FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 1-11438
WORLDTEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1789271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
212 12th Avenue, N.E., Hickory, North Carolina 28601
(Address of principal executive offices) (Zip Code)
(828) 328-5381
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
------------------ ------------ ------------------
September 30, 1998 Common Stock 14,271,171
<PAGE>
WORLDTEX, INC.
INDEX
-----
PAGE NUMBER
-----------
PART I - Financial Information
Consolidated Condensed Balance Sheets at September
30, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Income for the
Nine Months and Three Months Ended September 30, 1998
and 1997 2
Consolidated Condensed Statements of Cash Flows for
the Nine Months Ended September 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 4 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
PART II - Other Information 16
<PAGE>
WORLDTEX, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $16,526 14,872
Accounts and notes receivable, less allowance for
doubtful accounts of $1,812 in 1998 and $2,085
in 1997 46,149 46,320
Inventories:
Raw materials 16,168 15,401
Work-in-process 14,534 13,976
Finished goods 25,178 24,823
-------- --------
Total inventories 55,880 54,200
Prepaid expenses and other current assets 2,435 3,026
-------- --------
Total current assets 120,990 118,418
Property, plant and equipment, at cost:
Land 2,966 2,820
Buildings and leasehold improvements 36,700 34,172
Machinery and equipment 110,792 99,083
-------- --------
150,458 136,075
Less accumulated depreciation and
amortization 42,077 36,915
-------- --------
Property, plant and equipment - net 108,381 99,160
Other assets 12,159 11,946
Cost in excess of net assets of acquired
businesses, net of accumulated amortization of
$9,483 in 1998 and $7,600 in 1997 81,506 82,915
-------- --------
$323,036 312,439
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 6,776 1,819
Current installments of long-term debt 612 620
Accounts and notes payable - trade and
other liabilities 30,179 28,236
Income taxes payable 1,884 -
------- -------
Total current liabilities 39,451 30,675
Long-term debt
186,079 185,780
Other long-term liabilities 2,263 2,547
Deferred income taxes 14,505 15,935
------- -------
Total liabilities 242,298 234,937
Stockholders' equity:
Preferred stock - -
Common stock 147 147
Paid-in capital 30,084 30,059
Retained earnings 63,904 62,067
Accumulated other comprehensive income (11,048) (13,273)
Treasury stock, at cost (2,349) (1,498)
-------- --------
Total stockholders' equity 80,738 77,502
Commitments and contingencies - -
-------- --------
$323,036 312,439
======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $195,084 148,350 59,801 45,552
Cost of goods sold 159,174 122,040 50,761 37,428
-------- -------- -------- --------
Gross profit 35,910 26,310 9,040 8,124
Selling & administration expense 18,758 11,688 5,676 3,634
-------- -------- -------- --------
Operating profit 17,152 14,622 3,364 4,490
Interest expense 14,255 4,417 4,824 1,450
Other income (expense) - net 255 30 (90) (129)
-------- -------- -------- --------
Income (loss) before income taxes 3,152 10,235 (1,550) 2,911
Provision for income taxes 1,314 3,492 (489) 863
-------- -------- -------- --------
Net income (loss) $ 1,838 6,743 (1,061) 2,048
======== ======== ======== ========
Net income (loss) per share
Basic $ 0.13 0.47 (0.07) 0.14
======== ======== ======== ========
Diluted $ 0.13 0.46 (0.07) 0.14
======== ======== ======== ========
Weighted average shares outstanding
Basic 14,401 14,417 14,341 14,429
======== ======== ======== ========
Diluted 14,642 14,809 14,466 14,749
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,838 6,743
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,202 4,719
Provision for losses on accounts receivable 399 167
Deferred income taxes (2,105) 183
Change in assets and liabilities:
Accounts and notes receivable (387) (3,264)
Inventories (1,470) (3,777)
Prepaid expenses and other current assets 301 43
Accounts and notes payable -
trade and other current liabilities 2,518 (2,318)
Income taxes payable 1,964 209
-------- --------
Net cash provided by
operating activities 10,260 2,705
-------- --------
Cash flows from investing activities:
Capital expenditures (14,970) (5,826)
Other investing activities 68 997
-------- --------
Net cash used in investing activities (14,902) (4,829)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit arrangements 7,725 3,180
Payments under line of credit arrangements (1,884) (2,395)
Borrowings under revolving credit facility - 80,140
Payments under revolving credit facility - (73,500)
Stock (purchased) issued (825) 113
Other financing activities (331) (1,108)
-------- --------
Net cash provided by financing activities 4,685 6,430
-------- --------
Effects of exchange rate changes on cash 1,611 2,012
Net increase in cash 1,654 6,318
Cash at beginning of year 14,872 2,117
-------- --------
Cash at end of period $ 16,526 8,435
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 10,606 5,110
======== ========
Income taxes $ 584 4,619
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
Note 1 -- Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
and results of operations for the interim periods reported hereon. It is
suggested that these consolidated condensed financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's annual report for the fiscal year ended December 31,
1997. The December 31, 1997 amounts included in the financial statements are
derived from December 31, 1997 audited financial statements and notes thereto.
Note 2 -- Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, effective January 1, 1998. Foreign currency
translation adjustments for the nine months ended September 30, 1998 and 1997
were an increase of $2,225 and a decrease of $10,745, respectively, to
comprehensive income. Foreign currency translation adjustments for the three
months ended September 30, 1998 and 1997 were an increase of $3,609 and a
decrease of $1,307, respective, to comprehensive income. No other comprehensive
income items were recorded by the Company in 1998 or 1997. Comprehensive income
for the nine months and three months ended September 30, 1998 was $4,063 and
$2,548, respectively. Comprehensive income (loss) for the nine months and three
months ended September 30, 1997 was ($4,002) and $741, respectively.
Note 3 -- Revolving Credit Facilities
The Company has a revolving credit facility providing for borrowings in an
aggregate principal amount up to $25,000 with interest at variable interest
rates. The credit facility terminates and borrowings thereunder will be due
December 1, 2002. No loans were outstanding at September 30, 1998. At September
30, 1998, the Company was not in compliance with certain financial covenants
relating to the revolving credit facility. The lenders under the revolving
credit facility have waived such noncompliance.
Note 4 -- 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 Manufacturing Company, Inc., Willcox &
Gibbs Filix of Delaware, Inc., Regal Yarns of Argentina, Inc., WTX Colombia I,
Inc., WTX Colombia II, Inc., Elastic Corporation of America, Inc., and Elastex,
Inc. The guarantor subsidiaries are wholly owned subsidiaries of the 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.
Notes to consolidated condensed financial statements.
<PAGE>
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 nonguarantor subsidiaries.
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Condensed Financial Information
(Dollars in thousands)
Consolidating Balance Sheet Information
September 30, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 2,833 39 13,654 - 16,526
Accounts and notes
receivable, net 195 21,522 24,432 - 46,149
Inventories - 31,422 24,458 - 55,880
Prepaid expenses and other
current assets 1,701 116 618 - 2,435
--------- --------- --------- --------- ---------
Total current assets 4,729 53,099 63,162 - 120,990
Property, plant and equipment,
net 314 51,021 57,046 - 108,381
Other assets 9,358 1,664 1,137 - 12,159
Cost in excess of net assets
of acquired businesses, net 92 63,196 18,218 - 81,506
Intercompany investments 110,333 - - (110,333) -
Intercompany advances 149,047 14,798 - (163,845) -
--------- --------- --------- --------- ---------
$273,873 183,778 139,563 (274,178) 323,036
========= ========= ========= ========= =========
Liabilities and Stockholders'
Equity
Current Liabilities
Short-term borrowings $ - - 6,776 - 6,776
Current installments of
long-term debt - - 612 - 612
Accounts and notes
payable-trade and
other liabilities 6,994 9,908 13,277 - 30,179
Income taxes payable 995 (2,019) 2,908 - 1,884
--------- --------- --------- --------- ---------
Total current liabilities 7,989 7,889 23,573 - 39,451
Long-term debt 175,000 6,000 5,079 - 186,079
Other long-term liabilities - - 2,263 - 2,263
Deferred income taxes (4,652) 7,354 11,803 - 14,505
Intercompany payables 14,798 127,471 21,576 (163,845) 0
--------- --------- --------- --------- ---------
Total liabilities 193,135 148,714 64,294 (163,845) 242,298
--------- --------- --------- --------- ---------
Stockholders' equity
Preferred stock - - - - -
Common stock 147 49 31,778 (31,827) 147
Paid-in capital 30,084 15,714 - (15,714) 30,084
Retained earnings 63,904 19,301 54,539 (73,840) 63,904
Accumulated other
comprehensive income (11,048) - (11,048) 11,048 (11,048)
Less-Treasury stock, at cost (2,349) - - - (2,349)
--------- --------- --------- --------- ---------
Total stockholders' equity 80,738 35,064 75,269 (110,333) 80,738
--------- --------- --------- --------- ---------
$273,873 183,778 139,563 (274,178) 323,036
========= ========= ========= ========= =========
</TABLE>
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Condensed Financial Information
(Dollars in thousands)
Consolidating Balance Sheet Information
December 31, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 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 - 0
--------- --------- --------- --------- ---------
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
Accumulated other
comprehensive income (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>
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Condensed Financial Information
(Dollars in thousands)
<TABLE>
<CAPTION>
Consolidating Statements of Income
Information
Nine Months Ended September 30, 1998 Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 113,057 94,515 (12,488) 195,084
Cost of goods sold - 95,757 75,905 (12,488) 159,174
------- ------- ------ -------- -------
Gross profit - 17,300 18,610 - 35,910
Selling and administrative
expense 2,429 9,057 7,272 - 18,758
------- ------- ------ ------- -------
Operating profit (loss) (2,429) 8,243 11,338 - 17,152
Interest expense 13,026 438 791 - 14,255
Intercompany interest expense
(income) (6,969) 5,966 1,003 - -
Intercompany administrative
charges (2,171) 1,419 752 - -
Other income (expense) - net 438 45 (228) - 255
------- ------- ------- ------- -------
Income (loss) before income
taxes (5,877) 465 8,564 - 3,152
Provision for income taxes (1,746) (6) 3,066 - 1,314
Undistributed earnings of
subsidiaries 5,969 - - (5,969) -
------- ------- ------ -------- -------
Net income $ 1,838 471 5,498 (5,969) 1,838
======= ======= ====== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Consolidating Statements of Income
Information
Nine Months Ended September 30, 1997 Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 52,948 105,980 (10,578) 148,350
Cost of goods sold - 47,346 85,272 (10,578) 122,040
------- ------- ------ -------- -------
Gross profit - 5,602 20,708 - 26,310
Selling and administrative 1,876 2,508 7,304 - 11,688
------- ------- ------ -------- -------
Operating profit (loss) (1,876) 3,094 13,404 - 14,622
Interest expense 3,575 158 684 - 4,417
Intercompany interest expense
(income) (1,919) 618 1,301 - -
Intercompany administrative
charges (2,203) 1,452 751 - -
Other income (expense) - net 89 49 (108) - 30
------- ------- ------ -------- -------
Income (loss) before income
taxes (1,240) 915 10,560 - 10,235
Provision for income taxes (199) 278 3,413 - 3,492
Undistributed earnings of 7,784 - - (7,784) -
------- ------- ------ -------- -------
Net income $ 6,743 637 7,147 (7,784) 6,743
======= ======= ====== ======== =======
</TABLE>
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Condensed Financial Information
(Dollars in thousands)
<TABLE>
<CAPTION>
Consolidating Statements of Income
Information
Three Months Ended September 30, 1998 Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 36,553 28,231 (4,983) 59,801
Cost of goods sold - 32,587 23,157 (4,983) 50,761
------- ------- ------ -------- -------
Gross profit - 3,966 5,074 - 9,040
Selling and administrative
expense 671 2,831 2,174 - 5,676
------- ------- ------ ------- -------
Operating profit (loss) (671) 1,135 2,900 - 3,364
Interest expense 4,433 146 245 - 4,824
Intercompany interest expense
(income) (2,351) 2,052 299 - -
Intercompany administrative
charges (716) 465 251 - -
Other income (expense) - net 70 16 (176) - (90)
------- ------- ------- ------- --------
Income (loss) before income
taxes (1,967) (1,512) 1,929 - (1,550)
Provision for income taxes (545) (651) 707 - (489)
Undistributed earnings of
subsidiaries 361 - - (361) -
------- ------- ------- ------- --------
Net income (loss) $(1,061) (861) 1,222 (361) (1,061)
======== ======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Consolidating Statements of Income
Information
Three Months Ended September 30, 1997 Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 17,796 31,848 (4,092) 45,552
Cost of goods sold - 16,023 25,497 (4,092) 37,428
------- ------- ------ -------- -------
Gross profit - 1,773 6,351 - 8,124
Selling and administrative
expense 642 848 2,144 - 3,634
------- ------- ------ ------- -------
Operating profit (loss) (642) 925 4,207 - 4,490
Interest expense 1,205 53 192 - 1,450
Intercompany interest expense
(income) (606) 176 430 - -
Intercompany administrative
charges (428) 494 (66) - -
Other income (expense) - net 31 25 (185) - (129)
------- ------- ------- ------- --------
Income (loss) before income
taxes (782) 227 3,466 - 2,911
Provision for income taxes (103) 41 925 - 863
Undistributed earnings of
subsidiaries 2,727 - - (2,727) -
------- ------- ------ -------- -------
Net income $ 2,048 186 2,541 (2,727) 2,048
======= ======= ====== ======== =======
</TABLE>
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Condensed Financial Information
(Dollars in thousands)
<TABLE>
<CAPTION>
Consolidating Statements of Cash Flows
Information
Nine Months Ended September 30, 1998
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 1,838 471 5,498 (5,969) 1,838
Adjustments to reconcile net
income to net
Cash provided by operating
activities:
Undistributed earnings of
subsidiaries (5,969) - - 5,969 -
Depreciation and amortization 23 4,066 3,113 - 7,202
Provision for losses on
accounts Receivables - 229 170 - 399
Deferred income taxes (2,764) 533 126 - (2,105)
Change in assets and
liabilities net of effects
of acquisitions:
Accounts and notes receivable (195) (880) 688 - (387)
Inventories - (3,172) 1,702 - (1,470)
Prepaid expenses and
other current Assets (576) 396 481 - 301
Accounts and notes payable -
Trade and other current
liabilities 3,394 1,378 (2,254) - 2,518
Income taxes payable 704 (234) 1,494 - 1,964
-------- ------- ------- -------- -------
Net cash provided by
(used in) operating
activities (3,545) 2,787 11,018 - 10,260
-------- ------- ------- -------- -------
Cash flows from investing activities:
Capital expenditures (107) (6,795) (8,068) - (14,970)
Acquisitions, net of cash
acquired (2,209) - - 2,209 -
Other investing activities 216 (169) (88) 109 68
-------- ------- ------- -------- -------
Net cash used in
investing activities (2,100) (6,964) (8,156) 2,318 (14,902)
-------- ------- ------- -------- -------
Cash flows from financing activities:
Borrowings under line of
credit arrangements - - 7,725 - 7,725
Payments under line of
credit arrangements - - (1,884) - (1,884)
Borrowings under
revolving credit facility - - - - -
Payments under revolving
credit facility - - - - -
Borrowings under long-term loans - - - - -
(Payments) under long-term loans - - - - -
Stock issued or (reacquired), net (825) - - - (825)
Advances - affiliated companies (2,885) 3,895 (930) (80) -
Other financing activities (94) - 526 (763) (331)
-------- ------- ------- -------- -------
Net cash provided by
(used in) financing
activities (3,804) 3,895 5,437 (843) 4,685
-------- ------- ------- -------- -------
Effects of exchange rate
changes on cash 2,224 - 862 (1,475) 1,611
-------- ------- ------- -------- -------
Net increase (decrease)
in cash (7,225) (282) 9,161 - 1,654
Cash at beginning of year 10,058 321 4,493 - 14,872
-------- ------- ------- -------- -------
Cash at end of period $ 2,833 39 13,654 - 16,526
======== ======= ======= ======== =======
</TABLE>
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Condensed Financial Information
(Dollars in thousands)
<TABLE>
<CAPTION>
Consolidating Statements of Cash Flows
Information
Nine Months Ended September 30, 1997
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Elimination Consolidated
-------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 6,743 637 7,147 (7,784) 6,743
Adjustments to reconcile net
income to net
Cash provided by operating
activities:
Undistributed earnings of
subsidiaries (7,784) - - 7,784 -
Depreciation and amortization 27 1,748 2,944 - 4,719
Provision for losses on
accounts Receivable - 40 127 - 167
Deferred income taxes 1,659 3 303 (1,782) 183
Change in assets and
liabilities net of
effects of acquisitions:
Accounts and notes
receivable (199) (1,645) (1,420) - (3,264)
Inventories - (1,756) (2,021) - (3,777)
Prepaid expenses and
other current Assets (117) 244 (84) - 43
Accounts and notes payable -
Trade and other current
liabilities (455) 1,027 (2,890) - (2,318)
Income taxes payable 335 39 (165) - 209
------- ------- -------- ------- ------
Net cash provided by
(used in) operating
activities 209 337 3,941 (1,782) 2,705
------- ------- -------- ------- ------
Cash flows from investing activities:
Capital expenditures (1) (1,961) (3,864) - (5,826)
Acquisitions, net of cash
acquired 10,721 - - (10,721) -
Other investing activities 96 887 14 - 997
------- ------- ------- ------- ------
Net cash used in investing
activities 10,816 (1,074) (3,850) (10,721) (4,829)
------- -------- -------- -------- ------
Cash flows from financing activities:
Borrowings under line of credit
arrangements - - 3,180 - 3,180
Payments under line of credit
arrangements - - (2,395) - (2,395)
Borrowings under revolving
credit facility 80,140 - - - 80,140
Payments under revolving
credit facility (73,500) - - - (73,500)
Borrowings under long term loans - - - - -
(Payments) under long term loans - - - - -
Stock issued or (reacquired), net 113 - - - 113
Advances - affiliated companies (5,349) 654 5,850 (1,155) -
Other financing activities (1,871) - 204 559 (1,108)
-------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities (467) 654 6,839 (596) 6,430
-------- ------- ------- -------- ------
Effects of exchange rate changes
on cash (10,746) - (341) 13,099 2,012
-------- ------- -------- ------- ------
Net increase (decrease)
in cash (188) (83) 6,589 - 6,318
Cash at beginning of year 428 174 1,515 - 2,117
------- ------- ------- ------- ------
Cash at end of period $ 240 91 8,104 - 8,435
======= ======= ======= ======= ======
</TABLE>
Notes to consolidated condensed financial statements.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Sales for the nine months ended September 30, 1998 were $195.1 million and
earnings were $1.8 million, compared with sales of $148.4 million and earnings
of $6.7 million for the comparable period in 1997. Diluted income per share was
$.13 for the 1998 nine month period compared with $.46 in 1997. Sales for the
quarter ended September 30, 1998 were $59.8 million and net loss was $1.1
million, compared with sales of $45.6 million and net income of $2 million for
the comparable 1997 period.
The following table sets forth the percentages which certain income and expense
items bear to net sales:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Gross margin 18.4% 17.7% 15.1% 17.8%
Selling and administration
expense 9.6% 7.9% 9.5% 8.0%
------ ------ ------ ------
Operating profit 8.8% 9.8% 5.6% 9.8%
Interest expense 7.3% 3.0% 8.1% 3.1%
Other income - net .1% .1% (.1%) (.3%)
------ ------ ------- -------
Income before income taxes 1.6% 6.9% (2.6%) 6.4%
====== ====== ======= =======
</TABLE>
For the nine months ended September 30, 1998, sales increased by $46.7 million
or 31.5% compared to the nine months ended September 30, 1997. For the quarter
ended September 30, 1998, sales increased by $14.2 million or 31.3% compared
with the 1997 quarter.
Sales from North American operations increased 81.6% and 74.1% for the nine
months and the three months ended September 30, 1998 from the corresponding
period in 1997. The sharp increase in sales was primarily due to the inclusion
of the narrow elastic fabric subsidiaries acquired in the fourth quarter of
1997. Excluding the contribution of these new subsidiaries, North American sales
for the nine months of 1998 were down 3.6% compared with the 1997 period,
principally due to overall weak demand by ladies' hosiery customers.
Sales from French operations decreased 14.4% and 12.6% for the nine months and
the three months ended September 30, 1998 from the corresponding period in 1997.
The changing
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
exchange rate between the U.S. dollar and the French franc reduced the French
subsidiary sales by approximately 3.9% for the nine months and increased sales
by approximately 5.3% for the three months ended September 30, 1998 (assuming
currency translation of 1998 sales at the rate applicable to 1997 results).
European sales were also affected by continuing softness in the general textile
market in Europe.
Sales in the Company's South American operation (including intercompany sales)
increased 6.8% and 3.0% for the nine months and three months ended September 30,
1998 from the corresponding period in 1997. The reduced value of the Colombian
peso lowered South American sales by approximately 20.9% and 19.8% for the nine
months and three months ended September 30, 1998 (assuming currency translation
of 1998 sales at the rate applicable to 1997 results). The volume increases in
South America reflect the continuing efforts to expand production in the
Company's lower cost operation.
Gross profit margins increased to 18.4% in the 1998 nine month period from 17.7%
in 1997, primarily because the Company's newly acquired narrow elastic fabrics
operations have traditionally produced higher margins than the Company's covered
elastic yarn operations. Selling and administrative expenses increased as a
percentage of net sales to 9.6% from 7.9% for the nine months ending September
30, 1998 compared with 1997, primarily because the fixed component of these
expenses increased as a result of the recent acquisitions.
Interest expense for the nine months and three months ended September 30, 1998
increased from the corresponding periods in 1997 due to the $175 million
principal amount of the 9 5/8% Senior Notes issued December 1, 1997 in
connection with the acquisitions of the Company's narrow elastic fabric
subsidiaries.
The Company had an effective income tax rate of 41.7% for the nine months ended
September 30, 1998 compared to 34.1% for the same period in 1997. This increase
resulted primarily due to the higher French corporate tax rate of 41.67% enacted
in the fourth quarter of 1997 and a reduced state tax benefit for certain
unconsolidated operating losses.
LIQUIDITY; CAPITAL RESOURCES
- -----------------------------
The Company meets both its long-term and short-term liquidity needs through
internally generated funds and outside borrowings.
Cash totaled $16.5 million at September 30, 1998, representing a net increase of
$1.6 million for the nine months then ended. Cash flows from operating
activities and from financing activities are the principal indicators of the
Company's liquidity. During the first nine months of 1998, $10.3 million was
generated in operating activities as a result of net income, adjusted for the
effects of depreciation and amortization and changes in the balances of
receivables, payables, inventories and prepaid expenses and other current
assets. During the first nine months of 1998, financing activities contributed
$4.7 million, reflecting routine borrowings and repayments under
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
the Company's credit facilities. During the first nine months of 1998, $14.9
million was applied toward the purchase of additional equipment and other
investing activities, including the upgrading of certain equipment. The Company
anticipates that its capital expenditures during 1998 will approximate $17
million, primarily for the purchase of equipment.
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 nine months and three months
ended September 30, 1998 was $24.6 million and $5.7 million compared with $19.4
million and $5.9 million for the prior year periods. Depreciation and
amortization for the nine and three months ended September 30, 1998 was $7.2
million and $2.4 million compared with $3.1 million and $1.6 million in the
prior year periods.
Working capital was $81.5 million at September 30, 1998 and $87.7 million at
December 31, 1997, reflecting a decrease of $6.2 million and current ratios of
3.1 and 3.9 respectively, at September 30, 1998 and December 31, 1997.
At September 30, 1998, the Company had outstanding $175 million principal amount
of Senior Notes. No amounts were outstanding under the Company's Credit
Facility, and $25 million was available to be borrowed thereunder. At September
30, 1998, the Company was not in compliance with certain financial covenants in
its Credit Facility, which noncompliance has been waived by the lenders. In
addition, Filix Lastex, S.A., Rubyco (1987), Inc., and Fibrexa, Ltda., had
available approximately $16.1 million, $1.0 million, and $6.6 million,
respectively, under various bank lines of credit and overdraft facilities. At
September 30, 1998, Filix, Rubyco and Fibrexa had outstanding debt under these
agreements of $0, $0.2 and $6.6 million, respectively. The most restrictive
covenant of the Company's Credit Facility and Indenture limits short-term
borrowings by the Company's subsidiaries to a total of $15 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.
YEAR 2000 COMPLIANCE
- --------------------
Many existing computer programs use only the last two digits to define a year
and do not take account of the change in century that will occur in the year
2000. If this problem is not corrected, computer applications could fail or
create mistakes. As a result, Worldtex established a Year 2000 project team in
1998 and retained an independent consulting group to assist in assessing Year
2000 risks and to recommend necessary remedial action. The project scope
includes both information technology and computer based embedded technology. The
project team has focused its efforts on information systems software and
hardware, manufacturing equipment and facilities, and third-party relationships.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company adopted a multi-step approach in conducting the Year 2000 project
consisting of: (1) identification, (2) assessment and prioritizing, (3)
remediation (including upgrading and replacement) and testing, and (4)
contingency planning. The identification step was completed in April, 1998. Step
two was completed in August, 1998. The Company has begun a worldwide business
system replacement project that uses programs primarily from one vendor. The new
systems are expected to make approximately 80 percent of the Company's business
computer systems Year 2000 compliant and are scheduled to be complete by
year-end 1999. Remediation for other information systems and computer based
embedded technology systems is 25 percent complete and is scheduled to be
complete by year-end 1999. The Company has initiated formal communications with
its significant suppliers, customers, and other business partners to determine
the extent the Company may be vulnerable in the event those parties fail to
properly remediate their own Year 2000 issues. Monitoring and testing of
critical system interfaces will be performed as the Year 2000 approaches.
The estimated cost for the Year 2000 project, including worldwide business
system replacement, is approximately $5 million to $7 million. The Company
estimates that $3 million to $5 million will be capitalized as hardware and
software purchases. The remaining cost will be expensed as incurred during the
remediation period. The Company has not incurred significant costs as of
September 30, 1998, and project implementation will commence in fourth quarter
1998.
The Company believes, although it cannot assure, that its internal systems and
equipment will be Year 2000 compliant in a timely manner. In addition, the
Company cannot predict whether systems of third parties will be Year 2000
compliant in a timely manner. The implementation of the Company's new business
systems and completion of the Year 2000 project as scheduled will reduce the
possibility of significant interruptions of normal operations. The Company
believes its most reasonably likely worst case scenario is that disruption of
its distribution system would occur, through product delays from suppliers or
delayed orders from customers, which could result in the reduction or suspension
of the Company's operations. The Company has not developed a specific Year 2000
contingency plan. Contingency plans will be addressed as additional information
is available regarding the Company's remediation and testing steps and the
status of third-party Year 2000 readiness.
<PAGE>
WORLDTEX, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
11.1 Computation of earnings per share
27.1 Financial Data Schedule (filed with EDGAR only)
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the Company did not file
any reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLDTEX, INC.
(Registrant)
Date: November 16, 1998 By: /S/ RICHARD J. MACKEY
------------------------------
Richard J. Mackey
Chairman of the Board
and Chief Financial Officer
EXHIBIT 11.1
WORLDTEX, INC.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 1,838 6,743 (1,061) 2,048
=========== ========== ========== ==========
Shares:
Weighted average number of
shares outstanding 14,401,006 14,416,812 14,341,100 14,428,671
=========== =========== =========== ===========
Basic earnings (loss) per share (1) $ .13 .47 (.07) .14
=========== =========== =========== ===========
Shares:
Weighted average number of
shares outstanding 14,401,006 14,416,812 14,341,100 14,428,671
Assumed exercise of options 240,712 392,253 N/A 320,403
----------- ----------- ----------- -----------
Total average number of common
and common equivalent shares
used for diluted computation 14,641,718 14,809,065 14,341,100 14,749,074
=========== =========== =========== ===========
Diluted earnings (loss) per
share (2) $ .13 .46 (.07) .14
=========== =========== =========== ===========
</TABLE>
(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 dilutive common equivalent shares outstanding
during the year. Common stock equivalents for the three months ended
September 30, 1998 are anti-dilutive and therefore excluded from the
computation.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
Worldtex, Inc.
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLDTEX,
INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,526
<SECURITIES> 0
<RECEIVABLES> 47,961
<ALLOWANCES> 1,812
<INVENTORY> 55,880
<CURRENT-ASSETS> 120,990
<PP&E> 150,458
<DEPRECIATION> 42,077
<TOTAL-ASSETS> 323,036
<CURRENT-LIABILITIES> 39,451
<BONDS> 186,079
0
0
<COMMON> 147
<OTHER-SE> 80,591
<TOTAL-LIABILITY-AND-EQUITY> 323,036
<SALES> 195,084
<TOTAL-REVENUES> 195,084
<CGS> 159,174
<T0TAL-COSTS> 159,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 399
<INTEREST-EXPENSE> 14,255
<INCOME-PRETAX> 3,152
<INCOME-TAX> 1,314
<INCOME-CONTINUING> 1,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,838
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
