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, 1998
[ ] 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.)
915 Tate Boulevard, S.E., Suite 106, Hickory, North Carolina 28602
Address of principal executive offices)
828-322-2242
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------------------- -----------------------------------------
Common stock, par value $.01 per share New York Stock Exchange, Inc.
Preferred stock purchase rights New York Stock Exchange, Inc.
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. [ ]
As of March 5, 1999: 14,271,171 shares of Common Stock were outstanding; and the
aggregate market value of shares held by non-affiliates was $27,029,836. (For
these purposes, a reported closing market price of $2.00 per share on March 5,
1999 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 1999
Annual Meeting of Stockholders (Part III).
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
Worldtex, Inc. ("Worldtex" or the "Company") is a holding company
engaged through its subsidiaries in the supply of elastomeric components to the
textile and apparel industries and through one of its subsidiaries dates its
operations to 1934. 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; such Worldtex shares
were distributed and started trading publicly on that date. The Company has two
main product lines, covered elastic yarns and narrow elastic fabrics.
COVERED ELASTIC YARNS
Worldtex's principal subsidiaries engaged in the supply of covered
elastic yarns 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, and (iv)
Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia. 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.
The Company believes that it is one of the two largest independent
suppliers of covered elastic yarn in the world (based on 1998 net sales of
$178.7 million for this product line). 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 1998, 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, 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 in Estonia, and is currently evaluating joint venture
opportunities in China and India.
PRODUCTS
The covered elastic yarn manufactured by Worldtex is produced by
wrapping material, principally nylon, polyester, cotton or other fibers, around
<PAGE>
spandex or latex rubber. The core of spandex or rubber provides stretch
capability and durability, while the wrapped fiber provides dyeability and
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
As of December 31, 1998, 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 1998, the Company provided covered elastic yarns to over 1,800
customers, and no single covered elastic yarn customer accounted for more than
10% of 1998 sales of covered elastic yarns. The Company's ten largest covered
elastic yarn customers in 1998 accounted for approximately 22% of 1998 sales of
covered elastic yarns, which totaled $178.7 million.
The Company's customers are principally producers of fabric sold for
use in apparel products. In 1998, the Company's principal customers included
Jockey International, Ithaca Industries, Doris Hosiery, Nalpac, and Iril, S.A.
<PAGE>
During 1998, 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 1998, Worldtex's expenditures
for these purposes totaled less than 1% of its sales.
RAW MATERIALS
In 1998, approximately 65% of the Company's production costs for
covered elastic yarns were attributable to raw materials. 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 1998 were
DuPont, BASF, Nilit, Nylstar and Radaci. In 1998 Worldtex purchased a
substantial portion 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.
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, Unifi, Inc., has greater assets and financial
resources than Worldtex. 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, 1998, Worldtex had a total of approximately 1,250
employees engaged in its covered elastic yarn operations. Of these,
approximately 450 were employed in the United States by Regal, approximately 150
<PAGE>
were employed in Canada by Rubyco, approximately 300 were employed in France by
Filix and approximately 350 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
Worldtex's subsidiary engaged in the manufacture of narrow elastic
fabrics is Elastic Corporation of America, Inc. ("ECA"). The Company acquired
ECA, based in Columbiana, Alabama, in December 1997. The Company's subsidiary
Elastex, Inc. ("Elastex") acquired certain narrow elastic fabrics operations,
based in Asheboro, North Carolina, from Texfi Industries, Inc. in October 1997.
Elastex was merged into ECA effective December 31, 1998, and references to ECA
herein shall mean the combined operations of ECA and Elastex unless the context
indicates otherwise. In addition, on December 30, 1998, ECA acquired the
Lexington, South Carolina, narrow elastic manufacturing facility of Fruit of the
Loom. ECA has entered into a long-term agreement to supply narrow elastic
fabrics to Fruit of the Loom.
The Company believes that it is the largest manufacturer of woven
and knitted narrow elastic fabrics in the world (based on 1998 net sales of
$79.8 million for this product line). During 1998, ECA'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 operates a total of six
manufacturing facilities, which are located in Alabama, North Carolina, South
Carolina and Virginia.
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
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. In addition, ECA
manufactures gauze and elastic wrap products for the medical industry and
specialized elastic fabric used by the automotive industry.
ECA manufactures 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
<PAGE>
narrow elastic fabric product advancements. For example, ECA developed and
patented Quikcord(R) 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. 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 logo looms in the
United States.
SALES AND DISTRIBUTION
ECA sells its products to apparel manufacturers throughout the
United States and to foreign manufacturers. 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. 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 1998, ECA served over 700 narrow elastic fabric customers. Three
customers each individually accounted for more than 10% of 1998 sales of narrow
elastic fabrics. The Company's ten largest narrow elastic fabric customers in
1998 accounted for approximately 56% of 1998 sales of narrow elastic fabrics,
which totaled $79.8 million.
ECA's top customers in 1998 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 1998 for ECA's medical product was Johnson &
Johnson and for its automotive products was Crotty Corporation, a supplier to
General Motors Corporation.
In connection with the acquisition by ECA of Fruit of the Loom's
narrow elastic manufacturing facility on December 30, 1998, ECA entered into a
long-term supply agreement with Fruit of the Loom. The Company expects that
Fruit of the Loom will be ECA's largest customer in 1999.
MANUFACTURING
Knit elastic fabrics are primarily used in underwear and sportswear
applications. Most commodity knit elastic products are not "finished," and the
<PAGE>
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 operates dye houses for such purposes.
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 also produces silicon-backed fabrics. Such fabrics are typically
found in hosiery products, particularly in thigh-high stockings. To produce this
product, silicon is applied to knit, lace and simulated lace uniformly on one
side of the fabric and then dried to create a non-slip band. The band grips the
thigh allowing the stocking to stay in place without garters. Utilizing special
robotic equipment, the silicon-backed fabrics are banded to the specific size
requirements of the customers before inspection and final packaging.
RAW MATERIALS
Raw materials comprised approximately 50% of ECA's 1998 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 domestic
<PAGE>
importers. Chemical dyes and auxiliary dye ingredients are supplied by various
prominent chemical companies, such as Crompton & Knowles and Ciba-Geigy, and
silicon is primarily 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 domestic competitors who
manufacture narrow elastic fabrics for the apparel industry. Principal domestic
competitors in narrow elastic fabrics include Clinton Mills and George C. Moore.
EMPLOYEES
As of December 31, 1998, Worldtex had a total of approximately 1,000
employees engaged in its narrow elastic fabrics operations. None of these
employees are covered by collective bargaining agreements. Worldtex has
experienced no significant labor problems in its narrow elastic fabrics
operations and considers its employee relations to be good.
ITEM 2. PROPERTIES
- ------- ----------
Worldtex maintains its headquarters in Hickory, North Carolina, in
leased office space.
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:
<PAGE>
<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 - Regal
Hickory, NC 69,000 Owned Manufacturing Plant - Regal
Hickory, NC 18,000 Leased Distribution Center - Regal
Hickory, NC 80,000 Leased Distribution Center - Regal
CANADA:
Montreal, Quebec 85,000 Leased Manufacturing Plant and
Headquarters of Rubyco
FRANCE:
Troyes 69,000 Owned Distribution Center and
Headquarters of Filix
Athis 139,000 Owned Manufacturing Plant - Filix
Conde 202,000 Owned Manufacturing Plant - Filix
Le Grand Serre 92,000 Owned Manufacturing Plant - Filix
COLOMBIA:
Bogota 239,000 Leased Manufacturing Plant and
Headquarters of Fibrexa
SUBTOTAL 1,219,000
</TABLE>
NARROW ELASTIC FABRICS
ECA operates a total of six 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>
UNITED STATES:
Columbiana, AL 235,000 Owned Manufacturing Plant
Columbiana, AL 115,000 Owned Manufacturing Plant
Asheboro, NC 115,000 Owned Manufacturing Plant
Hemingway, SC 65,000 Owned Manufacturing Plant
Lexington, SC 114,000 Owned Manufacturing Plant
Woolwine, VA 77,000 Owned Manufacturing Plant
SUBTOTAL 721,000
GRAND TOTAL 1,940,000
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
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
- ------- ---------------------------------------------------
During the last quarter of the Company's 1998 fiscal year no matters
were submitted to a vote of the Company's security holders.
<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,
1996.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
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 8.06 6.94
2nd Quarter 8.13 5.44
3rd Quarter 6.25 4.25
4th Quarter 4.81 3.50
1999:
1st Quarter
(through March 5) 4.19 1.50
</TABLE>
At March 5, 1999 there were approximately 956 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,
no amounts were available for the payment of dividends and other distributions
as of December 31, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity; Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
WORLDTEX, INC. AND SUBSIDIARIES
-------------------------------
The following table sets forth certain financial data of Worldtex
for the five fiscal years ended December 31, 1998, which has been derived from
<PAGE>
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,
Item 7. Historical financial information may not be indicative of Worldtex's
future performance. Diluted earnings per share are calculated based upon the
weighted average number of common shares outstanding and dilutive common
equivalent shares during such year.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales $258,537 203,256 207,829 187,981 164,654
Income (loss) before income
taxes (6,392) 11,869 17,361 10,231 8,868
Provision (benefit) for income
taxes (494) 5,377 6,415 4,979 3,058
Income (loss) before
extraordinary item (5,898) 6,492 10,946 5,252 5,810
Diluted income (loss) before
extraordinary item per share (.41) .44 .75 .36 .40
Total assets 324,120 312,439 206,032 196,065 166,405
Long-term debt 198,246 185,780 67,754 68,947 61,085
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
elastomeric components to the textile industry in the world (based on 1998 net
sales). The Company has two main product lines, covered elastic yarns and narrow
elastic fabrics. 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 joint venture in
Estonia.
<PAGE>
The Company's narrow elastic fabrics business is conducted through
ECA, acquired on December 1, 1997 based in Columbiana, Alabama. In addition, the
Company acquired through Elastex certain narrow elastic fabrics operations based
in Asheboro, North Carolina, in October 1997. Elastex was merged into ECA
effective December 31, 1998. In addition, on December 30, 1998, ECA acquired the
Lexington, South Carolina, narrow elastic manufacturing facility of Fruit of the
Loom.
Worldtex is a holding company, the principal 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, changes in the value of the currencies of the foreign
countries in which the Company does business 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 demand for retail
apparel. The demand for retail apparel is in turn dependent on 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 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 and the diversification of its
product lines with the recent narrow elastics acquisitions.
Spandex and nylon are the principal raw materials used in the
Company's manufacturing process. In 1998 Worldtex purchased a significant
portion 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.
<PAGE>
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, Inc. and Worldtex are the two largest suppliers of covered elastic
yarns in the United States. Unifi, Inc. has substantially greater financial
resources than the Company and is less leveraged.
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,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales..................................... 100% 100% 100%
Gross profit.................................. 16.4% 17.7% 18.8%
Selling and administrative expense............ 9.9 7.7 7.5
Goodwill amortization......................... 1.8 0.5 0.5
Operating profit.............................. 4.7 9.5 10.8
Interest expense.............................. 7.3 3.5 2.8
Other income (expense)--net.................... 0.1 (0.2) 0.4
------ ----- -----
Income (loss) before income taxes............. (2.5)% 5.8% 8.4%
====== ===== =====
</TABLE>
1998 VS. 1997
- -------------
Sales for the twelve months ended December 31, 1998 were $258.5
million and net loss was $5.9 million, compared with sales of $203.2 million and
income before extraordinary item of $6.5 million for the comparable period in
1997. Diluted net loss per share was $.41 for 1998 compared with diluted income
per share before extraordinary item of $.44 in 1997. Results for 1998 reflects
the Company's acquisitions of ECA and Elastex in the last quarter of 1997.
Worldtex's covered elastic yarn sales in 1998 of $178.7 million
decreased $15.7 million, or 8.1%, when compared with 1997, primarily because of
continuing softness in the European general textile market, higher apparel
imports and overall weak demand by ladies' hosiery customers. Of the decrease,
the stronger U.S. dollar versus foreign currency denominated sales decreased
covered elastic yarn sales by approximately $5.7 million (assuming currency
translation of 1998 sales at the rate applicable to 1997 results). During the
fourth quarter, the Company recorded charges of $7.8 million, which included a
$4.4 million restructuring provision for discontinuing the Company's
conventional covered yarn production in Montreal, Quebec, $1.9 million related
primarily to asset provisions for underutilized equipment in the United States
and $1.5 million related to the retirement of the Company's former chairman and
<PAGE>
chief financial officer. The Company's narrow elastic fabric sales in 1998 of
$79.8 million increased $70.9 million when compared with 1997, due to the
inclusion of narrow elastic fabric sales for the full year compared with 1997
sales from the dates of the ECA and Elastex acquisitions in the fourth quarter.
Narrow elastic fabric sales originate in the U.S. with no foreign currency
translation exposure. Results from the narrow elastic fabric operations did not
meet expectations during 1998 due to customer inventory adjustments and softness
relating to Asian economic issues.
Worldtex's gross margin in 1998 decreased to 16.4% of net sales as
compared to 17.7% for 1997. Gross profit margins decreased primarily due to
one-time charges of $3.8 million related to the North American covered yarn
restructuring that lowered gross margin from 17.8% of sales to 16.4% of sales.
Selling and administrative expenses increased as a percentage of net sales to
9.9% in 1998 from 7.7% in 1997, primarily because the fixed component of these
expenses increased as a result of the recent acquisitions and the $1.7 million
administrative expense included in the one-time charges relating to the North
American covered yarn restructuring and the retirement of the Company's former
chairman. Goodwill amortization increased as a percentage of net sales to 4.7%
in 1998 from 0.5% in 1997 due to the $2.3 million goodwill provision included in
the one-time charges relating to the North American covered yarn restructuring.
The increase in interest expense of $11.7 million was caused
primarily by the $175.0 million Senior Notes issued December 1, 1997 in
connection with the acquisitions of Elastex and ECA and refinancing of existing
indebtedness.
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 income per share before extraordinary item was $.44 for
1997 compared with $.75 in 1996. Worldtex's covered elastic yarn sales in 1997
of $194.4 million decreased $13.5 million, or 6.5%, when compared with 1996. The
decrease was primarily because of the stronger U.S. dollar versus foreign
currency denominated sales which decreased covered elastic yarn sales by
approximately $14.5 million (assuming currency translation of 1997 sales at the
rate applicable to 1996 results). The Company's narrow elastic fabric operations
were acquired in the fourth quarter of 1997 and had sales of $8.9 million from
the acquisition dates. Narrow elastic fabric sales originate in the U.S. with no
foreign currency translation exposure.
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 Company'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 7.7% in 1997 from 7.5% in 1996 primarily because the fixed component of
these expenses was spread over a lower sales base.
<PAGE>
The increase in interest expense of $1.2 million was caused
primarily by the $175.0 million Senior Notes issued December 1, 1997 in
connection with the acquisitions of Elastex and ECA and the refinancing of
existing indebtedness.
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 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 change. 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, which
consisted primarily of borrowings under the Company's credit facilities.
Worldtex generated $10.5 million from its operating activities in
1998, compared with using $1.5 million in 1997 and generating $15.0 million in
1996. The increase in net cash provided by operating activities in 1998 was
caused primarily by the decrease in net income being more than offset by the
increase in non-cash expenses for depreciation and amortization, other non-cash
charges and improved working capital utilization.
EBITDA represents operating profit (loss) plus depreciation,
amortization and in the case of 1998, certain one-time charges and is provided
as additional information relating to the Company's debt service capacity. While
EBITDA should not be considered as an alternative measure of net income or cash
provided by operating activities, it is presented to provide additional
information relating to the Company's debt service capability. EBITDA should not
be considered in isolation or as a substitute for other measures of financial
performance or liquidity. EBITDA for the years ended December 31, 1998, 1997 and
1996 was $30.9 million, $26.1 million and $28.8 million, respectively.
Depreciation and amortization for the years ended December 31, 1998, 1997 and
1996 was $16.6 million, $6.8 million and $6.3 million, respectively. Results for
1998 include one-time charges for depreciation and amortization of $5.6 million
and approximately $1.5 million of additional depreciation to shorten asset lives
on certain covered elastic yarn manufacturing equipment effective October 1,
1998. Asset lives for existing equipment have been shortened to approximately 10
to 14 years, on average, as compared to 14 to 20 years in the past. The
Company's comprehensive review of the covered elastic yarn business with trends
toward off-shore sourcing, the availability of new generations of equipment and
the continuing process of evaluating future production needs dictated that
<PAGE>
shortening the lives assigned to the covered elastic yarn production equipment
was prudent.
During 1998, capital expenditures amounted to $19.8 million
(excluding $12.8 million to purchase the narrow elastic fabrics operations of
Fruit of the Loom on December 30, 1998). Capital expenditures were $7.7 million
in 1997 and $13.8 million in 1996. The majority of such capital expenditures
during the years 1996-1998 were primarily used to purchase additional
manufacturing equipment in order to increase the Company's production capacity
and to obtain productivity improvements. The Company currently expects that
capital expenditures for 1999 will aggregate approximately $15.0 million,
primarily for machinery and property improvements. In addition, the Company
anticipates $5 to $7 million of the total will be spent for management
information systems (see "Year 2000 Compliance" below).
The Company purchased substantially all of the narrow elastic fabric
assets of Fruit of the Loom for approximately $12.8 million in cash on December
30, 1998. Goodwill and other intangible assets of $4.8 million are being
amortized over periods of 5 to 10 years.
The Company's business strategy includes the pursuit of strategic
acquisitions of other businesses. Any acquisition would be funded through cash
on hand, the issuance of additional securities, the sale of other assets or the
incurrence of additional indebtedness. The Company's ability to sell assets and
incur indebtedness are restricted under the Indenture referred to below and the
Company's revolving credit facilities.
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"). The net proceeds
(before deduction of transaction expenses) of approximately $170.0 million, were
used to pay the purchase price in the ECA acquisition, repay certain
indebtedness and to pay transaction fees and expenses relating thereto. The
Company used the balance of the net proceeds from the sale of the Notes for
general corporate purposes. During 1998, the Company cancelled an interest rate
swap agreement relating to debt refinanced by the notes and received a
cancellation fee of $.3 million.
The Company has a domestic revolving credit facility that provides
for revolving credit borrowings in an aggregate principal amount of up to $25.0
million. The revolving credit facility terminates and all amounts borrowed
thereunder will be due December 1, 2002. Loans under the revolving 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 revolving 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.
At December 31, 1998, the Company has total indebtedness of $206.1
million and $13.0 million was available for future borrowings under the domestic
credit facility. In addition, at such date the Company's foreign subsidiaries
<PAGE>
had $24.3 million of U.S. dollar equivalent credit availability under bank lines
of credit. Amounts outstanding as of December 31, 1998 were $7.3 million. The
most restrictive covenant of the domestic revolving credit facility and
Indenture limits short-term borrowings by the Company's foreign 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.
The Company is highly leveraged. The Company's ability to make
scheduled payments of principal 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 Company's credit facilities,
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 Company's credit facilities
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 Company's credit facilities 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. At December 31,
1998, Worldtex was not in compliance with financial covenants in its credit
facility relating to the leverage ratio, interest coverage ratio, minimum
tangible net worth and limitation on capital expenditures. The Company obtained
a waiver as of December 31, 1998, and the credit facility was amended on March
29, 1999, to reset the financial covenants for 1999.
<PAGE>
YEAR 2000 COMPLIANCE
- --------------------
Many existing computer programs in use around the world use only the
last two digits to define a year rather than four digits 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. Worldtex
established a Year 2000 project team in 1998 and retained an independent
consulting group to provide assistance in assessing Year 2000 risks and to
provide recommendations for remediation. 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.
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 during the
third quarter of 1999. Remediation for other information systems and computer
based embedded technology systems is 25 percent complete and is scheduled to be
complete by December 31, 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 to $7 million. The Company
estimates that $3 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 had incurred approximately $1.1 million in costs
as of December 31, 1998, primarily for the purchase of software.
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 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 likely worst case scenario is the disruption of the
distribution system (product delays from suppliers and/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>
EUROPEAN MONETARY UNION - EURO
- ------------------------------
The Company conducts business in multiple currencies, including the
currencies of various European countries in the European Union which are
participating in the single European currency by adopting the Euro as their
common currency on January 1, 1999, the date that the Euro trades on currency
exchanges. The legal currencies of the participating countries will remain legal
tender for a transition period between January 1, 1999 and January 1, 2002.
During the transition period, wire transfers can be made in the Euro with
payment for goods and services in either the Euro or the legacy currency.
Between January 1, 2002 and July 1, 2002, the participating countries will
introduce Euro notes and coins and eventually withdraw all legacy currencies.
Currency rates during the transition period will no longer be computed from one
legacy to another but instead will first be converted into the Euro. The Company
is addressing the issues involved with the introduction of the Euro and the
impact on its business, both strategically and operationally. Based on current
information, the Company does not expect the Euro conversion to have a material
adverse effect on the financial position or results of operations of the
Company.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which are other than historical
facts are intended to be "forward-looking statements" within the meaning of
federal securities laws. Words such as "expects", "believes", "anticipates",
"projects", "estimates", "plan", variations of such words and other similar
expressions are intended to identify such forward-looking statements. These
statements are subject to various risks and uncertainties, many of which are
outside the control of the Company. Risks and uncertainties include, but are not
limited to, the financial strength of the apparel industry, the level of
consumer spending for apparel, changing consumer preferences, the competitive
pricing environment within the hosiery market segment of the apparel industry,
foreign currency translation, success of new product introductions, and other
risk factors. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in, or implied by, such forward-looking
statements, which reflect management's judgment only as of the date hereof. The
Company does not intend to update publicly this information to reflect new
information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The Company in the normal course of business is exposed to the risk
of loss from non-performance by its customers for amounts due the Company
through the extension of credit. The Company controls credit risk exposure
through credit approvals, credit limits, factoring certain selected receivables
and monitoring procedures. The Company did not have any significant exposure to
any individual customer as of December 31, 1998 that had not been adequately
provided for through an allowance for bad debts.
The Company's sales are predominantly denominated in the local
currency of the subsidiary originating the sale. A significant decline in the
value of currencies of the foreign countries in which the Company does business
<PAGE>
could have a material adverse impact on the Company's business, financial
condition and results of operations. The Company had entered into derivative
financial instruments related to foreign currency exchange rates at December 31,
1998 totaling $.4 million.
The Company's primary source of funds other than cash from
operations is borrowings under its domestic revolving credit and foreign lines
of credit facilities which incur interest at variable rates at terms not to
exceed six months, at which time the borrowings are reset to current market
rates.
The following table summarizes the Company's market risks associated
with long-term debt. The table presents principal cash out-flows and related
interest rates by year of maturity. Fair values used below were determined using
quoted market rates or interest rates that are currently available to the
Company on debt with similar terms and remaining maturities.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM DEBT MATURITIES
(DOLLARS IN THOUSANDS)
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $312 555 640 888 871 175,985 179,251 160,055
Average interest
rate 7.00% 7.00% 7.00% 7.00% 7.00% 9.20%
Variable Rate $213 1,307 - 12,000 - 6,000 19,520 19,520
Average interest
rate 6.30% 6.30% - 7.04% - 5.00%
</TABLE>
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.
<PAGE>
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' Reports
Financial Statements:
Consolidated Statements of Operations,
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets,
December 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows,
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Supplementary Financial Information
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997 and 1996
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 and Stockholders of
Worldtex, Inc.:
We have audited the accompanying consolidated balance sheet of Worldtex, Inc.
and subsidiaries (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule for the year ended December 31, 1998
listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. The financial statements and
financial statement schedule of the Company as of and for the years ended
December 31, 1997 and 1996 were audited by other auditors whose report, dated
February 27, 1998, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1998 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule for the year ended December 31, 1998,
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.
Deloitte & Touche LLP
Hickory, North Carolina
February 25, 1999 (March 29, 1999 as to the credit facility amendment described
in Note 6)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Worldtex, Inc.:
We have audited the accompanying consolidated balance sheet of Worldtex, Inc.
and subsidiaries as of December 31, 1997 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years in the
two-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 at Item 8 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 the results of their operations and
their cash flows for each of the years in the two-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 LLP
Atlanta, Georgia
February 27, 1998
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales (Note 12) $ 258,537 203,256 207,829
Cost of goods sold (Notes 3 and 16) 216,267 167,272 168,754
--------- ------- -------
Gross profit 42,270 35,984 39,075
Selling and administrative expense (Notes 3
and 16) 25,599 15,802 15,640
Goodwill amortization (Notes 3 and 16) 4,638 968 942
--------- ------- -------
Operating profit 12,033 19,214 22,493
Interest expense (Note 3) 18,765 7,043 5,826
Other income (expense) - net 340 (302) 694
--------- ------- -------
Income (loss) before income taxes (6,392) 11,869 17,361
Provision for income taxes (Note 11) (494) 5,377 6,415
--------- ------- -------
Income (loss) before extraordinary item (5,898) 6,492 10,946
Extraordinary item, net (Note 6) - (1,344) -
--------- ------- -------
Net income (loss) $ (5,898) 5,148 10,946
========= ======= =======
Basic net income (loss) per share (Note 3):
Income (loss) before extraordinary item $ (.41) .45 .76
Extraordinary item, net - (.09) -
--------- ------- -------
Net income (loss) $ (.41) .36 .76
========= ======= =======
Diluted net income (loss) per share (Note 3):
Income (loss) before extraordinary item $ (.41) .44 .75
Extraordinary item, net - (.09) -
--------- ------- -------
Net income (loss) $ (.41) .35 .75
========= ======= =======
Weighted average shares outstanding (Note 3)
Basic 14,368 14,420 14,463
========= ======= =======
Diluted 14,368 14,821 14,669
========= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ (5,898) 5,148 10,946
--------- ------- -------
Other comprehensive income (loss):
Foreign currency translation adjustments
(Note 3) 2,704 (12,937) (4,153)
--------- ------- -------
Comprehensive income (loss) $ (3,194) (7,789) 6,793
========= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
ASSETS
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,715 14,872
Accounts and notes receivable, less allowance for
doubtful accounts of $2,041 in 1998 and $2,085 in
1997 (Notes 4 and 6) 42,885 46,320
Inventories (Notes 3 and 6) 58,515 54,200
Prepaid expenses and other current assets (Note 11) 3,982 3,026
------- -------
Total current assets 112,097 118,418
Property, plant and equipment - net (Note 3) 113,652 99,160
Other assets (Notes 3 and 15) 12,850 11,946
Cost in excess of net assets of acquired businesses, net
of accumulated amortization of $9,146 in 1998 and
$7,600 in 1997 (Note 3) 85,521 82,915
---------- -------
$ 324,120 312,439
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 5) $ 7,308 1,819
Current installments of long-term debt (Note 6) 525 620
Accounts payable-trade and other liabilities (Notes
8 and 10) 29,412 28,236
Income taxes payable (Note 11) 1,700 -
---------- -------
Total current liabilities 38,945 30,675
Long-term debt (Note 6) 198,246 185,780
Other long-term liabilities 569 2,547
Deferred income taxes (Note 11) 12,878 15,935
---------- -------
Total liabilities 250,638 234,937
========== =======
Commitments and contingencies (Notes 8 and 9)
Stockholders' equity (Notes 6, 7 and 8):
Preferred stock - -
Common stock (shares issued of 14,700,971 in 1998
and 14,694,971 in 1997) 147 147
Paid-in capital 30,084 30,059
Retained earnings 56,169 62,067
Accumulated other comprehensive loss:
Cumulative foreign translation adjustment (10,569) (13,273)
Less - Treasury stock, at cost (429,800 shares in
1998 and 266,300 shares in 1997) (2,349) (1,498)
---------- -------
Total stockholders' equity 73,482 77,502
---------- -------
$ 324,120 312,439
========== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
CUMULATIVE
COMMON FOREIGN
STOCK COMMON PAID-IN RETAINED TRANSLATION TREASURY
SHARES STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ----- ------- -------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 14,663 $ 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)
Options exercised 7 - 33 - - - 33
------ ------- ------ ------ ------- ------ ------
Balances at December 31, 1996 14,670 $ 147 29,946 56,919 (336) (1,498) 85,178
Net income - - - 5,148 - - 5,148
Foreign currency translation
adjustment - - - - (12,937) - (12,937)
Options exercised 25 - 113 - - - 113
------ ------- ------ ------ ------- ------ ------
Balances at December 31, 1997 14,695 $ 147 30,059 62,067 (13,273) (1,498) 77,502
Net loss - - - (5,898) - - (5,898)
Foreign currency translation
adjustment - - - - 2,704 - 2,704
Purchases of treasury stock - - - - - (851) (851)
Options exercised 6 - 25 - - - 25
------ ------- ------ ------ ------- ------ ------
Balances at December 31, 1998
(Notes 6, 7 and 8) 14,701 $ 147 30,084 56,169 (10,569) (2,349) 73,482
====== ======= ====== ====== ======= ====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(5,898) 5,148 10,946
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 11,934 5,877 5,342
Amortization 4,638 968 942
Provision for losses on accounts
receivable 590 305 139
Deferred income taxes (5,089) 720 825
Change in assets and liabilities
net of effects of acquisitions:
Accounts and notes receivable 2,729 (1,064) (2,788)
Inventories (2,228) (7,396) (4,557)
Prepaid expenses and other current
assets 135 (248) 163
Accounts payable -
trade and other current liabilities 1,809 (4,313) 5,344
Income taxes payable 1,850 (1,494) (1,324)
------- -------- --------
Net cash provided by (used in)
operating activities 10,470 (1,497) 15,032
------- -------- -------
Cash flows from investing activities:
Capital expenditures (19,871) (7,706) (13,785)
Acquisitions, net of cash acquired (12,810) (85,382) -
Other investing activities (2,830) (8,190) (1,149)
------- -------- --------
Net cash used in investing activities (35,511) (101,278) (14,934)
------- -------- -------
Cash flows from financing activities:
Borrowings under line of credit
arrangements 9,482 3,548 16,724
Payments under line of credit
arrangements (3,221) (3,435) (16,321)
Borrowings under revolving credit
facility 12,000 109,550 104,660
Payments under revolving credit
facility - (121,940) (104,940)
Borrowings under long-term loans - 175,000 -
Payments under long-term loans - (50,000) -
Stock issued or (reacquired), net (825) 113 (554)
Other financing activities (1,141) 1,068 830
------- ------- -------
Net cash provided by financing
activities 16,295 113,904 399
------- ------- -------
Effects of exchange rate changes on cash 589 1,626 (225)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents (8,157) 12,755 272
Cash and cash equivalents at beginning of
year 14,872 2,117 1,845
------- ------- -------
Cash and cash equivalents at end of year $ 6,715 14,872 2,117
======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $19,667 7,374 5,784
======= ===== ======
Income taxes $ 1,920 7,594 7,630
======= ===== ======
</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. Elastex was merged into ECA
effective December 31, 1998. A reference to Worldtex includes its
subsidiaries unless the context indicates otherwise.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements of Worldtex as of December 31, 1998 and
1997 and for the years ended December 31, 1998, 1997 and 1996 include the
accounts of Regal, Rubyco, Filix, Fibrexa, Elastex effective October 3, 1997 and
ECA effective December 1, 1997. The Company also has a 38% interest in a joint
venture in Estonia which is accounted for under the equity method. All
significant intercompany balances and transactions for all periods are
eliminated in the consolidated financial statements.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH AND CASH EQUIVALENTS
At December 31, 1998 and 1997, cash included a demand deposit of $2,596 and
$9,160, respectively, with a commercial bank earning daily money market
investment yields. At December 31, 1998 and 1997, restricted cash on deposit of
$2,247 and $2,123, respectively, is 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, 1998 and 1997, the major classes of inventory are:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw Materials $ 16,032 15,401
Work in Process 14,749 13,976
Finished Goods 27,734 24,823
-------- ------
$ 58,515 54,200
======== ======
</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 14 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.
<PAGE>
<TABLE>
<CAPTION>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
As of December 31, 1998 and 1997, property, plant and equipment consists of:
1998 1997
---- ----
<S> <C> <C>
Land $3,255 2,820
Buildings and
leasehold
improvements 39,246 34,172
Machinery and
equipment 111,417 99,083
--------- -------
153,918 136,075
Less accumulated
depreciation
and amortization 40,266 36,915
--------- -------
$113,652 99,160
======== =======
</TABLE>
Effective October 1, 1998, the Company reduced its estimate of depreciable lives
for certain manufacturing equipment from a range of 14 to 20 years to 10 to 14
years, on average. This change increased depreciation expense in 1998 by
approximately $1.5 million, increased the net loss by approximately $1.0 million
and increased the net loss per share by $.07.
(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
The Company enters into forward exchange contracts as a hedge against accounts
payable denominated in foreign currency. These contracts are used 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, 1998 and 1997, $400 and $0, respectively, in contracts were outstanding.
(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 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 change.
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, and
the foreign currency translation adjustment shown on the consolidated statements
of comprehensive income (loss) are not shown net of tax, since Worldtex intends
that such earnings will continue to be invested in those countries. At December
31, 1998, the cumulative amount of foreign undistributed earnings amounted to
approximately $51,218. 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
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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
for basic and dilutive per share amounts as required by Statement of Financial
Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Diluted net
income (loss)
available to
common
stockholders $(5,898) 5,148 10,946
------- ------ ------
Basic weighted
average common
shares
outstanding 14,368 14,420 14,463
Effect of
dilutive
options
outstanding - 401 206
------- ------ ------
Diluted weighted
average common
and common
equivalent
shares
outstanding 14,368 14,821 14,669
------- ------ ------
Potentially
dilutive shares
not included
because their
effect was
antidilutive 1,814 80 458
------- ------ ------
</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 bad debts and expected cash discounts based upon periodic
evaluations of the aging of the accounts receivable and related claims
experience.
(J) INTEREST RATE SWAP AGREEMENT
The Company terminated an interest rate swap agreement in 1998. It was accounted
for like a hedge of the underlying debt obligation and interest expense was
recorded using the revised interest rate, with fees and other payments amortized
as yield adjustments.
(K) STOCK OPTIONS
The Company accounts 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.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(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.
(N) NEW ACCOUNTING STANDARDS
The Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME, on January 1,
1998. Comprehensive income is defined as "all changes in stockholders' equity
exclusive of transactions with owners". The Company's only transactions deemed
to be items of other comprehensive income relate to foreign currency translation
adjustments for its investments in consolidated foreign subsidiaries.
Comprehensive income (loss) for 1998, 1997 and 1996 is presented in the
accompanying consolidated statements of comprehensive income (loss).
Comprehensive income will also include gains and losses on certain derivative
transactions that qualify as hedges, as computed under SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 requires all
derivatives to be recorded on the balance sheet at fair value and establishes
special accounting standards for derivatives that qualify as fair value hedges,
cash flow hedges and hedges of foreign currency exposures of net investments in
foreign operations. Management is evaluating the impact of the adoption of SFAS
No. 133 on the Company's financial position and operations.
(O) CAPITALIZATION OF INTEREST
The Company capitalizes interest expense associated with construction of certain
assets. In 1998, interest of $379 was capitalized.
NOTE 4 - NOTES RECEIVABLE
Foreign subsidiaries have the U.S. dollar equivalent of $2,845 and $2,812 of
non-interest bearing notes receivable as of December 31, 1998 and 1997,
respectively, with maturities within four months of those dates.
NOTE 5 - SHORT-TERM BORROWINGS
Short-term debt consists of notes payable to banks and advances under bank lines
of credit and overdraft facilities. The Company's foreign subsidiaries have
available the U.S. dollar equivalent of $24,544 under various bank lines of
credit and overdraft facilities providing for unsecured borrowings and letter of
credit financing generally due in 90 to 180 days. At December 31, 1998 and 1997,
$7,308 and $1,819, respectively, were outstanding under these agreements at
average interest rates of 5.25% to 7.75% respectively.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 6 - LONG-TERM DEBT
<TABLE>
<CAPTION>
As of December 31, 1998 and 1997, long-term debt consists of:
1998 1997
---- ----
<S> <C> <C>
9.625% Senior Notes
due December 15,
2007 $175,000 175,000
Industrial revenue
bonds due June 1,
2014 with interest
at variable rates
(5.0% average rate
as of December 31,
1998) 6,000 6,000
Revolving credit
facilities due
December 1, 2002
with interest at
variable rates
(7.04% weighted
average rate as of
December 31, 1998) 12,000 -
Other indebtedness,
primarily fixed
rate debt, due at
various dates
through 2007 5,771 5,400
-------- -------
198,771 186,400
Less current
installments 525 620
-------- -------
$198,246 185,780
======== =======
</TABLE>
The aggregate annual maturities of long-term debt during each of the five years
subsequent to December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1999 $ 525
2000 1,862
2001 640
2002 12,888
2003 871
Thereafter 181,985
---------
$ 198,771
=========
</TABLE>
The Company entered into an indenture dated December 1, 1997, under which a
total of $175,000 of Senior Notes due December 15, 2007 were issued with
interest 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
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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, 1998,
Worldtex was in compliance with the various covenants. Upon the issuance of the
notes the Company repaid certain existing indebtedness. An extraordinary charge
of $1,344, net of a tax benefit of $693, was recorded for the early debt
extinguishment. In addition, during 1998, the Company cancelled an interest rate
swap agreement relating to indebtedness repaid by the issuance of the notes and
received a settlement of $286.
Certain property and equipment collateralize the industrial revenue bonds, which
are also secured by an annually renewable letter of credit.
The Company has a domestic credit facility that provides for revolving credit
borrowings in an aggregate principal amount of up to $25,000. The domestic
credit facility terminates and all amounts borrowed thereunder will be due
December 1, 2002. Loans under the domestic credit facility bear interest at
variable rates based upon a base rate (the higher of the prime rate or the
Federal Funds rate),certificate of deposit rates or Eurodollar rates, in each
case plus an applicable margin. 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. The domestic credit facility
carries a commitment fee of .375% of the unused available borrowings. The
domestic credit facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities. In addition, the domestic
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 domestic credit facility
restricts the payment of dividends. At December 31, 1998, Worldtex was not in
compliance with financial covenants relating to the leverage ratio, interest
coverage ratio, minimum tangible net worth and limitation on capital
expenditures. The Company obtained a waiver of the covenant violations as of
December 31, 1998, and the credit facility was amended on March 29, 1999, to
reset the financial covenants for 1999.
Under the most restrictive of these debt agreements, no amounts were available
for the payment of dividends and other distributions as of December 31, 1998.
NOTE 7 - STOCKHOLDERS' EQUITY
Worldtex is authorized to issue up to 40,000,000 shares of common stock, $.01
par value, and 10,000,000 shares of preferred stock, $.01 par value. As of
December 31, 1998 and 1997, there were issued 14,700,971 and 14,694,971 and
outstanding 14,271,171 and 14,428,671 shares of common stock, respectively, and
no shares of preferred stock. Worldtex has a current authorization to repurchase
up to 1,000,000 shares of its common stock although no amount was available for
such repurchases at December 31, 1998, under restrictive covenants in Worldtex's
debt agreements. Through December 1998, 429,800 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.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
In connection with Worldtex's formation in 1992, 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 1998, options to purchase up to 2,100,000 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 a one-time option to
purchase 10,000 shares of common stock of the Company. As of December 31, 1998,
options for 37,600 shares had been exercised and 307,900 shares were reserved
for future awards under the plan. 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, 1998, 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>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
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 Granted 444,100 $3.38
Options Exercised 6,000 $4.19
Options Cancelled 1,000 $6.75
---------
Balances at
December 31,
1998 1,804,500 $5.07
=========
Options Exercisable:
December 31, 1996 737,400 $5.91
December 31, 1997 891,680 $5.76
December 31, 1998 1,040,940 $5.65
Weighted average
fair value of options
granted:
December 31, 1996 $2.27
December 31, 1997 $3.79
December 31, 1998 $1.98
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE
PRICES OF SHARES LIFE PRICE
-------- --------- ----------- --------
<S> <C> <C> <C>
$3.38 - $4.75 1,072,900 7.7 yrs $ 3.98
$6.44 - $6.75 651,600 4.3 yrs $ 6.48
$7.97 - $9.44 80,000 8.7 yrs $ 8.26
</TABLE>
Options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE
PRICES OF SHARES LIFE PRICE
-------- --------- ----------- --------
<S> <C> <C> <C>
$3.38 - $4.75 410,540 7.7 yrs $ 3.98
$6.44 - $6.75 614,400 4.3 yrs $ 6.48
$7.97 - $9.44 16,000 8.7 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. Options generally vest ratably over five years and
have a term of ten years.
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 (loss) and net income
(loss) per share would be as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income
(loss) as
reported $(5,898) 5,148 10,946
Pro forma net
income (loss) (6,019) 5,046 10,872
Diluted net
income (loss)
per share as
reported (.41) .35 .75
Pro forma net
income (loss)
per share (.42) .35 .75
</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 1998, 1997 and 1996: dividend yield of 0%;
expected volatility of 36%, 33% and 27%; risk-free interest rates of 5.5% and
expected lives of eight years.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 8 - EMPLOYEE BENEFIT PLANS
Effective June 1, 1996, the Company amended and merged the Regal profit-sharing,
the Worldtex ESOP, and the Worldtex, Inc. 401(k) plans and renamed the combined
plans The Worldtex, Inc. Profit Sharing and Retirement Savings Plan (the
"Plan"). The purpose of the Plan is to provide for discretionary profit sharing
contributions, elective deferrals pursuant to Internal Revenue Code Section 401
(k), and discretionary matching contributions for employees of the Company and
its participating subsidiaries. All Company contributions vest at the rate of
20% after two years, 40% after three years, 60% after four years and 100% after
five years.
Worldtex's United States employees participate in the Plan that provides
eligible employees with an opportunity to purchase various investment funds
including Company stock through payroll deductions. These employee
contributions, subject to certain limitations, are 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 Plan are invested by an
independent trustee. Contributions to the Plan were $187, $0 and $50 in 1998,
1997 and 1996 respectively.
Employees of Regal participate in a non-contributory profit-sharing plan for all
eligible employees, including officers. The plan provides for minimum employer
contributions 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. Contributions for the years
ended December 31, 1998, 1997 and 1996 were $0, $89 and $60 respectively.
Employees of Rubyco participate in a Registered Retirement Savings plan. The
plan provides for employee contributions of 4% of salary to a maximum of $2.3
per employee with corresponding contributions by Rubyco of 5% of salary to a
maximum of $2.3 per employee. Contributions for the years ended December 31,
1998, 1997 and 1996 were $20, $23 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. Contributions
for the years ended December 31, 1998, 1997 and 1996 were $590, $720 and $902
respectively.
Under the terms of an industry-wide labor agreement, Filix employees participate
in an unfunded plan which provides for 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 Company's accumulated benefit obligation for this plan was $212
and $185 at December 31, 1998 and 1997, respectively, with a projected benefit
obligation of $228 and $199. The projected obligation at December 31, 1998 and
1997 was determined using an assumed discount rate of 7.25% and an assumed
long-term rate of increase in compensation of 3%. The Company's net periodic
pension cost for this plan was $22, $21 and $47 in 1998, 1997 and 1996
respectively.
Worldtex has an unfunded supplemental plan for a senior executive. The accrued
liability at December 31, 1998 and 1997 was $2,365 and $1,487. The Company
accrued $878, $200 and $522 in 1998, 1997 and 1996 respectively for benefits
under this plan.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under non-cancelable operating leases, primarily
for real property, as of December 31, 1998 are:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 2,296
2000 2,192
2001 2,073
2002 1,684
2003 128
---------
Total $ 8,373
=========
</TABLE>
Rental expense for cancelable and non-cancelable operating leases charged to
operations for the years ended December 31, 1998, 1997 and 1996 was $2,100,
$1,134 and $974 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
of any present litigation or asserted claim will not have a material effect on
Worldtex's operations, financial position or liquidity.
NOTE 10 - ACCOUNTS PAYABLE -TRADE AND OTHER LIABILITIES
Accounts payable - trade and other liabilities consist of the following as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accounts and other
payables - trade $17,781 19,187
Salaries, wages and
other compensation 4,306 3,612
Pensions, profit
sharing and
employee benefits 3,423 1,668
Taxes, other than
income taxes 1,162 1,083
Interest 1,145 1,619
Other 1,595 1,067
------- ------
Total $29,412 28,236
======= ======
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 11 - INCOME TAXES
The provisions for income taxes for the years ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
U.S. U.S. STATE
FEDERAL FOREIGN & LOCAL TOTAL
-----------------------------------------
<S> <C> <C> <C> <C>
1998
- ----
Current $ 0 3,892 (55) 3,837
Deferred (3,954) (266) (111) (4,331)
-----------------------------------------
Total $(3,954) 3,626 (166) (494)
=========================================
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
=========================================
</TABLE>
Income (loss) before income taxes for the years ended December 31, 1998, 1997
and 1996 is comprised as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. $(12,760) (2,244) (365)
Foreign 6,368 14,113 17,726
$ (6,392) 11,869 17,361
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A reconciliation for the years ended December 31, 1998, 1997 and 1996 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. (34.0)% 34.0% 34.0%
Federal income tax
rate
Effect of increase
in French tax rate
on deferred taxes - 9.7 -
Effect of higher
foreign tax rates
on current taxes 12.8 7.1 -
Effect of foreign
inflation
adjustments (5.2) (7.8) -
Amortization of
goodwill 16.1 2.2 1.9
Other, net 2.6 .1 1.1
------- ----- -----
Effective rate of
tax on book income
(loss) (7.7)% 45.3% 37.0%
======= ===== =====
</TABLE>
In October 1997, France increased the tax rate from 36.67% to 41.67%. The rate
increase resulted in a $1,156 charge in 1997 to the income tax provision to
increase the deferred tax liability as of January 1, 1997 to the higher enacted
income tax rate.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------------
<S> <C> <C>
Deferred tax assets:
Inventories $ 936 259
Employee benefits 1,294 843
Allowance for
doubtful accounts 467 346
Net operating loss
carryforwards 7,153 2,561
-------------------
9,850 4,009
-------------------
Deferred tax
liabilities:
Property, plant and
equipment (17,932) (17,609)
Goodwill
amortization (1,323) (82)
Imputed interest (775) (806)
Other (280) (362)
-------------------
(20,310) (18,859)
-------------------
Net deferred income
taxes $(10,460) (14,850)
===================
</TABLE>
Deferred taxes are classified in the accompanying Consolidated Balance Sheets
captions as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Prepaid expenses and
current assets $ 2,418 1,085
Deferred income taxes (12,878) (15,935)
--------- ----------
$(10,460) (14,850)
========= ==========
</TABLE>
There was a $91 valuation allowance established in 1997 for deferred tax
assets attributable to items which when realized will result in adjustments
to goodwill. There was no valuation allowance for years ended December 31,
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1998 and 1996. At December 31, 1998, the Company had U.S. Federal and state net
operating loss carryforwards aggregating $20,000 and $5,800, respectively, which
expire at various dates through 2018.
NOTE 12 - OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
The Company's operations are conducted within two product lines, the
manufacturing and sale of covered elastic yarns and of woven and knitted narrow
elastic fabrics. As allowed by SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, the Company has aggregated these product
lines for reporting purposes due to their similar economic characteristics,
production processes, customers and distribution methods.
External sales by product line are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Covered elastic
yarn $178,768 194,386 207,829
Narrow elastic
fabric 79,769 8,870 -
-------- ------- -------
$258,537 203,256 207,829
======== ======= =======
</TABLE>
External sales and net long-lived assets by geographic area are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States
- -------------
Net sales $146,684 73,843 64,131
Net long-lived
assets 138,791 122,803 43,660
Canada
- ------
Net sales 20,968 24,295 22,149
Net long-lived
assets 1,570 6,025 7,819
France
- ------
Net sales 79,472 92,417 109,785
Net long-lived
assets 53,096 49,673 6,400
Colombia
- --------
Net sales 11,413 12,701 11,764
Net long-lived
assets 18,566 15,520 15,928
</TABLE>
In 1998, 1997 and 1996, no customer represented over 10% of consolidated net
sales.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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
quoted market rates or 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, 1998
-----------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
<S> <C> <C>
9.625% Senior Notes $175,000 155,750
Revolving credit
facilities 12,000 12,000
Other indebtedness 11,771 11,825
-------- -------
Total $198,771 179,575
======== =======
DECEMBER 31, 1997
-----------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
9.625% Senior Notes $175,000 178,937
Revolving credit
facilities - -
Other indebtedness 11,400 11,510
-------- -------
Total $186,400 190,447
======== =======
</TABLE>
(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.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Due to the short-term nature of the foreign exchange contracts, management
believes that the fair value, if any, is not significant.
(D) INTEREST RATE SWAP AGREEMENT
Although fair value at December 31, 1997 was not determined, the swap agreement
was cancelled in March 1998 at a gain of $286.
(E) LIMITATIONS OF ESTIMATES
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 purchased substantially all of the assets of
ECA for approximately $76,300 in cash and the assumption of $6,000 in long term
debt. On October 3, 1997, the Company purchased substantially all of the assets
of Elastex for approximately $8,400 in cash. The net proceeds from the sale of
the $175,000 senior notes were used to fund the acquisition of ECA and to reduce
outstanding indebtedness incurred to finance the acquisition of Elastex. The
excess of cost over fair value of net assets acquired was approximately $53,161
for ECA and approximately $4,193 for Elastex and is being amortized using the
straight-line method over 40 years. ECA acquired substantially all of the narrow
elastic fabric assets of Fruit of the Loom on December 30, 1998, for
approximately $12,800. Goodwill and other intangibles of approximately $4,800
are being amortized using the straight-line method over periods of 5 to 10
years. Pro forma data for this transaction is not presented due to the
immateriality of the transaction to the Company. The acquisitions were accounted
for as purchases and, accordingly, the results of operations have been included
in the Company's consolidated financial statements from the date of acquisition.
NOTE 15 - RELATED PARTY TRANSACTIONS
In 1998, 1997 and 1996, other assets include a $600 non-interest bearing note
receivable due in the year 2000 from a senior executive
NOTE 16 - SIGNIFICANT FOURTH QUARTER CHARGES
During the 1998 fourth quarter, the Company recorded charges of $7,843 (or $.40
per share, net of taxes) which included a $4,376 restructuring provision for
discontinuing the Company's conventional covered yarn production in Montreal,
Quebec, $1,940 related primarily to asset provisions for underutilized equipment
in the United States and $1,527 related to the retirement of the Company's
former chairman and chief financial officer. The charges included $3,814
recorded in cost of goods sold, $1,707 recorded as selling and administrative
expenses and $2,322 recorded as goodwill amortization. The Company will transfer
its production of conventional covered elastic yarn currently manufactured in
Montreal, Quebec to existing operations in the United States and Colombia, South
America. In addition, approximately $400 of other expenses related to the
restructuring will be charged to operations during 1999. The Company anticipates
that it will complete the restructuring by the fourth quarter of 1999.
NOTE 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
The $175,000 Senior Notes are guaranteed by each of the U.S. subsidiaries of the
Company. 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. 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 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidating Statements of Operations
Year Ended December 31, 1998
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 152,059 123,888 (17,410) 258,537
Cost of goods sold - 131,818 101,859 (17,410) 216,267
-------- -------- -------- -------- --------
Gross profit - 20,241 22,029 - 42,270
Selling and administrative
expense 5,627 12,574 12,036 - 30,237
-------- -------- -------- -------- --------
Operating profit (loss) (5,627) 7,667 9,993 - 12,033
-------- -------- -------- -------- --------
Interest expense 17,120 586 1,059 - 18,765
Intercompany interest
expense (income) (9,467) 8,183 1,284 - -
Intercompany administrative
charges (2,896) 1,894 1,002 - -
Other income (expense) - net 557 63 (280) - 340
-------- -------- -------- -------- --------
Income (loss) before
income taxes (9,827) (2,933) 6,368 - (6,392)
Provision for income taxes (3,307) (813) 3,626 - (494)
Undistributed earnings of
subsidiaries 622 - - (622) -
-------- -------- -------- -------- --------
Net income (loss) $ (5,898) (2,120) 2,742 (622) (5,898)
======== ======== ======== ======== ========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Statements of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
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 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 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Statements of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
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 (2,929) 885 2,044 - -
expense (income)
Intercompany administrative (3,348) 1,851 1,497 - -
charges
Other income (expense) - net 132 144 418 - 694
--------- -------- -------- -------- --------
Income (loss) before
income taxes (1,094) 729 17,726 - 17,361
Provision 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 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Balance Sheets
December 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 2,596 14 4,105 - 6,715
Accounts and notes
receivable, net - 19,486 23,399 - 42,885
Inventories - 33,815 24,700 - 58,515
Prepaid expenses and other
current assets 2,594 183 1,205 - 3,982
------------- ---------- ----------- ------------ ------------
Total current assets 5,190 53,498 53,409 - 112,097
Property, plant and equipment,
net 337 58,710 54,605 - 113,652
Other assets 9,240 2,456 1,154 - 12,850
Cost in excess of net assets
of acquired businesses, net - 68,048 17,473 - 85,521
Intercompany investments 105,572 - - (105,572) -
Intercompany advances 155,820 14,798 - (170,618) -
------------- ---------- ----------- ------------ ------------
$276,159 197,510 126,641 (276,190) 324,120
============= ========== =========== ============ ============
Liabilities and Stockholders'
equity
Current Liabilities
Short-term borrowings $ - - 7,308 - 7,308
Current Installments of
long-term debt - - 525 - 525
Accounts payable-trade and
other liabilities 5,216 9,440 14,756 - 29,412
Income taxes payable 1,091 (1,641) 2,250 - 1,700
-------------- ---------- ----------- ----------- ------------
Total current liabilities 6,307 7,799 24,839 - 38,945
-------------- ---------- ----------- ----------- ------------
Long-term debt 187,000 6,000 5,246 - 198,246
Other long-term liabilities - - 569 - 569
Deferred income taxes (5,428) 6,870 11,436 - 12,878
Intercompany payables 14,798 144,260 11,560 (170,618) -
-------------- ---------- ----------- ------------ ------------
Total liabilities 202,677 164,929 53,650 (170,618) 250,638
-------------- ---------- ----------- ------------ ------------
Stockholders' equity
Common stock 147 49 31,778 (31,827) 147
Paid-in capital 30,084 15,822 (15,822) - 30,084
Retained earnings 56,169 16,710 51,782 (68,492) 56,169
Accumulated other
comprehensive loss (10,569) - (10,569) 10,569 (10,569)
Less-Treasury stock, at cost (2,349) - - - (2,349)
-------------- ---------- ----------- ------------ ------------
Total stockholders' equity 73,482 32,581 72,991 (105,572) 73,482
-------------- ---------- ----------- ------------ ------------
$276,159 197,510 126,641 (276,190) 324,120
============== ========== =========== ============ ============
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Balance Sheets
December 31, 1997
<TABLE>
<CAPTION>
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 - 20,870 25,450 - 46,320
receivable, net
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 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
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 loss (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 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,898) (2,120) 2,742 (622) (5,898)
Adjustments to reconcile net
income (loss)to net cash
provided (used in) by
operating activities:
Undistributed earnings of
subsidiaries (622) - - 622 -
Depreciation and amortization 30 7,414 9,128 - 16,572
Provision for losses on
accounts receivable - 311 279 - 590
Deferred income taxes (4,871) 49 (267) - (5,089)
Change in assets and
liabilities net of effects
of acquisitions:
Accounts and notes receivable - 1,072 1,657 - 2,729
Inventories - (5,564) 1,732 1,604 (2,228)
Prepaid expenses and other
current assets (135) 329 (59) - 135
Accounts payable-trade and
other current liabilities 1,615 911 (717) - 1,809
Income taxes payable 799 145 906 - 1,850
------------- ----------- ----------- ------------ ------------
Net cash provided by (used
in) operating activities (9,082) 2,547 15,401 1,604 10,470
------------- ----------- ----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (138) (17,314) (8,859) 6,440 (19,871)
Acquisitions, net of cash
acquired (2,740) - - (10,070) (12,810)
Other investing activities 400 (6,221) (1,777) 4,768 (2,830)
------------- ----------- ----------- ------------ ------------
Net cash used in investing
activities (2,478) (23,535) (10,636) 1,138 (35,511)
-------------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Borrowings under line of
credit arrangements - - 9,482 - 9,482
Payments under line of credit
arrangements - - (3,221) - (3,221)
Borrowings under revolving
credit facility 12,000 - - - 12,000
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 (9,657) 20,683 (10,960) (66) -
Other financing activities (124) - (580) (437) (1,141)
------------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
financing activities 1,394 20,683 (5,279) (503) 16,295
------------- ----------- ----------- ------------ ------------
Effects of exchange rate changes
on cash 2,704 (2) 126 (2,239) 589
------------- ----------- ----------- ------------ ------------
Net increase (decrease) in
cash and cash equivalents (7,462) (307) (388) - (8,157)
Cash and cash equivalents at
beginning of year 10,058 321 4,493 - 14,872
------------- ----------- ----------- ------------ ------------
Cash and cash equivalents at end
of year $ 2,596 14 4,105 - 6,715
============= =========== =========== ============ ============
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,148 901 7,985 (8,886) 5,148
Adjustments to reconcile net
income to net cash provided by
(used in) 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 acquisitions:
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 payable-trade and
other current liabilities 406 (2,171) (1,902) (646) (4,313)
Income taxes payable (459) (597) (984) 546 (1,494)
------------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities (5,139) (3,926) 7,982 (414) (1,497)
------------- ----------- ----------- ----------- -----------
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
on cash (12,937) (7) (398) 14,968 1,626
------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 9,630 147 2,978 - 12,755
Cash and cash equivalents at
beginning of year 428 174 1,515 - 2,117
------------- ----------- ----------- ------------- ------------
Cash and cash equivalents at end
of year $ 10,058 321 4,493 - 14,872
============= =========== =========== ============= ============
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
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
(used in) 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 acquisitions:
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 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 activities (420) 3,775 11,677 - 15,032
-------- ------- --------- -------- -----------
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
on cash (4,153) 1 (71) 3,998 (225)
-------- ------- --------- -------- -----------
Net increase (decrease) in cash
and cash equivalents 428 6 (162) - 272
Cash and cash equivalents at
beginning of year - 168 1,677 - 1,845
-------- ------- --------- -------- -----------
Cash and cash equivalents at end $ 428 174 1,515 - 2,117
of year ======== ======= ========= ======== ===========
</TABLE>
<PAGE>
WORLDTEX, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET DILUTED NET
UNAUDITED NET GROSS INCOME INCOME (LOSS)
QUARTERLY FINANCIAL DATA SALES PROFIT (LOSS) PER SHARE (A)
------------------------ ----- ------ ------ -------------
<S> <C> <C> <C> <C>
1998 Quarter:
First $ 69,229 14,052 2,151 .15
Second 66,054 12,818 748 .05
Third 59,801 9,040 (1,061) (.07)
Fourth (C) 63,453 6,360 (7,736) (.54)
--------- --------- ---------
$ 258,537 42,270 (5,898)
========= ========= =========
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
========= ========= =========
</TABLE>
NOTES:
- ------
(A) Diluted net income (loss) per share amounts are calculated based upon the
weighted average number of common shares outstanding and common dilutive
equivalent shares during the year.
(B) 1997 fourth quarter net loss after extraordinary item - ($1,595) 1997
total net income after extraordinary item - $5,148
(C) See footnote 16 for 1998 significant fourth quarter charges.
<PAGE>
WORLDTEX, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------- ADDITIONS ----------
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END
OF PERIOD EXPENSES OTHER RESERVES OF PERIOD
--------- -------- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
1998
- ----
Allowance for doubtful accounts $ 2,085 590 - 634(A) 2,041
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
</TABLE>
NOTES:
- ------
(A) Accounts charged off, recoveries, and other adjustments, net.
(B) Increases to reserves reflecting subsidiary purchase price allocation.
<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 1999 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):
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
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 Severance Agreement, dated February 10, 1999, between Worldtex and
Richard J. Mackey -- filed herewith.*
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 Employment Agreement, dated December 22, 1998, between Worldtex and
Marty R. Kittrell -- filed herewith.*
10.6 1992 Stock Incentive Plan of Worldtex, as amended -- filed
herewith.*
10.7 Credit Agreement, dated as of December 1, 1997, among Worldtex, the
Guarantors, the Lenders named therein and NationsBank, N.A., as
Agent - filed as Exhibit 10.6 to the Company's Annual Report on Form
10-K for 1998 and incorporated herein by reference.
21.1 Subsidiaries of Worldtex -- filed herewith.
23.1 Consent of KPMG LLP -- filed herewith.
23.2 Consent of Deloitte & Touche 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
24.4 Power of Attorney executed by Marty R. Kittrell - filed herewith.
27.1 Financial Data Schedule (filed with EDGAR only).
</TABLE>
8-K REPORTS
A Current Report on Form 8-K, dated October 22, 1998, was filed with
the SEC on October 22, 1998, reporting under Item 4. An amendment to such
Current Report was filed with the SEC on October 30, 1998, reporting under Item
7.
<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 29, 1999
WORLDTEX, INC.
By: /S/ BARRY D. SETZER
-------------------------------------
Barry D. Setzer
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 29, 1999 by the following persons on
behalf of the registrant and in the capacities indicated.
/S/ BARRY D. SETZER
- -------------------------------------------------------
Barry D. Setzer, Chairman of the Board, President,
Chief Executive Officer and Director
and Attorney for the persons indicated by asterisk
/S/ MARTY R. KITTRELL
- -------------------------------------------------------
Marty R. Kittrell, Chief Financial and Accounting
Officer
<PAGE>
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 10.3
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT, dated as of February 10, 1999, by and among
WORLDTEX, INC., a Delaware corporation ("WTX"), and RICHARD J. MACKEY (the
"Executive").
W I T N E S S E T H :
-------------------
WHEREAS, the Executive has been employed as an executive of WTX
pursuant to an Employment Contract dated as of November 15, 1993, as amended
(the "Employment Contract"); and
WHEREAS, the parties wish to terminate the Employment Contract and
end the employment relationship thereunder on mutually agreeable terms;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and for other good and valuable consideration, the
parties hereto agree as follows:
1. TERMINATION OF EMPLOYMENT CONTRACT.
-----------------------------------
The Employment Contract and all rights and obligations arising
thereunder are terminated effective as of the date of this Agreement.
2. RESIGNATIONS AND TERMINATION OF EMPLOYMENT.
-------------------------------------------
The Executive hereby resigns as a director, officer and
employee of WTX, as an officer and director of all of WTX's Subsidiaries or
Affiliates and from all corporate committees of WTX or of any such Subsidiaries
or Affiliates, effective as of the date of this Agreement. For purposes of this
<PAGE>
Agreement, a "Subsidiary" of a corporation shall mean any corporation,
association or other business entity which is required to be consolidated with
such corporation under generally accepted accounting principles, and an
"Affiliate" of a corporation shall mean a person or other entity that directly
or indirectly controls, or is controlled by, or is under common control with
such corporation.
3. PAYMENTS TO THE EXECUTIVE.
--------------------------
WTX shall pay the Executive the following amounts:
(a) $675,000, representing 300% of his current annual salary,
payable on the eighth day after the date of this Agreement;
(b) The bonus the Executive is entitled to receive for
services rendered during 1998 under Section 4(c) of the Employment Contract,
payable when and as provided in such Section (which bonus shall be calculated
without giving effect to any special charges relating to the closing of the
Rubyco fine denier operations in 1998); and
(c) The supplemental retirement benefit that the Executive is
entitled to receive pursuant to Section 19 of the Employment Contract, in the
amount of $18,567 per month, payable on the first business day of each month for
120 consecutive months, commencing with the month next following the date of
this Agreement. If Executive shall die prior to the payment of all amounts
payable under this clause (c), all such remaining payments shall be made to
Executive's estate or his designated beneficiary.
4. OPTIONS AND BENEFIT PLANS.
--------------------------
(a) The Executive will be entitled to exercise in accordance
with their terms his outstanding stock options to purchase 300,000 shares of WTX
common stock, it being understood that, solely for purposes of the provisions of
such options, Executive shall be deemed to be an employee of WTX and such
<PAGE>
employment shall be deemed terminated upon termination of the Consulting
Agreement (as defined below).
(b) WTX acknowledges that the Executive's benefits under the
Worldtex Profit Sharing and Retirement Savings Plan (which includes the WTX
401(k) plan) (the "ESOP") are fully vested.
5. OTHER BENEFITS.
---------------
(a) WTX and the Executive agree that, effective as of the date
of this Agreement, the Executive shall be entitled to retain the possession, and
WTX shall transfer ownership, of the 1999 Mercedes Benz 500 automobile provided
to the Executive by WTX.
(b) WTX agrees to provide, at its expense, coverage to
Executive under the medical insurance plans or policies generally applicable to
employees of WTX, as such may be modified from time to time, so long as the
Consulting Agreement continues in effect. WTX will not provide the enhanced
benefits currently provided by WTX to the Executive under the Employment
Contract. Executive acknowledges and confirms that he is electing the medical
insurance coverage set forth in this Section 5(b) in lieu of all rights to COBRA
continuation coverage to which he would otherwise be entitled under WTX's
medical insurance plans or policies pursuant to Section 4980B of the Internal
Revenue Code or Sections 601-608 of ERISA.
6. CONSULTING AGREEMENT.
---------------------
Simultaneously with the execution of this Agreement, WTX and
the Executive shall execute a consulting agreement in the form attached to this
Agreement as Exhibit A (the "Consulting Agreement"), which shall become
effective on the date of this Agreement if the Executive shall not have revoked
this Agreement at or before expiration of the period specified in Section 10
hereof.
<PAGE>
7. NONSOLICITATION, NONCOMPETITION AND
CONFIDENTIALITY AGREEMENTS.
-----------------------------------
(a) For a period of one year following the execution of this
Agreement, the Executive shall not, directly or indirectly, solicit any person
who is employed by WTX or any of its Subsidiaries or Affiliates to (A) terminate
his or her employment with WTX or such other company, or (B) accept employment
with anyone other than WTX or such other company.
(b) The Executive agrees that he will not, directly or
indirectly (individually or for, with or through any other person, firm or
corporation), compete with WTX or any of its Subsidiaries or Affiliates for a
period of three years following his termination of employment with WTX with
respect to any business carried on by WTX or any of its Subsidiaries or
Affiliates as of the date of this Agreement. Notwithstanding the foregoing, the
Executive shall be permitted to own not in excess of one percent of any class of
securities of any publicly traded company, provided the Executive is not part of
any controlling group and is solely a passive investor.
(c) All confidential information which the Executive may now
have or may have obtained during his employment by WTX relating to the business
of WTX or any Subsidiary or Affiliate thereof shall not be disclosed to any
other person (except as required by law) without the prior written permission of
WTX, and Executive shall return all tangible evidence of such confidential
information to WTX on the date of this Agreement or promptly thereafter
following discovery thereof. Such information shall not include any information
otherwise publicly known.
(d) The Executive shall also, no later than the date of this
Agreement, or promptly thereafter following the Executive's discovery thereof,
<PAGE>
return to WTX any credit cards, cardkey passes, computer access codes, door and
file keys, and other property provided by WTX, if any.
(e) All of Executive's interest in patents, patent
applications, inventions, technological innovations, copyrights, developments
and processes during his employment by WTX owned or developed by Executive
relating to the business of WTX or any affiliate of WTX, shall belong to WTX,
and without further compensation, but at WTX's expense, forthwith upon request
of WTX, Executive shall execute any and all such assignments and other documents
and take any and all such other action as WTX may reasonably request in order to
vest in WTX all Executive's right, title and interest in and to such patents,
patent applications, inventions, technological innovations, copyrights,
developments or processes, free and clear of liens, charges and encumbrances.
(f) In the event of a breach or threatened breach of the
provisions of this Section 7, the Executive acknowledges that WTX will be
entitled to seek from a court any interim or provisional relief that may be
necessary to protect WTX's rights or property pending the arbitral tribunal's
determination of the merits of the controversy.
(g) If it is determined that any of the provisions of this
Section 7, or any part thereof, is unenforceable because of the duration or
scope of such provision, it is the intention of the parties that the duration or
scope of such provision, as the case may be, shall be reduced so that such
provision becomes enforceable.
8. RELEASES.
---------
(a) The Executive, having received independent legal advice,
voluntarily and knowingly releases WTX, each of its Subsidiaries and Affiliates
and their respective officers and directors from any and all claims, actions,
<PAGE>
and causes of action he has or may have arising on or before the date of this
Agreement, whether known or unknown, relating to his employment by, or
termination of employment with, WTX or any of its Subsidiaries and Affiliates,
including, without limitation, (a) those arising under the Age Discrimination in
Employment Act of 1967, as amended, and other federal, state or local human and
civil rights, employment discrimination or labor laws, and (b) those arising
under the Employment Contract, except that the Executive does not release (i)
his right to have WTX perform its obligations under this Agreement or the
Consulting Agreement, (ii) his right to benefits under the ESOP, (iii) any
claim, action or cause of action against an officer or director of WTX or any of
its Subsidiaries or Affiliates for an intentional tort as to which the primary
factual basis is not known by the Executive as of the date of this Agreement or
(iv) his right to indemnification under (1) the certificate of incorporation or
bylaws of WTX or any of its Subsidiaries or Affiliates of which he has been an
officer or director, (2) the laws of the state of incorporation of WTX or any
such Subsidiary or Affiliate, or (3) any insurance policy maintained by WTX or
any such Subsidiary of Affiliate, as the case may be. The Executive acknowledges
that he was given a period of at least 21 days to consider whether to execute
this Agreement and during such period he consulted with counsel of his choosing.
The Executive further acknowledges that he has carefully read the release set
forth in this paragraph, fully understands it, is signing this Agreement
voluntarily, and is receiving consideration for the release.
(b) WTX, each of its Affiliates and Subsidiaries, voluntarily
and knowingly releases the Executive from any and all claims, actions and causes
of action it has or may have arising on or before the date of this Agreement,
whether known or unknown, except that WTX does not release its right to have the
Executive perform his obligations under this Agreement or the Consulting
<PAGE>
Agreement or any claim, action or cause of action that WTX, any of its
Affiliates or Subsidiaries may have against the Executive to the extent it is
determined by a final judgment adverse to the Executive that the Executive's
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law, or the Executive personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
9. COOPERATION IN LITIGATION.
--------------------------
The Executive shall cooperate and generally make himself
available to give testimony and assistance in connection with any litigation or
arbitration proceeding or any proceeding or investigation initiated by any
governmental authority or agency involving WTX or any of its Subsidiaries or
Affiliates and arising out of activities of WTX or its Subsidiaries or
Affiliates prior to the date of this Agreement and during the period of his
employment with WTX. WTX or one of its Subsidiaries or Affiliates shall
reimburse the Executive for, or advance to the Executive, all reasonable
out-of-pocket travel and other expenses incurred by the Executive at the
specific request of WTX in connection with the Executive's testimony,
cooperation and assistance under this Section 9. Such expenses shall be
reimbursed or advanced promptly after the Executive's submission to WTX of
statements in such reasonable detail as WTX may require. Time spent performing
Executive's obligations under this Section 9 shall be deemed to be time spent
consulting pursuant to the Consulting Agreement and, accordingly, the
Executive's compensation for performing his obligations under this Section 9
shall be governed by the Consulting Agreement.
10. OPPORTUNITY FOR REVIEW BY COUNSEL
AND PERIOD TO REVOKE AGREEMENT.
-------------------------------------
The Executive acknowledges that he has been advised to consult
with an attorney before executing this Agreement. The Executive shall have seven
days after executing this Agreement (until February 17, 1999) to revoke it by
<PAGE>
providing written notice to the President of Worldtex within the seven day
period, whereupon the rights and obligations of the parties to this Agreement
and the Consulting Agreement shall be revoked retroactively to the date of this
Agreement, and WTX and the Executive shall return to each other any amounts or
other benefits provided under this Agreement or the Consulting Agreement.
11. RIGHTS RELATING TO EMPLOYMENT AND TERMINATION.
----------------------------------------------
This Agreement and the Consulting Agreement integrates and
embodies all understandings and agreements among the Executive, WTX and/or any
of its Subsidiaries or Affiliates in connection with the Executive's employment
and termination of employment with WTX or any of its Subsidiaries or Affiliates.
Except as specifically provided in this Agreement and the Consulting Agreement,
the Executive shall not be entitled to any payments or other benefits on account
of his having been employed by, or having terminated his employment with, WTX or
any of its Subsidiaries or Affiliates.
12. WITHHOLDING.
------------
WTX shall withhold from all amounts payable to the Executive
under this Agreement all federal, state and local taxes required by law to be
withheld with respect to such payments. The withholding amounts for payments or
other benefits to be made or provided under this Agreement on the eighth day
after the date of this Agreement are set forth on Exhibit B.
13. NOTICE.
-------
Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or on the fifth day after being sent by registered or
<PAGE>
certified mail, postage prepaid, return receipt requested, duly addressed to the
party concerned at the address indicated below or to such changed address as
such party may subsequently give notice of:
If to WTX: Worldtex, Inc.
Westover Park, Suite 106
915 Tate Boulevard, S.E.
Hickory, North Carolina 28602
Attention: President
If to the Executive: Richard J. Mackey
107 Legendary Circle
Palm Beach Gardens, Florida 33418
14. AMENDMENT OR WAIVER.
--------------------
No provision in this Agreement may be amended unless such
amendment is agreed to in writing, signed by the Executive and by an authorized
officer of WTX. No waiver by either party hereto of any breach by the other
party of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time. Any waiver must be in
writing and signed by the Executive or an authorized officer of WTX, as the case
may be.
15. SEVERABILITY.
-------------
In the event that any provision of this Agreement shall be
held to be invalid or unenforceable for any reason, in whole or in part, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
16. HEADINGS.
---------
The headings of sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
<PAGE>
17. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts.
18. REFERENCES.
-----------
In the event of the Executive's death or a judicial
determination of his incompetence, references in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his legal representative or to
his beneficiary or beneficiaries.
19. BINDING AGREEMENT; ASSIGNMENT.
------------------------------
Except as provided in Section 10 hereof, this Agreement is
binding upon the parties hereto and their respective successors, heirs and
assigns. No rights or obligations under this Agreement may be assigned or
transferred by the Executive except that the Executive's rights to compensation
and benefits hereunder shall, in the event of death, pass to his estate, or to
his designated beneficiary, and may be transferred by will or operation of law.
In the event of a future disposition of (or including) the properties and
business of WTX, substantially as an entirety, by merger, consolidation, sale of
stock or assets or otherwise, then WTX shall require the acquiring or surviving
corporation (which shall be substituted for WTX hereunder) to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that WTX would have been required to perform it had no such disposition
occurred. The Executive's rights under this Agreement shall not be transferable
by assignment or otherwise, shall not be subject to commutation or encumbrance
and shall not be subject to the claims of the Executive's creditors.
20. PAYMENT OBLIGATION ABSOLUTE.
----------------------------
Except as provided in Section 10 hereof, WTX's obligation to
make payments provided for in this Agreement and otherwise perform its
<PAGE>
obligations hereunder shall be absolute and unconditional and shall not be
affected by any setoff, counterclaim, recoupment, defense or other circumstance
or rights which WTX may have against the Executive or anyone else (including
without limitation any rights which WTX may have against the Executive for
violation of Section 7 of this Agreement), all of which shall be required to be
asserted in independent proceedings. The Executive shall not be required to
mitigate the amount of any payment provided for herein by seeking other
employment or taking any other action nor shall the amount of any payment
provided for herein be reduced by amounts earned by the Executive from other
employment or otherwise.
21. ARBITRATION; INDEMNIFICATION.
-----------------------------
(a) Any controversy or claim arising out of or in connection
with this Agreement shall be settled by arbitration held in New York City in
accordance with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered (including an award for money
damages) may be entered in any court having jurisdiction. The costs of the
arbitration proceedings shall be borne by WTX. Either party may, without
inconsistency with this Agreement, seek from a court any interim or provisional
relief that may be necessary to protect the rights or property of that party
pending the arbitral tribunal's determination of the merits of the controversy.
(b) In addition to (and not in lieu of) any of the Executive's
rights to indemnification or otherwise, contained in WTX's certificate of
incorporation, by laws or any other agreement, if any action, suit, proceeding
(including any arbitration proceeding) or claim shall be brought or asserted
with respect to the enforcement or interpretation of this Agreement or any
provision contained herein, WTX, to the full extent permitted by applicable law
<PAGE>
and its certificate of incorporation and by-laws as in effect on the date
hereof, hereby indemnifies the Executive for his reasonable attorneys' fees and
other expenses incurred in connection with such action, suit, proceeding or
claim and agrees to pay or reimburse the same promptly upon demand by the
Executive (plus interest at the applicable Federal rate provided in Section
7872(f)(2) of the Internal Revenue Code of 1986, as amended), provided that WTX
shall not be obligated to indemnify the Executive under this Agreement with
respect to any action, suit, proceeding or claim brought by the Executive in
which it is finally determined that the Executive's interpretations of this
Agreement at issue, taken as a whole, are less correct than the interpretations
asserted by WTX. WTX shall preserve and make available to the Executive all
documents and information now or hereafter in the possession of WTX which may be
required by the Executive for the prosecution or defense of any such action,
suit, proceeding or claim.
22. GOVERNING LAW.
--------------
This Agreement shall be governed by the laws of the State of New
York. IN WITNESS WHEREOF, the Executive and WTX have caused this Agreement to be
executed as of the day and year first above written.
WORLDTEX, INC.
By: _______________________
________________________________
Richard J. Mackey
<PAGE>
EXHIBIT A
CONSULTING AGREEMENT
CONSULTING AGREEMENT, made as of February 10, 1999, between
WORLDTEX, INC., a Delaware corporation ("WTX"), and RICHARD J. MACKEY (the
"Consultant").
W I T N E S S E T H :
--------------------
WHEREAS, the Consultant has previously been employed as an executive
of WTX and the parties now wish to enter into an arrangement whereby the
Consultant will act as a consultant to WTX.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and for other good and valuable consideration, the
parties hereto agree as follows:
1. TERM.
-----
The term of this Agreement shall commence on the date of this
Agreement and end on the day preceding the third anniversary of the date of this
Agreement, unless the Agreement is earlier terminated due to Cause (as defined
below).
2. SERVICES.
---------
During the term of this Agreement, WTX shall retain the
Consultant as a consultant to WTX. During that period the Consultant shall
consult with and advise the officers of WTX with respect to such matters
involving the business and affairs of WTX as the officers may from time to time
present to him, which consultation may be made by telephone upon Consultant's
request. Unless Disability (as defined below) has occurred, the Consultant shall
be obligated to devote the equivalent of 15 business days to his consulting
duties during any yearly period (treating the balance of 1999 after the date of
<PAGE>
this Agreement as a yearly period for these purposes to the extent his physician
advises his health permits). Such consultation shall be rendered at such times
as the Consultant shall reasonably advise WTX's chief executive officer are
appropriate giving effect to his then regular personal and other business
activities. WTX's chief executive officer shall give the Consultant reasonable
advance notice of any requirements for consultation, and the Consultant shall
use his reasonable best efforts to perform such consultation on the schedule
requested. Where the Consultant is required to render any service on a
particular day, he shall receive credit for a full day's service. WTX may
terminate this Agreement without any further obligation hereunder in the event
Cause has occurred.
3. FEES AND EXPENSES.
------------------
(a) On the first business day of every month during the term
of this Agreement commencing with the month after the date of this Agreement,
WTX shall pay the Consultant a fee of $4,767 in full payment for his services
under this Agreement. In the event of the Consultant's death or Disability
during the term of this Agreement, any remaining fees payable during the term of
this Agreement shall become payable in monthly installments to the Consultant's
beneficiaries. If the Consultant is requested by WTX to perform and the
Consultant consents and does perform consulting services hereunder in excess of
15 days per year he shall be paid at a rate of $250 per hour.
(b) The Consultant shall be entitled to reimbursement for
expenses reasonably and necessarily incurred by him in connection with the
performance of his consultation duties, in accordance with WTX's then applicable
procedures, including without limitation reimbursement for travel and related
expenses to and from whatever may be his then current place of residence or
place where he may be conducting other business activities.
<PAGE>
4. DEFINITIONS OF DISABILITY AND CAUSE.
------------------------------------
(a) "Cause" shall have occurred if the Consultant is convicted
of a felony relating to the conduct of the business of WTX or any affiliate of
WTX, the Consultant commits an act of personal dishonesty which is intended to
personally enrich the Consultant or members of his family at the financial
expense of WTX or any affiliate of WTX, or the Consultant fails to perform his
obligations under this Agreement in any material respect, other than due to
death or Disability, after being given five business days in which to cure his
failure to perform.
(b) "Disability" shall have occurred if the Consultant has
been physically or mentally incapacitated or disabled for a period of six
consecutive months to an extent which renders the Consultant unable to perform
his services as evidenced by the written confirmation of Consultant's physician
and, if WTX shall so require, an independent physician.
5. NOTICE.
-------
Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or on the fifth day after being sent by registered or
certified mail, postage prepaid, return receipt requested, duly addressed to the
party concerned at the address indicated below or to such changed address as
such party may subsequently give notice of:
<PAGE>
If to WTX: Worldtex, Inc.
Westover Park, Suite 106
915 Tate Boulevard, S.E.
Hickory, North Carolina 28602
Attention: President
If to the Executive: Richard J. Mackey
107 Legendary Circle Palm
Beach Gardens, Florida 33418
6. AMENDMENT OR WAIVER.
--------------------
No provision in this Agreement may be amended unless such
amendment is agreed to in writing, signed by the Consultant and by an authorized
officer of WTX. No waiver by either party hereto of any breach by the other
party of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time. Any waiver must be in
writing and signed by the Consultant or an authorized officer of WTX, as the
case may be.
7. SEVERABILITY.
-------------
In the event that any provision of this Agreement shall be
held to be invalid or unenforceable for any reason, in whole or in part, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
8. HEADINGS.
---------
The headings of sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
<PAGE>
9. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts.
10. ASSIGNMENTS.
------------
No rights or obligations under this Agreement may be assigned
or transferred by the Consultant except that the Consultant's rights to
compensation and benefits hereunder shall, in the event of death, pass to his
estate, or to his designated beneficiary, and may be transferred by will or
operation of law. In the event of a future disposition of (or including) the
properties and business of WTX, substantially as an entirety, by merger,
consolidation, sale of stock or assets or otherwise, then WTX shall require the
acquiring or surviving corporation (which shall be substituted for WTX
hereunder) to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that WTX would have been required to perform it
had no such disposition occurred. The Consultant's rights under this Agreement
shall not be transferable by assignment or otherwise, shall not be subject to
commutation or encumbrance and shall not be subject to the claims of the
Consultant's creditors.
11. ARBITRATION; INDEMNIFICATION.
-----------------------------
(a) Any controversy or claim arising out of or in connection
with this Agreement shall be settled by arbitration held in New York City in
accordance with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered (including an award for money
damages) may be entered in any court having jurisdiction. The costs of the
arbitration proceedings shall be borne by WTX. Either party may, without
inconsistency with this Agreement, seek from a court any interim or provisional
relief that may be necessary to protect the rights or property of that party
pending the arbitral tribunal's determination of the merits of the controversy.
<PAGE>
(b) In addition to (and not in lieu of) any of the
Consultant's rights to indemnification or otherwise, contained in WTX's
certificate of incorporation, by-laws or any other agreement, if any action,
suit, proceeding (including any arbitration proceeding) or claim shall be
brought or asserted with respect to the enforcement or interpretation of this
Agreement or any provision contained herein, WTX, to the full extent permitted
by applicable law and its certificate of incorporation and by-laws as in effect
on the date hereof, hereby indemnifies the Consultant for his reasonable
attorneys' fees and other expenses incurred in connection with such action,
suit, proceeding or claim and agrees to pay or reimburse the same promptly upon
demand by the Consultant (plus interest at the applicable Federal rate provided
in Section 7872(f)(2) of the Internal Revenue Code of 1986, as amended),
provided that WTX shall not be obligated to indemnify the Consultant under this
Agreement with respect to any action, suit, proceeding or claim brought by the
Consultant in which it is finally determined that the Consultant's
interpretations of this Agreement at issue, taken as a whole, are less correct
than the interpretations asserted by WTX. WTX shall preserve and make available
to the Consultant all documents and information now or hereafter in the
possession of WTX which may be required by the Consultant for the prosecution or
defense of any such action, suit, proceeding or claim.
12. WITHHOLDING.
------------
WTX shall withhold from all amounts payable to the Consultant
under this Agreement all federal, state and local taxes required by law to be
withheld with respect to such payments.
13. NO MITIGATION OR OFFSET.
------------------------
The Consultant shall not be obligated to mitigate the amount
of any payment provided for under this Agreement by seeking other employment or
taking any other action nor shall the amount of any payment provided for herein
be reduced by amounts earned by the Consultant from other employment or
otherwise.
<PAGE>
14. GOVERNING LAW.
--------------
This Agreement shall be governed by the laws of the State of
New York. IN WITNESS WHEREOF, the Consultant and WTX have caused this Agreement
to be executed as of the day and year first above written.
WORLDTEX, INC.
By: ____________________________
________________________________
Richard J. Mackey
<PAGE>
WITHHOLDING AMOUNTS FROM FEBRUARY 18, 1999 PAYMENT
A. WTX PAYMENTS
------------
1. Section 3(a) - 300% of current salary $ 675,000
2. Section 3(c) - total of monthly
installments remaining 2,228,040
3. Section 5(a) - automobile 65,000
B. WITHHOLDING
-----------
1. Federal Supplemental Wage Withholding
(28%)
- $675,000 x 28% = $189,000
- 65,000 x 28% = 18,200 207,200
2. FICA Withholding (7.65% of first $68,400
plus 1.45% of balance)
- $ 68,400 x 7.65% =$5,232.60 35,343.10
- 2,076,586.49 (675,000 + 1,404,986.49
(p.v. of $2,228,040) + 65,000 -
68,400) x 1.45% = 30,110.50
C. NET CASH DUE TO RJM FEBRUARY 18, 1999 432,456.90
-------------------------------------
EXHIBIT 10.5
EMPLOYMENT AGREEMENT dated as of December 22, 1998, by and between
Worldtex, Inc. ("Employer"), a Delaware corporation whose business address is
212 12th Avenue, N.E., Hickory, North Carolina 28601, and Marty Kittrell, whose
address is 1645 Sugarloaf Club Drive, Duluth, Georgia 30097 ("Employee").
Employer desires to engage Employee to perform services as an executive of
Employer, and Employee desires to perform such services, on the terms and
conditions hereinafter set forth.
Accordingly, Employer and Employee agree as follows:
1. TERM
----
Employer agrees to employ Employee to perform services for Employer for a
period commencing with the date of this Agreement and continuing until
terminated in accordance with Section 10 or Section 11 (the "Employment
Period").
2. NATURE OF SERVICES
------------------
Employee shall be employed as chief financial and accounting officer of
Employer and shall perform such duties as shall be assigned to him by, and in
the performance of his duties shall be subject to the direction of, the Board of
Directors of Employer or its designees and the chief executive officer of
Employer. Employee's duties shall include the supervision of the financial and
accounting affairs of Employer, including matters involving raising capital,
cash management, budgeting and forecasting, SEC reporting, preparation of
financial statements and dealing with securities analysts. Employee shall be
elected as a Senior Vice President of Employer.
3. AGREEMENT TO SERVE
------------------
Employee agrees to his employment as described in Section 2, and agrees to
devote his full business time and efforts to the performance of his duties under
this Employment Agreement. Employee agrees that, in the course of his
employment, he will faithfully observe and carry out all of the duties and
responsibilities customarily owed by an employee to his employer.
4. COMPENSATION; EXPENSES; VACATIONS; FRINGE BENEFITS
--------------------------------------------------
(a) In consideration of his services hereunder, Employer shall pay
Employee such salary during the Employment Period as shall be fixed from time to
time by the Compensation Committee of the Board of Directors of Employer (the
"Compensation Committee"), which shall be no less than at a rate of $15,000 per
month (or a pro rata amount for any portion of a month), payable on the last
business day of each month during the Employment Period. Employee's performance
shall be reviewed no less than annually by the Compensation Committee or the
chief executive officer.
<PAGE>
(b) Employee shall be entitled to: (i) reimbursement for reasonable
travel, entertainment and other expenses properly incurred in the performance of
his duties hereunder upon submission of vouchers in accordance with the
Employer's standard procedures as in effect from time to time; (ii) reasonable
vacations in accordance with Employer's regular practices governing employees
having duties generally comparable to Employee, which shall not be less than
four weeks per year; (iii) an automobile reimbursement allowance of $750 per
month; and (iv) group insurance, retirement and other group benefits provided
from time to time by Employer to its employees. In addition, Employer will pay
the charges of the moving van company to transport Employee's personal property
from Duluth, Georgia, to the Hickory, North Carolina area.
(c) Employer will grant to Employee, within 30 days after the date
of this Agreement, options to purchase 100,000 shares of Worldtex common stock
at an exercise price per share equal to the closing price per share on the NYSE
Composite Tape on the date of grant and otherwise substantially in accordance
with the grant letter attached as Exhibit A hereto.
(d) Employer shall pay to Employee incentive bonus compensation with
respect to each fiscal year during the Employment Period (commencing with the
1999 fiscal year), in an amount equal to 0.5% of Marginal Net Income of Employer
and its subsidiaries (the "Worldtex Group") for such fiscal year (which bonus
shall in no event be less than $50,000 for the 1999 fiscal year). "Marginal Net
Income of the Worldtex Group" shall be the net income of the Worldtex Group
before all taxes and after interest charges (but at an assumed interest rate of
4.5% per annum without regard to the actual rate), if any, which exceed 12% of
Net Assets Employed by the Worldtex Group for the particular fiscal year. "Net
Assets Employed by the Worldtex Group," with respect to a particular fiscal year
(the "Applicable Year"), shall be the mean between (i) the tangible net worth of
the Worldtex Group as of the end of the Applicable Year and (ii) the tangible
net worth of the Worldtex Group as of the end of the immediately preceding
fiscal year. Marginal Net Income of the Worldtex Group and Net Assets Employed
by the Worldtex Group shall be determined in accordance with generally accepted
accounting principles by Employer's Compensation Committee following the end of
each such fiscal year and payment of any amount due to Employee shall be made
not later than 30 days following the completion of the annual audit for such
fiscal year. In the event the Employment Period is terminated during a fiscal
year, the amount payable to Employee pursuant to the foregoing provisions of
this Section 4(d) with respect to such fiscal year shall be in the same ratio to
the amount which would have been payable for the full fiscal year as the ratio
of the number of days in such fiscal year up to the date of termination to 365;
and the amount due shall be paid at the time prescribed for payment with respect
to a full fiscal year.
(e) Employee shall be entitled to indemnification as provided in
Article TENTH of Employer's Certificate of Incorporation and to coverage under
Employer's directors' and officers' insurance on the same basis as the other
officers of Employer.
<PAGE>
5. NON-COMPETITION
---------------
(a) Employee agrees that he will not, directly or indirectly
(individually or for, with or through any other person, firm or corporation),
compete with Employer or any of the subsidiaries of Employer (i) during the
Employment Period with respect to any business carried on by Employer or any of
the subsidiaries of Employer or (ii) for a period of one year after the end of
the Employment Period with respect to any business carried on at the end of the
Employment Period by Employer or any of the subsidiaries of Employer. If,
however, Employer wrongfully terminates the Employment Period, the foregoing
provisions of this Section 5(a) shall cease to apply from and after such
wrongful termination. Notwithstanding the foregoing, Employee shall be permitted
to own not in excess of one percent of any class of securities of any publicly
traded company, PROVIDED Employee is not part of any controlling group and is
solely a passive investor.
(b) The parties intend that the covenant contained in the Section
5(a) shall be construed as a series of separate covenants, once for each county
and city included within each state or other jurisdiction and, except for
geographic coverage, each such separate covenant shall be deemed identical. If,
in any judicial proceeding, a court shall refuse to enforce any separate
covenant, then the unenforceable covenant shall be modified in order to make it
acceptable to the court and enforced accordingly, or, if necessary, deemed
eliminated to the extent necessary to permit the remaining separate covenants to
be enforced.
6. PATENTS; INVENTIONS
-------------------
All of Employee's interest in patents, patent applications, inventions,
technological innovations, copyrights, developments and processes now or
hereafter during the Employment Period owned or developed by Employee relating
to the business of Employer or any subsidiary or other affiliate shall belong to
the Employer, and without further compensation, but at Employer's expense,
forthwith upon request of Employer, Employee shall execute any and all such
assignments and other documents and take any and all such other action as
Employer may reasonably request in order to vest in the Employer all of
Employee's right, title and interest in and to such patents, patent
applications, inventions, technological innovations, copyrights, developments or
processes, free and clear of liens, charges and encumbrances.
7. CONFIDENTIAL INFORMATION
------------------------
All confidential information which Employee may now have or may obtain
during the Employment Period relating to Employer or any subsidiary or other
affiliate of Employer shall not be disclosed to any other person during and
after the termination of the Employment Period without the prior written
permission of Employer, and Employee shall return all tangible evidence of such
confidential information to Employer prior to or at the termination of the
Employment Period. Such information shall not include any information otherwise
publicly known without assistance from Employee.
<PAGE>
8. SPECIFIC PERFORMANCE
--------------------
Employee acknowledges that the restrictions contained in Sections 5, 6 and
7 above are a reasonable and necessary protection of the immediate interests of
Employer, that any violation of these restrictions would cause substantial
injury to Employer and that Employer would have not entered into this Employment
Agreement with Employee without receiving the additional consideration offered
by Employee in binding himself to these restrictions. In the event of a breach
or threatened breach by Employee of these restrictions, Employer shall be
entitled to apply to any court of competent jurisdiction for an injunction
restraining Employee from such breach or threatened breach; PROVIDED, HOWEVER,
that the right to apply for an injunction shall not be construed as prohibiting
Employer from pursuing any other available remedies for such breach or
threatened breach.
9. WITHHOLDING OF TAXES
--------------------
Any payments to Employee or his designated beneficiary or beneficiaries
pursuant to the terms of this Employment Agreement shall be reduced by such
amounts as are required to be withheld with respect thereto under all present
and future federal, state and local tax laws and regulations and other laws and
regulations.
10. TERMINATION
-----------
Notwithstanding anything herein contained:
(a) If Employee shall die during the Employment Period, the
Employment Period shall terminate on the date of death and his estate shall be
entitled to receive his salary at the rate provided in Section 4(a) to the end
of the calendar month in which his death occurs.
(b) If, during the Employment Period, Employee shall become
physically or mentally incapacitated or disabled for a period of six consecutive
months (a "Disability"), then Employer shall have the right to give immediate
notice of termination of Employee's services hereunder, whereupon Employee shall
be entitled to receive his salary at the rate provided in Section 4(a) to the
end of the calendar month in which termination occurs.
(c) Employer shall have the right by written notice to Employee to
terminate the Employment Period for Cause as of a date specified in such notice,
whereupon Employee shall be entitled to receive his salary at the rate provided
in Section 4(a) to the date of termination. For purposes of this provision,
"Cause" shall mean any of the following: (1) the Employee's material breach of
this Agreement (continuing for ten (10) days after receipt of written notice
from Employer that specifically identifies such breach); (2) the Employee's
gross negligence in the performance or intentional nonperformance (in either
case continuing for ten (10) days after receipt of written notice from Employer
that specifically identifies the manner in which Employer believes that the
Employee has failed to perform such duties and responsibilities) of any of the
<PAGE>
Employee's material duties and responsibilities hereunder; (3) the Employee's
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer; (4) the Employee's conviction of, or pleading guilty or no contest to,
a felony crime; or (5) chronic alcohol abuse or illegal drug abuse by the
Employee.
(d) Employer shall have the right to terminate the Employment Period
for any reason other than those set forth above in this Section 10 effective not
less than 30 days after notice of termination is given to Employee, and upon
effectiveness of such termination Employee shall be entitled to receive in a
lump sum an amount equal to his salary at the rate provided in Section 4(a) for
the period from such date of termination through the second anniversary of the
date of such termination.
(e) Employee shall have the right to terminate the Employment Period
for any reason other than those set forth above in this Section 10 effective not
less than 30 days after notice of termination is given to Employer, whereupon
Employee shall be entitled to receive his salary at the rate provided in Section
4(a) to the effective date of such termination, subject to earlier termination
as provided above.
11. TERMINATION AFTER A CHANGE IN CONTROL EVENT
-------------------------------------------
Upon the occurrence of a Change in Control Event, unless the Employment
Period shall previously have been terminated, the Employment Period shall
continue until the third anniversary of the date of the Change in Control Event
subject to termination as provided in Section 10 (but without giving effect to
Section 10(d)) and as hereafter provided in this Section 11.
(a) "Change in Control Event" shall mean:
(1) the date that any person or group deemed a person under
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, other than Employer and its subsidiaries as determined
immediately prior to that date, in a transaction or series of
transactions has become the beneficial owner, directly or indirectly
(with beneficial ownership determined as provided in Rule 13d-3, or
any successor rule, under such Act) of 20% or more of the
outstanding securities of Employer having the right under ordinary
circumstances to vote at an election of the Board of Directors;
(2) the date on which one-third or more of the members of the
Board of Directors shall consist of persons other than Current
Directors (for these purposes, a "Current Director" shall mean any
member of the Board of Directors as of October 1, 1998 and any
successor of a Current Director whose nomination or election has
been approved by a majority of the Current Directors then on the
Board of Directors); or
(3) the date of approval by the stockholders of Employer of an
agreement providing for (x) the merger or consolidation of Employer
with another corporation where the stockholders of Employer,
immediately prior to the merger or consolidation, would not
<PAGE>
beneficially own, immediately after the merger or consolidation,
shares entitling such stockholders to 50% or more of all votes
(without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders of the
corporation issuing cash or securities in the merger or
consolidation would be entitled in the election of directors or
where the members of the Board of Directors of Employer, immediately
prior to the merger or consolidation, would not, immediately after
the merger or consolidation, constitute a majority of the Board of
Directors of the corporation issuing cash or securities in the
merger or consolidation or (y) the sale or other disposition of all
or substantially all the assets of Employer.
(b) "Severance Benefit" shall mean a lump sum cash amount equal to
2.99 times Employee's "base amount" (as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "Code")); PROVIDED, however, that
if any payment by Employer or its affiliates to or for the benefit of Employee
(whether payable pursuant to the terms of this Employment Contract or otherwise)
would not be deductible by Employer or its affiliates for Federal income tax
purposes solely by reason of Section 280G of the Code, the amount referred to in
this clause (b) shall be reduced to such lesser amount as shall permit all, or
the maximum possible amount, of the payments by Employer or its affiliates to or
for the benefit of Employee to be so deductible in accordance with such Section
280G. The determination of any reduction in the amount referred to in the
preceding sentence shall be made by Employee in good faith with reasonable
advice of Employee's tax advisor, and as so made shall be conclusive and binding
on Employer, its affiliates and Employee.
(c) If (i) Employer gives notice of termination of the Employment
Period or takes other action which effectively terminates the Employment Period
(other than for death, Disability or Cause) during the period commencing upon
the occurrence of a Change in Control Event and ending on the third anniversary
of the date of the Change in Control Event (the "Post-Change Period") or (ii)
Employee gives notice of termination of the Employment Period during the
Post-Change Period after Employee determines in good faith that there has been
any of the following occurrences
(1) an assignment to Employee of duties or responsibilities,
or a change in reporting responsibilities or titles, which is
inconsistent with his status immediately prior to the Change in
Control Event, or any other action by Employer which results in a
diminution in such status, excluding any action which is both
inadvertent and immaterial and is remedied by Employer promptly
after receipt of notice thereof from Employee,
(2) a reduction in salary, or reduction in ratio of
supplemental compensation or fringe benefits to salary, from that in
effect immediately prior to the Change in Control Event,
(3) a material increase in the amount of travel required of
him or a requirement that he perform significant regular services
<PAGE>
outside the Hickory, North Carolina area or transfer to a location
necessitating a change in his principal residence or
(4) a failure by Employer to have a successor corporation
assume Employer's obligations under this Employment Contract as
specified in Section 14,
then the Employment Period shall be deemed terminated upon the giving of such
notice or taking of such action and not later than 15 days thereafter Employer
shall pay to Employee the Severance Benefit. Payment of the Severance Benefit
shall be in lieu of any damages Employee might otherwise assert for breach of
this Employment Contract.
(d) If Employee gives notice of termination of the Employment
Period, for any reason, during the 30-day period commencing on the 181st day
following the date of the Change in Control Event, then the Employment Period
shall be deemed terminated upon the giving of such notice and not later than 15
days thereafter Employer shall pay to Employee the Severance Benefit.
(e) The payment of benefits under any employee benefits program or
plan of Employer to which Employee shall have become entitled shall be
unaffected by a Change in Control Event and shall be made in accordance with the
particular program or plan.
(f) If Employer wrongfully terminates the Employment Period prior to
the occurrence of any Change in Control Event but after (i) Employer enters into
an agreement or arrangement the consummation of which would result in a Change
in Control Event or (ii) any person (including Employer) publicly announces an
intention to take or consider taking actions which if consummated would result
in a Change in Control Event, then Employee's damages for such wrongful
termination shall be not less than the amount of the Severance Benefit if a
Change in Control Event occurs within the three-year period following such
termination.
12. ENTIRE AGREEMENT
----------------
This Employment Agreement sets forth the entire understanding of the
parties with respect to the subject matter herein and may be modified only by a
written instrument duly executed by each party.
13. NOTICES
-------
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by registered mail, return
receipt requested, transmitted by telecopier or similar means, sent by overnight
delivery service such as Federal Express or delivered against receipt to the
party to whom it is to be given (i) at such party's address set forth in the
preamble to this Employment Agreement or (ii) to such other address as the party
shall have furnished in writing in accordance with the provisions of this
Section 13. Any notice or other communication shall be deemed to have been given
<PAGE>
as of the date so delivered or transmitted by telecopier or similar means, the
next business day after mailed by overnight delivery service or five days after
the date so mailed.
14. ASSIGNMENT
----------
In the event of a future disposition of (or including) the properties and
business of Employer, substantially as an entirety, by sale of assets or
otherwise, then Employer may elect to assign this Employment Agreement and all
of its rights and obligations hereunder to the acquiring or surviving
corporation, provided that such corporation shall assume in writing all of the
obligations of Employer hereunder and upon such assumption Employer shall be
relieved from all of its obligations hereunder. Employee's rights under this
Employment Agreement shall not be transferable by assignment or otherwise.
15. BINDING EFFECT; CERTAIN DEFINED TERMS
-------------------------------------
This Employment Agreement shall be binding upon and inure to the benefit
of Employer, its successors and those who are its assigns under Section 14. The
terms "subsidiary" and "affiliate" as used herein shall have the meanings
provided in Rule 405 under the Securities Act of 1933.
16. INVALID PROVISIONS
------------------
If any provision hereof is held to be illegal, invalid or unenforceable
under present or future laws effective during the term hereof, such provision
shall be fully severable; this Employment Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. In lieu of such illegal,
invalid or unenforceable provision there shall be added automatically as part
hereof a provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
17. EXECUTION IN COUNTERPARTS
-------------------------
This Employment Agreement may be executed in counterparts, each of which
shall be deemed an original, but both of which shall constitute one and the same
instrument.
18. ARBITRATION
-----------
Except as provided in Section 8, any controversy or claim arising out of
or in connection with this Employment Agreement shall be settled by arbitration
by a single arbitrator held in Charlotte, North Carolina, in accordance with the
rules of the American Arbitration Association then in effect, and judgment upon
the award rendered may be entered in any court having jurisdiction. The fees and
expenses of the arbitrator shall be borne by Employer. In addition, Employer
<PAGE>
shall reimburse Employee for all reasonable legal fees and costs incurred with
respect to any controversy or claim arising under this Agreement (i) as to which
Employee's position shall prevail in any proceeding or (ii) after the occurrence
of a Change in Control Event, in the case of any action brought by Employee
against Employer.
19. GOVERNING LAW
-------------
This Employment Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Employment
Agreement as of the date first above written.
WORLDTEX, INC.
By _________________________________________
Title:
_____________________________________________
Marty Kittrell
<PAGE>
EXHIBIT A
WORLDTEX, INC.
212 12TH AVENUE, N.E.
HICKORY, NORTH CAROLINA 28601
[DATE]
[NAME]
c/o Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
Dear [NAME]:
We are pleased to inform you that the Compensation Committee of the Board
of Directors of Worldtex, Inc. (the "Company") has today granted you an option
pursuant to the Company's 1992 Stock Incentive Plan, as amended (the "Plan"), to
purchase an aggregate of [____________] shares of the Common Stock of the
Company on the following terms and conditions:
1. The purchase price per share of the shares of Common Stock subject to
this option is [____________] per share.
2. This option shall expire at the close of business on
[________________]. [Tenth anniversary] Subject to acceleration in the event of
a Change of Control (as defined in the Plan), you must remain in the employ of
the Company or a Related Company (as defined in the Plan) for one year from the
date hereof before you can exercise any part of this option. Thereafter this
option will become exercisable in installments as follows: [____________] shares
on [_______________]; an additional [______________] shares on
[_________________]; an additional [_______________] shares on
[________________]; an additional [______________] shares on [_______________];
and the final [______________] shares on [_______________]. [20% per year]
3. This option is not intended to qualify as an "Incentive Stock Option"
within the provisions of Section 422 of the Internal Revenue Code.
4. The option price shall be payable by you at the time this option is
exercised, either (i) in cash or (ii) by delivering shares of Common Stock of
the Company which you have owned for a least six months prior to such exercise,
or a combination of cash and such shares, having an aggregate value equal to the
aggregate option price of the shares as to which this option is exercised
(basing the value of any such shares of Common Stock on the fair market value of
the Common Stock on the date of exercise). No shares of Common Stock shall be
issued pursuant to exercise of this option until full payment therefor has been
made.
<PAGE>
5. In tandem with this option, the Company has also granted you today a
limited Stock Appreciation Right, which entitles you to elect to receive within
sixty days following the occurrence of a Change of Control, in lieu of
exercising this option, a payment equal in value to the product of the number of
shares of Common Stock as to which you elect to exercise this limited Stock
Appreciation Right multiplied by the excess of the Change of Control Price (as
defined in the Plan) over $[____________] [strike price]. If the Change of
Control occurs more than six months from today this payment will be made to you
in cash. Otherwise, payment will be made in shares of Common Stock.
6. This option and related Stock Appreciation Right may be exercised only
by you and may not be transferred except by will or the laws of descent and
distribution. In the event of your death, your legal representatives may
exercise this option as to the shares of Common Stock which were immediately
purchasable by you at the date of death, within 12 months following the date of
death (even if such date is later than [_________________]. [Tenth anniversary.]
7. Upon termination of your employment (upon retirement in accordance with
the Company's retirement policy or for any reason beyond your control other than
your death), your option privileges shall be limited to the shares of Common
Stock which were immediately purchasable by you at the date of such termination
and such option privileges shall expire unless exercised within three months
after the date of such termination and prior to the close of business on
[_________________]. [Tenth anniversary.] If your employment is terminated for
reasons within your control, including, without limitation, cause and voluntary
resignation, all rights under this option shall expire on the date of such
termination.
8. Notwithstanding anything in this letter, the Company shall not be
obligated to issue any shares of Common Stock upon any exercise of this option
or related Stock Appreciation Right if such issuance would violate any
applicable law, including the Securities Act of 1933.
9. Nothing herein shall restrict the right of the Company or any Related
Company to terminate your employment at any time, with or without cause.
10. This option and related Stock Appreciation Right is subject to all of
the other terms, provisions and conditions of the Plan, a copy of which has been
furnished to you and other copies of which may be obtained by you from the
Company.
Very truly yours,
WORLDTEX, INC.
By_____________________________
EXHIBIT 10.6
WORLDTEX, INC.
1992 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE MAY 14, 1998)
SECTION 1. PURPOSES
The purposes of the Worldtex, Inc. 1992 Stock Incentive Plan (the
"Plan") are (i) to enable Worldtex, Inc. (the "Company") and Related Companies
(as defined below) to attract and retain employees who contribute to the
Company's success by their ability, ingenuity and industry, and to enable such
employees to participate in the long-term success and growth of the Company by
giving them an equity interest in the Company, and (ii) to enable the Company to
pay part of the compensation of its Outside Directors ( as defined in Section
5.2) in options to purchase the Company's Common Stock ("Stock"), thereby
increasing such directors' proprietary interest in the Company. For purposes of
the Plan, a "Related Company" means any corporation, partnership, joint venture
or other entity in which the company owns, directly or indirectly, at least a
20% beneficial ownership interest.
SECTION 2. TYPES OF AWARDS
2.1 Awards under the Plan may be in the form of (i) Stock Options;
(ii) Stock Appreciation Rights; (iii) Restricted Stock; (iv) Deferred Stock; (v)
Loans; and/or (vi) Tax Offset Payments.
2.2 An eligible employee may be granted one or more types of awards,
which may be independent or granted in tandem. If two awards are granted in
tandem, the employee may exercise (or otherwise receive the benefit of) one
award only to the extent he or she relinquishes the tandem award.
2.3 Outside Directors may receive only grants of Stock Options, as
provided in section 14.
SECTION 3. ADMINISTRATION
3.1 The Plan shall be administered by the Executive Compensation
Committee of the Company's Board of Directors (the "Board") or such other
committee of directors as the Board shall designate (the "Committee"), which
shall consist of not less than two directors. Committee members shall serve at
the pleasure of the Board. Notwithstanding the foregoing, grants of Stock
Options to Outside Directors under Section 14 shall only be made by the Board.
3.2 The Committee shall have the following authority with respect to
awards under the Plan other than awards to Outside Directors: to grant awards to
<PAGE>
eligible employees under the Plan; to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
deem advisable; to interpret the terms and provisions of the Plan and any award
granted under the Plan; and to otherwise supervise the administration of the
Plan. In particular, and without limiting its authority and powers, except with
respect to awards to Outside Directors, the Committee shall have the authority:
(A) to determine whether and to what extent any award or
combination of awards will be granted hereunder, including whether any awards
will be granted in tandem with each other;
(B) to select the employees to whom awards will be granted;
(C) to determine the number of shares of the common stock of
the Company (the "Stock") to be covered by each award granted hereunder;
(D) to determine the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other restrictions
based on performance and such other factors as the Committee may determine, and
to determine whether the terms and conditions of the award are satisfied;
(E) to determine the treatment of awards upon an employee's
retirement, disability, death, termination for cause or other termination of
employment;
(F) to determine pursuant to a formula or otherwise the fair
market value of the Stock on a given date; provided, however, that if the
Committee fails to make such a determination, fair market value shall mean the
closing sale price of the Stock on a given date (or, if no sale of Stock occurs
on such date, the closing sale price on the nearest trading date before such
date);
(G) to determine that the amounts equal to the amount of any
dividends declared with respect to the number of shares covered by an award (i)
will be paid to the employee currently or (ii) will be deferred and deemed to be
reinvested or (iii) will be otherwise credited to the employee, or that the
employee has no rights with respect to such dividends;
(H) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an award will be
deferred either automatically or at the election of an employee, including
providing for and determining the amount (if any) of deemed earnings on any
deferred amount during any deferral period;
(I) to provide that the shares of Stock received as a result
of an award shall be subject to a right of first refusal, pursuant to which the
<PAGE>
employee shall be required to offer to the Company any shares that the employee
wishes to sell, subject to such terms and conditions as the Committee may
specify;
(J) to amend the terms of any award, prospectively or
retroactively; provided, however, that no amendment shall impair the rights of
the award holder without his or her consent; and
(K) to substitute new Stock Options for previously granted
Stock Options, or for options granted under other plans or agreements, in each
case including previously granted options having higher option prices.
3.3 With respect to awards to Outside Directors, the Committee shall
have authority to interpret the Plan and the terms of any Stock Options granted
to Outside Directors; to adopt, amend, and rescind administrative regulations to
further the purposes of the Plan; and to take any other action necessary to the
proper operation of the Plan. However, the Committee shall have no discretion to
vary the amount or terms of awards granted to Outside Directors, except as
provided in section 4.4. The Board shall have the power to make grants of Stock
Options to Outside Directors, pursuant to Section 14, and to amend such awards
prospectively or retroactively; provided, however, that no amendment shall
impair the rights of the award holder without his or her written consent.
3.4 All determinations made by the Committee or the Board pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Plan participants.
3.5 The Committee may from time to time delegate to one or more
officers of the Company any or all of its authorities granted hereunder except
with respect to awards granted to persons subject to Section 16 of the
Securities Exchange Act of 1934. The Committee shall specify the maximum number
of shares that the officer or officers to whom such authority is delegated may
award.
SECTION 4. STOCK SUBJECT TO PLAN
4.1 The total number of shares of Stock reserved and available for
distribution under the Plan shall be 2,100,000 shares (subject to adjustment as
provided below). Such shares may consist of authorized but unissued shares or
treasury shares. The exercise of a Stock Appreciation Right for cash or the
payment of any other award in cash shall not count against this share limit.
4.2 To the extent a stock option terminates without having been
exercised, or an award terminates without the employee having received payment
of the award, or shares awarded are forfeited, the shares subject to such award
shall again be available for distribution in connection with future awards under
<PAGE>
the Plan. Shares of Stock equal in number to the shares surrendered or withheld
in payment of the option price and/or to satisfy federal, state or local tax
liability with respect to an award shall not count against the above share
limit, and shall again be available for grants under the plan.
4.3 No employee shall be granted Stock Options, Stock Appreciation
Rights, Restricted Stock, and/or Deferred Stock, or any combination of the
foregoing with respect to more than 500,000 shares of Stock in any fiscal year
(subject to adjustment as provided in section 4.4). No employee shall be granted
a Tax Offset Payment with respect to more than the number of shares covered by
awards granted to such employee.
4.4 In the event of any merger, reorganization, consolidation, sales
of substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off, split-up, split-off, distribution of assets or other change in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Committee in its sole discretion, shall be
made in the aggregate number of shares reserved for issuance under the Plan, the
number of shares as to which awards can be granted to any individual in any
fiscal year, the number of shares subject to outstanding awards and the amounts
to be paid by award holders or the Company, as the case may be, with respect to
outstanding awards; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award. In the event any change described
in this Section 4.4 occurs and an adjustment is made in the outstanding Stock
Options held by employees, a similar adjustment shall be made in the number and
terms of Stock Options held by Outside Directors under Section 14.
SECTION 5. ELIGIBILITY
5.1 Officers and other employees of the Company or a Related Company
are eligible to be granted awards under the Plan, other than under Section 14.
Except as provided in Section 5.2, Outside Directors are not eligible to be
granted awards under the Plan. The officer and employee participants under the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible.
5.2 Awards under Section 14 of the Plan shall be made solely to
Outside Directors, which term shall mean any director of the Company other than
one who is an officer or employee of the Company or a Related Company.
SECTION 6. STOCK OPTIONS
6.1 The Stock Options awarded to officers and employees under the
Plan may be of two types: (i) Incentive Stock Options within the meaning of
Section 422 of the Internal Revenue Code or any successor provision thereto; and
<PAGE>
(ii) Non-Qualified Stock Options. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
6.2 Subject to the following provisions, Stock Options awarded under
the Plan shall be in such form and shall have such terms and conditions as the
Committee may determine.
(A) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee.
(B) OPTION TERM. The term of each Stock Option shall be fixed
by the Committee at the time of grant.
(C) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee. The Committee may waive such exercise provisions or accelerate
the exercisability of the Stock Option at any time in whole or in part.
(D) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part at any time during the option period by giving written notice
of exercise to the Company specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of the purchase price
shall be made in such manner as the Committee may provide in the award, which
may include cash (including cash equivalents), delivery of shares of Stock
already owned by the optionee or subject to awards hereunder, any other manner
permitted by law determined by the Committee, or any combination of the
foregoing. The Committee may provide that all or part of the shares received
upon exercise of a Stock Option which are paid for using Restricted Stock or
Deferred Stock shall be restricted or deferred in accordance with the original
terms of the award in question.
(E) NO STOCKHOLDER RIGHTS. An optionee shall have neither
rights to dividends or other rights of a stockholder with respect to shares
subject to Stock Option until the optionee has given written notice us exercise
and has paid for such shares.
(F) SURRENDER RIGHTS. The Committee may provide that options
may be surrendered for cash upon any terms and conditions set by the Committee.
(G) NON-TRANSFERABILITY. Unless otherwise provided by the
Committee, (i) no Stock Options shall be transferable by the optionee other than
by will or by the laws of decent and distribution, and (ii) during the
optionee's lifetime, all Stock Options shall be exercisable only by the optionee
or by his or her guardian or legal representative.
<PAGE>
(H) TERMINATION OF EMPLOYMENT. Following the termination of an
optionee's employment with the Company or a Related Company, the Stock Option
shall be exercisable to the extent determined by the Committee. The Committee
may provide different post-termination exercise provisions with respect to
termination of employment for different reasons. The Committee may provide that,
notwithstanding the option term fixed pursuant to Section 6.2(b), a Stock Option
which is outstanding on the date of optionee's death shall remain outstanding
for an additional period after the date of such death.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive
Stock Option shall (i) have an option price which is less than 100% of the fair
market value of the Stock on the date of the award of the Stock Option, (ii) be
exercisable more than ten years after the date such Incentive Stock Option is
awarded, or (iii) be awarded more than ten years after the effective date of the
Plan as most recently approved by stockholders.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 A Stock Appreciation Right shall entitle the holder thereof to
receive payment of an amount, in cash, shares of Stock or a combination thereof,
as determined by the Committee, equal in value to the excess of the fair market
value of the shares as to which the award is granted on the date of exercise
over an amount specified by the Committee. Any such award shall be in such form
and shall have such terms and conditions as the Committee may determine.
7.2 The Committee may provide that a Stock Appreciation Right may be
exercised only within the 60-day period following occurrence of a Change of
Control (as defined in Section 16.2). The Committee may also provide that in the
event of a Change of Control the amount to be paid upon exercise of a Stock
Appreciation Right shall be based on the Change of Control Price (as defined in
Section 16.3).
SECTION 8. RESTRICTED STOCK
Subject to the following provisions, all awards of Restricted Stock
shall be in such form and shall have such terms and conditions as the Committee
shall determine:
(A) The Restricted Stock award shall specify the number of
shares of Restricted Stock to be awarded, the price, if any, to be paid by the
recipient of the Restricted Stock and the date or dates on which, or the
conditions upon the satisfaction of which, the Restricted Stock will vest. The
vesting of Restricted Stock may be conditioned upon the completion of a
specified period of service with the Company or a Related Company, upon the
attainment of specified performance goals or upon such other criteria as the
Committee may determine.
<PAGE>
(B) Stock certificates representing the Restricted Stock
awarded to an employee shall be registered in the employee's name, but the
Committee may direct that such certificates be held by the Company on behalf of
the employee. Except as may be permitted by the Committee, no share of
Restricted Stock may be sold, transferred, assigned, pledged or otherwise
encumbered by the employee until such share has vested in accordance with the
terms of the Restricted Stock award. At the time Restricted Stock vests, a
certificate for such vested shares shall be delivered to the employee (or his or
her designated beneficiary in the event of death), free of all restrictions.
(C) The Committee may provide that the employee shall have the
right to vote or receive dividends on Restricted Stock. Unless the Committee
provides otherwise, the Stock received as a dividend on, or in connection with a
stock split of, Restricted Stock shall be subject to the same restrictions as
the Restricted Stock.
(D) Except as may be provided by the Committee, in the event
of an employee's termination of employment before all of his or her Restricted
Stock has vested, or in the event any conditions to the vesting of Restricted
Stock have not been satisfied prior to any deadline for the satisfaction of such
conditions set forth in the award, the shares of Restricted Stock which have not
vested shall be forfeited, and the Committee may provide that (i) any purchase
price paid by the employee shall be returned to the employee or (ii) a cash
payment equal to the Restricted Stock's fair market value on the date of
forfeiture, if lower, shall be paid to the employee.
(E) The Committee may waive, in whole or in part, any or all
of the conditions to receipt of, or restrictions with respect to, any or all of
the employee's Restricted Stock.
SECTION 9. DEFERRED STOCK AWARDS
Subject to the following provisions, all awards of Deferred Stock
shall be in such form and shall have such terms and conditions as the Committee
may determine:
(A) The Deferred Stock shall specify the number of shares of
Deferred Stock to be awarded to any employee and the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of the
Stock will be deferred. The Committee may condition the award of Deferred Stock,
or receipt of Stock or cash at the end of the Deferral Period, upon the
attainment of specified performance goals or such other criteria as the
Committee may determine.
(B) Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period.
<PAGE>
(C) At the expiration of the Deferral Period, the employee (
or his or her designated beneficiary in the event of death) shall receive (i)
certificates for the number of shares of Stock equal to the number of shares
covered by the Deferred Stock award, (ii) cash equal to the fair market value of
such Stock, or (iii) a combination of shares and cash, as the Committee may
determine.
(D) Except as may be provided by the Committee, in the event
of an employee's termination of employment before the end of the Deferral
Period, his or her Deferred Stock award shall be forfeited.
(E) The Committee may waive, in whole or in part, any or all
of the conditions to receipt of, or restrictions with respect to, Stock or cash
under a Deferred Stock award.
SECTION 10. LOANS
The Committee may provide that the Company shall make, or arrange
for, a loan or loans to an employee with respect to the exercise of any Stock
Option awarded under the Plan, with respect to the payment of the purchase
price, if any, of any Restricted Stock awarded hereunder or with respect to any
taxes arising from an award hereunder; provided, however, that the Company shall
not loan to an employee more than the sum of (i) the excess of the purchase or
exercise price of an award over the par value of any shares of Stock awarded
plus (ii) the amount of any taxes arising from such award. Any such loan shall
be made on terms that comply with all applicable legal requirements. The
Committee shall have full authority to decide whether a loan will be made
hereunder and to determine the amount, term and provisions of any such loan,
including the interest rate to be charged, whether the loan will be with or
without recourse against the borrower, any security for the loan, the terms on
which the loan is to be repaid and the conditions, if any, under which the loan
may be forgiven.
SECTION 11. TAX OFFSET PAYMENTS
The Committee may provide for a Tax Offset Payment by the Company to
an employee with respect to one or more awards granted under the Plan, in an
amount specified by the Committee, which shall not exceed the amount necessary
to pay the federal, state, local and other taxes payable with respect to such
award and the receipt of the Tax Offset Payment assuming that the employee is
taxed at the maximum tax rate applicable to such income. The Tax Offset Payment
shall be paid in cash.
<PAGE>
SECTION 12. ELECTION TO DEFER AWARDS
The Committee may permit an officer or employee to elect to defer
receipt of an award for a specified period or until a specified event, upon such
terms as are determined by the Committee.
SECTION 13. TAX WITHHOLDING
13.1 Each participant shall, no later than the date as of which the
value of an award first becomes includable in his or her gross income for
applicable tax purposes, pay to the Company, or make arrangements satisfactory
to the Committee regarding payment of, any federal, state, local or other taxes
of any kind required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company (and, where applicable, any Related Company),
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
13.2 To the extent permitted by the Committee, and subject to such
terms and conditions as the Committee may provide, an employee may elect, or the
Company may require, that the employee have the withholding tax obligation, or
any additional tax obligation with respect to any awards hereunder, satisfied by
(i) having the Company withhold shares of Stock otherwise deliverable to the
employee with respect to the award or (ii) delivering to the Company shares of
unrestricted Stock.
SECTION 14. STOCK OPTIONS FOR OUTSIDE DIRECTORS
14.1 Each person who is an Outside Director at the close of the 1994
Annual Meeting of Stockholders shall be granted as of such date a Stock Option
to purchase 10,000 shares of common stock of the Company. Each person who
becomes an Outside Director after such date shall be granted, as of the date of
his or her election as an Outside Director, a Stock Option to purchase 10,000
shares of common stock of the Company.
14.2 Stock Options granted under this Section 14 shall be
Non-Qualified Stock Options and shall have such terms and conditions as the
Board may determine. The provisions of Section 6.2 shall apply to Stock Options
granted to Outside Directors under this Section 14, except that, with respect to
such Stock Options, all references in Section 6.2 to the Committee shall be
deemed to refer to the Board.
SECTION 15. AMENDMENTS AND TERMINATION
The Board may discontinue the Plan at any time and may amend it from
time to time. No amendment or discontinuation of the Plan shall adversely affect
<PAGE>
any award previously granted without the award holder's written consent.
Amendments may be made without stockholder approval except as required to comply
with exchange or regulatory requirements.
SECTION 16. CHANGE OF CONTROL
16.1 In the event of a Change of Control, unless otherwise
determined by the Committee (or, in the case of Stock Options granted under
Section 14, the Board) at the time of grant or by amendment (with the holder's
consent) of such grant:
(A) all outstanding Stock Options and all outstanding Stock
Appreciation Rights awarded under the Plan shall become fully exercisable and
vested;
(B) the restrictions and deferral limitations applicable to
any outstanding Restricted Stock and Deferred Stock awards under the Plan shall
lapse and such shares and awards shall be deemed fully vested, and;
(C) to the extent the cash payment of any award is based on
the fair market value of Stock, such fair market value shall be the Change of
Control Price.
16.2 A "Change of Control" shall be deemed to occur on:
(A) the date that person or group deemed a person under
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, other than
the Company and its subsidiaries as determined immediately prior to that date
(or an employee benefit plan of the Company or its subsidiaries), in a
transaction or series of transactions has become the beneficial owner, directly
or indirectly (with beneficial ownership determined as provided in Rule 13d-3,
or any successor rule, under such Act) of 25% or more of the outstanding
securities of the Company having the right under ordinary circumstances to vote
at an election of the Board;
(B) the date on which one-third or more of the members of the
Board shall consist of persons other than Current Directors (for these purposes,
a "Current Director" shall mean any member of the Board as of the effective date
of the Plan and any successor of a Current Director whose nomination or election
has been approved by a majority of the Current Directors on the Board); or
(C) the date of approval by the stockholders of the Company of
an agreement providing for (A) the merger or consolidation of the Company with
another corporation where the stockholders of the Company, immediately prior to
the merger or consolidation, would not beneficially own, immediately after the
merger or consolidation, shares entitling such stockholders to 50% or more of
all votes (without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders of the corporation
<PAGE>
issuing cash or securities in the merger or consolidation would be entitled in
the election of directors or where the members of the Board, immediately prior
to the merger or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger or consolidation or (B) the
sale or other disposition of all or substantially all the assets of the Company.
16.3 "Change of Control Price" means the highest price per share
paid in any transaction reported on the New York Stock Exchange Composite Index
(or if the Stock is not then listed on such Exchange, the highest price per
share paid in any open market transaction), or paid or offered in any
transaction related to a Change of Control at any time during the 90-day period
ending with the Change of Control. Notwithstanding the foregoing sentence, in
the case of Stock Appreciation Rights granted in tandem with Incentive Stock
Options, the Change of Control Price shall be the highest price paid on the date
on which the Stock Appreciation Right is exercised.
SECTION 17. GENERAL PROVISIONS
17.1 Each award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body or (iii) an agreement by the
recipient of an award with respect to the disposition of Stock is necessary or
desirable as a condition of , or in connection with, the granting of such award
or the issuance, purchase or delivery of Stock thereunder, such award shall not
be granted or exercised, in whole or in part, unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
17.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements. Neither the adoption of
the Plan nor any award hereunder shall confer upon any employee of the Company,
or of a Related Company, any right to continued employment. No award under
Section 14 shall confer upon any Outside Director any right to continued service
as a director.
17.3 Determinations by the Board or the Committee under the Plan
relating to the form, amount, and terms and conditions of awards need not be
uniform, and may be made selectively among persons who receive or are eligible
to receive awards under the Plan, whether or not such persons are similarly
situated.
<PAGE>
17.4 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or made
with respect to the Plan, and all members of the Board and the Committee and all
officers and employees of the Company acting on their behalf, shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
SECTION 18. EFFECTIVE DATE OF PLAN
The Plan became effective immediately after the Closing (as defined
in the Purchase Agreement, dated April 22, 1992, among Willcox & Gibbs, Inc.,
Compagnie de Distribution de Materiel Electrique, International Technical
Distributors, Inc., and Southern Electric Supply Company, Inc.). The Plan was
amended and restated effective January 24, 1994 subject to approval by the
Company's stockholders, which was obtained on May 12, 1994, and was amended and
restated by the Board effective March 25, 1997. This amendment and restatement
of the Plan shall be effective May 14, 1998, subject to approval by the
Company's shareholders.
EXHIBIT 21.1
WORLDTEX, INC.
SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- ----------------------------------- ------------------------------------------
<S> <C>
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
Elastic Corporation of America, Inc. Delaware
</TABLE>
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 No. 33-55124, No. 33-72640 and No. 333-68975 of Worldtex, Inc. of our
audit report dated February 27, 1998, relating to the consolidated balance sheet
of Worldtex, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows and
related schedule for each of the years ended December 31, 1997 and 1996, which
report appears in the December 31, 1998 Annual Report on Form 10-K of Worldtex,
Inc.
KPMG LLP
Atlanta, Georgia
March 26, 1999
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-55124, 33-72640 and 333-68975 of Worldtex, Inc. on Forms S-8 of our report
dated February 25, 1999 (March 29, 1999 as to the credit facility amendment
described in Note 6), appearing in this Annual Report on Form 10-K of Worldtex,
Inc. for the year ended December 31, 1998.
Deloitte & Touche LLP
Hickory, North Carolina
March 29, 1999
EXHIBIT 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Worldtex, Inc. (the "Corporation"), does hereby constitute and
appoint Barry D. Setzer, Marty R. Kittrell and Mitchell R. Setzer, and each of
them, his true and lawful attorney or attorneys to execute in his name, place
and stead in such capacity or capacities (whether on behalf of the Corporation,
or as a director and/or officer of the Corporation, or otherwise), any and all
instruments which said attorney may deem necessary or advisable in order to
enable the Corporation to comply with the Securities Exchange Act of 1934, as
amended, and any requirements of the Securities and Exchange Commission in
respect thereof, pertaining to annual reports of the Corporation on Form 10-K
and amendments thereof, including without limitation, power and authority to
sign his name (whether on behalf of the Corporation, or as a director and/or
officer of the Corporation, or by attesting the seal of the Corporation, or
otherwise) to any such annual reports on Form 10-K, and any amendments thereof,
and other documents in connection therewith, and to file any of the
aforementioned documents with the Securities and Exchange Commission, each of
said attorneys to have full power and authority to do and perform in the name
and on behalf of the undersigned, every act whatsoever necessary or advisable to
be done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on
the date set opposite his name.
Dated: March 26, 1999
/S/ MARTY R. KITTRELL
-----------------------------------
Marty R. Kittrell
<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, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,715
<SECURITIES> 0
<RECEIVABLES> 42,885
<ALLOWANCES> 2,041
<INVENTORY> 58,515
<CURRENT-ASSETS> 112,097
<PP&E> 153,918
<DEPRECIATION> 40,266
<TOTAL-ASSETS> 324,120
<CURRENT-LIABILITIES> 38,945
<BONDS> 198,246
0
0
<COMMON> 147
<OTHER-SE> 73,335
<TOTAL-LIABILITY-AND-EQUITY> 324,120
<SALES> 258,537
<TOTAL-REVENUES> 258,537
<CGS> 216,267
<TOTAL-COSTS> 216,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 590
<INTEREST-EXPENSE> 18,765
<INCOME-PRETAX> (6,392)
<INCOME-TAX> (494)
<INCOME-CONTINUING> (5,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,898)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
