SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997
[ ] 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 1-11438
WORLDTEX, INC.
(Exact name of registrant as specified in charter)
DELAWARE 56-1789271
(State of Incorporation) (I.R.S. Employer Identification No.)
212 12th Avenue, N.E., Hickory, North Carolina 28601
(Address of principal executive offices)
704-328-5381
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- -------------------------------------- -----------------------------------------
<S> <C>
Common stock, par value $.01 per share New York Stock Exchange, Inc.
Preferred stock purchase rights New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Cover sheet continued on next page)
<PAGE>
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 6, 1998: 14,428,671 shares of Common Stock were outstanding; and the
aggregate market value of shares held by non-affiliates was $105,676,007. (For
these purposes, a reported closing market price of $7.72 per share on March 6,
1998 has been used and "affiliates" have been arbitrarily determined to be all
directors and executive officers, although the Company does not acknowledge that
any such person is actually an "affiliate" within the meaning of the federal
securities laws.)
Documents incorporated by reference: definitive proxy statement for 1998 Annual
Meeting of Stockholders (Part III).
<PAGE>
PART I
ITEM 1. BUSINESS
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Worldtex, Inc. ("Worldtex" or the "Company") is a holding company
engaged through its subsidiaries in the manufacture of covered elastic yarn and
narrow elastic fabrics, which are used in the production of a broad range of
apparel products. Worldtex is a Delaware corporation organized in July 1992 to
acquire the covered yarn manufacturing operations of Willcox & Gibbs, Inc., a
New York corporation that later changed its name to Rexel, Inc. ("W&G"). Prior
to November 12, 1992, Worldtex was a wholly owned subsidiary of W&G. On that
date, W&G declared a dividend of one share of Worldtex Common Stock for each
share of W&G Common Stock outstanding on November 23, 1992 (the "Distribution").
Worldtex's principal subsidiaries are (i) Regal Manufacturing Company,
Inc. ("Regal"), based in Hickory, North Carolina, (ii) Rubyco (1987), Inc.
("Rubyco"), based in Montreal, Canada, (iii) Filix Lastex, S.A. ("Filix"), based
in Troyes, France, (iv) Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia,
(v) Elastex, Inc. ("Elastex"), based in Asheboro, North Carolina, and (vi) the
Elastic Corporation of America, Inc. ("ECA"), based in Columbiana, Alabama. W&G
acquired Regal in 1983, acquired Rubyco in 1986 and acquired Filix in 1990, and
transferred them to Worldtex in August 1992. Worldtex acquired Fibrexa as of
April 1, 1995, Elastex on October 3, 1997 and ECA on December 1, 1997. Regal,
Rubyco, Filix and Fibrexa are engaged in the production of covered elastic yarn,
and Elastex and ECA are engaged in the production of narrow elastic fabrics.
The Company believes that it is one of the largest independent
suppliers of covered elastic yarn in the world (based on 1997 net sales).
Covered elastic yarns are used by the Company's customers to produce stretch
fabrics for apparel that provide enhanced styling capabilities, better shape
retention, and improved aesthetics, durability and comfort. The principal
products that utilize covered elastic yarn produced by the Company are sheer and
opaque pantyhose, men's, women's and children's socks, sweaters, swimwear,
active and athletic wear and men's, women's and children's stretch apparel.
During 1997, Worldtex yarns were used in the products of some of the world's
best known brands and designers, including Giorgio Armani, Hugo Boss, Pierre
Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal, Fruit of the Loom,
Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the Clock, Nina Ricci,
Ellen Tracy and others. The Company, which was one of the first independent
producers of covered elastic yarn when it began operations in 1934, currently
operates 11 manufacturing and distribution facilities located in the United
States, Canada, France and South America. The Company also has a 38% interest in
a joint venture production facility in Estonia, and currently plans joint
venture production facilities in China and India.
The Company also believes that it is the largest manufacturer of woven
and knitted narrow elastic fabrics in the world (based on 1997 net sales).
Narrow elastic fabrics are elasticized fabric bands, typically under six inches
in width, 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, facing and edgings in
<PAGE>
women's intimate apparel and elastic bands in women's hosiery. During 1997,
ECA's and Elastex's narrow elastic fabrics were used in apparel produced by
Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey, Michael Jordan
Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell Corporation, Sara Lee
(Hanes products), Vanity Fair, Warnaco (Warner, Olga and Speedo brands) and
others. ECA and Elastex together own a total of five manufacturing facilities,
which are located in Alabama, North Carolina, South Carolina and Virginia.
COVERED ELASTIC YARN BUSINESS
Worldtex believes that Regal is one of the two largest suppliers of
covered elastic yarn in the United States, that Filix is the largest in Europe,
that Rubyco is the largest in Canada and that Fibrexa is the largest in South
America (in each case measured by 1997 net sales). Regal's and Rubyco's products
are sold primarily in their respective home countries, Filix sells principally
to European Community countries and Fibrexa sells principally in South American
countries, as well as to other Worldtex subsidiaries. See Note 12 to Worldtex's
Consolidated Financial Statements for information relating to Worldtex's
domestic and foreign operations.
PRODUCTS
The covered elastic yarn manufactured by Worldtex is produced by
wrapping material, principally nylon, polyester, cotton or other fibers, around
spandex or latex rubber. The core of spandex or rubber provides stretch
capability and durability, while the wrapped fiber results in more comfort to
the touch. Advanced manufacturing equipment permits production of ultrafine
covered elastic yarns that result in fabrics comparable in appearance to natural
fibers, but with superior flexibility, shape retention and durability.
Historically, covered elastic yarns were principally used in the
manufacture of women's pantyhose and other hosiery products. However, advances
in production techniques and trends in consumer apparel preferences have led to
a substantial expansion of the end uses for covered elastic yarn. Today, covered
elastic yarn is used in a broad range of apparel, including sweaters, swimwear,
running clothes, athletic uniforms, slacks, skirts and dresses, as well as in
pantyhose and socks.
SALES AND DISTRIBUTION
The Company's manufacturing and distribution centers are strategically
located to serve the Company's principal markets. The Company's operations in
the United States and Canada serve customers throughout North America, its
operations in France and joint venture in Estonia serve Europe and its
operations in Bogota, Colombia serve South America and also provide lower-cost
products for the Company's other markets. In addition, the Company has entered
into a joint venture for the establishment of manufacturing facilities in China,
and it is currently in negotiations for a similar venture in India. Upon
implementation of the Chinese and Indian ventures, the Company will have
strategically located manufacturing facilities able to promptly supply
customers' needs in major fabric producing markets around the world.
<PAGE>
As of December 31, 1997, the Company maintained a marketing staff
located in Hickory, North Carolina, Troyes, France, Montreal, Canada, and
Bogota, Colombia. Each sales employee has a designated territory. In addition,
certain sales personnel are specialists in designated applications for covered
yarn, such as circular knitting or woven fabrics. The sales staff is compensated
by salary and sales incentive bonus. The Company also has a network of
independent sales agents compensated on a commission basis.
The Company's sales force is trained to work with the customer to
develop new uses for covered elastic yarns that may improve the customer's
products. The Company's significant experience in the production and utilization
of covered elastic yarns has provided the Company with expertise not generally
available to more broadly-based fabric and apparel producers. The Company
utilizes this expertise to develop solutions utilizing covered elastic yarns for
the customer's fabric needs.
CUSTOMERS
In 1997, the Company served over 1,500 customers, and no single
customer accounted for more than 10% of 1997 sales. The Company's ten largest
customers in 1997 accounted for 28% of 1997 sales.
The Company's customers are principally producers of fabric sold for
use in apparel products. In 1997, the Company's principal customers included, in
the United States, Jockey International, Ithaca Industries, U.S. Textile Corp.
and Danskin; in Europe, Iril, S.A., Vanwijnsberghe and Gaillard, S.A.; in
Canada, Doris Hosiery, Hafner Elastics and Nalpac; and in South America, Richi,
CMR and Valenciana. During 1997, Worldtex yarns were used in the products of
some of the world's best known brands and designers, including Giorgio Armani,
Hugo Boss, Pierre Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal,
Fruit of the Loom, Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the
Clock, Nina Ricci and Ellen Tracy.
MANUFACTURING
Covered elastic yarns are produced by wrapping strands of conventional
fabric materials around elastic materials such as spandex or latex rubber. In
the manufacturing process, a "cover component" such as nylon, polyester, cotton,
or other fiber is fed through high-speed spindles where it is wrapped or twisted
around a "core component" of spandex or latex rubber. Strands of elastic may be
single or double covered, depending on the desired end use application. After
wrapping, the yarn, which is white in color and otherwise unfinished, is then
wound on a "take-up package" which is adaptable to the customer's machinery and
equipment for further processing.
Worldtex's research and development activities are directed toward
improvements in existing products and manufacturing processes and toward
development of new uses for its products. During 1997, Worldtex's expenditures
for these purposes totaled less than 1% of its sales.
<PAGE>
RAW MATERIALS
In 1997, approximately 60% of the Company's operating expenses were
attributable to raw material costs. The principal raw materials utilized by the
Company are spandex, nylon and rubber. Spandex is principally supplied by
DuPont, Globe and Bayer, and Globe is also a principal supplier of rubber. The
major suppliers of nylon to the Company in 1997 were DuPont, BASF, Nilit,
Nylstar and Radaci. In 1997 Worldtex purchased over half of its nylon and
spandex from a single source, DuPont. In recent years, DuPont and its
competitors have expanded their spandex production capacity, and Worldtex has
been able to obtain sufficient supplies to meet its customers' requirements. If
the supply of spandex from DuPont should be interrupted or cease for any reason,
Worldtex believes it might be difficult to find adequate alternative suppliers
of spandex.
COMPETITION
While Worldtex believes that it is one of the largest suppliers of
covered elastic yarn in the world, several companies actively compete with
Worldtex, at least one of which has greater assets and financial resources than
Worldtex. In the United States, Unifi, Spanco and Worldtex are the leading
suppliers of covered elastic yarn, and in 1997 Unifi acquired Spanco. The
Company cannot predict the effect that such acquisition will have on its
business. Most of Worldtex's major customers do not buy exclusively from
Worldtex. Competition is based primarily on product quality, customer service
and price.
EMPLOYEES
As of December 31, 1997, Worldtex had a total of approximately 1,227
employees engaged in its covered elastic yarn operations. Of these,
approximately 422 were employed in the United States by Regal, approximately 160
were employed in Canada by Rubyco, approximately 333 were employed in France by
Filix and approximately 312 were employed in Colombia by Fibrexa. A substantial
amount of the covered elastic yarn sold by Filix is produced by subcontractors,
whose employees are not included in the foregoing totals. Employees of Regal and
Fibrexa are not covered by collective bargaining agreements, and certain
employees of Filix and Rubyco are covered by such agreements. Worldtex has
experienced no significant labor problems during recent years in its covered
elastic yarn operations and considers its employee relations to be good.
NARROW ELASTIC FABRICS BUSINESSES ACQUIRED IN 1997
The Company believes that ECA and Elastex together comprise the
leading supplier of woven and knitted narrow elastic fabrics to the apparel
industry in the world (based on 1997 net sales).
PRODUCTS
Narrow elastic fabrics are elasticized fabric bands, typically under
six inches in width, that are used as components in the production of a broad
<PAGE>
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.
ECA and Elastex manufacture a full range of narrow elastic fabric
products, from specialty designs to commodity items. These varied product
offerings, together with sophisticated weaving and dyeing capabilities, enable
the Company to provide bundled and customized products to its customers.
In addition to a traditional line of woven elastic inserts and
commodity narrow elastic fabrics, ECA has enhanced its product line with several
narrow elastic fabric product advancements. For example, in 1983, ECA developed
and patented QuikCord, which embeds a drawstring within an elastic waistband.
This product offers cost savings to apparel manufacturers by avoiding the costly
operation of threading the drawstring cord through the elastic. Cordon
Cristal(TM), a banded silicon-backed narrOw elastic fabric used in women's
thigh-high hosiery, is another trademarked ECA product. ECA's most advanced
narrow fabrics products are waistbands with brand name logos and other designs
woven into the elastics, principally used in designer label underwear. ECA
believes that it currently has the largest number of operating logo looms in the
United States.
Elastex produces generic narrow elastic fabric for use in apparel. In
addition, Elastex manufactures gauze and elastic wrap products for the medical
industry and specialized elastic fabric used by the automotive industry.
SALES AND DISTRIBUTION
ECA and Elastex sell their products to apparel manufacturers
throughout the United States, and have begun selling to foreign manufacturers.
ECA has a sales staff with an average of over ten years of experience in the
narrow elastics industry. Sales offices are based in Greensboro, North Carolina,
Miami, Florida, San Francisco and Los Angeles, California, and New York, New
York. There is no product specialization among the salesforce, and each
salesperson calls on an average of 25 accounts regularly. The salesforce is
compensated by salary and bonus incentive awards.
ECA's key marketing strategy is to sell a customized product and
service program that meets specific customer needs and to create relationships
with designers at premier apparel manufacturers such as Calvin Klein, Ralph
Lauren, Tommy Hilfiger, Donna Karan and Jockey. A customer's order often
comprises more than one type of narrow elastic fabric product, and ECA believes
that it is critical to offer a coordinated comprehensive supply program for its
customers.
CUSTOMERS
In 1997, ECA and Elastex served over 700 customer accounts. Two
customers were responsible for 32% of 1997 sales, and the ten largest customers
accounted for 53% of 1997 sales.
<PAGE>
ECA's and Elastex's top customers in 1997 included apparel
manufacturers such as Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey,
Michael Jordan Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell
Corporation, Sara Lee (Hanes products), Vanity Fair, Warnaco (Warner, Olga and
Speedo brands) and others. The principal customer in 1997 for Elastex's medical
product was Johnson & Johnson and for its automotive products was Crotty
Corporation, a supplier to General Motors Corporation.
MANUFACTURING
Knit elastic fabrics are primarily used in underwear and sportswear
applications. Most commodity knit elastic products are not "finished," and the
elastic yarn in the fabric is often bare. In contrast, the elastic yarn used in
woven elastic fabrics is covered by natural or synthetic yarns and the products
are finished or dyed. ECA and Elastex each operate a dye house for such purpose.
Nylon, polyester, spandex and rubber are the basic raw materials used
in the manufacture of narrow elastic fabrics. For the manufacturing of knit
elastics, the natural or synthetic yarns (such as nylon, polyester or cotton)
and the elastic threads (spandex or rubber) are knitted together to form the
knitted elastic narrow fabric products on the knitting machines. In woven narrow
elastic fabrics, the elastic threads must be covered. High-speed covering
machines wrap the elastic core with natural or synthetic yarns under tension to
cover the elastic. The covered elastic is collected on take-up packages and then
is typically put onto beams. ECA's proprietary covering technology allows the
covered elastic to be fed directly onto the loom, thereby eliminating a step
wherein the covered elastic is wound onto beams and then sent to the looms. On
ECA's weaving looms, the covered elastic is woven with the natural or synthetic
yarns (such as nylon, polyester or cotton) to create the narrow elastic fabrics.
If logos are required, special looms are used and programmed to weave into the
narrow elastic fabric the name of the designer or brand, such as Calvin Klein or
Jockey.
All woven narrow fabrics are "finished." The rough-edged materials
that result from the weaving process are put through a finishing process during
which the narrow elastic fabrics are wetted and resin-treated and then dried.
Certain knitted narrow elastics are finished as well, depending on customer
requirements. Due to ECA's focus on the high-end knitted products for intimate
apparel, many of its fine quality knitted elastics are finished and dyed.
Narrow fabrics may be dyed according to color formulations developed
in-house to meet specific customer color requirements. ECA's dyeing processes
include continuous acid, pressure beam or batch dyeing methods. ECA believes
that it has the largest and most diversified dye lab, computer color matching
equipment and dyeing equipment in the industry. ECA uses lab equipment which
simulates the dye process, resulting in high accuracy of dye quality and color
uniformity in actual production.
ECA licensed the process for making silicon-backed fabrics from
Cheynet, a major French narrow elastic fabric manufacturer, in 1989. This
process is typically used for narrow elastics found in hosiery products,
particularly in thigh-high stockings. Silicon is applied to knit, lace and
simulated lace uniformly on one side of the fabric and then dried to create a
<PAGE>
non-slip band. The band grips the thigh allowing the stocking to stay in place
without garters. The silicon-backed fabrics are banded (requiring special
robotic equipment) to the specific size requirements of the customers before
inspection and final packaging.
RAW MATERIALS
Raw materials costs comprised approximately 42% of ECA's 1997 costs of
production. Key raw materials for ECA include synthetic fibers, such as nylon
and polyester, spandex, rubber, cotton, chemical dyes and silicon. The Company
buys its synthetic materials and spandex primarily from DuPont and Bayer. Its
rubber supply originates in Malaysia and is obtained via various US importers.
Chemical dyes and auxiliary dye ingredients are supplied by various prominent
chemical companies, such as Crompton & Knowles and Ciba-Geigy, and silicon is
supplied by Dow Corning.
COMPETITION
ECA believes that it is the leader in many of the market categories in
which it operates. There are approximately ten competitors who manufacture
narrow elastic fabrics for the apparel industry. Principal competitors in logo
elastics include CMI--United Elastics and George C. Moore. Over the years,
competitors have created their own drawstring systems which compete with the
QuikCord design, and principal competitors with regard to this product include
Southern Webbing and Asheboro Elastics.
EMPLOYEES
As of December 31, 1997, Worldtex had a total of approximately 845
employees engaged in its narrow elastic fabrics operations. Of these,
approximately 639 were employed by ECA and 206 were employed by Elastex. None of
these employees are unionized.
ITEM 2. PROPERTIES
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Worldtex maintains its headquarters in Hickory, North Carolina, on
property owned by Regal and used for its administrative personnel.
COVERED ELASTIC YARN
The Company operates a total of eleven covered elastic yarn
manufacturing plants and distribution centers, of which seven are owned and four
are leased. In addition, the Company has a 38% interest in a joint venture in
Estonia that owns and operates a 52,000 square foot covered elastic yarn
manufacturing and distribution facility. In general, the Company's facilities
are adequate and suitable for the purposes for which they are utilized by the
Company. The plants and distribution centers are listed below:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED USE
- ------------------- ------------ ------------ ------------------------------------
<S> <C> <C> <C>
UNITED STATES:
Hickory, NC 82,000 Owned Manufacturing Plant and Headquarters of Regal
Hickory, NC 144,000 Owned Manufacturing Plant
<PAGE>
LOCATION SQUARE FEET OWNED/LEASED USE
- ------------------- ------------ ------------ ------------------------------------
<S> <C> <C> <C>
Hickory, NC 54,000 Owned Manufacturing Plant
Hickory, NC 18,000 Leased Distribution Center
Hickory, NC 80,000 Leased Distribution Center
CANADA:
Montreal, Quebec 85,000 Leased Manufacturing Plant and Headquarters of Rubyco
FRANCE:
Troyes 48,000 Owned Distribution Center and Headquarters of Filix
Athis 202,000 Owned Manufacturing Plant
Conde 195,000 Owned Manufacturing Plant
Le Grand Serre 94,000 Owned Manufacturing Plant
COLOMBIA:
Bogota 130,000 Leased Manufacturing Plant and Headquarters of Fibrexa
</TABLE>
NARROW ELASTIC FABRICS
ECA and Elastex operate a total of five manufacturing plants, all of
which are owned. In addition, a rented sales office is maintained in New York
City. The manufacturing plants are listed below.
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED USE
- ------------------- ------------ ------------ ------------------------------------
<S> <C> <C> <C>
Columbiana, AL 165,000 Owned Manufacturing Plant
Columbiana, AL 115,000 Owned Manufacturing Plant
Asheboro, NC 115,000 Owned Manufacturing Plant
Hemingway, SC 62,000 Owned Manufacturing Plant
Woolwine, VA 77,000 Owned Manufacturing Plant
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings as of the date of this
Report to which the Company or any of its subsidiaries is a party or to which
any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the last quarter of the Company's 1997 fiscal year no matters
were submitted to a vote of the Company's security holders.
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
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<TABLE>
<CAPTION>
Age (as of Office & Principal Occupations
Name 12/31/97) During Last Five Years
- ----------------- ---------- ---------------------------------------------
<S> <C> <C>
Richard J. Mackey 66 Chairman of the Board and Chief Financial
Officer of Worldtex (August 1992 to present);
Chief Executive Officer of Worldtex (August
1992 to May 1994); President of W&G (May 1987
to November 1992); Director of W&G (1982 to
1993).
Barry D. Setzer 55 President and Chief Executive Officer of
Worldtex (May 1994 to present); President and
Chief Operating Officer of Worldtex (August
1992 to May 1994); President of W&G's Covered
Yarn Division (September 1988 to November
1992); President (to September 1988) and
Director of Regal; Vice President of W&G
(November 1987 to November 1992); Director of
W&G (1983 to 1992).
A. Orrin Maldoff 64 Vice President of Worldtex (August 1992 to
present); President of Rubyco (October 1990
to present).
Kenneth W. O'Neill 53 Vice President of Worldtex (August 1992 to
present); President of Regal (August 1988 to
present).
Mitchell R. Setzer 48 Treasurer and Secretary of Worldtex (August
1992 to present); Vice President -
Administration of Regal (January 1990 to
present); Treasurer of Regal (January 1989 to
present).
Donald W. Pruitt 49 Controller of Worldtex (December 1995 to
present).
</TABLE>
Barry D. Setzer and Mitchell R. Setzer are not related. Richard J.
Mackey and Barry D. Setzer also serve as directors of the Company.
The officers of the Company are elected annually by the Board of
Directors.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
The Company's Common Stock is listed on the New York Stock Exchange.
The following table sets forth the high and low per share sales prices for the
Common Stock on the New York Stock Exchange for each quarter since December 31,
1995.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1996:
1st Quarter $ 5.75 4.63
2nd Quarter 6.38 4.75
3rd Quarter 7.63 5.75
4th Quarter 8.88 7.50
1997:
1st Quarter 10.75 6.13
2nd Quarter 8.38 6.50
3rd Quarter 9.00 6.25
4th Quarter 8.75 7.13
1998:
1st Quarter
(through March 6) 8.00 6.94
</TABLE>
At March 6, 1998 there were approximately 1,102 holders of record of
Common Stock.
The Company has not paid any dividends since its Common Stock was
distributed in the Distribution. Future payment of cash dividends by the Company
will be dependent on such factors as business conditions, earnings and the
financial condition of the Company. The Company's Revolving Credit Agreement and
the Indenture for the Company's 9 5/8% Senior Notes restrict the payment of
dividends by the Company. Under the most restrictive of these debt agreements,
$0.4 million was available for the payment of dividends and other distributions
as of December 31, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity; Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
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WORLDTEX, INC. AND SUBSIDIARIES
-------------------------------
The following table sets forth certain financial data of Worldtex for
the five fiscal years ended December 31, 1997, which has been derived from
Worldtex's audited financial statements for such years. This data should be read
in conjunction with the Consolidated Financial Statements of Worldtex and the
Notes thereto appearing elsewhere herein. Results are not directly comparable
due to the acquisition of ECA as of December 1, 1997, Elastex as of October 3,
1997 and Fibrexa as of April 1, 1995. See Management's Discussion and Analysis,
<PAGE>
Item 7. Historical financial information may not be indicative of Worldtex's
future performance. Earnings per share are calculated based upon the weighted
average number of common shares outstanding and common equivalent shares during
such year.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales $203,256 207,829 187,981 164,654 152,709
Income before income taxes 11,869 17,361 10,231 8,868 11,490
Provision for income taxes 5,377 6,415 4,979 3,058 4,206
Net income 6,492 10,946 5,252 5,810 7,284
Diluted net income per share .44 .75 .36 .40 .50
Total assets 312,439 206,032 196,065 166,405 145,996
Long-term debt 185,780 67,754 68,947 61,085 55,486
Cash dividends per common
share - - - - -
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The Company believes that it is one of the largest suppliers of
covered elastic yarn in the world and the largest manufacturer of woven and
knitted narrow elastic fabrics in the world (based on 1997 net sales). Covered
elastic yarns manufactured by the Company are principally used in the production
of sheer and opaque pantyhose, men's, women's and children's socks, sweaters,
swimwear, active and athletic wear and men's, women's and children's stretch
apparel. Narrow elastic fabrics are elasticized fabric bands, typically under
six inches in width, 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.
The Company's covered elastic yarn business operates around the world
through its subsidiaries Regal, based in Hickory, North Carolina, Rubyco, based
in Montreal, Canada, Filix, based in Troyes, France, and Fibrexa, based in
Bogota, Colombia. The Company also has a 38% interest in a manufacturing joint
venture in Estonia, has entered into a joint venture agreement for the
<PAGE>
establishment of manufacturing operations in China and is currently in
negotiations for a similar venture in India.
The Company's narrow elastic fabrics business is conducted through
Elastex, acquired October 3, 1997 (the "Elastex Acquisition"), based in
Asheboro, North Carolina and through ECA, acquired on December 1, 1997 (the "ECA
Acquisition") based in Columbiana, Alabama. ECA and Elastex together own five
manufacturing facilities, in Columbiana, Alabama, Asheboro, North Carolina,
Hemingway, South Carolina and Woolwine, Virginia.
Worldtex is a holding company, the only assets of which are the stock
of its subsidiaries. All of the operations of Worldtex are conducted through its
direct and indirect wholly owned subsidiaries. Accordingly, Worldtex's ability
to service its indebtedness and meet its other obligations is dependent upon
earnings and cash flow of its subsidiaries and the payment of funds by those
subsidiaries to Worldtex in the form of loans, dividends or otherwise. In
addition, the ability of Worldtex's subsidiaries to pay dividends, repay
intercompany liabilities or make other advances to Worldtex is subject to
restrictions imposed by corporate law and certain United States, state and
foreign tax considerations.
A substantial portion of the Company's sales and operating profits
have historically been derived from international operations and export sales,
which are subject in varying degrees to risks inherent in doing business abroad.
Such risks include the possibility of unfavorable circumstances arising from
host country laws or regulations. In addition, foreign operations include risks
of partial or total expropriation; currency exchange rate fluctuations and
restrictions on currency repatriation; significant taxation policies; the
disruption of operations from labor and political disturbances, insurrection or
war; and the requirements of partial local ownership of operations in certain
countries. Moreover, any change in the value of the currencies of the foreign
countries in which the Company does business against the U.S. dollar could have
a material adverse impact on the Company's business, financial condition and
results of operations.
The textile and retail apparel industries are highly cyclical and are
characterized by rapid shifts in fashion and consumer demand, as well as
competitive pressures and price and demand volatility. The demand for the
Company's products is principally dependent upon the level of United States
demand for retail apparel. The demand for retail apparel is in turn dependent on
United States consumer spending, which may be adversely affected by an economic
downturn, changing retailer and consumer demands, a decline in consumer
confidence or spending, and other factors beyond the Company's control. In
recent years, sales in the United States of sheer pantyhose have declined.
Although pantyhose manufacturers have historically accounted for a significant
portion of the Company's sales of covered elastic yarn, the Company's business
strategy includes the continued development of new end use applications for
covered elastic yarn.
Spandex and nylon are the principal raw materials used in the
manufacture of covered elastic yarn by Worldtex. In 1997 Worldtex purchased over
half of its nylon and spandex from a single source, DuPont. In recent years,
<PAGE>
DuPont and its competitors have expanded their spandex production capacity, and
Worldtex has been able to obtain sufficient supplies to meet its customers'
requirements. If the supply of spandex from DuPont should be interrupted or
cease for any reason, Worldtex believes it might be difficult to find adequate
alternative suppliers of spandex.
The textile and apparel industries are highly competitive. The apparel
markets are served by a variety of producers, many of which are located in
rapidly growing, low-wage countries and use textiles produced in those regions.
Many of these textile producers have substantially greater financial and other
resources and lower cost of funds than the Company. Unifi, Spanco and Worldtex
are the three largest suppliers of covered elastic yarns in the United States.
Unifi, which is also a leading producer of other yarns, acquired Spanco in 1997.
The Company cannot predict the effect that such acquisition will have on the
Company, although Unifi has substantially greater financial resources than the
Company and is less leveraged.
The Company is in the process of assessing the Year 2000 issue and the
estimated costs necessary for the Company's remediation plan. The Company does
not expect the Year 2000 issue to have a material effect on the Company's
business, operations or financial condition. The Company plans to remediate all
Year 2000 issues during 1998 and 1999 and does not expect remediation costs to
have a material impact on results of operations, liquidity and capital
resources.
The following table sets forth the percentage of Worldtex's historical
sales and operating profit (loss) accounted for by each of Worldtex's geographic
areas during the periods indicated, which in the case of 1997 reflects the ECA
Acquisition (effective from December 1, 1997) and the Elastex Acquisition
(effective from October 3, 1997). For purposes of determining operating profit,
parent company expenses have been allocated to each area in accordance with its
percentage of total sales. See Note 12 of the Notes to Consolidated Financial
Statements of Worldtex for additional financial information (net sales,
operating profits and identifiable assets) by geographic location.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- ------------------------
NET OPERATING NET OPERATING NET OPERTING
SALES PROFIT SALES PROFIT SALES PROFIT (LOSS)
----- --------- ----- --------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
North America 48% 19% 41% 11% 42% (1%)
Europe 45% 67% 53% 85% 54% 94%
South America 7% 14% 6% 4% 4% 7%
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the relationship of percentages which
certain income and expense items have to net sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Sales...................................... 100% 100.0% 100.0%
==== ===== =====
Gross margin................................... 17.7% 18.8% 16.7%
Selling, general & administrative expenses..... 8.2 8.0 8.3
Operating profit............................... 9.5 10.8 8.4
Interest expense............................... 3.5 2.8 3.1
Other income (expense)--net.................... (0.2) 0.4 0.1
---- ----- -----
Income before income taxes..................... 5.8% 8.4% 5.4%
==== ===== =====
</TABLE>
<PAGE>
1997 VS. 1996
-------------
Sales for the twelve months ended December 31, 1997 were $203.3
million and net income before extraordinary item was $6.5 million, compared with
sales of $207.8 million and net income of $10.9 million for the comparable
period in 1996. Diluted net income per share was $.44 for 1997 compared with
$.75 in 1996. Worldtex's sales in 1997 decreased $4.6 million, or 2.2%, when
compared with 1996. Sales in the Company's European operations decreased $17.4
million, or 15.8%, compared with 1996, primarily because of the stronger U.S.
dollar versus the French franc, which reduced the French subsidiary's sales by
approximately $12.7 million (assuming currency translation of 1997 sales at the
rate applicable to 1996 results). In the Company's North American operations,
sales increased $11.9 million, or 13.7%, from 1996 levels, primarily because of
the inclusion of the narrow fabrics operations acquired in October and December
which added $8.8 million in sales. The reduced value of the Canadian dollar
lowered North American sales by approximately $0.4 million in currency
translations (assuming currency translation of 1997 sales at the rate applicable
to 1996 results). Sales in the Company's South American operation, net of
intercompany sales of $9.5 million and $6.1 million for 1997 and 1996,
respectively, increased 7.6% compared with the prior year. The reduced value of
the Colombian peso lowered 1997 sales by $2.4 million (assuming currency
translation of 1997 sales at the rate applicable to 1996 results).
The volume increase for 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 4.3% in 1997 compared with 1996
primarily due to soft economic conditions in Europe. The volume increases in
South America reflect the Company's continuing efforts to expand production in
its lower cost operations.
Worldtex's gross margin in 1997 decreased to 17.7% of net sales as
compared to 18.8% for 1996. Gross profit margins decreased primarily due to an
unfavorable change in the French subsidiary's product mix. Gross profit margins
also decreased because the Company's manufacturing costs were spread over lower
sales. Selling and administrative expenses increased as a percentage of net
sales to 8.2% in 1997 from 8% in 1996 primarily because the fixed component of
these expenses was spread over a lower sales base.
The increase in interest expense of $1.2 million was caused primarily
by the $175 million Senior Notes issued December 1, 1997 in connection with the
acquisitions of Elastex and ECA.
1996 VS. 1995
-------------
Worldtex's sales in 1996 increased $19.8 million, or 10.6%, when
compared with 1995. Sales in the Company's European operations increased $9.2
million, or 9.2%, compared with 1995, primarily because of increased demand for
covered yarn used by the weaving industry in Europe. The lower value of the
French franc compared with the U.S. dollar reduced 1996 sales by $2.6 million
(assuming currency translation of 1996 sales at the rate applicable to 1995
results). In the Company's North American operations, sales increased $5.6
million, or 6.9%, from 1995 levels, primarily because of increased demand in
<PAGE>
non-pantyhose end uses for covered elastic yarn. Sales in the Company's South
American operation were $11.8 million (excluding $6.1 million of inter-company
sales) compared with $6.7 million in 1995 primarily due to a full year of
operation in 1996 compared with the partial year of 1995. The reduced value of
the Colombian peso lowered 1996 sales by $1.8 million (assuming currency
translation of 1996 sales at the rate applicable to 1995 results).
Worldtex's gross margin increased in 1996 to 18.8% of sales as
compared to 16.7% for 1995. This increase was primarily caused by increased
sales resulting from the Company's continuing efforts to develop additional
applications and end uses for its products, lower manufacturing costs of the
Company's Colombian operations and reduced costs associated with the 1995
restructuring. Additionally, the Company's fixed expenses were spread over
substantially higher sales.
Selling and administrative expense increased in 1996 by $.9 million to
$16.6 million. The increase was caused principally by the increased business
levels in 1996 and the full year operation of the Colombian subsidiary acquired
in April 1995.
The increase in interest expense of $.1 million was caused primarily
by weighted average outstanding debt increasing approximately 8% but was mostly
offset by lower average interest rates.
INCOME TAXES
- ------------
Income tax provisions for Worldtex have been calculated in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS 109"). Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the carrying amounts of assets and
liabilities for tax purposes and financial statement purposes and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The French
parliament enacted a provision that increased the corporate tax rate from 33.33%
to 36.67% in July 1995. The rate increase resulted in a $0.9 million charge to
the 1995 tax provision to increase the deferred tax liability as of January 1,
1995 to the higher enacted income tax rate. In 1997, France increased the
corporate tax rate from 36.67% to 41.67%, which resulted in a charge to increase
the reserve for deferred income taxes of approximately $1.2 million and an
additional charge of $.5 million in the fourth quarter to reflect the
retroactive effect of the tax increase for all of 1997.
LIQUIDITY; CAPITAL RESOURCES
- ----------------------------
The principal indicators of the Company's liquidity are cash flows
from operating activities and cash flows from financing activities, primarily
borrowings under the Company's credit facilities.
<PAGE>
On December 1, 1997, the Company issued and sold $175.0 million
principal amount of its 9 5/8% Senior Notes due 2007 (the "Notes") under an
Indenture, dated as of December 1, 1997 (the "Indenture") for net proceeds
(before deduction of transaction expenses) of approximately $170.0 million (the
"Offering"), which was used to pay the purchase price in the ECA Acquisition,
repay certain indebtedness and to pay transaction fees and expenses relating
thereto. The Company expects to use the balance of the net proceeds from the
sale of the Notes for general corporate purposes.
Worldtex used $1.5 million from its operating activities in 1997,
compared to generating $15 million in 1996 and $12 million in 1995. The decrease
in net cash provided in 1997 was caused primarily by the decrease in net income
and the increase in working capital investments.
EBITDA represents income before income taxes plus interest expense,
depreciation and amortization and is provided as additional information relating
to the Company's debt service capacity. EBITDA for the years ended December 31,
1997, 1996 and 1995 was $25.8 million, $29.5 million and $22.1 million,
respectively. Depreciation and amortization for the years ended December 31,
1997, 1996 and 1995 was $6.8 million, $6.3 million and $6.1 million,
respectively.
During 1997, capital expenditures amounted to $7.7 million. Capital
expenditures were $13.8 million in 1996 and $8.4 million in 1995. The majority
of such capital expenditures during the years 1995-1997 was primarily used to
purchase additional manufacturing equipment in order to increase and improve
efficiencies to the Company's production capacity. The Company currently expects
that capital expenditures for 1998 will aggregate approximately $12.0 million,
primarily for machinery and property improvements.
During the second quarter of 1995, a wholly owned subsidiary of the
Company acquired substantially all of the assets of Fibrexa, S.A., a
manufacturer of covered yarn based in Bogota, Colombia. The consideration for
the purchase of Fibrexa was approximately $4.4 million in cash, assumption of
approximately $6.5 million in debt and contingent payments based on earnings
from the Company's South American operations over a five year period.
On October 3, 1997, the Company purchased Elastex 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 Company's Credit
Facility, dated as of November 12, 1992, as amended (the "Existing Credit
Facility"). On December 1, 1997, a wholly-owned subsidiary of the Company
purchased substantially all of the assets of ECA for a cash purchase price of
approximately $76.3 million, which was funded with a portion of the net proceeds
from the Offering. In connection with the ECA Acquisition, such subsidiary of
the Company assumed an industrial revenue bond obligation relating to ECA in the
aggregate principal amount of $6.0 million, operating leases (as to which the
present value of remaining lease payment obligations will not exceed $2.3
million) and certain current liabilities.
The Company's business strategy includes the pursuit of strategic
acquisitions of other businesses. Any acquisition would be funded through cash
<PAGE>
on hand (including the balance of the net proceeds from the Offering and cash
generated by the Company's operations), the issuance of additional securities,
the sale of other assets or the incurrence of additional indebtedness (including
borrowings under the New Credit Facility (as defined below)). The Company's
ability to sell assets and incur indebtedness are restricted under the Indenture
and the New Credit Facility.
In 1994, the Company entered into an interest rate swap agreement with
a commercial bank that effectively converted the interest rate on one-half of
its $50 million 7.50% senior notes to a floating rate for three years ending
July 1999. The agreement effectively changed the interest rate to approximately
6.24%, 7.87%, 7.08%, 6.59%, 6.77%, 6.52% and 6.77% for the six month intervals
ended January 21, 1995 through January 21, 1998. The effective rate was 6.49%
for the six months ending July 21, 1998. Net amounts due under this agreement
decreased interest expense for 1997 by $.257 million, for 1996 by $.20 million
and for 1995 by $.02 million. The 7.50% senior notes were repaid with a portion
of the proceeds of the Offering. Such interest rate swap agreement was
terminated effective March 26, 1998, and such termination will not have a
material effect on the financial condition or results of operations of the
Company. The Company may enter into interest rate swap agreements relating to
the Notes in the future.
In connection with the ECA Acquisition, the Company entered into a new
Credit Agreement (the "New Credit Facility") and repaid and terminated the
Existing Credit Facility. The New Credit Facility provides for revolving credit
borrowings in an aggregate principal amount of up to $25.0 million. The New
Credit Facility terminates and all amounts borrowed thereunder will be due
December 1, 2002. Loans under the New Credit Facility bear interest at rates
based upon a base rate (the higher of the NationsBank, N.A. prime rate or the
Federal Funds rate), certificates of deposit rates or Eurodollar rates, in each
case plus an applicable margin. Loans under the New Credit Facility are
guaranteed by all U.S. subsidiaries of the Company and are required to be
secured by liens on the accounts receivable and inventory of the Company and its
U.S. subsidiaries, 100% of the outstanding capital stock of the Company's U.S.
subsidiaries and 65% of the outstanding capital stock of each of the non-U.S.
subsidiaries (the "Foreign Subsidiaries").
At December 31, 1997, the Company has indebtedness of $188.2 million
and $25.0 million was available for future borrowings under the New Credit
Facility. In addition, at such date Filix had $15.0 million, Rubyco $1.0 million
and Fibrexa $4.8 million of U.S. dollar equivalent credit availability under
bank lines of credit. Amounts outstanding as of December 31, 1997 were $1.5
million for Fibrexa, $0.3 million for Rubyco and none outstanding for Filix. The
most restrictive covenant of the New Credit Facility and Indenture limits
short-term borrowings by the Company's subsidiaries to a total of $15.0 million.
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.
As a result of the ECA Acquisition and the Offering, the Company is
highly leveraged. The Company's ability to make scheduled payments of principal
<PAGE>
of, or to pay the interest or applicable liquidated damages, if any, on, or to
refinance, its indebtedness (including the Notes), or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. Based upon the current level of
operations and anticipated revenue growth, management believes that cash flow
from operations and available cash, together with available borrowings under the
New Credit Facility, will be adequate to meet the Company's future liquidity
needs for at least the next several years. The Company may, however, need to
refinance all or a portion of the principal of the Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements will be realized or that future borrowings will be
available under the New Credit Facility in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will be
able to effect any such refinancing on commercially reasonable terms or at all.
The Company's high degree of leverage could have important
consequences to the Company, including, but not limited to: (i) making it more
difficult for the Company to satisfy its 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, the Indenture and the New Credit Facility contain financial and
other restrictive covenants that 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.
THREE-YEAR COMPARISONS
- ----------------------
Total long-term debt was $185.8 million, $67.8 million and $68.9
million, respectively, at December 31, 1997, 1996 and 1995.
Working capital was $87.7 million, $47.5 million and $47.3 million,
respectively, at December 31, 1997, 1996 and 1995.
Net worth was $77.5 million, $85.2 million and $78.9 million,
respectively, at December 31, 1997, 1996 and 1995. (See the Consolidated
Statements of Stockholders' Equity of Worldtex for additional information.)
The number of days that sales were represented by accounts receivable
was 68 (net of $10.3 million net receivables acquired on December 1, 1997 in
connection with the ECA Acquisition), 69 and 68, respectively, at December 31,
1997, 1996 and 1995. Net accounts receivable increased by approximately $6.5
<PAGE>
million (including the acquired ECA receivables), or 16.2%, in 1997 compared
with 1996, and sales increased 2.2%. Inventories, as a percentage of cost of
sales, were 32.4% (including $11.6 million of inventory or 6.9% of cost of sales
assumed in connection with the ECA Acquisition on December 1, 1997) at December
31, 1997, 22.1% at December 31, 1996 and 21.5% at December 31, 1995.
The results of operations and financial condition of Worldtex are
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of estimates required, Worldtex
believes the effects on the results of operations and financial condition have
been minor. Worldtex will continue to monitor the impact of inflation in setting
its pricing and other policies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The following financial statements, supplementary financial
information and schedules are filed as part of this Report:
WORLDTEX, INC.
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Income,
Years Ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheets,
December 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows,
Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Supplementary Financial Information
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts Years Ended December
31, 1997, 1996 and 1995
All schedules not mentioned above are omitted for the reason that they
are not required or are not applicable, or the information is included in the
Consolidated Financial Statements or the Notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Worldtex, Inc.:
We have audited the accompanying consolidated balance sheets of Worldtex, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index of this Form 10-K. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Worldtex, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Atlanta, Georgia
February 27, 1998
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales (Notes 12 and 16) $ 203,256 207,829 187,981
Cost of goods sold 167,272 168,754 156,519
--------- --------- ---------
Gross profit 35,984 39,075 31,462
Selling and administrative expense 16,770 16,582 15,708
--------- --------- ---------
Operating profit 19,214 22,493 15,754
Interest expense 7,043 5,826 5,693
Other income (expense) - net (302) 694 170
--------- --------- ---------
Income before income taxes 11,869 17,361 10,231
Provision for income taxes (Note 11) 5,377 6,415 4,979
--------- --------- ---------
Net income before extraordinary item 6,492 10,946 5,252
Extraordinary item, net (Note 6) 1,344 - -
--------- --------- ---------
Net income $ 5,148 10,946 5,252
========= ========= =========
Basic net income per share (Note 3):
Net income before extraordinary item, net .45 .76 .36
Extraordinary item, net .09 - -
--------- --------- ---------
Net income $ .36 .76 .36
========= ========= =========
Diluted net income per share (Note 3):
Net income before extraordinary item, net .44 .75 .36
Extraordinary item, net .09 - -
--------- --------- ---------
Net income $ .35 .75 .36
========= ========= =========
Weighted average shares outstanding (Note 3)
Basic 14,420 14,463 14,476
========= ========= =========
Diluted 14,821 14,669 14,567
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1997 1996
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 14,872 2,117
Accounts and notes receivable, less allowance for doubtful accounts
of $2,085 in 1997 and $2,589 in 1996 (Notes 4, 6 and 16) 46,320 39,868
Inventories (Notes 3 and 6) 54,200 37,265
Prepaid expenses and other current assets (Note 11) 3,026 2,975
-------- --------
Total current assets 118,418 82,225
Property, plant and equipment - net (Note 3) 99,160 90,282
Other assets (Notes 3 and 15) 11,946 5,147
Cost in excess of net assets of acquired businesses, net of accumulated
amortization of $7,600 in 1997 and $7,115 in 1996 82,915 28,378
-------- --------
$312,439 206,032
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 5) $ 1,819 1,342
Current installments of long-term debt (Note 6) 620 1,634
Accounts and notes payable-trade and other liabilities (Notes 8 and 10) 28,236 30,254
Income taxes payable (Note 11) - 1,525
-------- --------
Total current liabilities 30,675 34,755
185,780 67,754
Long-term debt (Note 6)
Other long-term liabilities 2,547 1,316
Deferred income taxes (Note 11) 15,935 17,029
-------- --------
Total liabilities 234,937 120,854
-------- --------
Stockholders' equity (Notes 6, 7 and 8):
Preferred stock - -
Common stock 147 147
Paid-in capital 30,059 9,946
Retained earnings 62,067 56,919
Cumulative foreign translation adjustment (13,273) (336)
Less - Treasury stock, at cost (1,498) (1,498)
-------- --------
Total stockholders' equity 77,502 85,178
Commitments and contingencies (Notes 8 and 9) - -
-------- --------
$312,439 206,032
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------- ------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at
Dec. 31, 1994 $ 147 29,913 40,721 (837) (911) 69,033
Net income - - 5,252 - - 5,252
Foreign currency
translation
adjustment - - - 4,654 - 4,654
------- ------ ------ ------- ------ -------
Balances at
Dec. 31, 1995 147 29,913 45,973 3,817 (911) 78,939
Net income - - 10,946 - - 10,946
Foreign currency
translation
adjustment - - - (4,153) - (4,153)
Purchases of treasury
stock - - - - (587) (587)
Stock issued - 33 - - - 33
------- ------ ------ ------- ------ -------
Balances at
Dec. 31, 1996 147 29,946 56,919 (336) (1,498) 85,178
Net income - - 5,148 - - 5,148
Foreign currency
translation
adjustment - - - (12,937) - (12,937)
Stock issued - 113 - - - 113
------- ------ ------ ------- ------ -------
Balances at
December 31, 1997
(Notes 6, 7 and 8) $ 147 30,059 62,067 (13,273) (1,498) 77,502
======= ====== ====== ======= ====== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,148 10,946 5,252
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,845 6,284 6,133
Provision for losses on accounts receivable 305 139 1,332
Deferred income taxes 720 825 (161)
Change in assets and liabilities
net of effects of acquisitions:
Accounts and notes receivable (1,064) (2,788) (2,751)
Inventories (7,396) (4,557) (1,276)
Prepaid expenses and other current assets (248) 163 (527)
Accounts and notes payable -
trade and other current liabilities (4,313) 5,344 3,950
Income taxes payable (1,494) (1,324) 94
--------- --------- ---------
Net cash (used in) provided by operating activities (1,497) 15,032 12,046
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (7,706) (13,785) (8,356)
Acquisitions, net of cash acquired (85,382) - (4,067)
Other investing activities (8,190) (1,149) (3,011)
--------- --------- ---------
Net cash used in investing activities (101,278) (14,934) (15,434)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under line of credit arrangements 3,548 16,724 7,813
Payments under line of credit arrangements (3,435) (16,321) (6,874)
Borrowings under revolving credit facility 109,550 104,660 46,038
Payments under revolving credit facility (121,940) (104,940) (40,578)
Borrowings under long term loans 175,000 - -
Payments under long term loans (50,000) - -
Stock issued or (reacquired), net 113 (554) -
Other financing activities 1,068 830 (4,217)
--------- --------- ---------
Net cash provided by financing activities 113,904 399 2,182
--------- --------- ---------
Effects of exchange rate changes in cash 1,626 (225) (100)
--------- --------- ---------
Net increase (decrease) in cash 12,755 272 (1,306)
Cash at beginning of year 2,117 1,845 3,151
--------- --------- ---------
Cash at end of year $ 14,872 2,117 1,845
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,374 5,784 5,265
========= ========= =========
Income taxes $ 7,594 7,630 3,722
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 1 - ORGANIZATION AND BUSINESS
Worldtex, Inc. ("Worldtex" or the "Company"), a Delaware corporation organized
in July 1992, is a holding company engaged through its subsidiaries in the
manufacture of covered elastic yarn, which is used to manufacture hosiery
products and other apparel items, and narrow elastic fabrics, that are used as
components in the production of apparel products and elastic bands in women's
hosiery. Worldtex's principal markets are in North America, South America and
Europe.
Worldtex's principal subsidiaries are Regal Manufacturing Company, Inc.
("Regal"), based in Hickory, North Carolina, Rubyco (1987), Inc. ("Rubyco"),
based in Montreal, Canada, Filix Lastex, S.A. ("Filix"), based in Troyes,
France, and Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia. During 1997,
Worldtex acquired Elastex, Inc. ("Elastex"), based in Asheboro, North Carolina,
and Elastic Corporation of America, Inc. ("ECA"), based in Columbiana, Alabama
as discussed in Note 14. Reference to Worldtex shall include its subsidiaries
unless the context shall indicate otherwise.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements of Worldtex as of December 31, 1997 and
1996 and for the years ended December 31, 1997, 1996 and 1995 include the
accounts of Regal, Rubyco, Filix, Fibrexa effective April 1, 1995, Elastex
effective October 3, 1997 and ECA effective December 1, 1997. All significant
intercompany balances and transactions for all periods are eliminated in the
consolidated financial statements.
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH AND CASH EQUIVALENTS
At December 31, 1997, cash includes a $9,160 demand deposit with a commercial
bank earning daily money market investment yields. At December 31, 1997 and
1996, restricted cash on deposit of $2,123 and $2,004, respectively, are
included in other assets as security for loans to Fibrexa in Colombia, South
America.
(B) INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
As of December 31, 1997 and 1996, the major classes of inventory are:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw Materials $ 15,401 12,614
Work in Process 13,976 6,428
Finished Goods 24,823 18,223
-------- --------
$ 54,200 37,265
======== ========
</TABLE>
(C) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated primarily
using the straight-line method over the following estimated useful lives of the
related assets: machinery and equipment (6 to 20 years, with approximately 60%
being depreciated over 20 years), structures (20 to 40 years), other equipment
(5 to 10 years). Leasehold improvements are amortized over their respective
lease terms or their estimated useful lives, if shorter. Repair and maintenance
costs are charged to expense as incurred. Renewals and betterments which
substantially extend the useful life of an asset are capitalized and
depreciated. As of December 31, 1997 and 1996, property, plant and equipment
consists of:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $2,820 2,471
Buildings and leasehold
improvements 34,172 31,181
Machinery and equipment
99,083 91,008
------- -------
136,075 124,660
Less accumulated depreciation
and amortization
36,915 34,378
------- -------
$99,160 90,282
======= ======
</TABLE>
(D) COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES
The cost in excess of net assets of acquired businesses is amortized using the
straight-line method over the expected periods to be benefited, generally 40
years. The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the cost in excess of net assets of
acquired businesses over their remaining lives can be recovered through the
undiscounted future operating cash flows of the acquired business. The
assessment of the recoverability of goodwill will be impacted if estimated
future cash flows are not achieved.
(E) FORWARD EXCHANGE CONTRACTS
Rubyco enters into forward exchange contracts as a hedge against accounts
payable denominated in foreign currency. These contracts are used by Rubyco to
minimize exposure and reduce risk from exchange rate fluctuations in the regular
course of its foreign business. Gains and losses on forward contracts, which are
not material, are deferred and included in the measurement of the related
foreign currency transactions. The impact of forward contracts on cash flows is
reflected in the change in accounts and notes payable - trade. As of December
31, 1997 and 1996, $0 and $500, respectively, in contracts were outstanding.
<PAGE>
(F) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the carrying amounts
of assets and liabilities for tax purposes and financial statement purposes and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
No provision is made for income taxes which may be payable if undistributed
earnings of foreign subsidiaries were to be paid as dividends to Worldtex, since
Worldtex intends that such earnings will continue to be invested in those
countries. At December 31, 1997, the cumulative amount of foreign undistributed
earnings amounted to approximately $48,509. Foreign tax credits may be available
as a reduction of United States income taxes in the event of such distributions.
(G) FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies have been translated
into U. S. dollars at the period-end exchange rate. Revenues and expenses
denominated in foreign currencies have been translated into U.S. dollars at the
weighted average exchange rate. Translation gains and losses are accounted for
in a separate component of stockholders' equity. The exchange gains and losses
arising on transactions are charged to income as incurred.
(H) NET INCOME PER SHARE
Basic earnings per share are calculated based upon the weighted average number
of common shares outstanding during the year. Diluted earnings per share are
based upon the weighted average number of common shares and dilutive common
equivalent shares outstanding during the year. The reconciliation of income
available to common stockholders and weighted average number of common shares
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
for basic and dilutive per share amounts as required by SFAS No. 128, EARNINGS
PER SHARE is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income before
extraordinary item $ 6,492 10,946 5,252
Preferred dividends and
other adjustments
- - -
---------- ---------- ----------
Basic net income available
to common stockholders
$ 6,492 10,946 5,252
Securities effects - - -
---------- ---------- ----------
Diluted net income available
to common stockholders
$ 6,492 10,946 5,252
========== ====== ==========
Basic weighted average
common shares outstanding
14,420 14,463 14,476
Effect of dilutive options
outstanding 401 206 91
---------- ---------- ----------
Diluted weighted average
common and common
equivalent shares
outstanding
14,821 14,669 14,567
========== ========== ==========
Potentially dilutive shares
not included because
their effect was
antidilutive 80 458 651
========== ========== ==========
</TABLE>
(I) REVENUE RECOGNITION
Revenue from sales is recognized when goods are shipped to the customer, at
which point the risk of loss has passed to the customer. The Company provides
allowances for expected cash discounts based upon historical bad debts and
related claims experience and upon periodic evaluations of the aging of the
accounts receivable.
<PAGE>
(J) INTEREST RATE SWAP
The interest rate swap agreement is accounted for like a hedge of the underlying
debt obligation and interest expense is recorded using the revised interest
rate, with fees and other payments amortized as yield adjustments.
(K) STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion no
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma net income per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
(L) ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
(M) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation. The reclassifications did not impact net income as previously
reported.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 4 - NOTES RECEIVABLE
Filix has the U.S. dollar equivalent of approximately $2,812 and $4,500 of
non-interest bearing notes receivable as of December 31, 1997 and 1996,
respectively, with maturities within four months of the periods ended.
NOTE 5 - SHORT-TERM BORROWINGS
Short-term debt consists of notes payable to banks and advances under bank lines
of credit and overdraft facilities.
Fibrexa has available the U.S. dollar equivalent of $4,170 under various bank
lines of credit providing for unsecured borrowings and letter of credit
financing generally due in 90 days. At December 31, 1997 and 1996, $1,560 and
$1,324, respectively, were outstanding under these agreements at average
interest rates of 7.75% and 7.57% respectively.
Filix has available the U.S. dollar equivalent of $15,049 under various
unsecured bank lines of credit and overdraft facilities bearing interest at
4.28%. At December 31, 1997 and 1996, no amounts were outstanding under these
facilities.
Rubyco has available the U.S. dollar equivalent of $1,049 under a bank line of
credit, due on demand, providing for unsecured borrowings and letter of credit
financing at the bank's prime rate (5.5% at December 31, 1997). The line of
credit is guaranteed by the Company. At December 31, 1997 and 1996, $259 and $18
amounts, respectively, were outstanding under this agreement.
<PAGE>
NOTE 6 - LONG-TERM DEBT
As of December 31, 1997 and 1996, long-term debt consists of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
9.625% Senior Notes due
December 15, 2007 $175,000 -
7.50% Senior Notes due
July 1,1998 through July 1, 2004 - 50,000
Industrial revenue bonds
due June 1, 2014 with
interest at variable rates
(5.9% average rate as of
December 31,1997) 6,000 -
Revolving credit facilities
due December 1, 2002
with interest at variable
rates (6.56% weighted
average rate as of
December 31,1996) - 12,390
Other indebtedness, primarily
fixed rate debt, due at
various dates through 2007 5,400 6,998
-------- --------
186,400 69,388
Less current installments 620 1,634
-------- --------
$185,780 67,754
======== =========
</TABLE>
The aggregate annual maturities of long-term debt during each of the five years
subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
--------------- ------------
<S> <C>
1998 $ 620
1999 485
2000 1,826
2001 601
2002 852
Thereafter 182,016
----------
$ 186,400
==========
</TABLE>
The Company entered into an indenture dated December 1, 1997, under which a
total of $175,000 Senior Notes due December 15, 2007 were issued with interest
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
at the annual rate of 9.625%. The notes are unconditionally guaranteed by each
of the U.S. subsidiaries of the Company. The Company may redeem the notes on or
after December 15, 2002, at redemption prices ranging from 104.813% in 2002 to
100% in 2005. Up to 35% of the aggregate principal amount of notes originally
issued may be redeemed at a price of 109.625% with the net proceeds of a public
offering of common stock at any time on or before December 15, 2000. The
indenture restricts the ability of the Company and its subsidiaries to incur
additional indebtedness and issue preferred stock, enter into sale and leaseback
transactions, incur liens, pay dividends or make certain other restricted
payments, apply net proceeds from certain asset sales, enter into certain
transactions with affiliates, and assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of the Company. At December 31, 1997,
Worldtex was in compliance with the various covenants.
On December 1, 1997, the Company repaid the $50,000 Senior Notes due July 2004
with part of the proceeds from the sale of the $175,000 Senior Notes due 2007.
An extraordinary charge of $1,344, net of a tax benefit of $693, was recorded
for the early debt extinguishment.
In 1994, the Company entered into an interest rate swap agreement with a
commercial bank that effectively converted a portion of its $50,000 Senior Notes
from fixed rate debt to a floating rate based on LIBOR for a period of three
years ending July 1999. At December 31, 1997, the swap agreement had a notional
principal amount of $25,000. The floating rate is reset every six months during
the term of the interest rate swap agreement with interest due January 21 and
July 21. The agreement effectively changed the interest rate on $25,000 from
7.5% to approximately 6.24%, 7.87%, 7.08%, 6.59%,6.77%, 6.52% and 6.77% for the
six month intervals ended January 21, 1995 through January 21, 1998 at which
time the effective interest rate for this portion of the debt was decreased to
6.49% for the next six months. The estimated amount at which the Company could
terminate this agreement was approximately $354 at December 31, 1997. Net
amounts due under this agreement decreased interest expense for 1997 by $257,
for 1996 by $201 and for 1995 by $20. The $50,000 Senior Notes were repaid on
<PAGE>
December 1, 1997. The Company terminated the swap agreement effective March 26,
1998. The termination did not have a material effect on the financial condition
or results of operations of the Company.
In connection with the ECA acquisition, the Company entered into a new credit
facility and repaid and terminated the existing credit facility. The new
facility provides for revolving credit borrowings in an aggregate principal
amount of up to $25,000. The new credit facility terminates and all amounts
borrowed thereunder will be due December 1, 2002. Loans under the new credit
facility bear interest at variable rates. Loans are guaranteed by all U.S.
subsidiaries of the Company and are required to be secured by liens on the
accounts receivable and inventory of the Company and its U.S. subsidiaries, 100%
of the outstanding capital stock of the Company's U.S. subsidiaries and 65% of
the outstanding capital stock of each of the foreign subsidiaries. No loans were
outstanding at December 31, 1997. The new credit facility carries a commitment
fee of .375% of the unused available borrowings. The new credit facility
contains customary covenants and restrictions on the Company's ability to engage
in certain activities. In addition, the new credit facility provides that the
Company must meet certain financial covenants, including a minimum consolidated
current ratio, a maximum leverage ratio and a minimum interest coverage ratio.
In addition, the new credit facility restricts the payment of dividends. At
December 31, 1997, Worldtex was in compliance with the various covenants.
Under the most restrictive of these debt agreements, $.4 million of retained
earnings was unrestricted as to the payment of dividends and other distributions
as of December 31, 1997.
NOTE 7 - STOCKHOLDERS' EQUITY
Worldtex is authorized to issue up to forty million shares of common stock, $.01
par value, and ten million shares of preferred stock, $.01 par value. As of
December 31, 1997 and 1996, there were issued and outstanding 14,428,671 and
14,403,271 shares of common stock, respectively, and no shares of preferred
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
stock. Worldtex is authorized to repurchase up to one million shares of its
common stock. Through December 1997, 266,300 shares had been purchased and are
carried at cost as Treasury Stock.
Preferred stock is issuable in one or more series with dividend rates,
liquidation preferences and redemption, conversion and voting rights as may be
determined by Worldtex's Board of Directors.
In connection with Worldtex's formation, each shareholder received, in addition
to one share of Worldtex common stock, one share purchase right for each
outstanding share of the former parent's common stock. Each right entitles the
registered holder to purchase from Worldtex a unit ("Unit") consisting of one
one-hundredth of a share of preferred stock of Worldtex, at a price of $30 per
Unit. The share purchase rights are not exercisable or transferable apart from
Worldtex common stock until the earlier to occur of 1) the tenth day following a
public announcement that a person or group of affiliated or associated persons
has acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding Worldtex common stock (an "Acquiring Person"), or 2) the
tenth business day following the commencement of a tender offer or exchange
offer if, upon consummation thereof, any person or group would be an Acquiring
Person. The share purchase rights will expire at the close of business on
December 31, 2002, unless earlier redeemed or exchanged by Worldtex.
Under the terms of the Worldtex 1992 Stock Incentive Plan, as amended by the
stockholders in May 1994, options to purchase up to 1,400,000 shares of common
stock may be awarded to officers and employees. Options granted under the plan
may be for such terms and exercised at such times as determined at the time of
grant by the Compensation Committee of the Board of Directors. In addition, the
Plan provides that each outside director will be granted an option to purchase
10,000 shares of common stock of the Company. As of December 31, 1997, 1,000
shares were reserved for future awards under the plan. In addition, in
connection with the Company's acquisition of Elastic Corporation of America
("ECA") in December 1997, the Company granted to a senior executive of ECA an
<PAGE>
option outside of the 1992 Stock Incentive Plan to purchase 50,000 shares of
common stock of the Company. The 1992 Stock Incentive Plan also includes
provisions for the granting of stock appreciation rights, restricted stock,
deferred stock, employee loans and tax offset payments. At December 31, 1997, no
such grants had been issued, except for limited stock appreciation rights
applicable if there is a change of control (as defined) of the Company.
The following table summarizes stock option activity during each of the last
three years:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Balances at
December 31, 1994 996,000 $5.50
Options Granted 86,000 $6.44
Options Exercised - -
Options Cancelled 5,000 $6.44
-----------
Balances at
December 31, 1995 1,077,000 $5.57
Options Granted 255,000 $4.82
Options Exercised 6,200 $5.43
Options Cancelled 10,000 $4.19
-----------
Balances at
December 31, 1996 1,315,800 $5.44
Options Granted 80,000 $8.26
Options Exercised 25,400 $4.43
Options Cancelled 3,000 $6.44
-----------
Balances at
December 31, 1997 1,367,400 $5.53
===========
Options Exercisable:
December 31, 1995 507,200 $6.03
December 31, 1996 737,400 $5.91
December 31, 1997 891,680 $5.76
Weighted average fair
value of options
granted:
December 31, 1995 $3.01
December 31, 1996 $2.27
December 31, 1997 $3.79
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
RANGE OF EXERCISE NUMBER OF REMAINING AVERAGE
PRICES SHARES CONTRACTUAL LIFE EXERCISE
PRICE
<C> <C> <C> <C> <C>
$4.19 - $4.75 634,800 7.0 yrs $ 4.40
$6.44 - $6.75 652,600 5.3 yrs $ 6.48
$7.97 - $9.44 80,000 9.7 yrs $ 8.26
</TABLE>
Options exercisable at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
RANGE OF EXERCISE NUMBER OF REMAINING AVERAGE
PRICES SHARES CONTRACTUAL LIFE EXERCISE
PRICE
<C> <C> <C> <C> <C>
$4.19 - $4.75 293,880 7.0 yrs $ 4.40
$6.44 - $6.75 597,800 5.3 yrs $ 6.48
$7.97 - $9.44 0 9.7 yrs $ 8.26
</TABLE>
The Company continues to apply Accounting Principles Board Opinion No. 25 and
accordingly recognizes compensation expense to the extent the quoted market
price of the stock exceeds the amount the employee is required to pay as of the
date of grant of the option. 200,000 options were issued at less than quoted
market value and $30 has been charged to compensation cost in 1997, 1996 and
1995 respectively. These 200,000 options, plus 200,000 options issued at quoted
market value, vest ratably over three years while all other options vest ratably
over five years. The options have a ten year term.
Had compensation cost for the Company's stock option plan been determined
consistent with Financial Accounting Standards Statement No. 123, "Accounting
for Stock-Based Compensation", the Company's net income and net income per share
would be as follows:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income as reported
$5,148 10,946 5,252
Pro forma 5,046 10,872 5,240
Diluted net income
per share
as reported .35 .75 .36
Pro forma .35 .75 .36
</TABLE>
The fair value of each option grant is established on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: dividend yield of 0%;
expected volatility of 33%, 27% and 29%; risk-free interest rates of 5.5% and
expected lives of eight years.
NOTE 8 - EMPLOYEE BENEFIT PLANS
Employees of Regal participate in a non-contributory profit-sharing plan for all
eligible employees, including officers. The plan provides for minimum employer
contribution of the lesser of five percent of Regal's income before taxes plus a
discretionary amount determined by the Regal Board of Directors or the maximum
amount deductible for Federal income tax purposes. Provisions for the years
ended December 31, 1997, 1996 and 1995 were $89, $60 and $27 respectively.
Regal employees participate in the Worldtex Employee Stock Ownership Plan
("Worldtex ESOP"). The Worldtex ESOP provides eligible employees with an
opportunity to purchase Worldtex common stock through payroll deductions, and
subject to certain limitations was matched by Worldtex. The Worldtex
contribution was suspended indefinitely effective June 1, 1996. Effective
January 11, 1998, Worldtex reinstituted its matching program at the rate of
one-third of the employee contribution up to a maximum employee contribution of
6% of salary. Contributions to the Worldtex ESOP are invested by an independent
trustee in common stock of Worldtex. Stock attributable to Worldtex
contributions vests at the rate of 20% for after two years of service, with 20%
vesting added for each year, up to five years of service, at which point an
employee is 100% vested in the plan. Contributions to the Worldtex ESOP were $0,
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
$50 and $124 in 1997, 1996 and 1995 respectively. Effective June 1, 1996, the
Company amended and renamed the plan The Worldtex, Inc. Profit Sharing and
Retirement Savings Plan in order to merge the Regal profit-sharing, the Worldtex
ESOP, and the Worldtex, Inc. 401(k) plans. All vesting schedules for Company
contributions were conformed to the one described above for the ESOP plan.
Employees of Rubyco participate in a Registered Retirement Savings plan. The
plan provides for employee contributions of 4% of salary to a maximum of $3.5
with corresponding contributions by Rubyco of 5% of salary to a maximum of $3.5.
Provisions for the years ended December 31, 1997, 1996 and 1995 were $32, $27
and $27 respectively.
Filix is legally obligated to contribute to an employee profit-sharing plan
whereby annual contributions are determined on the basis of a prescribed formula
using capitalization, salaries and certain revenues. Amounts are paid into a
bank trust fund the year following the contribution calculation. Provisions for
the years ended December 31, 1997, 1996 and 1995 were $720, $902 and $780
respectively.
Under the terms of an industry-wide labor agreement, Filix employees are
entitled to a lump-sum payment at normal retirement age of up to four months
salary depending on their number of years of service. Such amounts are payable
only if the employee remains with Filix until retirement. The plan is not
funded. The following table sets forth the plan's unfunded status as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligations $ - -
====== ======
Accumulated benefit
obligation $ (185) (256)
====== ======
Projected benefit obligation $ (199) (299)
Plan assets at fair value - -
------ ------
Projected benefit obligation in (199) (299)
excess of plan assets
Unrecognized net loss 14 99
------ ------
Accrued pension liability $ (185) (200)
====== ======
<PAGE>
Net periodic pension cost of the Filix agreement for the years ended December
31, 1997, 1996 and 1995 included the following components:
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 8 11 9
Interest cost on projected benefit
obligation 13 25 26
Amortization of (gain)/loss - 11 -
------ ------ ------
Net periodic pension cost $ 21 47 35
====== ====== ======
</TABLE>
The projected benefit obligation at December 31, 1997 and 1996 was determined
using an assumed discount rate of 7.25% and 7.5% respectively. The assumed
long-term rate of increase in compensation was 3% for 1997 and 1996.
Worldtex has a unfunded supplemental death and retirement plan for certain key
employees. The accrued pension liability at December 31, 1997 and 1996 was
$1,487 and $1,287. Net periodic pension cost was $200, $522 and $72 in 1997,
1996 and 1995 respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under noncancelable operating leases, primarily
for real property, as of December 31, 1997 are:
1998 $ 2,174
1999 1,936
2000 1,904
2001 1,924
2002 404
---------
Total $ 8,342
=========
Rental expense for cancelable and noncancelable operating leases charged to
operations for the years ended December 31, 1997, 1996 and 1995 was
approximately $1,134, $974 and $647 respectively.
In the normal course of business, Worldtex and its subsidiaries may sometimes be
named as a defendant in litigation. In the opinion of management, based upon the
advice of counsel, any uninsured liability which may result from the resolution
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
of any present litigation or asserted claim will not have a material effect on
Worldtex's operations, financial position or liquidity.
NOTE 10 - ACCOUNTS AND NOTES PAYABLE - TRADE AND OTHER LIABILITIES
Accounts and notes payable - trade and other liabilities consist of the
following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accounts and other $ 19,187 21,229
payables - trade
Salaries, wages and other 3,612 3,502
compensation
Pensions, profit sharing and 1,668 1,530
employee benefits
Taxes, other than income taxes 1,083 831
Interest 1,619 2,109
Other 1,067 1,053
--------- ---------
Total $ 28,236 30,254
========= =========
</TABLE>
NOTE 11 - INCOME TAXES
The provisions for income taxes for the years ended December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
U. S. U.S. STATE
FEDERAL FOREIGN & LOCAL TOTAL
<S> <C> <C> <C> <C>
1997
Current $ (310) 4,335 (55) 3,970
Deferred (275) 1,794 (112) 1,407
---------- --------- ---------- ---------
Total $ (585) 6,129 (167) 5,377
========== ========= ========== =========
1996
Current $ 90 5,711 22 5,823
Deferred (154) 758 (12) 592
----------
Total $ (64) 6,469 10 6,415
========== ========= ========= =========
1995
Current $ - 5,037 - 5,037
Deferred (717) 834 (175) (58)
---------- --------- ---------- ----------
Total $ (717) 5,871 (175) 4,979
========== ========= ========== =========
</TABLE>
<PAGE>
Income before income taxes for the years ended December 31, 1997, 1996 and 1995
is comprised as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. $ (2,244) (365) (1,959)
Foreign 14,113 17,726 12,190
-------- -------- ---------
$ 11,869 17,361 10,231
======== ======== ========
</TABLE>
A reconciliation for the years ended December 31, 1997, 1996 and 1995 between
the amount computed using the U. S. Federal income tax rate and the effective
rate of tax on book income is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal income
tax rate 34.0% 34.0% 34.0%
State and local income taxes,
net of U.S. Federal income
tax benefit - - (1.1)
Effect of increase in French
tax rate on deferred taxes 9.7 - 8.7
Effect of increase in French
tax rate on current taxes 7.1 - -
Effect of foreign inflation
adjustments (7.8) - -
Amortization of goodwill 2.2 1.9 3.0
Other, net .1 1.1 4.1
----- ----- -----
Effective rate of tax on book
income 45.3% 37.0% 48.7%
====== ===== ======
</TABLE>
In October 1997, the French parliament enacted a provision that increased the
tax rate from 36.67% to 41.67%. The 36.67% rate was increased from 33.33% in
July 1995. The rate increases resulted in a $1,156 charge in 1997 and a $889
charge in 1995 to income tax provision to increase the deferred tax liability as
of January 1 of each year to the higher enacted income tax rate.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1997 and 1996 are as
follows:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Inventories $ 259 196
Employee benefits 843 739
Allowance for doubtful accounts 346 671
Net operating loss carryforwards 2,561 623
--------- ---------
4,009 2,229
--------- ---------
Deferred tax liabilities:
Property, plant and equipment (17,609) (16,813)
Goodwill amortization (82) -
Imputed interest (806) (838)
Other nondeductible items (362) (158)
---------- ----------
(18,859) (17,809)
---------- ----------
Net deferred income taxes $(14,850) (15,580)
========== ==========
</TABLE>
<PAGE>
Deferred taxes are classified in the accompanying Consolidated Balance Sheets
captions as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prepaid expenses and
current assets $ 1,085 1,449
Deferred income taxes (15,935) (17,029)
-------- --------
$(14,850) (15,580)
======== ========
</TABLE>
There was a $91 valuation allowance established in 1997 for deferred tax assets
attributable to items when realized will result in adjustments to goodwill as of
December 31, 1997. There was no valuation allowance for years ended December 31,
1996 and 1995. Based upon the level of historical taxable income and the
expected reversal of future taxable temporary differences, management believes
it is more likely than not that the Company will realize the benefits of these
deductible differences at December 31, 1997.
NOTE 12 - GEOGRAPHIC INFORMATION
Financial information by geographic area for the years ended December 31, 1997,
1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
NORTH SOUTH
----- -----
AMERICA EUROPE AMERICA TOTAL
------- ------ ------- -----
<S> <C> <C> <C> <C>
1997
- ----
Net Sales $98,138 92,417 12,701 203,256
Operating Profit 3,637 12,830 2,747 19,214
Identifiable Assets 196,795 89,919 25,725 312,439
1996
- ----
Net Sales 86,280 109,785 11,764 207,829
Operating Profit 2,469 19,049 975 22,493
Identifiable Assets 79,598 101,452 24,982 206,032
1995
- ----
Net Sales 80,721 100,577 6,683 187,981
Operating Profit
(loss) (311) 14,878 1,187 15,754
Identifiable Assets 80,514 99,439 16,112 196,065
</TABLE>
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires all entities to disclose the fair value
of certain on- and off-balance sheet financial instruments in their financial
statements.
(A) CASH, ACCOUNTS AND NOTES RECEIVABLE AND ACCOUNTS AND NOTES PAYABLE
The carrying amount approximates fair value because of the short maturity of
these instruments.
(B) LONG-TERM DEBT
The fair values of each of the Company's long-term debt instruments are based on
the amount of future cash flows associated with each instrument discounted using
the Company's current borrowing rate for similar debt instruments of comparable
maturity. The estimated fair values of the Company's long-term debt instruments
are:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
<C> <C> <C>
9.625% Senior Notes $ 175,000 179,831
Revolving credit facilities - -
Other indebtedness 11,400 11,510
----------- -----------
Total $ 186,400 191,341
=========== ===========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(C) FORWARD EXCHANGE CONTRACTS
The forward exchange contracts described in Note 3 (e) are relatively simple,
short-term instruments in which future exchange rates are locked in for a fee.
(D) INTEREST RATE SWAP
The interest rate swap described in Note 3 (j) is discussed further in Note 6.
(E) LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 14 - ACQUISITIONS
On December 1, 1997, the Company completed the acquisition of substantially all
of the assets of the Elastic Corporation of America division ("ECA") of NFA
Corp. for approximately $76,300 in cash and the assumption of $6,000 in long
term debt. ECA is a supplier of woven and knitted narrow elastic fabrics to the
apparel industry. On October 3, 1997, the Company purchased substantially all of
the assets of the Narrow Fabrics division ("Elastex") of Texfi Industries, Inc.
for approximately $8,400 in cash. Elastex is a supplier of knitted narrow
elastic fabrics to the apparel industry. The net proceeds from the sale of the
$175,000 senior notes were used to fund the acquisition on December 1, 1997 of
ECA and to reduce outstanding indebtedness incurred to finance the acquisition
on October 3, 1997, of Elastex. The excess of cost over fair value of net assets
acquired was approximately $52,887 for ECA and approximately $3,837 for Elastex
as of December 31, 1997, which will be amortized using the straight-line method
over 40 years. The acquisitions were accounted for as a purchase and,
accordingly, the net assets and operations of ECA and Elastex have been included
in the Company's consolidated financial statements beginning on the acquisition
effective dates.
<PAGE>
The following unaudited pro forma data presents 1997 and 1996 results of
operations of the Company, Elastex and ECA as though the acquisitions had
occurred at the beginning of each period presented, giving effect to
depreciation and amortization of assets on the accounting basis recognized in
recording the purchase and the interest on funds used to effect the purchase.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 283,726 279,383
Net income 5,576 7,240
Diluted net income per share .38 .49
</TABLE>
During the second quarter of 1995, a wholly owned subsidiary of the Company
acquired substantially all of the assets of Fibrexa, S.A. ("Fibrexa"), a
manufacturer of covered yarn based in Bogota, Colombia. The consideration for
the purchase was approximately $4,400 in cash, assumption of approximately
$6,500 in debt and contingent payments based on earnings from the Company's
South American operations over a five-year period. The funds for this purchase
were obtained from the Company's cash on hand and borrowings under the Company's
Revolving Credit Agreement. The excess of cost over fair value of the net assets
acquired was approximately $800 at acquisition and $1,500 at year end 1995,
$2,000 at December 1996, and $2,800 at December 1997 due to contingency payments
per the purchase agreement, which will be amortized using the straight-line
method over 40 years. The acquisition was accounted for as a purchase and,
accordingly, the net assets and operations of Fibrexa have been included in the
Company's consolidated financial statements beginning on the effective
acquisition date of April 1, 1995.
NOTE 15 - RELATED PARTY TRANSACTIONS
In 1997, 1996 and 1995, other assets include a $600 noninterest bearing note
receivable due in the year 2000 from a senior executive.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 16 - CONCENTRATIONS
The Company currently buys a significant portion of its Lycra and spandex yarn,
an important component of its products, from a single supplier. There are a
limited number of manufacturers of this raw material and a change in suppliers
could cause a delay in manufacturing and a possible loss of sales, which would
adversely affect operating results.
In 1995, one customer accounted for 10.5% of Worldtex's consolidated net sales.
In 1997 and 1996, no customer represented over 10% of consolidated net sales.
The majority of Worldtex's sales during 1997 were attributable to the sale of
covered elastic yarn. In 1997, Worldtex acquired two narrow elastic fabric
businesses. Any significant decline in demand for covered elastic yarn or narrow
elastic fabrics would have a material adverse effect on the operations of
Worldtex.
NOTE 17 - RESTRUCTURING CHARGE
In December 1995, the Company recorded a year-end charge of $1,715 (or eight
cents per share, net of taxes) for the closure of a Canadian manufacturing
facility and the Company's Buenos Aires, Argentina distribution branch. The
charge included accruals for severance, inventory adjustments, accounts
receivable reserves, and equipment and building write downs to estimated fair
market values. $1,300 was reflected as cost of goods sold and $400 as selling
and administrative expenses.
As of December 31, 1997, $507 is reserved primarily for inventory valuation and
allowances for the collectibility of accounts receivables related to the closed
operations.
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
The $175,000 Senior Notes are guaranteed by each of the U.S. subsidiaries of the
Company, which consist of Regal, Willcox & Gibbs Filix of Delaware, Inc., Regal
Yarns of Argentina, Inc., WTX Colombia I, Inc. and WTX Colombia II, Inc., ECA
and Elastex. The guarantor subsidiaries are wholly owned subsidiaries of the
<PAGE>
Company and the guarantees are full, unconditional and joint and several. There
are no restrictions on the ability of the guarantor subsidiaries to make
distributions to the Company, except those generally applicable under relevant
corporation laws. Separate financial statements of each guarantor subsidiary
have not been presented because management has determined that they are not
material to investors. The following pages include summarized consolidating
financial information for the Company, segregating the parent, the guarantor
subsidiaries and the nonguarantor subsidiaries.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Income
December 31, 1997
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 77,893 138,892 (13,529) 203,256
Cost of goods sold - 69,413 111,388 (13,529) 167,272
---------- ---------- ---------- ----------- ----------
Gross profit - 8,480 27,504 - 35,984
Selling and administrative expense 2,572 4,270 9,928 - 16,770
---------- ---------- ---------- ---------- ----------
Operating profit (loss) (2,572) 4,210 17,576 - 19,214
Interest expense 5,962 247 834 - 7,043
Intercompany interest expense (income) (2,535) 844 1,691 - -
Intercompany administrative charges (2,435) 1,948 487 - -
Other income (expense) - net 87 61 (450) - (302)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (3,477) 1,232 14,114 - 11,869
Provision (benefit) for income taxes (1,083) 331 6,129 - 5,377
Undistributed earnings of subsidiaries 8,886 - - (8,886) -
---------- ---------- ---------- ---------- ----------
Net income before extraordinary Item 6,492 901 7,985 (8,886) 6,492
Extraordinary item 1,344 - - - 1,344
---------- ---------- ---------- ---------- ----------
Net income $ 5,148 901 7,985 (8,886) 5,148
========== ========== ========== =========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Income
December 31, 1996
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 66,574 150,332 (9,077) 207,829
Cost of goods sold - 59,893 117,938 (9,077) 168,754
---------- ---------- ---------- ---------- ----------
Gross profit - 6,681 32,394 - 39,075
Selling and administrative expense 2,659 3,166 10,757 - 16,582
---------- ---------- ---------- ---------- ----------
Operating profit (loss) (2,659) 3,515 21,637 - 22,493
Interest expense 4,844 194 788 - 5,826
Intercompany interest expense (income) (2,929) 885 2,044 - -
Intercompany administrative charges (3,348) 1,851 1,497 - -
Other income (expense) - net 132 144 418 - 694
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (1,094) 729 17,726 - 17,361
Provision (benefit) for income taxes (350) 296 6,469 - 6,415
Undistributed earnings of subsidiaries 11,690 - - (11,690) -
---------- ---------- ---------- ---------- ----------
Net income $ 10,946 433 11,257 (11,690) 10,946
========== ========== ========== =========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Income
December 31, 1995
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 63,621 127,110 (2,750) 187,981
Cost of goods sold - 58,626 100,584 (2,691) 156,519
---------- ---------- ---------- ---------- ----------
Gross profit - 4,995 26,526 (59) 31,462
Selling and administrative expense 2,136 4,279 9,293 - 15,708
---------- ---------- ---------- ---------- ----------
Operating profit (loss) (2,136) 716 17,233 (59) 15,754
Interest expense 4,788 183 722 - 5,693
Intercompany interest expense (income) (3,167) 753 2,414 - -
Intercompany administrative charges (3,077) 2,147 930 - -
Other income (expense) - net 62 551 (443) - 170
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (618) (1,816) 12,724 (59) 10,231
Provision (benefit) for income taxes 2 (894) 5,871 - 4,979
Undistributed earnings of subsidiaries 5,872 - - (5,872) -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 5,252 (922) 6,853 (5,931) 5,252
========== =========== ========== =========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Balance Sheets
December 31, 1997
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 10,058 321 4,493 - 14,872
Accounts and notes receivable, net - 20,870 25,450 - 46,320
Inventories - 28,251 25,949 - 54,200
Prepaid expenses and other current assets 1,402 511 1,113 - 3,026
---------- ---------- ---------- ---------- ----------
Total current assets 11,460 49,953 57,005 - 118,418
Property, plant and equipment, net 230 46,977 51,953 - 99,160
Other assets 9,480 1,495 971 - 11,946
Cost in excess of net assets of acquired
businesses, net - 64,619 18,296 - 82,915
Intercompany investments 102,246 - - (102,246) -
Intercompany advances 146,164 14,798 - (160,962) -
---------- ---------- ---------- ---------- ----------
$ 269,580 177,842 128,225 (263,208) 312,439
========== ========== ========== ========== ==========
Liabilities and Stockholders' equity
Current Liabilities
Short-term borrowings $ - - 1,819 - 1,819
Current Installments of long-term debt - - 620 - 620
Accounts and notes payable-trade and other
liabilities 3,600 8,529 16,107 - 28,236
Income taxes payable 567 (1,785) 1,218 - -
---------- ---------- ---------- ---------- ----------
Total current liabilities 4,167 6,744 19,764 - 30,675
---------- ---------- ---------- ---------- ----------
Long-term debt 175,000 6,000 4,780 - 185,780
Other long-term liabilities - - 2,547 - 2,547
Deferred income taxes (1,887) 6,820 11,002 - 15,935
Intercompany payables 14,798 123,577 22,587 (160,962) -
---------- ---------- ---------- ---------- ----------
Total liabilities 192,078 143,141 60,680 (160,962) 234,937
---------- ---------- ---------- ---------- ----------
Stockholders' equity
Preferred stock - - - - -
Common stock 147 49 31,778 (31,827) 147
Paid-in capital 30,059 15,822 - (15,822) 30,059
Retained earnings 62,067 18,830 49,040 (67,870) 62,067
Cumulative foreign translation adjustment (13,273) - (13,273) 13,273 (13,273)
Less-Treasury stock, at cost (1,498) - - - (1,498)
---------- --------- --------- ---------- ----------
Total stockholders' equity 77,502 34,701 67,545 (102,246) 77,502
---------- ---------- ---------- ---------- ----------
$ 269,580 177,842 128,225 (263,208) 312,439
========== ========== ========== =========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Balance Sheets
December 31, 1996
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 428 174 1,515 - 2,117
Accounts and notes receivable, net (200) 7,558 32,510 - 39,868
Inventories - 12,926 24,339 - 37,265
Prepaid expenses and other current assets 1,405 415 1,155 - 2,975
---------- ---------- ---------- ---------- ----------
Total current assets 1,633 21,073 59,519 - 82,225
Property, plant and equipment, net 263 30,725 59,294 - 90,282
Other assets 2,343 2,117 687 - 5,147
Cost in excess of net assets of acquired
businesses, net - 8,212 20,166 - 28,378
Intercompany investments 85,858 - - (85,858) -
Intercompany advances 75,788 14,798 - (90,586) -
---------- ---------- ---------- ---------- ----------
$165,885 76,925 139,666 (176,444) 206,032
========== ========== ========== =========== ==========
Liabilities and Stockholders' equity
Current Liabilities
Short-term borrowings $ - - 1,342 - 1,342
Current Installments of long-term debt - - 1,634 - 1,634
Accounts and notes payable trade and other
liabilities 3,193 5,937 21,124 - 30,254
Income taxes payable 750 (1,734) 2,509 - 1,525
---------- ---------- ---------- ---------- ----------
Total current liabilities 3,943 4,203 26,609 - 34,755
---------- ---------- ---------- ---------- ----------
Long-term debt 62,390 - 5,364 - 67,754
Other long-term liabilities - - 1,316 - 1,316
Deferred income taxes (424) 6,795 10,658 - 17,029
Intercompany payables 14,798 47,950 27,838 (90,586) -
---------- ---------- ---------- ---------- ----------
Total liabilities 80,707 58,948 71,785 (90,586) 120,854
---------- ---------- ---------- ---------- ----------
Stockholders' equity
Preferred stock - - - - -
Common stock 147 49 27,160 (27,209) 147
Paid-in capital 29,946 - - - 29,946
Retained earnings 56,919 17,928 41,057 (58,985) 56,919
Cumulative foreign translation adjustment (336) - (336) 336 (336)
Less-Treasury stock, at cost (1,498) - - - (1,498)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity 85,178 17,977 67,881 (85,858) 85,178
---------- ---------- ---------- ---------- ----------
$ 165,885 76,925 139,666 (176,444) 206,032
========== ========== ========== =========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Cash Flows
December 31, 1997
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,148 901 7,985 (8,886) 5,148
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries (8,886) - - 8,886 -
Depreciation and amortization 37 2,630 4,178 - 6,845
Provision for losses on accounts receivable - 71 234 - 305
Deferred income taxes (1,099) 341 1,792 (314) 720
Change in assets and liabilities net of effects of
acquisition of Fibrexa:
Accounts and notes receivable (200) (3,060) 2,196 - (1,064)
Inventories - (2,007) (5,389) - (7,396)
Prepaid expenses and other current assets (86) (34) (128) - (248)
Accounts and notes payable-trade and other 406 (2,171) (1,902) (646) (4,313)
current liabilities
Income taxes payable (459) (597) (984) 546 (1,494)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating (5,139) (3,926) 7,982 (414) (1,497)
----------- ----------- ---------- ----------- -----------
activities
Cash flows from investing activities:
Capital expenditures (3) (2,823) (5,426) 546 (7,706)
Acquisitions, net of cash acquired (7,502) - - (77,880) (85,382)
Other investing activities (7,017) 835 (1,875) (133) (8,190)
---------- ---------- ---- ----- ---------- ----------
Net cash used in investing activities (14,522) (1,988) (7,301) (77,467) (101,278)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Borrowings under line of credit
arrangements - - 3,548 - 3,548
Payments under line of credit arrangements - - (3,435) - (3,435)
Borrowings under revolving credit facility 109,550 - - - 109,550
Payments under revolving credit facility (121,940) - - - (121,940)
Borrowings under long term loans 175,000 - - - 175,000
Payments under long term loans (50,000) - - - (50,000)
Stock issued or (reacquired), net 113 - - - 113
Advances - affiliated companies (70,376) 6,068 1,036 63,272 -
Other financing activities (119) - 1,546 (359) 1,068
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities 42,228 6,068 2,695 62,913 113,904
---------- ---------- ---------- ---------- ----------
Effects of exchange rate changes in cash (12,937) (5) (398) 14,968 1,626
----------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash 9,630 147 2,978 - 12,755
Cash at beginning of year 428 174 1,515 - 2,117
---------- ---------- ---------- ---------- ----------
Cash at end of year $ 10,058 321 4,493 - 14,872
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Cash Flows
December 31, 1996
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,946 433 11,257 (11,690) 10,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries (11,690) - - 11,690 -
Depreciation and amortization 37 2,310 3,937 - 6,284
Provision for losses on accounts receivable (83) 222 - 139
Deferred income taxes (219) 52 992 - 825
Change in assets and liabilities net of effects of
acquisition of Fibrexa:
Accounts and notes receivable 200 167 (3,155) - (2,788)
Inventories - 281 (4,838) - (4,557)
Prepaid expenses and other current assets 98 (119) 184 - 163
Accounts and notes payable-trade and other
current liabilities 266 720 4,358 - 5,344
Income taxes payable (58) 14 (1,280) - (1,324)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating (420) 3,775 11,677 - 15,032
----------- ---------- ---------- ---------- ----------
activities
Cash flows from investing activities:
Capital expenditures (1,525) (12,260) - (13,785)
Acquisitions, net of cash acquired 3,174 - (3,174) -
Other investing activities 133 (413) (869) - (1,149)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities 3,307 (1,938) (13,129) (3,174) (14,934)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Borrowings under line of credit arrangements - - 16,724 - 16,724
Payments under line of credit arrangements - - (16,321) - (16,321)
Borrowings under revolving credit facility 104,660 - - - 104,660
Payments under revolving credit facility (104,940) - - - (104,940)
Borrowings under long term loans - - - - -
Payments under long term loans - - - - -
Stock issued or (reacquired), net (554) - - - (554)
Advances - affiliated companies 2,298 (1,825) (615) 142 -
Other financing activities 230 (7) 1,573 (966) 830
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities 1,694 (1,832) 1,361 (824) 399
---------- ----------- ---------- ----------- ----------
Effects of exchange rate changes in cash (4,153) 1 (71) 3,998 (225)
----------- ---------- ----------- ---------- -----------
Net increase (decrease) in cash 428 6 (162) - 272
Cash at beginning of year - 168 1,677 - 1,845
---------- ---------- ---------- ---------- ----------
Cash at end of year $ 428 174 1,515 - 2,117
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Cash Flows
December 31, 1995
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,252 (922) 6,853 (5,931) 5,252
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries (5,873) - - 5,873 -
Depreciation and amortization - 2,330 3,803 - 6,133
Provision for losses on accounts receivable - 1,175 157 - 1,332
Deferred income taxes (925) (70) 834 - (161)
Change in assets and liabilities net of effects of
acquisition of Fibrexa:
Accounts and notes receivable (300) 1,978 (4,625) 196 (2,751)
Inventories - 82 (1,358) - (1,276)
Prepaid expenses and other current assets 35 (230) (332) - (527)
Accounts and notes payable-trade and other 547 (436) 3,839 - 3,950
current liabilities
Income taxes payable 394 (209) (91) - 94
---------- ---------- ---------- ---------- ----------
Net cash provided (used in) by operating
activities (870) 3,698 9,080 138 12,046
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (32) (513) (7,811) - (8,356)
Acquisitions, net of cash acquired (13,255) - 325 8,863 (4,067)
Other investing activities 133 128 (691) (2,581) (3,011)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (13,154) (385) (8,177) 6,282 (15,434)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Borrowings under line of credit arrangements - - 7,813 - 7,813
Payments under line of credit arrangements - - (6,874) - (6,874)
Borrowings under revolving credit facility 46,038 - - - 46,038
Payments under revolving credit facility (40,578) - - - (40,578)
Borrowings under long term loans - - - - -
Payments under long term loans - - - - -
Stock issued or (reacquired), net - - - - -
Advances - affiliated companies 6,143 (1,323) (4,907) 87 -
Other financing activities (2,234) (593) 375 (1,765) (4,217)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities 9,369 (1,916) (3,593) (1,678) 2,182
---------- ---------- ---------- ---------- ----------
Effects of exchange rate changes in cash 4,655 (1) (12) (4,742) (100)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash - 1,396 (2,702) - (1,306)
Cash at beginning of year - (1,228) 4,379 - 3,151
---------- ----------- ---------- ---------- -----
Cash at end of year $ - 168 1,677 - 1,845
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
WORLDTEX, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DILUTED NET
UNAUDITED NET GROSS NET INCOME PER
QUARTERLY FINANCIAL DATA SALES PROFIT INCOME SHARE (A
- -------------------------- -------- -------- ------- -----------
<S> <C> <C> <C> <C>
1997 Quarter:
First $ 50,918 9,242 2,666 .18
Second 51,880 8,944 2,029 .14
Third 45,552 8,124 2,048 .14
Fourth(B) 54,906 9,673 (251) (.02)
-------- -------- -------
$203,256 35,983 6,492
======== ======== =======
1996 Quarter:
First $ 51,899 9,746 2,700 .19
Second 53,140 10,279 3,226 .22
Third 50,150 8,965 2,481 .17
Fourth 52,640 10,085 2,539 .17
-------- -------- -------
$207,829 39,075 10,946
======== ======== =======
1995 Quarter:
First $ 46,395 8,269 2,138 .15
Second 49,100 8,605 2,360 .16
Third 47,314 7,818 395 .03
Fourth 45,172 6,770 359 .02
-------- -------- -------
$187,981 31,462 5,252
======== ======== =======
NOTES:
- ------
<FN>
(A) Income per share are calculated based upon the weighted average number of
common shares outstanding and common equivalent shares during the year.
(B) 1997 fourth quarter net income after extraordinary item - ($1,595)
1997 year net income after extraordinary item - $5,148
</FN>
</TABLE>
<PAGE>
WORLDTEX, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------------------------------------------
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COST AND FROM END
OF PERIOD EXPENSES OTHER RESERVES OF PERIOD
--------- -------- ----- -------- -----=----
<S> <C> <C> <C> <C> <C>
1997
- ----
Allowance for doubtful accounts $2,589 305 470(B) 1,279(A) 2,085
1996
- ----
Allowance for doubtful accounts 2,623 139 - 173(A) 2,589
1995
- ----
Allowance for doubtful accounts 1,160 1,332 382(B) 251(A) 2,623
NOTES:
- ------
<FN>
(A) Accounts charged off, recoveries, and other adjustments, net.
(B) Increases to reserves reflecting subsidiary purchase price allocation.
</FN>
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Reference is made to the information responsive to the Items
comprising this Part III that is contained in Worldtex's definitive proxy
statement for its 1998 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
FINANCIAL STATEMENTS AND SCHEDULES
- ----------------------------------
The financial statements and financial statement schedules included in
this Report are listed in the introductory portion of Item 8.
EXHIBITS
- --------
The following exhibits are filed as part of this Report (for
convenience of reference, exhibits are listed according to numbers assigned in
the exhibit tables of Item 601 of Regulation S-K under the Securities Exchange
Act of 1934 and management contracts or compensatory plans are indicated by an
asterisk):
Exhibit
NO. DESCRIPTION
------- -----------
2.1 Purchase Agreement, dated as of March 28, 1995, among Fibrexa,
S.A., the stockholders of Fibrexa, Worldtex Colombiana, Ltda. and
Worldtex -- filed as Exhibit 2 to the Company's report on Form
8-K dated June 5, 1995 and incorporated herein by reference.
<PAGE>
2.2 Asset Purchase Agreement, dated as of October 29, 1997, among
Elastic Corporation of America, Inc. (a wholly-owned subsidiary
of Worldtex, Inc.), Worldtex, Inc., and NFA Corp. -- filed as
Exhibit 2.1 to the Worldtex, Inc. Current Report on Form 8-K
dated December 1, 1997 and incorporated herein by reference.
3.1 Certificate of Incorporation of Worldtex -- filed as Exhibit 3.1
to Worldtex's Registration Statement on Form 10, dated October 1,
1992, as amended, and incorporated herein by reference.
3.2 By-Laws of Worldtex -- filed as Exhibit 3.2 to Worldtex's
Registration Statement on Form 10, dated October 1, 1992, as
amended, and incorporated herein by reference.
4.1 Share Purchase Rights Agreement, dated as of August 1, 1992, by
and between Worldtex and Chemical Bank as Rights Agent -- filed
as Exhibit 4.1 to the Company's Annual Report on Form 10-K for
1992 and incorporated herein by reference.
4.2 Indenture, dated as of December 1, 1997, by and among Worldtex,
Inc., Willcox & Gibbs Filix of Delaware, Inc., Regal
Manufacturing Company, Inc., Elastic Corporation of America,
Inc., Elastex, Inc., Regal Yarns of Argentina, Inc., WTX Colombia
I, Inc. and WTX Colombia II, Inc. (together, other than Worldtex,
Inc., the "Guarantors"), and IBJ Schroder Bank & Trust Company,
as Trustee, with respect to the 9 5/8% Senior Notes due 2007 --
filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (No. 333-45331) and incorporated herein by reference.
4.3 Registration Rights Agreement, dated as of December 1, 1997, by
and among Worldtex, Inc., the Guarantors and the Initial
Purchasers -- filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-4 (No. 333-45331) and incorporated herein by
reference.
4.4 Form of 9 5/8% Note - included in Exhibit 4.2.
10.1 Distribution Agreement dated as of November 12, 1992, between W&G
and Worldtex -- filed as Exhibit 10.1 to the Company's Annual
Report on Form 10-K for 1992 and incorporated herein by
reference.
10.2 Tax Sharing Agreement dated as of November 12, 1992, between W&G
and Worldtex -- filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for 1992 and incorporated herein by
reference.
10.3 Employment Agreement, dated November 15, 1993, between Worldtex
and Richard J. Mackey -- filed as Exhibit 10.3 to the Company's
Annual Report on Form 10-K for 1993 and incorporated herein by
reference.*
<PAGE>
Exhibit
NO. DESCRIPTION
------- -----------
10.4 Employment Agreement, dated November 15, 1993, between Worldtex
and Barry D. Setzer -- filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1993 and incorporated herein by
reference.*
10.5 1992 Stock Incentive Plan of Worldtex, as amended -- filed as
Appendix A to Worldtex's proxy statement, dated April 1, 1994,
for the 1994 Annual Meeting of Stockholders, and incorporated
herein by reference*.
10.6 Credit Agreement, dated as of December 1, 1997, among Worldtex,
the Guarantors, the Lenders named therein and NationsBank, N.A.,
as Agent -- filed herewith.
11.1 Statement re computation of earnings per share -- filed herewith.
21.1 Subsidiaries of Worldtex -- filed herewith.
23.1 Consent of KPMG Peat Marwick LLP -- filed herewith.
24.1 Powers of Attorney executed by certain directors and officers of
Worldtex -- filed as Exhibit 25.1 to the Company's Annual Report
on Form 10-K for 1992 and incorporated herein by reference.
24.2 Powers of Attorney executed by Mitchell R. Setzer -- filed as
Exhibit 24.2 to the Company's Annual Report on Form 10-K for 1994
and incorporated herein by reference.
24.3 Powers of Attorney executed by Claude D. Egler -- filed as
Exhibit 24.3 to the Company's Annual Report on Form 10-K for 1996
and incorporated herein by reference.
27.1 Financial Data Schedule (filed with EDGAR only).
8-K REPORTS
- -----------
A Current Report on Form 8-K, dated December 1, 1997, was filed with
the SEC, reporting under Items 2 and 7 and including the following financial
statements:
ELASTIC CORPORATION OF AMERICA (A DIVISION OF NFA CORP.)
Audited Financial Statements:
Independent Auditors' Report
Statements of assets, liabilities and divisional equity as of December 28,
1996, December 30, 1995 and December 31, 1994
Statements of income and divisional equity for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994
<PAGE>
Statements of cash flows for the fiscal years ended December 28, 1996,
December 30, 1995 and December 31, 1994
Notes to Financial Statements
Unaudited Financial Statements:
Statement of assets, liabilities and divisional equity as of September 27,
1997
Statements of income and divisional equity for the thirty-nine weeks ended
September 27, 1997 and September 28, 1996
Statements of cash flows for the thirty-nine weeks ended September 27, 1997
and September 28, 1996
Notes to Unaudited Financial Statements
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 31, 1998
WORLDTEX, INC.
By /S/ RICHARD J. MACKEY
--------------------------------------
Richard J. Mackey
Chairman of the Board and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 31, 1998 by the following persons on
behalf of the registrant and in the capacities indicated.
/S/ RICHARD J. MACKEY
- ----------------------------------------------
Richard J. Mackey, Chairman of the Board,
Chief Financial Officer, Director and
Attorney for the persons indicated by asterisk
BARRY D. SETZER*
Barry D. Setzer, President, Chief Executive
Officer and Director
CLAUDE D. EGLER*
Claude D. Egler, Director
JOHN B. FRASER*
John B. Fraser, Director
- --------------------------------
Salim M. Ibrahim, Director
WILLI ROELLI*
Willi Roelli, Director
MICHAEL B. WILSON*
Michael B. Wilson, Director
JOHN K. ZIEGLER*
John K. Ziegler, Director
EXHIBIT 11.1
WORLDTEX, INC.
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net income before extraordinary item $ 6,492 10,946 5,252
========== ========== ==========
Shares:
Weighted average number of shares
outstanding
14,419,801 14,463,173 14,475,571
========== ========== ==========
Basic earnings per share (1) $ .45 .76 .36
========== ========== ==========
Shares:
Weighted average number of shares
outstanding 14,419,801 14,463,173 14,475,571
Assumed exercise of options 401,297 205,884 90,995
----------- ---------- ----------
Total average number of common and
common equivalent shares used for
fully diluted computation 14,821,098 14,669,057 14,566,566
========== ========== ==========
Diluted earnings per share (2) $ .44 .75 .36
========== ========== ==========
NOTES:
<FN>
(1) Basic earnings per share are calculated based upon the weighted average
number of common shares outstanding during the year.
(2) Diluted earnings per share are calculated based upon the weighted average
number of common shares and common equivalent shares outstanding during the
year.
</FN>
</TABLE>
EXHIBIT 21.1
WORLDTEX, INC.
SUBSIDIARIES
- --------------------------------------------------------------------------------
STATE OR OTHER JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ---------------------------
Filix Lastex S.A. France
Galaurtex Sarl, S.A. France
Moulinage de la Galaure France
Worldtex France, S.A. France
Willcox & Gibbs Filix of Delaware, Inc. Delaware
Rubyco (1987), Inc. Quebec
Regal Yarns of Argentina, Inc. North Carolina
Regal Manufacturing Company, Inc. Delaware
Fibrexa, Ltda Colombia
WTX Colombia I, Inc. Delaware
WTX Colombia II, Inc. Delaware
Elastex, Inc. Delaware
Elastic Corporation of America, Inc. Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Worldtex, Inc.:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 of Worldtex, Inc. filed November 30, 1992 (No. 33-55124) and filed
December 8, 1993 (No. 33-72640) of our audit report dated February 27, 1998,
relating to the consolidated balance sheets of Worldtex, Inc. and subsidiaries
as of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows and related schedule for each of the
years in the three-year period ended, which report appears in the December 31,
1997 Annual Report on Form 10-K of Worldtex, Inc.
KPMG Peat Marwick LLP
Atlanta, Georgia
March 31, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLDTEX,
INC. FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,872
<SECURITIES> 0
<RECEIVABLES> 46,320
<ALLOWANCES> 2,085
<INVENTORY> 54,200
<CURRENT-ASSETS> 118,418
<PP&E> 136,075
<DEPRECIATION> 36,915
<TOTAL-ASSETS> 312,439
<CURRENT-LIABILITIES> 30,675
<BONDS> 185,780
0
0
<COMMON> 147
<OTHER-SE> 77,355
<TOTAL-LIABILITY-AND-EQUITY> 312,439
<SALES> 203,256
<TOTAL-REVENUES> 203,256
<CGS> 167,272
<TOTAL-COSTS> 167,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 305
<INTEREST-EXPENSE> 7,043
<INCOME-PRETAX> 11,869
<INCOME-TAX> 5,377
<INCOME-CONTINUING> 6,492
<DISCONTINUED> 0
<EXTRAORDINARY> 1,344
<CHANGES> 0
<NET-INCOME> 5,148
<EPS-BASIC> .36
<EPS-DILUTED> .35
</TABLE>
