FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 1-11438
WORLDTEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1789271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
915 Tate Boulevard, S.E., Suite 106, Hickory, 28602
North Carolina (Zip Code)
(Address of principal executive offices)
(828) 322-2242
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
- ------------------------ ---------------------- ----------------------
November 3, 1999 Common Stock 14,271,171
<PAGE>
WORLDTEX, INC.
INDEX
PAGE NUMBER
PART I - Financial Information
Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months Ended September 30, 1999 and 1998 2
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited) for the Three and Nine Months Ended September 2
30, 1999 and 1998
Consolidated Balance Sheets at September 30, 1999
(Unaudited) 3
and December 31, 1998
Consolidated Statements of Cash Flows (Unaudited) for the
4
Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Condensed Financial Statements 5-12
(Unaudited)
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-18
PART II - Other Information 19
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $69,721 59,801 221,345 195,084
Costs of goods sold 59,492 50,761 184,071 159,174
------ ------ ------- -------
Gross profit 10,229 9,040 37,274 35,910
Selling & administrative expense 5,660 5,116 17,734 17,029
Goodwill amortization 719 560 2,247 1,729
------ ------ ------ ------
Operating profit 3,850 3,364 17,293 17,152
Interest expense 5,007 4,824 14,965 14,255
Other income (expense) - net (402) (90) (387) 255
------ ------ ------ ------
Income (loss) before income taxes (1,559) (1,550) 1,941 3,152
Provision (benefit) for income taxes (847) (489) 578 1,314
------- ------ ------ ------
Net income (loss) $ (712) (1,061) 1,363 1,838
====== ====== ====== ======
Net income (loss) per share:
Basic $ (.05) (.07) .10 .13
====== ====== ======= =======
Diluted $ (.05) (.07) .10 .13
====== ====== ======= =======
Weighted average shares outstanding
Basic 14,271 14,341 14,271 14,401
====== ====== ====== ======
Diluted 14,271 14,341 14,271 14,642
====== ====== ====== ======
</TABLE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (712) (1,061) 1,363 1,838
Other comprehensive income (loss),
net of tax:
Foreign translation adjustment 1,748 3,609 (8,058) 2,225
------ ------ ------ ------
Comprehensive income (loss) $1,036 2,548 (6,695) 4,063
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,688 6,715
Accounts and notes receivable, less allowance for
doubtful accounts of $2,216 in 1999 and $2,041
in 1998 49,731 42,885
Inventories 59,167 58,515
Prepaid expenses and other current assets 3,590 3,982
--------- --------
Total current assets 122,176 112,097
Property, plant and equipment - net 113,166 113,652
Other assets 8,444 12,850
Cost in excess of net assets of acquired businesses,
net of accumulated amortization of $11,043 in 1999 80,617 85,521
and $9,146 in 1998 --------- --------
$324,403 324,120
========= ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 6,715 7,308
Current installments of long-term debt 369 525
Accounts payable-trade and other liabilities 38,677 29,412
Income taxes payable 1,953 1,700
--------- --------
Total current liabilities 47,714 38,945
Long-term debt 197,833 196,319
Other long-term liabilities 2,531 2,496
Deferred income taxes 9,538 12,878
--------- ---------
Total liabilities 257,616 250,638
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock - -
Common stock (shares issued of 14,701 in 1999
and 1998) 147 147
Paid-in capital 30,084 30,084
Retained earnings 57,532 56,169
Accumulated other comprehensive loss (18,627) (10,569)
Treasury stock, at cost (430 shares in 1999 (2,349) (2,349)
and 1998) --------- ---------
Total stockholders' equity 66,787 73,482
-------- ---------
$324,403 324,120
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,363 1,838
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,364 5,473
Amortization 2,247 1,729
Provision for losses on accounts receivable 480 399
Deferred income taxes (2,305) (2,105)
Change in assets and liabilities:
Accounts and notes receivable (10,278) (387)
Inventories (3,534) (1,470)
Prepaid expenses and other current assets 271 301
Accounts payable - trade and other liabilities 11,453 2,518
Income taxes payable 532 1,964
--------- ---------
Net cash provided by operating activities 9,593 10,260
--------- ---------
Cash flows from investing activities:
Capital expenditures (13,280) (14,970)
Other investing activities 1,704 68
--------- ---------
Net cash used in investing activities (11,576) (14,902)
---------- ----------
Cash flows from financing activities:
Borrowings under line of credit arrangements 866 7,725
Payments under line of credit arrangements - (1,884)
Borrowings under revolving credit facility 71,600 -
Payments under revolving credit facility (68,390) -
Payments under long-term loans (1,520) -
Stock issued or (reacquired), net - (825)
Other financing activities 3,121 (331)
--------- ---------
Net cash provided by financing activities 5,677 4,685
--------- ---------
Effects of exchange rate changes on cash (721) 1,611
--------- ---------
Net increase in cash and cash equivalents 2,973 1,654
Cash and cash equivalents at beginning of year 6,715 14,872
--------- ---------
Cash and cash equivalents at end of period $9,688 16,526
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $10,862 10,606
========= =========
Income taxes $2,351 $1,455
--------- =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position and results of operations for the interim periods reported
hereon. The Company changed the functional currency for its subsidiary in
Colombia, South America, from the Colombian peso to the United States dollar
effective July 1, 1999 because cash flows derived from its operations are mostly
denominated in United States dollars. Translation adjustments for prior periods
remain in the cumulative translation adjustment account within stockholders'
equity. The accounting basis for nonmonetary assets in the current and
subsequent periods is the translated amounts as of July 1, 1999. It is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's annual report for the fiscal year ended December 31, 1998. The
December 31, 1998 amounts included in the financial statements are derived from
December 31, 1998 audited financial statements and notes thereto. Certain prior
period amounts have been reclassified to conform to the current period
presentation. The reclassifications did not impact net income as previously
reported.
Note 2 - Summary of Significant Accounting Policies
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. The major classes of inventory are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 15,162 16,032
Work-in-process 16,443 14,749
Finished goods 27,562 27,734
--------- ---------
Total inventories $ 59,167 58,515
========= =========
</TABLE>
Property, plant and equipment is recorded at cost and depreciated
primarily using the straight-line method over the estimated useful lives of the
related assets. Repairs and maintenance costs are charged to expense as
incurred. Property, plant and equipment consists of the following:
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Land $ 2,982 3,255
Buildings and leasehold improvements 39,283 39,246
Machinery and equipment 117,885 111,417
--------- ---------
160,150 153,918
Less accumulated depreciation and 46,984 40,266
amortization --------- ---------
$ 113,166 113,652
========= =========
</TABLE>
Note 3 - New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued 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.
Note 4 - Supplemental Consolidating Financial Information
Long-term debt includes $175,000 of senior notes which 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 nonguarantor
subsidiaries.
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of
Operations Three Months Ended
September 30, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 50,624 23,939 (4,842) 69,721
Cost of goods sold - 45,059 19,275 (4,842) 59,492
--------- --------- --------- --------- ---------
Gross profit - 5,565 4,664 - 10,229
Selling and administrative 762 3,401 2,216 - 6,379
expense --------- --------- --------- --------- ---------
Operating profit (loss) (762) 2,164 2,448 - 3,850
Interest expense 4,767 69 171 - 5,007
Intercompany interest
(income) expense (2,349) 2,121 228 - -
Intercompany administrative
charges (686) 435 251 - -
Other income (expense) - net (753) 382 (31) - (402)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes (3,247) (79) 1,767 - (1,559)
Provision (benefit) for
income taxes (1,187) 55 285 - (847)
Undistributed earnings of 1,348 - - (1,348) -
subsidiaries --------- --------- --------- --------- ---------
Net income (loss) $ (712) (134) 1,482 (1,348) (712)
========= ========= ========= ========= =========
</TABLE>
Consolidating Statements of
Operations Three Months Ended
September 30, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 36,553 28,231 (4,983) 59,801
Cost of goods sold - 32,587 23,157 (4,983) 50,761
--------- --------- --------- --------- ---------
Gross profit - 3,966 5,074 - 9,040
Selling and administrative 671 2,831 2,174 - 5,676
expense --------- --------- --------- --------- ---------
Operating profit (loss) (671) 1,135 2,900 - 3,364
4,433 146 245 - 4,824
Interest expense
Intercompany interest (income)
expense (2,351) 2,052 299 - -
Intercompany administrative
charges (716) 465 251 - -
Other income (expense) - net 70 16 (176) - (90)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes (1,967) (1,512) 1,929 - (1,550)
Provision (benefit) for
income taxes (545) (651) 707 - (489)
Undistributed earnings of 361 - - (361) -
subsidiaries --------- --------- --------- --------- ---------
Net income (loss) $(1,061) (861) 1,222 (361) (1,061)
========= ========= ========= ========= =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of
Operations Nine Months Ended
September 30, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 156,800 83,469 (18,924) 221,345
Cost of goods sold - 135,594 67,401 (18,924) 184,071
--------- --------- --------- --------- ---------
Gross profit - 21,206 16,068 - 37,274
Selling and administrative 2,531 10,525 6,925 - 19,981
expense --------- --------- --------- --------- ---------
Operating profit (loss) (2,531) 10,681 9,143 - 17,293
Interest expense 13,819 305 841 - 14,965
Intercompany interest
(income) expense (7,701) 7,032 669 - -
Intercompany administrative
charges (1,994) 1,242 752 - -
Other income (expense) - net (458) 421 (350) - (387)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes (7,113) 2,523 6,531 - 1,941
Provision (benefit) for
income taxes (2,702) 1,292 1,988 - 578
Undistributed earnings of 5,774 - - (5,774) -
subsidiaries --------- --------- --------- --------- ---------
Net income $ 1,363 1,231 4,543 (5,774) 1,363
========= ========= ========= ========= =========
</TABLE>
Consolidating Statements of
Operations Nine Months Ended
September 30, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
Worldtex, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 113,057 94,515 (12,488) 195,084
Cost of goods sold - 95,757 75,905 (12,488) 159,174
--------- --------- --------- --------- ---------
Gross profit - 17,300 18,610 - 35,910
Selling and administrative 2,429 9,057 7,272 - 18,758
expense --------- --------- --------- --------- ---------
Operating profit (loss) (2,429) 8,243 11,338 - 17,152
Interest expense 13,026 438 791 - 14,255
Intercompany interest
(income) expense (6,969) 5,966 1,003 - -
Intercompany administrative
charges (2,171) 1,419 752 - -
Other income (expense) - net 438 45 (228) - 255
--------- --------- --------- --------- ---------
Income (loss) before income
taxes (5,877) 465 8,564 - 3,152
Provision (benefit) for
income taxes (1,746) (6) 3,066 - 1,314
Undistributed earnings of 5,969 - - (5,969) -
subsidiaries --------- --------- --------- --------- ---------
Net income $ 1,838 471 5,498 (5,969) 1,838
========= ========= ========= ========= =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
September 30,1999
<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 $ - 93 9,595 - 9,688
Accounts and notes
receivable, net 207 28,377 21,147 - 49,731
Inventories - 38,249 20,918 - 59,167
Prepaid expenses and other 2,836 164 590 - 3,590
current assets --------- --------- --------- --------- ---------
Total current assets 3,043 66,883 52,250 - 122,176
Property, plant and equipment,
net 3,909 59,923 49,334 - 113,166
Other assets 7,364 310 770 - 8,444
Cost in excess of net
assets of acquired
businesses, net - 65,181 15,436 - 80,617
Intercompany investments 107,367 - - (107,367) -
Intercompany advances 138,679 - - (138,679) -
--------- --------- --------- --------- ---------
$260,362 192,297 117,790 (246,046) 324,403
========= ========= ========= ========= =========
Liabilities and Stockholders'
Equity
Current liabilities
Short-term borrowings $ - - 6,715 - 6,715
Current installments of
long-term debt - - 369 - 369
Accounts payable-trade and
other liabilities 10,618 15,028 13,031 - 38,677
Income taxes payable 1,138 (1,148) 1,963 - 1,953
(refundable) --------- --------- --------- --------- ---------
Total current liabilities 11,756 13,880 22,078 - 47,714
Long-term debt 190,210 6,000 1,623 - 197,833
Other long-term liabilities - - 2,531 - 2,531
Deferred income taxes (8,391) 7,837 10,092 - 9,538
Intercompany payables - 130,769 7,910 (138,679) -
--------- --------- --------- --------- ---------
Total liabilities 193,575 158,486 44,234 (138,679) 257,616
--------- --------- --------- --------- -------
Stockholders' equity
Preferred stock - - - - -
Common stock 147 49 35,859 (35,908) 147
Paid-in capital 30,084 15,822 - (15,822) 30,084
Retained earnings 57,532 17,940 56,324 (74,264) 57,532
Accumulated other
comprehensive loss (18,627) - (18,627) 18,627 (18,627)
Less-treasury stock, at cost (2,349) - - - (2,349)
--------- --------- --------- --------- ---------
Total stockholders' equity 66,787 33,811 73,556 (107,367) 66,787
--------- --------- --------- --------- ---------
$260,362 192,297 117,790 (246,046) 324,403
========= ========= ========= ========= =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
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 2,594 183 1,205 - 3,982
current assets --------- --------- --------- --------- ---------
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
(refundable) --------- --------- --------- --------- ---------
Total current liabilities 6,307 7,799 24,839 - 38,945
Long-term debt 187,000 6,000 3,319 - 196,319
Other long-term liabilities - - 2,496 - 2,496
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>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of
Cash Flows Nine Months Ended
September 30, 1999
<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 $ 1,363 1,231 4,543 (5,774) 1,363
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Undistributed earnings of
subsidiaries (5,774) - - 5,774 -
Depreciation and
amortization 21 7,270 4,320 - 11,611
Provision for losses on
accounts receivable - 166 314 - 480
Deferred income taxes (2,965) 968 (308) - (2,305)
Change in assets and
liabilities:
Accounts and notes
receivable (204) (9,058) (1,016) - (10,278)
Inventories - (4,434) 900 - (3,534)
Prepaid expenses and
other current assets (243) 19 495 - 271
Accounts payable - trade
and other liabilities 5,403 5,587 463 - 11,453
Income taxes payable 47 493 (8) - 532
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating (2,352) 2,242 9,703 - 9,593
activities --------- --------- --------- --------- ---------
Cash flows from investing
activities:
Capital expenditures (3,593) (5,862) (3,825) - (13,280)
Acquisitions, net of cash
acquired (4,080) - - 4,080 -
Other investing activities (371) 1,792 283 - 1,704
--------- --------- --------- --------- ---------
Net cash used in investing (8,044) (4,070) (3,542) 4,080 (11,576)
activities --------- --------- --------- --------- ---------
Cash flows from financing
activities:
Borrowings under line of
credit arrangements - - 866 - 866
Payments under line of
credit arrangements - - - - -
Borrowings under revolving
credit facility 71,600 - - - 71,600
Payments under revolving
credit facility (68,390) - - - (68,390)
Borrowing under long-term
loans - - - - -
Payments under long-term
loans - - (1,520) - (1,520)
Stock issued or
(reacquired), net - - - - -
Advances (repayments) -
affiliated companies 2,343 1,907 (3,583) (667) -
Other financing activities 2,247 - 3,878 (3,004) 3,121
--------- --------- --------- --------- ---------
Net cash provided by
financing activities 7,800 1,907 (359) (3,671) 5,677
--------- --------- ---------- --------- ---------
Effects of exchange rate - - (312) (409) (721)
changes in cash --------- --------- ---------- ---------- ----------
Net increase (decrease) in
cash (2,596) 79 5,490 - 2,973
Cash at beginning of year 2,596 14 4,105 - 6,715
--------- --------- --------- --------- ---------
Cash at end of period $ - 93 9,595 - 9,688
========= ========= ========= ========= =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 4 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of
Cash Flows Nine Months Ended
September 30, 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 $ 1,838 471 5,498 (5,969) 1,838
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Undistributed earnings of
subsidiaries (5,969) - - 5,969 -
Depreciation and
amortization 23 4,066 3,113 - 7,202
Provision for losses on
accounts receivable - 229 170 - 399
Deferred income taxes (2,764) 533 126 - (2,105)
Change in assets and
liabilities:
Accounts and notes receivable (195) (880) 688 - (387)
Inventories - (3,172) 1,702 - (1,470)
Prepaid expenses and
other current assets (576) 396 481 - 301
Accounts payable - trade
and other liabilities 3,394 1,378 (2,254) - 2,518
Income taxes payable 704 (234) 1,494 - 1,964
--------- ---------- --------- --------- ---------
Net cash provided by
(used in) operating (3,545) 2,787 11,018 - 10,260
activities --------- --------- -------- --------- ---------
Cash flows from investing
activities:
Capital expenditures (107) (6,795) (8,068) - (14,970)
Acquisitions, net of cash
acquired (2,209) - - 2,209 -
Other investing activities 216 (169) (88) 109 68
--------- --------- --------- --------- ---------
Net cash used in (2,100) (6,964) (8,156) 2,318 (14,902)
investing activities --------- --------- --------- --------- ---------
Cash flows from financing
activities:
Borrowings under line of
credit arrangements - - 7,725 - 7,725
Payments under line of
credit arrangements - - (1,884) - (1,884)
Borrowings under revolving
credit facility - - - - -
Payments under revolving
credit facility - - - - -
Stock issued or
(reacquired), net (825) - - - (825)
Advances (repayments) -
affiliated companies (2,885) 3,895 (930) (80) -
Other financing activities (94) - 526 (763) (331)
--------- --------- --------- ---------- ----------
Net cash provided by
(used in) financing (3,804) 3,895 5,437 (843) 4,685
activities --------- --------- --------- --------- ---------
Effects of exchange rate 2,224 - 862 (1,475) 1,611
changes in cash --------- --------- --------- ---------- ---------
Net increase (decrease)
in cash (7,225) (282) 9,161 - 1,654
Cash at beginning of year 10,058 321 4,493 - 14,872
--------- --------- --------- --------- ---------
Cash at end of period $ 2,833 39 13,654 - 16,526
========= ========= ========= ========= =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentages which certain income and expense
items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------- ------ ------
Gross margin 14.6% 15.1% 16.9% 18.4%
------- ------- ------- -------
Selling & administrative expense 8.2% 8.5% 8.0% 8.7%
Goodwill amortization .9% 1.0% 1.1% .9%
------- ------- ------- -------
Operating profit 5.5% 5.6% 7.8% 8.8%
Interest expense 7.2% 8.1% 6.8% 7.3%
Other income (expense) - net (.6%) (.1%) (.1%) .1%
------- ------- ------- -------
Income (loss) before income
taxes (2.3%) (2.6%) .9% 1.6%
======= ======= ======= =======
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998:
For the quarter ended September 30, 1999, sales increased by $9.9 million or
16.6% compared with the same quarter in 1998. In general, sales increases were
attributable to higher unit volume, partially offset by lower unit pricing.
Quarterly revenues in 1999 benefited from the acquisition of a manufacturing
facility from Fruit of the Loom in December 1998. This acquisition, as well as
organic growth of approximately 22%, led to total sales of narrow elastic
fabrics of $30.8 million compared with $18.1 million in the 1998 quarter.
Covered elastic yarn sales were $38.9 million for the quarter compared with
$41.7 in the prior year, a decline of 6.7%. The decline was due to continued
demand and currency issues in Europe, which offset year over year growth in the
Americas of approximately 4%.
Gross profit for the three months ended September 30, 1999 was $10.2 million or
14.6% of sales compared to $9.0 million or 15.1% of sales for the same period in
1998. The decrease in margin was due to higher depreciation, changes in product
mix, start-up costs for new narrow elastics programs and reduced production in
covered yarn. Selling and administrative expenses and goodwill amortization for
the three months ended September 30, 1999 were $6.4 million or 9.1% of sales as
compared to $5.7 million or 9.5% of sales for the same period in 1998.
Disregarding one-time severance costs of $.2 million associated with the
relocation of the Company's Canadian conventional covered yarn manufacturing
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
operations, selling and administrative expenses and goodwill amortization for
the quarter ended September 30, 1999 was $6.1 million or 8.8% of sales.
Operating income was $3.9 million and $3.4 million for the three months ended
September 30, 1999 and 1998, respectively. Excluding one-time severance costs,
operating income for the quarter ended September 30, 1999 was $4.1 million.
Operating profit plus depreciation and amortization ("EBITDA"), excluding
one-time severance costs, for the three months ended September 30, 1999 and 1998
was $8.0 million and $5.8 million, respectively.
Other expense for the quarter increased $.3 million due to foreign currency
losses primarily related to certain French intercompany financings.
Interest expense for the three months ended September 30, 1999 increased from
the corresponding period in 1998 by $.2 million due to additional debt
associated with the Fruit of the Loom acquisition in December 1998.
The Company had a tax benefit of 54.3% for the three months ended September 30,
1999 compared to 31.5% for the same period in 1998. As a result of a decrease in
the French statutory tax rate, the Company recorded a tax benefit of
approximately $.4 million to decrease the carrying value of net deferred income
tax assets and liabilities for the French operations. Excluding the benefit
resulting from the reduction in the French statutory tax rate, the tax benefit
for the three months ended September 30, 1999 was 28.7%, reflecting a low
pre-tax loss in relation to goodwill amortization and other non-deductible
items.
As a result of the above, the three months ended September 30, 1999 and 1998,
resulted in a net loss of $.7 million and $1.1 million, respectively. Diluted
loss per share was $.05 for the 1999 three month period compared with $.07 in
1998.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998:
For the nine months ended September 30, 1999, sales increased by $26.2 million
or 13.4% compared to the nine months ended September 30, 1998. In general, sales
increases were attributable to higher unit volume, partially offset by lower
unit pricing. The Fruit of the Loom acquisition, as well as organic growth of
approximately 12%, led to total sales of narrow elastic fabrics of $94.2 million
for the nine months ended September 30, 1999 compared to $60.3 million for the
same period of 1998. This comprised 42.6% of total revenues, which is in line
with the Company's 1999 target of 40% of total revenue. Covered elastic yarn
revenues were $127.1 million for the nine months ended September 30, 1999, which
were approximately 5.7% below revenues of $134.8 million for the same period in
1998. The decline was due to continued demand and currency issues in Europe,
which offset year over year growth in the Americas of approximately 5.7%.
Gross profit for the nine months ended September 30, 1999 was $37.3 million or
16.9% of sales compared to $35.9 million or 18.4% of sales for the same period
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
in 1998. The decrease in margin was due to higher depreciation and changes in
product mix. Selling and administrative expenses and goodwill amortization for
the nine months ended September 30, 1999 were $20.0 million or 9.1% of sales as
compared to $18.8 million or 9.6% of sales for the same period in 1998.
Disregarding one-time severance costs of $.2 million associated with the
relocation of the Company's Canadian conventional covered yarn manufacturing
operations, selling and administrative expenses and goodwill amortization for
the nine months ended September 30, 1999 was $19.8 million or 8.9% of sales.
Operating income was $17.3 million and $17.2 million for the nine months ended
September 30, 1999 and September 30, 1998, respectively. Excluding one-time
severance costs, operating income for the nine months ended September 30, 1999
was $17.5 million.
EBITDA, excluding one-time severance costs, for the nine months ended September
30, 1999 and 1998 was $29.1 million and $24.4 million, respectively.
The Company had an effective income tax rate of 29.8% for the nine months ended
September 30, 1999 compared to 41.7% for the same period in 1998. As a result of
a decrease in the French statutory tax rate, the Company recorded a tax benefit
of approximately $.4 million to decrease the carrying value of net deferred
income tax assets and liabilities for the French operations. Excluding the
benefit resulting from the reduction in the French statutory tax rate, the
effective tax rate for the nine months ended September 30, 1999 was 50.4%,
reflecting low pre-tax income in relation to goodwill amortization and other
non-deductible items and a reduced state tax benefit for certain state net
operating loss carryforwards.
As a result of the above, net income was $1.4 million and $1.8 million for the
nine months ended September 30, 1999 and 1998, respectively. Diluted income per
share was $.10 for the 1999 nine month period compared with $.13 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets both its long-term and short-term liquidity needs through
internally generated funds and outside borrowings.
Cash totaled $9.7 million at September 30, 1999, representing a net increase of
$3.0 million for the nine months then ended. Cash flows from operating
activities and from financing activities are the principal indicators of the
Company's liquidity. During the first nine months of 1999, $9.6 million was
generated from operating activities as a result of net income, adjusted for the
effects of depreciation and amortization and changes in the balances of
receivables, payables, inventories and prepaid expenses and other current
assets. During the first nine months of 1999, $13.3 million was utilized for the
purchase and upgrading of equipment and facilities. The Company anticipates that
its capital expenditures during 1999 will approximate $16 to $17 million,
primarily for the purchase of equipment. In addition, the Company anticipates $5
to $6 million of the Company's capital expenditures for 1999 and 2000 will be
spent for management information systems (see "Year 2000 Compliance" below).
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EBITDA represents operating profit plus depreciation and amortization and is
provided as additional information relating to the Company's debt service
capacity. Excluding one-time severance charges associated with the relocation of
the Company's Canadian conventional covered yarn manufacturing operations of $.2
million, EBITDA for the nine months ended September 30, 1999 and 1998 was $29.1
million and $24.4 million, respectively. Depreciation and amortization for the
nine months ended September 30, 1999 and 1998 was $11.6 million and $7.2
million, respectively. The Company had previously announced that, effective
October 1, 1998, it shortened the asset lives on certain manufacturing equipment
associated with its covered elastic yarn business. Asset lives for existing
equipment were shortened to approximately 10 to 14 years, on average, as
compared to 14 to 20 years in the past. The new policy also applies to all new
capital expenditures. Annual depreciation expense for 1999 will be in an
estimated range of $12 to $13 million, with the increased depreciation having no
effect on EBITDA. During the first nine months, depreciation expense was $9.4
million, an increase of $3.9 million or 70.9% from the same period ended 1998.
Approximately $3.0 million of the increase resulted from the change in lives,
which affected earnings per share for the nine months ended September 30, 1999
by $.12.
Working capital was $74.5 million at September 30, 1999 and $73.2 million at
December 31, 1998, reflecting a increase of $1.3 million and current ratios of
2.6 and 2.9 at September 30, 1999 and December 31, 1998, respectively.
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 Bank of America, 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 September 30, 1999, under the domestic credit facility the Company had
indebtedness of $15.2 million and $9.8 million was available for future
borrowings. In addition, at such date the Company's foreign subsidiaries had
$22.4 million of U.S. dollar equivalent credit availability under bank lines of
credit. Amounts outstanding as of September 30, 1999 were $6.7 million. The
Company's most restrictive loan covenant 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.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 included 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 initiated a worldwide business
system replacement project that uses programs primarily from one vendor. As a
result, the Company believes that its business computer systems will be Year
2000 compliant by December 31, 1999. The Company has communicated 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 systems
will continue into next year.
The estimated cost for the Year 2000 project, including worldwide business
system replacement, during 1999 and 2000 is approximately $6 to $8 million. The
Company estimates that $5 to $6 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 $5.1 million in
external costs as of September 30, 1999, primarily for the purchase of software,
hardware and consulting fees for systems implementation.
The Company believes, although it cannot assure, that its internal systems and
equipment will be Year 2000 compliant in a timely manner. However, 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 fully
developed a specific Year 2000 contingency plan, but has allocated resources to
support critical operations in the event of potential disruption.
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
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
the single European currency by adopting the Euro as their common currency on
January 1, 1999, the date that the Euro began trading 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 using 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 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in market risk during the first nine months
of 1999 from that which was reported in the Company's annual report on Form 10-K
for 1998 filed March 30, 1999.
<PAGE>
WORLDTEX, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
11.1 Computation of earnings per share
27.1 Financial Data Schedule (filed with EDGAR
only)
(b) Reports on Form 8-K
During the quarter ended September 30, 1999, the Company did not file any
reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLDTEX, INC.
(Registrant)
Date: November 12, 1999 By: /s/ Marty R. Kittrell
------------------------
Marty R. Kittrell
Senior Vice President
and Chief Financial Officer
EXHIBIT 11.1
WORLDTEX, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(712) (1,061) 1,363 1,838
===== ======= ===== =====
Shares:
Weighted average number
of shares 14,271 14,341 14,271 14,401
outstanding ====== ====== ====== ======
Basic earnings (loss) per $(.05) (.07) .10 .13
share <F1> ===== ==== ===== =====
Shares:
Weighted average number
of shares
outstanding 14,271 14,341 14,271 14,401
Assumed exercise of
options <F2> - - - 241
----- ----- ----- -----
Total average number of
common and common
equivalent shares
used for dilution 14,271 14,341 14,271 14,642
computation ====== ====== ====== ======
Diluted earnings(loss) per $(.05) (.07) .10 .13
share<F2> ===== ==== ===== =====
</TABLE>
<F1> Basic earnings (loss) per share are calculated based upon the weighted
average number of common shares outstanding during the period.
<F2> Diluted earnings (loss) per share are calculated based upon the weighted
average number of common shares and common equivalent shares outstanding
during the period. Common stock equivalents for the three months ended
September 30, 1999 and 1998 are anti-dilutive and therefore excluded from
the computation.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Worldtex, Inc.
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLDTEX,
INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,688
<SECURITIES> 0
<RECEIVABLES> 51,947
<ALLOWANCES> 2,216
<INVENTORY> 59,167
<CURRENT-ASSETS> 122,176
<PP&E> 160,150
<DEPRECIATION> 46,984
<TOTAL-ASSETS> 324,403
<CURRENT-LIABILITIES> 47,714
<BONDS> 197,833
0
0
<COMMON> 147
<OTHER-SE> 66,640
<TOTAL-LIABILITY-AND-EQUITY> 324,403
<SALES> 221,345
<TOTAL-REVENUES> 221,345
<CGS> 184,071
<TOTAL-COSTS> 184,071
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 480
<INTEREST-EXPENSE> 14,965
<INCOME-PRETAX> 1,941
<INCOME-TAX> 578
<INCOME-CONTINUING> 1,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,363
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
