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, 1997
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., 28601
Hickory, North Carolina (Zip Code)
(Address of principal executive offices)
(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
---- ----- ------
<S> <C> <C>
September 30, 1997 Common Stock 14,428,671
</TABLE>
<PAGE>
WORLDTEX, INC.
INDEX
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<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C> <C>
PART I - Financial Information
Consolidated Balance Sheets at September 30, 1997 (Unaudited) and
December 31, 1996 3
Consolidated Statements of Income (Unaudited) for the Nine Months and
Three Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (Unaudited) 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-9
PART II - Other Information 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1997 1996
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 8,435 2,117
Accounts and notes receivable, less allowance for
doubtful accounts of $2,605 in 1997 and $2,589 in 1996 38,708 39,868
Inventories:
Raw materials 13,393 12,614
Work-in-process 7,767 6,428
Finished goods 16,736 18,223
-------- -------
Total inventories 37,896 37,265
Prepaid expenses and other current assets 2,780 2,975
-------- -------
Total current assets 87,819 82,225
Property, plant and equipment, at cost:
Land 2,235 2,471
Buildings and leasehold improvements 29,445 31,181
Machinery and equipment 89,524 91,008
-------- -------
121,204 124,660
Less accumulated depreciation and amortization 37,059 34,378
-------- -------
Property, plant and equipment - net 84,145 90,282
Other assets 4,178 5,147
Cost in excess of net assets of acquired businesses, net of
accumulated amortization of $7,340 in 1997 and $7,115 in 1996 25,458 28,378
-------- -------
$201,600 206,032
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,128 1,342
Current installments of long-term debt 7,807 1,634
Accounts and notes payable - trade and other liabilities 25,396 30,254
Income taxes payable 1,431 1,525
--------- -------
Total current liabilities 36,762 34,755
Long-term debt 66,428 67,754
Other long-term liabilities 1,125 1,316
Deferred income taxes 15,996 17,029
--------- -------
Total liabilities 120,311 120,854
Stockholders' equity:
Preferred stock - -
Common stock 147 147
Paid-in capital 30,059 29,946
Retained earning 63,662 56,919
Cumulative foreign translation adjustment (11,081) (336)
Treasury stock, at cost (1,498) (1,498)
--------- -------
Total stockholders' equity 81,289 85,178
--------- -------
Commitments and contingencies $ 201,600 206,032
========= =======
See accompanying notes to consolidated financial statements
</TABLE>
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<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,
1997 1996 1997 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales $ 148,350 155,189 45,552 50,150
Cost of goods sold 122,040 126,200 37,428 41,186
--------- ------- ------- -------
Gross profit 26,310 28,989 8,124 8,964
Selling & administration expense 11,688 11,536 3,634 3,588
--------- ------- ------- -------
Operating profit 14,622 17,453 4,490 5,376
Interest expense 4,417 4,391 1,450 1,521
Other income (expense) - net 30 456 (129) 162
--------- ------- ------- -------
Income before income taxes 10,235 13,518 2,911 4,017
Provision for income taxes 3,492 5,111 863 1,536
--------- ------- ------- -------
Net income $ 6,743 8,407 2,048 2,481
========= ======= ======= =======
Net income per share $ 0.46 0.58 0.14 0.17
========= ======= ======= =======
Weighted average shares
outstanding 14,809 14,620 14,749 14,669
========= ======= ======= =======
See accompanying notes to consolidated financial accounts
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
UNAUDITED
Nine Months Ended
September 30,
1997 1996
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 6,743 8,407
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,719 4,534
Provision for losses on accounts receivable 167 274
Deferred income taxes 183 1,227
Change in assets and liabilities:
Accounts and notes receivable (3,264) (5,441)
Inventories (3,777) (329)
Prepaid expenses and other current assets 43 431
Accounts and notes payable -
trade and other current liabilities (2,318) 3,496
Income taxes payable 209 (1,245)
-------- -------
Net cash provided by
operating activities 2,705 11,354
-------- -------
Cash flows from investing activities:
Capital expenditures (5,826) (12,837)
Other investing activities 997 (123)
-------- -------
Net cash used in investing activities (4,829) (12,960)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit arrangements 3,180 15,160
Payments under line of credit arrangements (2,395) (14,572)
Borrowings under revolving credit facility 80,140 94,700
Payments under revolving credit facility (73,500) (83,380)
Stock issued or (reacquired), net 113 (16)
Other financing activities (1,108) (6,754)
-------- -------
Net cash provided by financing activities 6,430 5,138
-------- -------
Effects of exchange rate changes on cash 2,012 (86)
-------- -------
Net increase in cash 6,318 3,446
Cash at beginning of year 2,117 1,845
-------- -------
Cash at end of period 8,435 5,291
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,110 5,237
======== =======
Income taxes $ 4,619 5,749
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<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, 1996. The December 31, 1996 amounts included in the financial
statements are derived from December 31, 1996 audited financial statements
and notes thereto.
2. On October 3, 1997, the Company purchased certain assets from Texfi
Industries for $7.7 million and paid $600,000 to cancel an equipment
operating lease assumed from the seller. The acquisition will be recorded
using the purchase method of accounting, with the excess purchase price
allocated to the fair value of the assets purchased and liabilities
assumed.
On October 29, 1997, the Company entered into an asset purchase agreement
to purchase substantially all assets of Elastic Corporation of America for
a purchase price of $76.3 million and assume obligations including a $6.0
million bond obligation. The proposed acquisition will be recorded using
the purchase method of accounting, with the excess purchase price allocated
to the fair value of the assets purchased and liabilities assumed.
<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, 1997 were $148.4 million and net
income was $6.7 million compared with sales of $155.2 million and net income of
$8.4 million for the comparable period in 1996. Net income per share was $0.46
for the 1997 nine month period compared with $0.58 in 1996. Sales for the
quarter ended September 30, 1997 were $45.6 million and net income was $2.0
million, compared with sales of $50.2 million and net income of $2.5 million for
the comparable 1996 period. Net income per share was $0.14 for the third quarter
of 1997 compared with $0.17 in the 1996 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,
----------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
Gross margin 17.7% 18.7% 17.8% 17.9%
Selling, general and administration expenses 7.9% 7.4% 8.0% 7.2%
------ ------ ------ ------
Operating profit 9.8% 11.3% 9.8% 10.7%
Interest expense 3.0% 2.8% 3.1% 3.0%
Other income (expense) - net 0.1% 0.2% (0.3%) 0.3%
------ ------ ------ ------
Income before income taxes 6.9% 8.7% 6.4% 8.0%
====== ====== ====== ======
</TABLE>
For the nine months ended September 30, 1997, sales decreased by $6.8 million or
4.4% compared with the nine months ended September 30, 1996. For the quarter
ended September 30, 1997, sales decreased by $4.6 million or 9.2% compared with
the 1996 quarter.
Sales from North American operations increased 7.0% and decreased 0.7% for the
nine months and the three months ended September 30, 1997 from the corresponding
periods in 1996. Sales from French operations decreased 13.7% and 17.3% for the
nine months and the three months ended September 30, 1997 from the corresponding
periods in 1996. The stronger U.S. dollar versus the French franc reduced the
French subsidiary sales by approximately 12.0% and 16.7% for the nine months and
the three months ended September 30, 1997 compared with the corresponding
periods in 1996. Sales in the Company's South American operation increased 26.3%
and 16.7% (including intercompany sales of $7.3 million and $2.9 million for the
nine and three month periods of 1997 and $3.7 million and $1.7 million for the
nine and three month periods of 1996 ) for the nine months and the three months
ended September 30, 1997 from the corresponding periods in 1996. The reduced
value of the Colombian peso lowered South American sales by approximately 5.7%
and 11.0% for the nine months and the three months ended September 30, 1997
compared with the corresponding periods in 1996.
The volume increase for the nine months of 1997 in North America was due
primarily to increased market share and expanding diversification into markets
that offer higher margins. Sales from the French operations, net of currency
translations for reporting purposes, decreased approximately 1.7% for the nine
months of 1997 compared with the nine months of 1996 primarily due to two less
working days in the 1997 period and to soft economic conditions in Europe. The
volume increases in South America reflect the continuing efforts to expand
production in the Company's lower cost operation.
Gross profit margins decreased primarily because the Company's costs were spread
over lower sales. Gross profit margins also decreased due to an unfavorable
change in the French subsidiary product mix. Selling and administrative expenses
increased as a percentage of net sales because the fixed component of these
expenses was spread over a lower sales base.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest expense for the nine months ending September 30, 1997 increased from
the corresponding periods in 1996 primarily due to higher effective interest
rates. Interest expense for the three months ending September 30, 1997 decreased
from the prior year third quarter due to lower effective interest rates and
lower average outstanding debt.
The Company had an effective income tax rate of 34.1% and 29.6% for the nine
months and the three months ended September 30, 1997 compared to 37.8% and 38.2%
for the same periods in 1996. This decrease resulted primarily because of a
lower effective tax rate attributable to lower taxation of the Company's South
American operation.
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, 1997, $19 million was outstanding under the Company's Revolving
Credit Agreement (the "Existing Credit Facility") and approximately $16 million
was available for future borrowings. In addition, Filix Lastex, S.A., Rubyco
(1987), Inc., and Fibrexa Ltda., had available approximately $15.2 million, $1.1
million, and $2.8 million, respectively, under various bank lines of credit and
overdraft facilities. At September 30, 1997, Filix, Rubyco and Fibrexa had
outstanding debt under these agreements of $0, $0.5 and $1.6 million,
respectively. The most restrictive covenant of the Company's Existing Credit
Facility and Note Agreement for its 7.50% Senior Notes limit short-term
borrowings by the Company's subsidiaries to a total of approximately $16.1
million at September 30, 1997.
Cash totaled $8.4 million at September 30, 1997, representing a net increase of
$6.3 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 1997, $2.7 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 prepaid expenses and other current
assets. During the first nine months of 1997, financing activities contributed
$6.4 million, reflecting routine borrowings and repayments under the Company's
credit facilities. During the first nine months of 1997, $4.8 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 1997 (excluding the
acquisitions discussed below) will approximate $11.0 million, primarily for the
purchase of equipment. The Company currently expects that capital expenditures
for 1998 will aggregate approximately $16.0 million, primarily for machinery and
equipment and property improvements.
Working capital was $51.2 million at September 30, 1997, and $47.5 million at
December 31, 1996, reflecting an increase of $3.7 million and current ratios of
2.4 and 2.4 respectively, at September 30, 1997 and December 31, 1996.
On October 3, 1997, a wholly-owned subsidiary of the Company purchased the
Narrow Fabrics division ("Elastex") of Texfi Industries, Inc. (the "Elastex
Acquisition") for approximately $7.7 million and paid $0.6 million to cancel an
equipment operating lease assumed from the seller, which funds were borrowed
under the Existing Credit Facility. Elastex had net sales of $15.8 million for
its fiscal year ended November 1, 1996. On October 29, 1997, the Company entered
into an agreement providing for the acquisition by a wholly-owned subsidiary of
the Company of the Elastic Corporation of America division ("ECA") of NFA Corp.
(the "ECA Acquisition") for approximately $76.3 million in cash and the
assumption of $6.0 million in long-term debt. ECA had net sales of $55.8 million
for its fiscal year ended December 28, 1996. Elastex and ECA are manufacturers
of narrow elastic fabrics, which are elasticized fabric bands that are used as
components in the production of a broad range of apparel products, such as
waistbands for men's, women's and children's underwear, athletic apparel and
other garments, straps, facings and edgings in women's intimate apparel and
elastic bands in women's hosiery.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company intends to fund the purchase price for the ECA Acquisition and, in
related transactions, to refinance substantially all of the Company's existing
debt through new borrowings (including a new credit facility that will replace
the Existing Credit Facility). In addition, the Company's business strategy
includes the pursuit of strategic acquisitions of other businesses. Any
acquisition would be funded through cash generated by the Company's operations,
the issuance of additional securities, the sale of other assets or the
incurrence of additional indebtedness. The Company's ability to sell assets and
incur indebtedness are and will be restricted under its debt agreements.
Upon completion of the ECA Acquisition and the related debt financings, the
Company will be highly leveraged. On September 30, 1997, after giving pro forma
effect to the ECA Acquisition, the Elastex Acquisition and the related debt
financings, the Company would have had total indebtedness of approximately
$166.4 million and stockholders' equity of approximately $79.8 million. The
degree to which the Company will be leveraged following the ECA Acquisition
could have important consequences to the Company, including, but not limited to:
(i) making it more difficult for the Company to satisfy its obligations with
respect to its debt obligations, (ii) increasing the Company's vulnerability to
general adverse economic and industry conditions, (iii) limiting the Company's
ability to obtain additional financing to fund future working capital, capital
expenditures, and other general corporate requirements, (iv) requiring the
dedication of a substantial portion of the Company's cash flow from operations
to the payment of principal of, and interest on, its indebtedness, thereby
reducing the availability of such cash flow to fund working capital, capital
expenditures, research and development or other general corporate purposes, (v)
limiting the Company's flexibility in planning for, or reacting to, changes in
its business and the industry, and (vi) placing the Company at a competitive
disadvantage vis-a-vis less leveraged competitors. In addition, Company's debt
agreements will contain financial and other restrictive covenants that will
limit the ability of the Company to, among other things, borrow additional
funds. Failure by the Company to comply with such covenants could result in an
event of default which, if not cured or waived, could have a material adverse
effect on the Company.
<PAGE>
WORLDTEX, INC.
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
<S> <C> <C>
(a) Exhibits
Exhibit No. Description
11.1 Computation of earnings per share
27.1 Financial Data Schedule (filed with EDGAR only)
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company did not file
any reports on Form 8-K.
</TABLE>
<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 14, 1997 By: /S/ RICHARD J. MACKEY
---------------------
Richard J. Mackey
Chairman of the Board
and Chief Financial Officer
EXHIBIT 11.1
<TABLE>
<CAPTION>
WORLDTEX, INC.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 6,743 8,407 2,048 2,481
=========== ========== ========== ==========
Shares:
Weighted average number of
shares outstanding 14,416,812 14,474,848 14,428,671 14,473,419
Assumed exercise of options 392,253 145,644 320,403 195,569
----------- ---------- ---------- ----------
Total average number of common
and common equivalent shares
used for primary computation 14,809,065 14,620,492 14,749,074 14,668,988
=========== ========== ========== ==========
Primary earnings per share (1) $ .46 .58 .14 .17
=========== ========== ========== ==========
Shares:
Weighted average number of
shares outstanding 14,416,812 14,475,366 14,428,671 14,473,419
Assumed exercise of options 392,253 355,289 320,403 276,456
----------- ---------- ---------- ----------
Total average number of common
and common equivalent shares
used for fully diluted
computation 14,809,065 14,830,137 14,749,074 14,749,875
=========== ========== ========== ==========
Fully diluted earnings per share (2) $ .46 .57 .14 .17
=========== ========== ========== ==========
<FN>
(1) Earnings per share are calculated based upon the weighted average number of
common shares outstanding and common equivalent shares during the year.
(2) Fully diluted earnings per share calculations result in less than 3%
reduction and are accordingly not considered as dilution in the financial
statements.
</FN>
</TABLE>
<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, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,435
<SECURITIES> 0
<RECEIVABLES> 38,708
<ALLOWANCES> 2,605
<INVENTORY> 37,896
<CURRENT-ASSETS> 87,819
<PP&E> 121,204
<DEPRECIATION> 37,059
<TOTAL-ASSETS> 201,600
<CURRENT-LIABILITIES> 36,762
<BONDS> 66,428
0
0
<COMMON> 147
<OTHER-SE> 81,142
<TOTAL-LIABILITY-AND-EQUITY> 201,600
<SALES> 148,350
<TOTAL-REVENUES> 148,350
<CGS> 122,040
<TOTAL-COSTS> 122,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 167
<INTEREST-EXPENSE> 4,417
<INCOME-PRETAX> 10,235
<INCOME-TAX> 3,492
<INCOME-CONTINUING> 6,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,743
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
