long-term and short-term liquidity needs through
internally generated funds and outside borrowings.
At September 30, 1996, $17.1 million was outstanding under the Company's
Revolving Credit Agreement and approximately $17.9 million was available for
future borrowings. In addition, Filix Lastex, S.A., Rubyco (1987), Inc., and
Fibrexa Ltda., had available approximately $17.5 million, $.5 million, and $1.7
million, respectively, under various bank lines of credit and overdraft
facilities. The most restrictive covenant of the Company's Credit Agreement and
Note Agreement limit short-term borrowings by the Company's subsidiaries to a
total of approximately $15.4 million at September 30, 1996. Worldtex believes
that these lines of credit, together with internally generated funds and access
to other financing sources, will provide sufficient liquidity for the Company's
expected short-term and long-term cash requirements.
Cash totaled $5.3 million at September 30, 1996, representing a net increase of
$3.4 million for the nine months then ended. Cash flows from operating
activities and from financing activities are the principal indicators of the
Company's liquidity. During the first nine months of 1996, $11.4 million was
generated from operating activities as a result of net income, adjusted for the
effects of depreciation and amortization and changes in the balances of
receivables, payables, inventories and other assets and liabilities. During the
first nine months of 1996, financing activities contributed $5.1 million,
reflecting routine borrowings and repayments under the Company's lines of credit
and revolving credit facility. During the first nine months of 1996, $13 million
was applied toward the purchase of additional equipment and other investing
activities, including the upgrading of certain equipment. The Company
anticipates that its capital expenditures during 1996 will aggregate
approximately $15.1 million, primarily for the purchase of equipment.
Working capital was $49.1 million at September 30, 1996, and $45.1 million at
December 31, 1995, reflecting an increase of $4 million and current ratios of
2.5 at September 30, 1996 and December 31, 1995.
A large customer of the Company's Regal subsidiary, Ithaca Industries, Inc.,
filed a prepackaged plan of reorganization under the Federal Bankruptcy Code on
October 8, 1996 in Wilmington, Delaware. Regal is owed $2.1 million from Ithaca
Industries, Inc. as of October 8, 1996. Under the terms of the plan, trade
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
creditors will be unimpaired and will be paid in full. Accordingly, the Company
contemplates that Regal will be paid in full, although the Company cannot
predict the course of such bankruptcy proceeding.
Worldtex is authorized to repurchase up to one million shares of common stock.
The Company purchased 3,500 shares during the three months ended September 30,
1996. A total of 191,300 shares have been purchased and are carried at cost as
Treasury Stock.
<PAGE>
WORLDTEX, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No. Description
----------- -----------
<S> <C>
11.1 Computation of net income per common and common
equivalent shares
27.1 Financial Data Schedule (filed with EDGAR only)
</TABLE>
(b) Reports on Form 8-K
During the quarter ended September 30, 1996, the Company did not file
any reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLDTEX, INC.
(Registrant)
Date November 13, 1996 By /s/ Richard J. Mackey
--------------------------------
Richard J. Mackey
Chairman of the Board
and Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11.1 Computation of Net Income per Common and Common
Equivalent Shares
27.1 Financial Data Schedule (filed with EDGAR only)
</TABLE>
WORLDTEX, INC.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 8,407 $ 4,893 $ 2,481 $ 395
============= ============= ============= =============
Shares:
Weighted average number of shares outstanding
14,474,848 14,475,571 14,473,419 14,475,571
Assumed exercise of options 145,644 82,072 195,569 137,859
------------- ------------- ------------- -------------
Total average number of common and common
equivalent shares used for primary
computation 14,557,643 14,668,988 14,613,430 14,620,492
============= ============= ============= =============
Primary earnings per share $ .58 $ .34 $ .17 $ .03
============= ============= ============= =============
Shares:
Weighted average number of shares outstanding 14,475,366 14,475,571 14,473,419 14,475,571
Assumed exercise of options 355,289 122,180 276,456 122,180
------------ ------------- ------------- -------------
Total average number of common and common
equivalent shares used for fully diluted
computation 14,830,137 14,597,751 14,749,875 14,597,751
============ ============= ============= =============
Fully diluted earnings per share $ .57 $ .34 $ .17 $ .03
============ ============= ============= =============
</TABLE>
Earnings per share are calculated based upon the weighted average number of
common shares outstanding and common equivalent shares during the year.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLDTEX,
INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,291
<SECURITIES> 0
<RECEIVABLES> 42,532
<ALLOWANCES> 2,821
<INVENTORY> 33,151
<CURRENT-ASSETS> 82,241
<PP&E> 125,770
<DEPRECIATION> 34,920
<TOTAL-ASSETS> 206,279
<CURRENT-LIABILITIES> 33,116
<BONDS> 73,497
0
0
<COMMON> 147
<OTHER-SE> 83,465
<TOTAL-LIABILITY-AND-EQUITY> 206,279
<SALES> 155,189
<TOTAL-REVENUES> 155,189
<CGS> 126,200
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 274
<INTEREST-EXPENSE> 4,291
<INCOME-PRETAX> 13,518
<INCOME-TAX> 5,111
<INCOME-CONTINUING> 8,407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,407
<EPS-PRIMARY> .58
<EPS-DILUTED> .57
</TABLE>
