SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-K
_________________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 1999
[ ] 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 New York Stock Exchange, Inc.
share Preferred stock purchase New York Stock Exchange, Inc.
rights
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 1, 2000: 14,271,171 shares of Common Stock were outstanding; and the
aggregate market value of shares held by non-affiliates was $29,995,013. (For
these purposes, a reported closing market price of $2.1875 per share on March 1,
2000 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 2000 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 one
business segment involving elastomeric components which has two main product
lines, covered elastic yarns and narrow elastic fabrics within that segment.
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, 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. In
November 1999, the Company entered into a 51% owned joint venture in India,
Worldtex Valliappa Private Limited.
The Company believes that it is one of the two largest independent
suppliers of covered elastic yarn in the world (based on 1999 net sales of
$167.6 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 1999, 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 others. The Company, which was one of the
first independent producers of covered elastic yarn, currently operates 11
manufacturing, distribution, and warehousing facilities located in the United
States, Canada, France and South America. Included in the 11 facilities are a
manufacturing facility and a warehouse that Regal plans to close in the first
half of 2000. The Company also has 38% and 51% interests in joint ventures
located in Estonia and India, respectively, and continues to evaluate joint
venture opportunities in Asia.
<PAGE>
Products
The covered elastic yarn manufactured by Worldtex is produced by
wrapping material, principally nylon, polyester, cotton or other fibers, around
spandex or latex rubber. The core of spandex or rubber provides stretch
capability and durability, while the wrapped fiber 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, 1999, 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 a sales incentive bonus plan. 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 1999, the Company provided covered elastic yarns to over 1,400
customers, and no single covered elastic yarn customer accounted for more than
10% of 1999 sales. The Company's ten largest covered elastic yarn customers in
1999 accounted for approximately 30% of 1999 sales of covered elastic yarns
which totaled $167.6 million.
<PAGE>
The Company's customers are principally producers of hosiery and
fabric sold for use in apparel products. In 1999, the Company's principal
customers included Jockey International, High-Tex (division of Tefron), U.S.
Textiles, Sara Lee Hosiery, Hafner, Doris Hosiery, Nalpac, Iris Hosiery,
Soieries Peyraverney, and Iril, s.a. During 1999, 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 others.
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 1999, Worldtex's expenditures
for these purposes totaled less than 1% of its sales.
Raw Materials
In 1999, approximately 69% 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. Its rubber supply originates in
Malaysia and is obtained via various domestic importers. The Company's major
suppliers of nylon in 1999 were DuPont, BASF, Nilit, and Nylstar. In 1999,
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.
<PAGE>
Employees
As of December 31, 1999, Worldtex had a total of approximately 1,200
employees engaged in its covered elastic yarn operations. Of these,
approximately 440 were employed in the United States by Regal, approximately 80
were employed in Canada by Rubyco, approximately 300 were employed in France by
Filix and approximately 380 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 1999 net sales of
$118.2 million for this product line). During 1999, ECA's narrow elastic fabrics
were used in apparel produced by Bassett Walker, Fruit of the Loom, Maidenform,
Playtex, Tommy Hilfiger, Jockey, 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.
<PAGE>
In addition to a traditional line of woven elastic inserts and
commodity narrow elastic fabrics, ECA has enhanced its product line with several
narrow elastic fabric product advancements. For example, 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 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 1999, ECA served over 700 narrow elastic fabric customers. Fruit
of the Loom accounted for 16.8% of the Company's 1999 sales, and no other
customer accounted for more than 10% of 1999 sales. The Company's ten largest
narrow elastic fabric customers in 1999 accounted for approximately 77% of 1999
sales of narrow elastic fabrics, which totaled $118.2 million.
ECA's top customers in 1999 included apparel manufacturers such as
Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Maidenform, Playtex, Jockey,
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 1999 for ECA's medical products was Johnson & Johnson and
for its automotive products was Crotty Corporation, a supplier to General Motors
Corporation.
In connection with the acquisition 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 2000, based on Fruit of the
Loom's past requirements. In December 1999, Fruit of the Loom filed for
protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. The
Company cannot predict the course of Fruit of the Loom's bankruptcy proceedings,
and no assurances can be given that Fruit of the Loom will continue as a
<PAGE>
customer. For further discussion regarding Fruit of the Loom's bankruptcy
filing, please refer to Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity; Capital Resources.
Manufacturing
Knit elastic fabrics are primarily used in underwear and sportswear
applications. Most commodity knit elastic products are not "finished," and the
elastic yarn in the fabric is often bare. In contrast, the elastic yarn used in
woven elastic fabrics is covered by natural or synthetic yarns and the products
are finished or dyed. ECA 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 narrow elastic 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 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.
<PAGE>
Raw Materials
Raw materials comprised approximately 50% of ECA's 1999 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
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, George C. Moore,
and Narrow Fabrics, Inc.
Employees
As of December 31, 1999, Worldtex had a total of approximately 1,100
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, distribution and warehouse facilities of which seven are
owned and four are leased. The Company intends to close two facilities in
Hickory, North Carolina and consolidate their operations with remaining
facilities during the first half of 2000. 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>
SQUARE OWNED/
LOCATION FEET LEASED USE
_______________ ______ ______ ____________________________________
UNITED STATES:
Hickory, NC 82,000 Owned Manufacturing Plant and Headquarters
of Regal<F1>
Hickory, NC 144,000 Owned Manufacturing Plant - Regal
Hickory, NC 69,000 Owned Manufacturing Plant - Regal
Hickory, NC 18,000 Leased Warehouse - Regal<F1>
Hickory, NC 80,000 Leased Distribution Center - Regal
- ----------
<F1>
Regal intends to close these facilities in the first half of 2000 and
consolidate within existing facilities.
CANADA:
Montreal, 85,000 Leased Manufacturing Plant and Headquarters
Quebec 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 111,000 Owned Manufacturing Plant - Filix
COLOMBIA:
Bogota 239,000 Leased Manufacturing Plant and Headquarters
_________ of Fibrexa
SUBTOTAL 1,238,000
_________
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.
SQUARE OWNED/
LOCATION FEET LEASED USE
_______________ ______ ______ ____________________________________
UNITED STATES:
Columbiana, AL 245,000 Owned Manufacturing Plant and Headquarters
of ECA
Columbiana, AL 115,000 Owned Manufacturing Plant
Asheboro, NC 143,000 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 759,000
_________
GRAND TOTAL 1,997,000
_________
_________
<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 1999 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,
1997.
High Low
______ _____
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 4.00 1.56
2nd Quarter 3.00 1.69
3rd Quarter 2.63 2.00
4th Quarter 2.06 1.13
2000:
1st Quarter 2.69 1.38
(through March 1)
At March 1, 2000 there were approximately 941 holders of record of
Common Stock.
The Company currently does not pay any dividends. 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
credit facilities 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, 1999. See Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity; Capital Resources."
ACQUISITION BY INVESTMENT MANAGERS OF 34% OF THE COMMON STOCK
On February 28, 2000, a Schedule 13D report was filed with the
Securities and Exchange Commission stating that certain investment managers were
the beneficial owners of approximately 34% of the outstanding shares of Worldtex
common stock. According to the Schedule 13D filing, William Ehrman, Frederic
Greenberg, Jonas Gerstl, William Lautman and Julia Oliver (collectively the "EGS
Persons"), the principals of the firm EGS Partners, L.L.C., were the beneficial
owners of such shares, which were held by certain investment partnerships or in
discretionary accounts over which they have investment authority. The filing
states that the Worldtex shares were acquired for investment.
<PAGE>
As a consequence of the filing of such report, the "poison pill"
shareholder rights attached to the outstanding Worldtex common stock were
required to trade separately from such stock and become exercisable after 10
days, unless otherwise provided by the Worldtex Board of Directors. If the
rights had become exercisable, each right holder (other than such 34%
shareholders) would have been entitled to pay $30 per right and receive Worldtex
common stock (or a common stock equivalent) with a value of $60 (determined
pursuant to the agreement governing the rights). In addition, the Board of
Directors of Worldtex had the option to exchange each right (other than rights
held by such 34% shareholders) for one share of Worldtex common stock. The Board
of Directors subsequently extended the initial 10-day period on several
occasions in order to permit discussions with the EGS Persons.
On March 27, 2000, Worldtex entered into a Standstill Agreement (the
"Standstill Agreement") with the EGS Persons and certain related entities
(collectively, the "EGS Parties"). Pursuant to the Standstill Agreement,
Worldtex amended its "poison pill" shareholder rights plan to prevent the rights
from trading separately or becoming exercisable as a result of the announced
beneficial ownership by the EGS Parties, unless the Board of Directors of
Worldtex determines that there has been a breach by an EGS Party of the
Standstill Agreement.
Under the Standstill Agreement, the EGS Parties agreed, among other
things, not to (i) acquire additional shares of Worldtex common stock, (ii)
encourage other persons to acquire Worldtex common stock, (iii) submit or
encourage a proposal for the acquisition of Worldtex, (iv) make any solicitation
of proxies for Worldtex common stock, (v) sell any Worldtex common stock, except
sales of not more than 5% of the outstanding shares in any 90 day period so long
as the buyer is not and will not thereby become the beneficial owner of 5% or
more of the Worldtex common stock or (vi) submit any shareholder proposal. In
addition, each EGS Party agreed to vote the Worldtex common stock beneficially
owned by it, at its option, (i) in the manner recommended by the Worldtex Board
of Directors or (ii) in the same proportion as the votes of other holders of
Worldtex common stock. The EGS Parties also agreed to make payments to Worldtex
aggregating $8 million, in reimbursement of certain expenses. The term of the
Standstill Agreement is ten years.
Also as a result of such acquisition of Worldtex common stock by the
EGS Persons, all outstanding stock options granted under the 1992 Stock
Incentive Plan of Worldtex, representing the right to purchase approximately
1,760,000 shares of Worldtex common stock at exercise prices from $2.81 to $6.75
per share, became vested. In addition, Barry D. Setzer, Chairman of the Board,
President and Chief Executive Officer of Worldtex, and Marty R. Kittrell, Senior
Vice President and Chief Financial Officer of Worldtex, each has asserted that,
under the terms of his employment agreement with Worldtex, he is entitled to
terminate his employment and receive payment of 2.99 times his "base salary" (as
defined). If both officers were entitled to exercise such right, Worldtex would
be obligated to make severance payments of approximately $2.1 million. The
Worldtex Board of Directors has taken the position that such officers are not
entitled to exercise such right. However, the Board of Directors has entered
into negotiations with such officers seeking to settle the matter amicably. The
departure from Worldtex of these senior managers could have a material adverse
effect on Worldtex.
<PAGE>
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, 1999, which has been derived from
Worldtex's audited financial statements for such years. This data should be read
in conjunction with the Consolidated Financial Statements of Worldtex and the
Notes thereto appearing elsewhere herein. Results are not directly comparable
due to the acquisition of the Fruit of the Loom manufacturing facility on
December 30, 1998, ECA as of December 1, 1997 and Elastex as of October 3, 1997.
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations. 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,
__________________________________________________
1999 1998 1997 1996 1995
_________ _________ ________ ________ ________
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $285,787 258,537 203,256 207,829 187,981
Income (loss) before income
taxes (9,975) (6,392) 11,869 17,361 10,231
Provision (benefit) for income
taxes 170 (494) 5,377 6,415 4,979
Net income (loss) (10,145) (5,898) 5,148 10,946 5,252
Diluted income (loss) per share (.71) (.41) .35 .75 .36
EBITDA<F1> 34,732 30,862 26,059 28,777 23,602
Depreciation 14,931 11,934 5,877 5,342 5,234
Amortization 2,951 4,638 968 942 899
Cash flows from operating
activities 5,502 9,053 (1,497) 15,032 12,046
Capital expenditures 17,716 19,871 7,706 13,785 8,356
Total assets 314,436 324,120 312,439 206,032 196,065
Long-term debt (including
current installments of
long-term debt) 207,631 198,771 186,400 69,388 70,187
Stockholders' equity 52,492 73,482 77,502 85,178 78,939
Cash dividends per Common Share - - - - -
- ----------
<FN>
<F1>
EBITDA represents operating profit plus depreciation and amortization and
one-time items. 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 capacity.
EBITDA should not be considered in isolation or as a substitute for other
measures of financial performance or liquidity.
</FN>
</TABLE>
<PAGE>
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 1999 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 38% and 51% interests in joint ventures
in Estonia and India, respectively.
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.
RISK FACTORS TO BE CONSIDERED
Worldtex is a holding company, the principal assets of which are the
stock of its subsidiaries. Significantly 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.
<PAGE>
As a result of the acquisition of beneficial ownership of
approximately 34% of the outstanding Worldtex common stock by certain investment
managers (as described in Note 17 of the Notes to Consolidated Financial
Statements), Barry D. Setzer, Chairman of the Board, President and Chief
Executive Officer of Worldtex, and Marty R. Kittrell, Senior Vice President and
Chief Financial Officer of Worldtex, each has asserted that, under the terms of
his employment agreement with Worldtex, he is entitled to terminate his
employment and receive payment of 2.99 times his "base salary" (as defined). If
both officers were entitled to exercise such right, Worldtex would be obligated
to make severance payments of approximately $2.1 million. The Worldtex Board of
Directors has taken the position that such officers are not entitled to exercise
such right. However, the Board of Directors has entered into negotiations with
such officers seeking to settle the matter amicably. The departure from Worldtex
of these senior managers could have a material adverse effect on Worldtex.
The Company is highly leveraged. See "- Liquidity; Capital
Resources" below.
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 changes in 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 United States
demand for retail apparel. The demand for retail apparel is in turn dependent on
United States consumer spending, which may be adversely affected by an economic
downturn, changing retailer and consumer demands, a decline in consumer
confidence or spending, and other factors beyond the Company's control. In
recent years, sales in the United States of sheer pantyhose have declined.
Although pantyhose manufacturers have historically accounted for a significant
portion of the Company's sales of covered elastic yarn, the Company's business
strategy includes the continued development of new end-use applications for
covered elastic yarn 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 1999 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 and worldwide. Unifi, Inc. has substantially greater financial resources
than the Company and is less leveraged. The Company believes it is the largest
supplier of narrow elastic fabrics in the world.
RESULTS OF OPERATIONS
The following table sets forth the relationship of percentages which
certain income and expense items have to net sales:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------- -------
Net sales................................... 100.0% 100.0% 100.0%
===== ===== =====
Gross profit................................ 15.0% 16.4% 17.7%
Selling and administrative expense.......... 10.0 9.9 7.7
Goodwill amortization....................... 1.0 1.8 .5
----- ----- -----
Operating profit............................ 4.0 4.7 9.5
Interest expense............................ 7.0 7.3 3.5
Other income (expense)--net................. (.5) .1 (.2)
----- ----- -----
Income (loss) before income taxes........... (3.5)% (2.5)% 5.8%
===== ===== =====
EBITDA<F1>.................................. 12.2% 11.9% 12.8%
===== ===== =====
Depreciation................................ 5.2% 4.6% 2.9%
===== ===== =====
- ----------
<F1>
EBITDA represents operating profit plus depreciation and amortization and
one-time items. 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 capacity.
EBITDA should not be considered in isolation or as a substitute for other
measures of financial performance or liquidity.
1999 VS. 1998
Sales for the year ended December 31, 1999 were $285.8 million and
net loss was $10.1 million, compared with sales of $258.5 million and a net loss
of $5.9 million for 1998. Diluted net loss per share was $.71 for 1999 compared
with $.41 in 1998. Results for 1999 reflect the acquisition of a narrow elastics
manufacturing facility from Fruit of the Loom in December 1998.
<PAGE>
Worldtex's covered elastic yarn sales in 1999 of $167.6 million
decreased $11.1 million, or 6.2%, when compared with 1998, 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 $2.7 million (assuming currency
translation of 1999 sales at the rate applicable to 1998 results).
During the fourth quarter of 1999, the Company initiated a
consolidation plan to reduce conventional covered yarn production in the United
States. One of three manufacturing facilities located in Hickory, North Carolina
will be closed during the first half of 2000, with its operations moved into the
remaining facilities. The Company recorded a one-time charge of $2.8 million for
this consolidation. This charge, recorded in cost of sales, covers provisions
for real estate and manufacturing equipment that will be taken out of service,
as well as certain inventory provisions.
The Company's narrow elastic fabric sales were $118.2 million in
1999, an increase of $38.4 million when compared with 1998. The increase was
principally due to the Fruit of the Loom manufacturing facility acquisition in
December 1998, as well as organic growth of approximately 7%. The Company's
narrow elastic fabric sales originate in the U.S. with no foreign currency
translation exposure. Although narrow elastic fabric revenues increased, these
revenues did not meet expectations during 1999 primarily due to a less favorable
product mix. Customers deferred purchases of narrow elastics for intimate
apparel and other higher margin products in order to adjust inventories. The
Company also experienced start-up costs and inefficiencies of over $1.0 million
as a result of efforts to address the shift in product mix, to introduce new
products and to complete a program to add new weaving capacity. Additionally,
Fruit of the Loom, the Company's largest narrow elastic fabric customer, filed
for reorganization under Chapter 11 of the U.S. Bankruptcy Code on December 29,
1999. As a result, the Company experienced lower revenues due to reduced
shipments to Fruit of the Loom in the fourth quarter of 1999 in anticipation of
their bankruptcy filing. Purchases by Fruit of the Loom since the filing are
currently being paid in advance of shipment.
Worldtex's gross margin in 1999 decreased to 15.0% of net sales, as
compared to 16.4% for 1998. Gross profit margins decreased primarily due to
higher depreciation, start-up costs and changes in product mix. Selling and
administrative expenses increased slightly as a percentage of net sales to 10.0%
in 1999 from 9.9% in 1998, primarily due to better sales leverage arising from
the Fruit of the Loom acquisition in December 1998 offset by the one-time items
recorded in 1999. Selling and administrative one-time charges for 1999 included
reserves of $4.0 million for accounts receivable owed by Fruit of the Loom as of
December 31, 1999, charges of $.4 million for Canadian severance relating to the
1998 restructuring and certain retirement costs of $.5 million. In 1998, $1.7
million of one-time charges relating to the North American covered yarn
restructuring and the retirement of the Company's former chairman were included
in administrative expenses. Goodwill amortization decreased as a percentage of
<PAGE>
net sales to 1.0% in 1999 from 1.8% in 1998 due to the $2.3 million goodwill
writedown relating to the North American covered yarn restructuring recorded in
1998.
The increase in interest expense of $1.2 million was caused
primarily by the additional debt associated with the Fruit of the Loom
acquisition in December 1998, additional working capital requirements due to
fourth quarter operating results and higher borrowing costs of the domestic
credit facility related to rising interest rates. Additionally, the Company's
financial performance resulted in higher pricing for borrowings under the
domestic credit facility.
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 $203.3 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 in 1998 reflect 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
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. In 1998, $1.7 million
of the one-time charges relating to the North American covered yarn
restructuring and the retirement of the Company's former chairman were included
in administrative expenses. Goodwill amortization decreased as a percentage of
net sales to 1.8% in 1998 from 0.5% in 1997 due to the $2.3 million of one-time
<PAGE>
charges relating to the North American covered yarn restructuring recorded in
the current year. 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.
INCOME TAXES
During 1999, France decreased the tax rate from 41.67% to 40%,
resulting in a $.4 million reduction to the 1999 income tax provision to
decrease the deferred tax liability as of January 1, 1999. A $4.1 million
valuation allowance was established in 1999 for deferred tax assets due to
uncertainty as to the future benefit of domestic federal net operating loss
carryforwards. There was also a valuation allowance as of December 31, 1999 for
certain state net operating loss carryforwards of $1.6 million. At December 31,
1999, the Company had U.S. Federal and state net operating loss carryforwards
aggregating $33.6 million and $33.1 million, respectively, which expire at
various dates through 2019. 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 $5.5 million from its operating activities in
1999, compared with $9.1 million generated in 1998 and $1.5 million used in
1997. The decrease in net cash provided by operating activities in 1999 was
caused primarily by the increase in net loss and increases in accounts
receivable. Additionally, Fruit of the Loom, the Company's largest narrow
elastic fabrics customer, filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code on December 29, 1999. While the Company has resumed shipments to
Fruit of the Loom, the Company's pre-filing accounts receivable of $4.4 million
were reduced to their estimated recovery value. Accordingly, the Company
recorded in selling, general and administrative expenses reserves of $4.0
million for accounts receivable owed by Fruit of the Loom as of December 31,
1999. Purchases by Fruit of the Loom since the filing are currently being paid
in advance of shipment.
EBITDA represents operating profit (loss) plus depreciation,
amortization and in the case of 1999 and 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 may not be comparable to similarly
titled measures of financial performance. EBITDA for the years ended December
31, 1999, 1998 and 1997 was $34.7 million, $30.9 million and $26.1 million,
respectively. Depreciation and amortization for the years ended December 31,
<PAGE>
1999, 1998 and 1997 was $17.9 million, $16.6 million and $6.8 million,
respectively. Results for 1999 include one-time charges for depreciation of $2.3
million and results for 1998 include one-time charges for depreciation and
amortization of $5.6 million.
During 1999, capital expenditures amounted to $17.7 million compared
to $19.9 million in 1998. Capital expenditures were $7.7 million in 1997. The
majority of such capital expenditures during the years 1997-1999 were used to
purchase additional manufacturing equipment in order to increase the Company's
production capacity and to obtain productivity improvements. Capital
expenditures in 1999 also included $5.2 million for management information
systems. The Company currently expects that capital expenditures for 2000 will
aggregate approximately $10.0 million, primarily for machinery and property
improvements.
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 is restricted under the various terms of the Company's debt.
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. 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 used the balance of the net proceeds from the sale of the Notes for
general corporate purposes.
The Company has interest rate swap agreements and swap option
agreements with a commercial bank that effectively converted a portion of its
fixed rate debt to a floating rate for a period of up to three years with the
floating rate reset every six months. Under these agreements, the Company
receives a weighted average fixed rate of 5.2% at December 31, 1999 and pays a
floating rate based on LIBOR or based on a rate indexed to selected foreign
currency denominated indices, resulting in a weighted average floating rate of
4.6% at December 31, 1999. Notional principal amounts of $30.0 million in swap
agreements and $20.0 million in swap option agreements were outstanding at
December 31, 1999. Net amounts due under these agreements decreased interest
expense for 1999 by approximately $.1 million. The estimated amounts the Company
would have to pay to terminate these agreements was approximately $.3 million at
December 31, 1999.
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
<PAGE>
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, 1999, the Company had total indebtedness of $214.1
million and $.1 million was available for future borrowings under the domestic
credit facility. In addition, at such date the Company's foreign subsidiaries
had $20.3 million of U.S. dollar equivalent credit availability under bank lines
of credit. Amounts outstanding as of December 31, 1999 were $6.4 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, excluding certain existing indebtedness.
At December 31, 1999, Worldtex was not in compliance with financial
covenants relating to the leverage ratio, interest coverage ratio, current
ratio, minimum tangible net worth and limitations on capital expenditures of its
domestic credit facility. The Company obtained a waiver of these covenants and
an amendment to the domestic credit facility through June 30, 2000. The Company
is currently negotiating to refinance its domestic credit facility and expects
to complete this process during the first half of 2000. Accordingly, the $24.9
million outstanding balance on the domestic credit facility has been classified
as current installments of long-term debt as of December 31, 1999.
The deteriorating financial position of Fruit of the Loom, the
Company's largest customer, during the fourth quarter of 1999 and the Chapter 11
bankruptcy reorganization filing by Fruit of the Loom on December 29, 1999,
adversely affected the Company's short-term liquidity position as of December
31, 1999. However, the Company's financial position has subsequently improved,
and at February 29, 2000 the Company had total indebtedness of $20.0 million and
$5.0 million was available for future borrowings under the domestic credit
facility. The Company had $3.0 million cash on deposit in the United States
earning daily money market investment yields at February 29, 2000. The Company
believes that its lines of credit, as expected to be refinanced, together with
internally generated funds, will provide sufficient liquidity for the Company's
expected short-term and long-term cash requirements.
The Company's domestic revolving credit facility and the Indenture
restrict the payment of dividends by the Company. Under these provisions, the
Company would be required to have net income after December 31, 1999 of more
than $16.5 million before any dividends could be paid.
The Company is highly leveraged. The Company's ability to make
scheduled payments of principal of, or to pay the interest 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
<PAGE>
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 compared to 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.
YEAR 2000 COMPLIANCE
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 is near completion of a worldwide business system
replacement project that uses programs primarily from one vendor. The initial
implementation of the new systems is generally scheduled to be completed during
the second quarter of 2000. The replacement project has incurred costs of $7.1
million as of December 31, 1999 with $5.2 million capitalized and $1.9 million
charged to expense since project inception. Remediation for other information
systems and computer based embedded technology systems was completed as of
December 31, 1999 so that all systems were Year 2000 compliant. The Company has
experienced no discernable problems with any computer-based applications as a
result of the Year 2000.
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments embedded in other
contracts (collectively referred to as embedded derivatives) and for hedging
activities. The new standard requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 was amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date for FASB Statement No. 133, which delays the Company's effective
date until the first quarter of the year ending December 31, 2001. Management is
currently evaluating the effects of SFAS No. 133 on the Company's financial
statements and current disclosures.
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 commenced 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 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 matters discussed under "- Risk Factors to be Considered" above,
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
<PAGE>
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, 1999 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
could have a material adverse impact on the Company's business, financial
condition and results of operations.
The Company's primary source of funds other than cash from
operations is borrowings under its domestic revolving 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
Company may utilize interest rate swap agreements to manage its exposure to
interest rate risk. The Company's net exposure to interest rate risk primarily
consists of an inability to benefit from lower interest rates due to its fixed
rate Senior Notes.
The following table summarizes the Company's market risks associated
with long-term debt and derivative financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents principal
cash out-flows and related weighted average interest rates by year of maturity.
For interest rate derivative instruments, the table presents notional amounts
and weighted average 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.
<PAGE>
INTEREST RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
` 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Fixed rate $232 236 227 232 252 175,592 176,771 143,533
Average interest rate 7.00% 7.00% 7.00% 7.00% 7.00% 9.6%
Variable rate 24,860 - - - - 6,000 30,860 30,551
Average interest rate 8.66% - - - - 5.10%
INTEREST RATE SWAPS:
Fixed to variable - - 30,000 - - - 30,000 (183)
Average pay rate - - 4.57% - - -
Average receive rate - - 5.20% - - -
SWAP OPTIONS:
Fixed to variable 20,000 - - - - - 20,000 (99)
Average pay rate To be set - - - - -
Average receive rate 6.72% - - - - -
</TABLE>
EFFECTS OF INFLATION
The results of operations and financial condition of Worldtex are
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of estimates required, Worldtex
believes the effects on the results of operations and financial condition have
been minor. Worldtex will continue to monitor the impact of inflation in setting
its pricing and other policies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, supplementary financial
information and schedule are filed as part of this Report:
WORLDTEX, INC.
Independent Auditors' Reports
Financial Statements:
Consolidated Statements of Operations,
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income (Loss),
Years Ended December 31, 1999, 1998 and 1997
<PAGE>
Consolidated Balance Sheets,
December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows,
Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Supplementary Financial Information
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts Years Ended
December 31, 1999, 1998 and 1997
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 sheets of Worldtex, Inc.
and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for the years then ended. Our audit also
included the financial statement schedule for the years ended December 31, 1999
and 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 audits. The financial statements and
financial statement schedule of the Company for the year ended December 31, 1997
were audited by other auditors whose report, dated February 27, 1998, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such 1999 and 1998 consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule for the years ended December 31, 1999 and 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
March 30, 2000
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
________ ________ ________
<S> <C> <C> <C>
Net sales (Note 11) $285,787 258,537 203,256
Cost of goods sold (Notes 3 and 15) 243,052 216,267 167,272
-------- ------- -------
Gross profit 42,735 42,270 35,984
Selling and administrative expense
(Notes 3 and 16) 28,331 25,599 15,802
Goodwill amortization (Notes 3 and 16) 2,951 4,638 968
-------- ------- -------
Operating profit 11,453 12,033 19,214
Interest expense (Note 3) 19,952 18,765 7,043
Other income (expense) - net (1,476) 340 (302)
-------- ------- -------
Income (loss) before income taxes (9,975) (6,392) 11,869
Provision (benefit) for income taxes (Note 11) 170 (494) 5,377
-------- ------- -------
Income (loss) before extraordinary item (10,145) (5,898) 6,492
Extraordinary item, net (Note 6) - - (1,344)
------- ------- -------
Net income (loss) $(10,145) (5,898) 5,148
========= ======= =======
Basic net income (loss) per share (Note 3):
Income (loss) before extraordinary item $ (.71) (.41) .45
Extraordinary item, net - - (.09)
-------- ------- -------
Net income (loss) $ (.71) (.41) .36
======== ======= =======
Diluted net income (loss) per share (Note 3):
Income (loss) before extraordinary item $ (.71) (.41) .44
Extraordinary item, net - - (.09)
-------- ------- -------
Net income (loss) $ (.71) (.41) .35
======== ======= =======
Weighted average shares outstanding (Note 3):
Basic 14,271 14,368 14,420
======== ======= =======
Diluted 14,271 14,368 14,821
======== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
________ ________ ________
<S> <C> <C> <C>
Net income (loss) $(10,145) (5,898) 5,148
Other comprehensive income (loss):
Foreign currency translation adjustments (10,845) 2,704 (12,937)
(Note 3) -------- ------- --------
Comprehensive loss $(20,990) (3,194) (7,789)
======== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
ASSETS
1999 1998
______ ______
Current assets:
Cash and cash equivalents (Note 3) $5,686 6,715
Accounts and notes receivable, less allowance for
doubtful accounts of $6,568 in 1999 and $2,041 in 39,877 42,885
1998 (Notes 4 and 6)
Inventories (Notes 3 and 7) 61,817 58,515
Prepaid expenses and other current assets (Note 11) 5,791 3,982
_______ _______
Total current assets 113,171 112,097
Property, plant and equipment - net (Notes 3 and 6) 110,025 113,652
Other assets (Notes 3 and 15) 8,625 12,850
Cost in excess of net assets of acquired businesses, net
of accumulated amortization of $11,546 in 1999 and
$9,146 in 1998 (Note 3) 82,615 85,521
_______ _______
$314,436 324,120
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 5) $6,423 7,308
Current installments of long-term debt (Note 6) 25,092 525
Accounts payable-trade and other liabilities
(Notes 8 and 10) 33,780 27,995
Income taxes payable (Note 11) 481 1,700
_______ _______
Total current liabilities 65,776 37,528
Long-term debt (Note 6) 182,539 198,246
Other long-term liabilities 3,073 1,986
Deferred income taxes (Note 11) 10,556 12,878
_______ _______
Total liabilities 261,944 250,638
_______ _______
Commitments and contingencies (Notes 8 and 9)
Stockholders' equity (Note 7):
Preferred stock - -
Common stock (shares issued of 14,701 in 1999 and
1998) 147 147
Paid-in capital 30,084 30,084
Retained earnings 46,024 56,169
Accumulated other comprehensive loss:
Cumulative foreign translation adjustment (21,414) (10,569)
Less - Treasury stock, at cost (430 shares in 1999
and 1998) (2,349) (2,349)
Total stockholders' equity 52,492 73,482
_______ _______
$314,436 324,120
_______ _______
_______ _______
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
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, 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 14,701 147 30,084 56,169 (10,569) (2,349) 73,482
Net loss - - - (10,145) - - (10,145)
Foreign currency translation - - - - (10,845) - (10,845)
adjustment ______ _______ ______ ______ _______ ______ ______
Balances at December 31, 1999
(Notes 6 and 7) 14,701 $ 147 30,084 46,024 (21,414) (2,349) 52,492
______ _______ ______ ______ _______ ______ ______
______ _______ ______ ______ _______ ______ ______
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
1999 1998 1997
_________ ________ _________
Cash flows from operating activities:
Net income (loss) $(10,145) (5,898) 5,148
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 14,931 11,934 5,877
Amortization 2,951 4,638 968
Provision for losses on accounts 4,830 590 305
receivable
Deferred income taxes (2,451) (5,089) 720
Change in assets and liabilities
net of effects of acquisitions:
Accounts and notes receivable (4,459) 2,729 (1,064)
Inventories (6,406) (2,228) (7,396)
Prepaid expenses and other current (256) 135 (248)
assets
Accounts payable -
trade and other current liabilities 7,488 392 (4,313)
Income taxes payable (981) 1,850 (1,494)
------- ------ -------
Net cash provided by (used in) 5,502 9,053 (1,497)
operating activities ------- ------ -------
Cash flows from investing activities:
Capital expenditures (17,716) (19,871) (7,706)
Acquisitions, net of cash acquired - (12,810) (85,382)
Other investing activities (1,928) (2,830) (8,190)
-------- -------- ---------
Net cash used in investing activities (19,644) (35,511) (101,278)
-------- -------- ---------
Cash flows from financing activities:
Borrowings under line of credit - 9,482 3,548
arrangements
Payments under line of credit (55) (3,221) (3,435)
arrangements
Borrowings under revolving credit 110,960 12,000 109,550
facility
Payments under revolving credit (98,100) - (121,940)
facility
Borrowings under long-term loans - - 175,000
Payments under long-term loans (1,463) - (50,000)
Stock issued or (reacquired), net - (825) 113
Other financing activities 2,027 276 1,068
------ ------ -------
Net cash provided by financing 13,369 17,712 113,904
activities ------ ------ -------
Effects of exchange rate changes on cash (256) 589 1,626
------- ------ ------
Net increase (decrease) in cash and (1,029) (8,157) 12,755
cash equivalents
Cash and cash equivalents at beginning of 6,715 14,872 2,117
year ------ ------ ------
Cash and cash equivalents at end of year $5,686 6,715 14,872
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $19,155 19,667 7,374
====== ====== ======
Income taxes $3,602 1,920 7,594
====== ====== ======
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, s.a. ("Filix"), based in Troyes, France,
Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia, and Elastic
Corporation of America, Inc. ("ECA"), based in Columbiana, Alabama. During
1999, the Company became a 51% partner in an Indian joint venture. 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, 1999 and
1998 and for the years ended December 31, 1999, 1998 and 1997 include the
accounts of Regal, Rubyco, Filix, Fibrexa, Elastex effective October 3, 1997 and
ECA effective December 1, 1997. The Company also has 38% and 51% interests in
joint ventures in Estonia and India, respectively, which are accounted for under
the equity method. All significant intercompany balances and transactions for
all periods are eliminated in the consolidated financial statements.
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
At December 31, 1998, cash included a demand deposit of $2,596 with a commercial
bank earning daily money market investment yields. At December 31, 1998,
restricted cash on deposit of $2,247 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, 1999 and 1998, the major classes of inventory are:
1999 1998
---- ----
Raw Materials $17,836 16,032
Work in Process 14,035 14,749
Finished Goods 29,946 27,734
------ -------
$61,817 58,515
======= =======
(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>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
As of December 31, 1999 and 1998, property, plant and equipment consists of:
1999 1998
---- ----
Land $ 2,889 3,255
Buildings and leasehold
improvements 42,752 39,246
Machinery and
equipment 113,180 111,417
-------- --------
$158,821 153,918
Less accumulated
depreciation and
amortization 48,796 40,266
-------- --------
$110,025 113,652
======== =======
(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 payable-trade and other liabilities. As of
December 31, 1998, $400 in contracts was outstanding.
<PAGE>
(f) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the carrying amounts
of assets and liabilities for tax purposes and financial statement purposes and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income (deductions) 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. The
foreign currency translation adjustment shown on the consolidated statements of
comprehensive income (loss) is not shown net of tax. Worldtex intends that such
earnings will continue to be invested in those countries. At December 31, 1999,
the cumulative amount of foreign undistributed earnings amounted to $56,984.
Foreign tax credits may be available as a reduction of United States income
taxes in the event of such distributions.
(g) Foreign Currency
Assets and liabilities denominated in foreign currencies have been translated
into U. S. dollars at the period-end exchange rate. Revenues and expenses
denominated in foreign currencies have been translated into U.S. dollars at the
weighted average exchange rate. Translation gains and losses are accounted for
in a separate component of stockholders' equity. The exchange gains and losses
arising on transactions are charged to income as incurred. Net foreign currency
losses charged to income for the years 1999, 1998 and 1997 were $1,860, $380 and
$526, respectively.
(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
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
equivalent shares outstanding during the year. The reconciliation of income
available to common stockholders and weighted average number of common shares
for basic and diluted per share amounts are as follows:
1999 1998 1997
---- ---- ----
Diluted net income
(loss) $(10,145) (5,898) 5,148
======== ====== =====
Basic weighted
average common
shares outstanding 14,271 14,368 14,420
Effect of dilutive
options outstanding - - 401
-------- ------- ------
Diluted weighted
average common
and common
equivalent shares
outstanding 14,271 14,368 14,821
======== ======= ======
Potentially dilutive
shares not included
because their
effect was
antidilutive 1,760 1,814 80
======== ======= ======
(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 based upon periodic evaluations of the aging of the
accounts receivable and related claims experience.
(j) Interest Rate Swap Agreements
The Company terminated an interest rate swap agreement in 1998. During 1999, the
Company entered into new interest rate swap and swap option agreements. Interest
swap and swap option agreements are accounted for like a hedge of the underlying
debt obligation and interest expense is recorded using the revised interest
rate, with fees and other payments amortized as yield adjustments.
<PAGE>
(k) Stock Options
The Company accounts for its stock option plan using the intrinsic value based
method.
(l) Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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.
(p) 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
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative financial instruments embedded in other contracts
(collectively referred to as embedded derivatives) and for hedging activities.
The new standard requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 was amended by SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date for FASB Statement No. 133, which delays the Company's effective date until
the first quarter of the year ending December 31, 2001. Management is currently
evaluating the effects of SFAS No. 133 on the Company's financial statements and
current disclosures.
(o) Capitalization of Interest
The Company capitalizes interest expense associated with construction of certain
assets. In 1999 and 1998, interest of $722 and $379, respectively, was
capitalized.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(p) Advertising and Sales Promotion Costs
Advertising and sales promotion costs are expensed as incurred and totaled $276,
$417 and $115 in 1999, 1998 and 1997, respectively.
NOTE 4 - NOTES RECEIVABLE
Foreign subsidiaries have the U.S. dollar equivalent of $942 and $2,845 of
non-interest bearing notes receivable as of December 31, 1999 and 1998,
respectively, with maturities within four months of those dates.
NOTE 5 - SHORT-TERM BORROWINGS
Short-term debt consists of notes payable to banks, advances under bank lines of
credit and overdraft facilities. The Company's foreign subsidiaries have
available the U.S. dollar equivalent of $20,286 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, 1999 and 1998,
$6,423 and $7,308, respectively, were outstanding under these foreign agreements
at average interest rates of 8.7% and 5.25% respectively.
NOTE 6 - LONG-TERM DEBT
As of December 31, 1999 and 1998, long-term debt consists of:
1999 1998
-------- --------
9.625% Senior Notes
due December 15, 2007 $175,000 175,000
Industrial revenue bonds
due June 1, 2014 with
interest at variable rates
(5.1% average rate as of
December 31, 1999) 6,000 6,000
Revolving credit facilities
due December 1, 2002
with interest at variable
rates (8.66% weighted
average rate as of
December 31, 1999) 24,860 12,000
Other indebtedness,
primarily fixed rate
debt, due at various
dates through 2007 1,771 5,771
------- -------
207,631 198,771
Less current installments 25,092 525
------- -------
$182,539 198,246
======== =======
The aggregate annual maturities of long-term debt during each of the five years
subsequent to December 31, 1999 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
2000 $25,092
2001 236
2002 227
2003 232
2004 252
Thereafter 181,592
--------
$207,631
========
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
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
originally issued may be redeemed at a price of 109.625% with the net proceeds
of a public offering of common stock at any time on or before December 15, 2000.
The indenture restricts the ability of the Company and its subsidiaries to incur
additional indebtedness and issue preferred stock, enter into sale and leaseback
transactions, incur liens, pay dividends or make certain other restricted
payments, apply net proceeds from certain asset sales, enter into certain
transactions with affiliates, and assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of the Company. At December 31, 1999,
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.
The Company has interest rate swap agreements and swap option agreements with a
commercial bank that effectively converted a portion of its fixed rate debt to a
floating rate for a period of up to three years with the floating rate reset
every six months. Under these agreements, the Company receives a weighted
average fixed rate of 5.2% at December 31, 1999 and pays a floating rate based
on LIBOR or based on a rate indexed to selected foreign currency denominated
indices, resulting in a weighted average floating rate of 4.6% at December 31,
1999. Notional principal amounts of $30,000 in swap agreements and $20,000 in
swap option agreements were outstanding at December 31, 1999. Net amounts
received under these agreements decreased interest expense for 1999 by $70. The
estimated amount the Company would have to pay to terminate these agreements was
approximately $282 at December 31, 1999.
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
<PAGE>
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 .50% 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, 1999, Worldtex was not in
compliance with financial covenants relating to the leverage ratio, interest
coverage ratio, current ratio, minimum tangible net worth and limitations on
capital expenditures of the domestic credit facility. The Company obtained a
waiver of these covenants and an amendment to the domestic credit facility
through June 30, 2000. The Company is currently negotiating to refinance its
domestic credit facility and expects to complete this process during the first
half of 2000. Accordingly, the $24,860 outstanding balance on the domestic
credit facility has been classified as current installments of long-term debt as
of December 31, 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, 1999.
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, 1999 and 1998, there were issued 14,700,971 and outstanding
14,271,171 shares of common stock 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, 1999,
under restrictive covenants in Worldtex's debt agreements. Through December
1999, 429,800 shares had been purchased and are carried at cost as Treasury
Stock.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Preferred stock is issuable in one or more series with dividend rates,
liquidation preferences and redemption, conversion and voting rights as may be
determined by Worldtex's Board of Directors.
In connection with Worldtex's formation 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.
Certain investment managers made filings with the Securities and Exchange
Commission on February 28, 2000 stating they were the beneficial owners of
approximately 34% of the outstanding shares of Worldtex common stock. The share
purchase rights attached to the outstanding Worldtex common stock provide that
they would trade separately from such stock and become exercisable the tenth day
following public announcement that beneficial ownership of 20% or more of the
outstanding Worldtex common stock had been acquired. The Board of Directors
subsequently extended the shareholder rights 10-day period on several occasions.
On March 27, 2000, Worldtex entered into a Standstill Agreement with such
investment managers and certain related persons. Pursuant to the Standstill
Agreement, Worldtex amended the share purchase rights plan to prevent the share
purchase rights from trading separately or becoming exercisable as a result of
such announced beneficial ownership, unless the Board of Directors of Worldtex
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
determines that there has been a breach of the Standstill Agreement by any of
such other parties.
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, 1999,
37,600 had been exercised and 302,000 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, 1999, 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:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- ----------
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 Granted 325,000 $3.20
Options Cancelled ( 369,100) $6.15
---------
Balances at
December 31, 1999 1,760,400 $4.50
=========
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Options Exercisable:
December 31, 1997 891,680 $5.76
December 31, 1998 1,040,940 $5.65
December 31, 1999 1,760,400 $4.50
Weighted average fair
value of options
granted:
December 31, 1997 $3.79
December 31, 1998 $1.98
December 31, 1999 $1.94
Options outstanding and exercisable at December 31, 1999:
WEIGHTED
AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE
PRICES SHARES LIFE PRICE
-------- ------ ----------- --------
$2.81 - $4.75 1,270,900 7.3 yrs $ 3.76
$6.00 - $6.75 489,500 3.0 yrs $ 6.43
The Company accounts for stock options using the intrinsic value based method
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. The acquisition of beneficial ownership of
approximately 34% of the Worldtex common stock by certain investment managers as
described above was deemed to be a "change in control event" under such options.
Consequently, all outstanding stock options became fully vested and exercisable.
Had compensation cost for the Company's stock option plan been determined using
the fair value based method, the Company's net income (loss) and net income
(loss) per share would be as follows:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
--------- -------- --------
Net income (loss) as
reported $(10,145) (5,898) 5,148
Pro forma net income
(loss) (10,782) (6,019) 5,046
Diluted net income
(loss) per share as
reported (.71) (.41) .35
Pro forma net income
(loss) per share (.76) (.42) .35
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 1999, 1998 and 1997: dividend yield of 0%;
expected volatility of 39%, 36% and 33%; risk-free interest rates of 5.5% and
expected lives of eight years.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Worldtex, Inc. Profit Sharing and Retirement Savings Plan (the "Plan")
provides 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.
Employees participating in the Plan have an opportunity to purchase various
investment funds, including Company stock, through payroll deductions. The
Company determines, on a prospective basis, the extent to which these employee
contributions are matched by Worldtex. In 1998, Worldtex instituted a matching
program at the rate of one-third of the employee contribution up to a maximum
employee contribution of 6% of salary. Matching contributions to the Plan were
$270, $187 and $0 in 1999, 1998 and 1997 respectively.
The Plan also permits the Company to decide each year whether to make a profit
sharing contribution and the amount of each such contribution. No discretionary
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
profit sharing contributions were made in 1999 and 1998. The Company made profit
sharing contributions of $89 for the year ended December 31, 1997.
Employee 401(k) and Company matching contributions are invested as directed by
the employee from a menu of funds available under the Plan. Profit sharing
contributions are invested as directed by the Plan's investment committee.
Certain contributions made to the Plan in prior years are required to be
invested in Company stock.
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,
1999, 1998 and 1997 were $19, $20 and $23 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, 1999, 1998 and 1997 were $447, $590 and $720
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 $195
and $212 at December 31, 1999 and 1998, respectively, with a projected benefit
obligation of $210 and $228. The projected obligation at December 31, 1999 and
1998 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 $23, $22 and $21 in 1999, 1998 and 1997
respectively.
Worldtex also has unfunded supplemental plans for certain senior executives. The
accrued liability at December 31, 1999 and 1998 was $2,979 and $2,365. The
Company accrued $818, $878 and $200 for the years ended December 31, 1999, 1998
and 1997 respectively for benefits under this plan.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under non-cancelable operating leases, primarily
for real property, as of December 31, 1999 are:
2000 $2,325
2001 1,994
2002 1,372
2003 1,041
2004 170
------
Total $6,902
======
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Rental expense for cancelable and non-cancelable operating leases charged to
operations for the years ended December 31, 1999, 1998 and 1997 was $2,327,
$2,100 and $1,134 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, 1999 and 1998:
1999 1998
---- ----
Accounts and other
payables - trade $25,062 17,621
Salaries, wages and other
compensation 2,689 4,306
Pensions, profit sharing
and employee benefits 1,662 2,006
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999 1998
---- ----
Taxes, other than income
taxes 650 1,162
Interest 1,034 1,145
Other 2,683 1,755
------- -------
Total $33,780 27,995
======= =======
NOTE 11 - INCOME TAXES
The provisions (benefit) for income taxes for the years ended December 31, 1999,
1998 and 1997 are as follows:
U. S. U.S. STATE
FEDERAL FOREIGN & LOCAL TOTAL
------- ------- ---------- -----
1999
- ----
Current $ 0 2,276 65 2,341
Deferred (1,650) (91) (430) (2,171)
-------- ------ ----- -------
Total $(1,650) 2,185 (365) 170
======== ====== ===== =======
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
====== ====== ====== =====
Income (loss) before income taxes for the years ended December 31, 1999, 1998
and 1997 is comprised as follows:
1999 1998 1997
---- ---- ----
U.S $(18,012) (12,760) (2,245)
Foreign 8,037 6,368 14,114
--------- -------- ------
$ (9,975) (6,392) 11,869
======== ======== ======
A reconciliation for the years ended December 31, 1999, 1998 and 1997 between
the amount computed using the U. S. Federal income tax rate and the effective
rate of tax on book income is as follows:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
---- ---- ----
Statutory U.S. Federal
income tax rate (34.0)% (34.0)% 34.0%
Effect of increase
(decrease) in French tax
rate on deferred taxes (4.2) - 9.7
Effect of higher foreign
tax rates on current
taxes 3.7 12.8 7.1
Effect of foreign inflation
adjustments (6.1) (5.2) (7.8)
Amortization of goodwill 2.3 16.1 2.2
Valuation allowance 41.5 - -
Other, net (1.5) 2.6 .1
----- ---- ----
Effective rate of tax on
book income/loss 1.7% (7.7)% 45.3%
===== ===== ====
There was a $4,135 valuation allowance established in 1999 for deferred tax
assets due to uncertainty as to the future benefit of domestic federal net
operating loss carryforwards. There was also a valuation allowance for certain
state net operating loss carryforwards of $1,635 and $894 for the years ended
December 31, 1999 and 1998, respectively. At December 31, 1999, the Company had
U.S. Federal and state net operating loss carryforwards aggregating $33,578 and
$33,133, respectively, which expire at various dates through 2019.
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. During 1999, France decreased the tax rate from 41.67% to 40%
resulting in a $417 reduction to the 1999 income tax provision to decrease the
deferred tax liability as of January 1, 1999.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1999 and 1998 are as
follows:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999 1998
---- ----
Deferred tax assets:
Inventories $1,125 936
Employee benefits 1,401 1,294
Allowance for doubtful accounts 2,064 467
Net operating loss carryforwards 7,103 7,153
------ ------
11,693 9,850
------ -----
1999 1998
---- ----
Deferred tax liabilities:
Property, plant and equipment (15,270 (17,932)
Goodwill amortization (1,645) (1,323)
Imputed interest (744) (775)
Other (455) (280)
-------- --------
(18,114) (20,310)
-------- --------
Net deferred income taxes $ (6,421) (10,460)
======== ========
Deferred taxes are classified in the accompanying Consolidated Balance Sheets
captions as follows:
ASSET (LIABILITY)
---------------------
1999 1998
---- ----
Prepaid expenses and
current assets $ 4,135 2,418
Deferred income taxes (10,556) (12,878)
------- --------
$(6,421) (10,460)
======= ========
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. 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:
1999 1998 1997
---- ---- ----
Covered elastic yarn $167,596 178,768 194,386
Narrow elastic fabric 118,191 79,769 8,870
-------- ------- -------
$285,787 258,537 203,256
======== ======= =======
External sales and net long-lived assets by geographic area are as follows:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
---- ---- ----
UNITED STATES
Net sales $192,652 146,684 73,843
Net long-lived 134,603 138,791 122,803
assets
CANADA
Net sales 17,052 20,968 24,295
Net long-lived 1,199 1,570 6,025
assets
FRANCE
Net sales 64,626 79,472 92,417
Net long-lived 44,861 53,096 49,673
assets
COLOMBIA
Net sales 11,457 11,413 12,701
Net long-lived 20,602 18,566 15,520
assets
In 1999, Fruit of the Loom accounted for 16.8% of consolidated net sales. In
1999, no other customer, and in 1998 and 1997, no customer, represented over 10%
of consolidated net sales.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are determined as follows:
(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:
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
-----------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
9.625% Senior Notes $175,000 141,750
Revolving credit facilities 24,860 24,860
Other indebtedness 7,771 7,474
-------- -------
Total $207,631 174,084
======== =======
DECEMBER 31, 1998
-----------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------ ----------
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
======== =======
(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.
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
The Company has an aggregate of $50,000 interest rate swap and swap option
agreements with a fair value of $(282) as of December 31, 1999.
(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 October 3, 1997, the Company purchased substantially all of the assets of
Elastex for approximately $8,400 in cash. On December 1, 1997, the Company
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
purchased substantially all of the assets of ECA for approximately $76,300 in
cash and the assumption of $6,000 in long term debt. 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 $3,949 for Elastex and is being
amortized using the straight-line method over 40 years. ECA acquired
substantially all of a narrow elastic fabric manufacturing facility of Fruit of
the Loom on December 30, 1998, for approximately $12,500. The excess of cost
over fair value of net assets acquired of approximately $3,836 are being
amortized using the straight-line method over periods of 5 to 10 years. 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. Additionally, during 1999, the Company entered
into a 51% joint venture in India.
NOTE 15 - RELATED PARTY TRANSACTIONS
In 1999, 1998 and 1997, other assets include a $600 non-interest bearing note
receivable due in the year 2002 from a senior executive
NOTE 16 - SIGNIFICANT FOURTH QUARTER CHARGES
During the fourth quarter of 1999, the Company initiated a consolidation plan to
reduce conventional covered yarn production in the United States. One of three
manufacturing facilities located in Hickory, North Carolina will be closed
during the first half of 2000, with its operations moved into the remaining
facilities. The Company recorded a one-time charge of $2,813 as of December 31,
1999 for the consolidation. This charge, recorded in cost of sales, covers
provisions for real estate and manufacturing equipment that will be taken out of
service, as well as certain inventory provisions. In addition, the Company
recorded in selling, general and administrative expenses reserves of $4,000 for
accounts receivable owed by Fruit of the Loom as of December 31, 1999, one-time
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
charges for Canadian severance relating to the 1998 restructuring of $404, and
certain retirement benefit costs of $506.
During the fourth quarter of 1998, the Company recorded charges of $7,843 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 a
goodwill writedown. The Company transferred its production of conventional
covered elastic yarn previously manufactured in Montreal, Quebec to existing
operations in the United States and Colombia, South America.
NOTE 17 - SUBSEQUENT EVENT
On February 28, 2000, a Schedule 13D report was filed with the Securities and
Exchange Commission stating that certain investment managers affiliated with EGS
Partners, L.L.C. (the "EGS Persons") were the beneficial owners of approximately
34% of the outstanding shares of Worldtex common stock. The filing states that
the Worldtex shares were acquired for investment.
As a consequence of the filing of such report, the "poison pill" shareholder
rights attached to the outstanding Worldtex common stock were required to trade
separately from such stock and become exercisable after 10 days, unless
otherwise provided by the Worldtex Board of Directors. The Board of Directors
subsequently extended the initial 10-day period on several occasions in order to
permit discussions with the EGS Persons.
On March 27, 2000, Worldtex entered into a Standstill Agreement (the "Standstill
Agreement") with the EGS Persons and certain related entities (collectively, the
"EGS Parties"). Pursuant to the Standstill Agreement, Worldtex amended its
"poison pill" shareholder rights plan to prevent the rights from trading
separately or becoming exercisable as a result of the announced beneficial
<PAGE>
ownership by the EGS Parties, unless the Board of Directors of Worldtex
determines that there has been a breach by an EGS Party of the Standstill
Agreement.
Under the Standstill Agreement, the EGS Parties agreed, among other things, not
to (i) acquire additional shares of Worldtex common stock, (ii) encourage other
persons to acquire Worldtex common stock, (iii) submit or encourage a proposal
for the acquisition of Worldtex, (iv) make any solicitation of proxies for
Worldtex common stock, (v) sell any Worldtex common stock, except sales of not
more than 5% of the outstanding shares in any 90 day period so long as the buyer
is not and will not thereby become the beneficial owner of 5% or more of the
Worldtex common stock or (vi) submit any shareholder proposal. In addition, each
EGS Party agreed to vote the Worldtex common stock beneficially owned by it, at
its option, (i) in the manner recommended by the Worldtex Board of Directors or
(ii) in the same proportion as the votes of other holders of Worldtex common
stock. The EGS Parties also agreed to make payments to Worldtex aggregating
$800, in reimbursement of certain expenses. The term of the Standstill Agreement
is ten years.
Also as a result of such acquisition of Worldtex common stock by the EGS
Persons, all outstanding stock options granted under the 1992 Stock Incentive
Plan of Worldtex became vested. In addition, Barry D. Setzer, Chairman of the
Board, President and Chief Executive Officer of Worldtex, and Marty R. Kittrell,
Senior Vice President and Chief Financial Officer of Worldtex, each has asserted
that, under the terms of his employment agreement with Worldtex, he is entitled
to terminate his employment and receive payment of 2.99 times his "base salary"
(as defined). If both officers were entitled to exercise such right, Worldtex
would be obligated to make severance payments of approximately $2,100. The
Worldtex Board of Directors has taken the position that such officers are not
entitled to exercise such right. However, the Board of Directors has entered
into negotiations with such officers seeking to settle the matter amicably. The
departure from Worldtex of these senior managers could have a material adverse
effect on Worldtex.
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 18 - 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 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Statements of
Operations Year Ended
December 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 197,512 109,662 (21,387) 285,787
Cost of goods sold - 175,409 88,595 (20,952) 243,052
------ ------- ------ -------- -------
Gross profit - 22,103 21,067 (435) 42,735
Selling and administrative expense 4,080 18,559 8,599 44 31,282
------- ------ ------ ------ ------
Operating profit (loss) (4,080) 3,544 12,468 (479) 11,453
Interest expense 18,475 432 1,045 - 19,952
Intercompany interest expense (income) (10,280) 9,454 826 - -
Intercompany administrative charges (2,862) 1,860 1,002 - -
Other income (expense) - net (289) 429 (1,616) - (1,476)
-------- ------- ------- ------ -------
Income (loss) before income taxes (9,702) (7,773) 7,979 (479) (9,975)
Provision (benefit) for income taxes (283) (1,852) 2,305 - 170
Undistributed loss of subsidiaries (247) 5,674 - (5,427) -
-------- ------- ------ ------- --------
Net income (loss) $(9,666) (247) 5,674 (5,906) (10,145)
======== ======= ====== ======= =========
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Statements of
Operations Year Ended
December 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 151,775 123,154 (16,392) 258,537
Cost of goods sold - 131,534 101,125 (16,392) 216,267
------- ------- ------- -------- -------
Gross profit - 20,241 22,029 - 42,270
Selling and administrative 5,627 12,574 12,036 - 30,237
------ ------ ------ ------ ------
expense
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 (benefit) for income taxes (3,307) (813) 3,626 - (494)
Undistributed earnings of subsidiaries 622 2,742 - (3,364) -
------ ------ ------ ------- ------
Net income (loss) $(5,898) 622 2,742 (3,364) (5,898)
======== ====== ====== ======= =======
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - 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 (benefit) for income taxes (1,083) 331 6,129 - 5,377
Undistributed earnings of subsidiaries 8,886 7,985 - (16,871) -
------ ------ ------ ------- ------
Net income before extraordinary Item 6,492 8,886 7,985 (16,871) 6,492
Extraordinary item 1,344 - - - 1,344
------ ------ ------ ------ ------
Net income $5,148 8,886 7,985 (16,871) 5,148
====== ====== ====== ======== ======
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Consolidating Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DOMESTIC FOREIGN
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $1,769 (1,769) 5,686 - 5,686
Accounts and notes receivable, net 315 18,173 21,389 - 39,877
Inventories - 40,719 21,535 (437) 61,817
Prepaid expenses and other current
assets 4,200 666 925 - 5,791
------ ------ ------ ------ ------
Total current assets 6,284 57,789 49,535 (437) 113,171
Property, plant and equipment, net 5,160 57,366 47,540 (41) 110,025
Other assets 7,499 312 814 - 8,625
Cost in excess of net assets
of acquired businesses, net - 64,364 18,251 - 82,615
Intercompany investments 107,038 95,177 - (202,215) -
Intercompany advances 154,811 - - (154,811) -
------- ------ ------ --------- ------
$280,792 275,008 116,140 (357,504) 314,436
======== ======= ======= ========= =======
Liabilities and Stockholders'
equity
Current liabilities
Short-term borrowings $ - - 6,423 - 6,423
Current installments of long-term
debt 24,860 - 232 - 25,092
Accounts payable-trade and 8,246 10,393 15,141 - 33,780
other liabilities
Income taxes payable 1,230 (1,431) 682 - 481
------ ------- ------ ------ ------
Total current liabilities 34,336 8,962 22,478 - 65,776
Long-term debt 175,000 6,000 1,539 - 182,539
Other long-term liabilities 2,550 - 523 - 3,073
Deferred income taxes (5,479) 6,155 9,880 - 10,556
Intercompany payables - 146,854 7,957 (154,811) -
------ ------- ------ --------- ------
Total liabilities 206,407 167,971 42,377 (154,811) 261,944
------- ------- ------ --------- -------
Stockholders' equity
Common stock 147 - 37,720 (37,720) 147
Paid-in capital 30,084 38,793 - (38,793) 30,084
Retained earnings 46,503 68,244 57,457 (126,180) 46,024
Accumulated other - - (21,414) - (21,414)
comprehensive loss
Less-Treasury stock, at cost (2,349) - - - (2,349)
-------- ------ ------ -------- -------
Total stockholders' equity 74,385 107,037 73,763 (202,693) 52,492
-------- ------- ------ --------- ------
$280,792 275,008 116,140 (357,504) 314,436
======== ======= ======= ========= =======
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - 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 - 19,486 23,399 - 42,885
receivable, net
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, 337 58,710 54,605 - 113,652
net
Other assets 9,239 2,457 1,154 - 12,850
Cost in excess of net assets
of acquired businesses, net - 68,048 17,473 - 85,521
Intercompany investments 101,344 83,560 - (184,904) -
Intercompany advances 155,820 - - (155,820) -
------- ------- ------- -------- -------
$271,930 266,273 126,641 (340,724) 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 3,799 9,440 14,756 - 27,995
Income taxes payable 1,091 (1,641) 2,250 - 1,700
-------- ------ ------ ------- ------
Total current liabilities 4,890 7,799 24,839 - 37,528
Long-term debt 187,000 6,000 5,246 - 198,246
Other long-term liabilities 1,417 - 569 - 1,986
Deferred income taxes (5,428) 6,870 11,436 - 12,878
Intercompany payables - 144,260 11,560 (155,820) -
-------- ------- ------ -------- -------
Total liabilities 187,879 164,929 53,650 (155,820) 250,638
-------- ------- ------ -------- -------
Stockholders' equity
Common stock 147 - 31,778 (31,778) 147
Paid-in capital 30,084 32,852 - (32,852) 30,084
Retained earnings 56,169 68,492 51,782 (120,274) 56,169
Accumulated other
comprehensive loss - (10,569) (10,569)
Less-treasury stock, at cost (2,349) - - - (2,349)
-------- ------- ------ -------- -------
Total stockholders' equity 84,051 101,344 72,991 (184,904) 73,482
-------- ------- ------ -------- -------
$271,930 266,273 126,641 (340,724) 324,120
======== ======= ======= ======== =======
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - 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>
Cash flows from operating
activities:
Net income (loss) $(9,666) (247) 5,674 (5,906) (10,145)
Adjustments to reconcile net
income (loss)to net cash
provided (used in) by
operating activities:
Undistributed earnings of 247 (5,674) - 5,427 -
subsidiaries
Depreciation and amortization 213 11,990 5,681 (2) 17,882
Provision for losses on
accounts receivable - 4,446 384 - 4,830
Deferred income taxes (1,768) (715) 32 - (2,451)
Change in assets and
liabilities net of effects of
acquisitions:
Accounts and notes receivable (315) (3,132) (1,012) - (4,459)
Inventories - (6,904) 61 437 (6,406)
Prepaid expenses and other
current assets 110 (483) 117 - (256)
Accounts payable-trade and
other current liabilities 4,446 953 2,089 - 7,488
Income taxes payable 139 210 (1,330) - (981)
------ ------- ------- ------- -------
Net cash provided by (used
in) operating activities (6,594) 444 11,696 (44) 5,502
------ ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (5,037) (7,401)` (5,322) 44 (17,716)
Acquisitions, net of cash
acquired (5,942) (5,942) - 11,884 -
Other investing activities (515) 1,982 (3,395) - (1,928)
------ ------- ------- ------- -------
Net cash used in investing
activities (11,494) (11,361) (8,717) 11,928 (19,644)
------- ------- ------- ------- -------
Cash flows from financing activities:
Borrowings under line of
credit arrangements - - - - -
Payments under line of credit
arrangements - - (55) - (55)
Borrowings under revolving
credit facility 110,960 - - - 110,960
Payments under revolving
credit facility (98,100) - - - (98,100)
Borrowings under long-term
loans - - - - -
Payments under long-term loans - - (1,463) - (1,463)
Stock issued or (reacquired), net - - - - -
Advances - affiliated companies 1,009 3,192 (2,967) (1,234) -
Other financing activities (3,392) 5,942 3,979 (11,286) 2,027
------- ------ ------ -------- ------
Net cash provided by (used in)
financing activities 17,261 9,134 (506) (12,520) 13,369
------- ------ ------ ------- ------
Effects of exchange rate
changes on cash - - (892) 636 (256)
------- ------ ------ ------- ------
Net increase (decrease) in
cash and cash equivalents (827) (1,783) 1,581 - (1,029)
Cash and cash equivalents at
beginning of year 2,596 14 4,105 - 6,715
------- ------ ------ ------- ------
Cash and cash equivalents at
end of year $ 1,769 (1,769) 5,686 - 5,686
======= ====== ====== ======= ======
</TABLE>
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - 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>
Cash flows from operating activities:
Net income (loss) $(5,898) 622 2,742 (3,364) (5,898)
Adjustments to reconcile net
income (loss)to net cash
provided (used in) by
operating activities:
Undistributed earnings of
subsidiaries (622) (2,742) - 3,364 -
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 198 911 (717) - 392
Income taxes payable 799 145 906 - 1,850
-------- ------ ------ ------ ------
Net cash provided by (used
in) operating activities (10,499) 2,547 15,401 1,604 9,053
-------- ------ ------ ------ ------
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
Stock issued or (reacquired), net (825) - - - (825)
Advances - affiliated companies (9,657) 20,683 (10,960) (66) -
Other financing activities 1,293 - (580) (437) 276
-------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 2,811 20,683 (5,279) (503) 17,712
-------- ------- ------- ------- -------
Effects of exchange rate
changes on cash 2,704 (2) 126 (2,239) 589
-------- ------- ------- ------- -------
Net 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 18 - 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>
Cash flows from operating activities:
Net income (loss) $5,148 8,886 7,985 (16,871) 5,148
Adjustments to reconcile net
income (loss)to net cash
provided (used in) by operating
activities:
Undistributed earnings of (8,886) (7,985) - 16,871 -
subsidiaries
Depreciation and amortization 37 2,630 4,178 - 6,845
Provision for losses on accounts - 71 234 - 305
receivable
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 (86) (34) (128) - (248)
current assets
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 - - 3,548 - 3,548
arrangements
Payments under line of credit - - (3,435) - (3,435)
arrangements
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 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 in cash and cash
equivalents 9,630 147 2,978 - 12,755
Cash and cash equivalents at 428 174 1,515 - 2,117
------ ------ ------ ------ ------
beginning of year
Cash and cash equivalents at end
of year $10,058 321 4,493 - 14,872
======= ====== ====== ====== ======
</TABLE>
<PAGE>
WORLDTEX, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
________________________________________________________________________________
YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DILUTED NET
NET INCOME
UNAUDITED NET GROSS INCOME (LOSS) PER
QUARTERLY FINANCIAL DATA SALES PROFIT (LOSS) SHARE (A)
------------------------ ----- ------ ------ ---------
<S> <C> <C> <C> <C>
1999 Quarter:
First $78,017 13,528 815 .06
Second 73,607 13,517 1,260 .09
Third 69,721 10,229 (712) (.05)
Fourth (B) 64,442 5,461 (11,508) (.81)
------- ------- --------
$285,787 42,735 (10,145)
======== ======= ========
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 (B) 63,453 6,360 (7,736) (.54)
------- ------- --------
$258,537 42,270 (5,898)
======== ======= ========
</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) See note 16 of the consolidated financials statements for significant
fourth quarter charges in 1999 and 1998.
<PAGE>
WORLDTEX, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
________________________________________________________________________________
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
------ADDITIONS------
BALANCE CHARGED BALANCE
AT TO COSTS DEDUCTIONS AT END
BEGINNING AND FROM OF
OF PERIOD EXPENSES OTHER RESERVES PERIOD
--------- -------- ----- -------- ------
1999
Allowance for doubtful $2,041 4,830 (A) - 303 (B) 6,568
accounts
1998
Allowance for doubtful $2,085 590 - 634 (B) 2,041
accounts
1997
Allowance for doubtful $2,589 305 470 (C) 1,279 (B) 2,085
accounts
NOTES:
(A) See note 16 of the consolidated financials statements for significant fourth
quarter charges in 1999.
(B) Accounts charged off, recoveries, and other adjustments, net.
(C) 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 2000 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and financial statement schedules included
in this Report are listed in the introductory portion of Item 8.
EXHIBITS
The following exhibits are filed as part of this Report (for
convenience of reference, exhibits are listed according to numbers assigned in
the exhibit tables of Item 601 of Regulation S-K under the Securities Exchange
Act of 1934 and management contracts or compensatory plans are indicated by an
asterisk):
EXHIBIT
NO. DESCRIPTION
________ ___________
2.1 Purchase Agreement, dated as of March 28, 1995, among Fibrexa,
S.A., the stockholders of Fibrexa, Worldtex Colombiana, Ltda. and
Worldtex - filed as Exhibit 2 to the Company's report on Form 8-K
dated June 5, 1995 and incorporated herein by reference.
<PAGE>
EXHIBIT
NO. DESCRIPTION
________ ___________
2.2 Asset Purchase Agreement, dated as of October 29, 1997, among
Elastic Corporation of America, Inc. (a wholly-owned subsidiary
of Worldtex, Inc.), Worldtex, Inc., and NFA Corp. -- filed as
Exhibit 2.1 to the Worldtex, Inc. Current Report on Form 8-K
dated December 1, 1997 and incorporated herein by reference.
3.1 Certificate of Incorporation of Worldtex -- filed as Exhibit 3.1
to Worldtex's Registration Statement on Form 10, dated October 1,
1992, as amended, and incorporated herein by reference.
3.2 By-Laws of Worldtex -- filed as Exhibit 3.2 to Worldtex's
Registration Statement on Form 10, dated October 1, 1992, as
amended, and incorporated herein by reference.
4.1 Share Purchase Rights Agreement, dated as of August 1, 1992, by
and between Worldtex and Chemical Bank as Rights Agent - filed as
Exhibit 4.1 to the Company's Annual Report on Form 10-K for 1992
and incorporated herein by reference.
4.2 Indenture, dated as of December 1, 1997, by and among Worldtex,
Inc., Willcox & Gibbs Filix of Delaware, Inc., Regal
Manufacturing Company, Inc., Elastic Corporation of America,
Inc., Elastex, Inc., Regal Yarns of Argentina, Inc., WTX Colombia
I, Inc. and WTX Colombia II, Inc. (together, other than Worldtex,
Inc., the "Guarantors"), and IBJ Schroder Bank & Trust Company,
as Trustee, with respect to the 9 5/8% Senior Notes due 2007 --
filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (No. 333-45331) and incorporated herein by reference.
4.3 Registration Rights Agreement, dated as of December 1, 1997, by
and among Worldtex, Inc., the Guarantors and the Initial
Purchasers - filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-4 (No. 333-45331) and incorporated herein by
reference.
4.4 Form of 9 5/8% Note - included in Exhibit 4.2.
10.1 Distribution Agreement dated as of November 12, 1992, between W&G
and Worldtex - filed as Exhibit 10.1 to the Company's Annual
Report on Form 10-K for 1992 and incorporated herein by
reference.
10.2 Tax Sharing Agreement dated as of November 12, 1992, between W&G
and Worldtex - filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for 1992 and incorporated herein by
reference.
10.3 Severance Agreement, dated February 10, 1999, between Worldtex
and Richard J. Mackey - filed as Exhibit 10.3 to the Company's
Annual Report on Form 10-K for 1998 and incorporated herein by
reference.*
<PAGE>
EXHIBIT
NO. DESCRIPTION
________ ___________
10.4 Employment Agreement, dated November 15, 1993, between Worldtex
and Barry D. Setzer - filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for 1993 and incorporated herein by
reference.*
10.5 Employment Agreement, dated December 22, 1998, between Worldtex
and Marty R. Kittrell - filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for 1998 and incorporated herein by
reference.*
10.6 1992 Stock Incentive Plan of Worldtex, as amended - filed as
Appendix A to Worldtex's proxy statement, dated April 1, 1994,
for the 1994 Annual Meeting of Stockholders, and incorporated
herein by reference.*
10.7 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.
10.8 Standstill Agreement, dated as of March 27, 2000, among (i) EGS
Associates, L.P., a Delaware limited partnership, (ii) EGS
Partners, L.L.C., a Delaware limited liability company, (iii) Bev
Partners, L.P., a Delaware limited partnership, (iv) Jonas
Partners, L.P., a New York limited partnership, (v) FK
Investments, L.P., a Delaware limited partnership, (vi) William
Ehrman, (vii) Frederic Greenberg, (viii) Jonas Gerstl, (ix) Julia
Oliver, (x) EGS Management, L.L.C., a Delaware limited liability
company, and (xi) the Company -- filed herewith.
10.9 Amendment No. 5, dated as of March 27, 2000, to the Rights
Agreement, dated as of August 1, 1992 -- attached as Exhibit A to
the Standstill Agreement filed as Exhibit 10.8 hereto.
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.
<PAGE>
EXHIBIT
NO. DESCRIPTION
________ ___________
24.4 Power of Attorney executed by Marty R. Kittrell - filed as
Exhibit 24.4 to the Company's Annual Report on Form 10-K for 1998
and incorporated herein by reference.
27.1 Financial Data Schedule (filed with EDGAR only).
8-K REPORTS
During the last quarter of the Company's 1999 fiscal year, the
Company filed no reports on Form 8-K.
<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 30, 2000
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 30, 2000 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
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
STANDSTILL AGREEMENT
Standstill Agreement, dated as of March 27, 2000 (this "AGREEMENT"),
among (i) EGS Associates, L.P., a Delaware limited partnership, (ii) EGS
Partners, L.L.C., a Delaware limited liability company ("EGS PARTNERS"), (iii)
Bev Partners, L.P., a Delaware limited partnership, (iv) Jonas Partners, L.P., a
New York limited partnership, (v) FK Investments, L.P., a Delaware limited
partnership ("FK INVESTMENTS"), (vi) William Ehrman, (vii) Frederic Greenberg,
(viii) Jonas Gerstl, (ix) Julia Oliver, (x) EGS Management, L.L.C., a Delaware
limited liability company ("EGS MANAGEMENT" and, together with the Persons
referred to in the preceding clauses (i) through (ix), the "EGS PARTIES"), and
(xi) Worldtex, Inc., a Delaware corporation (the "COMPANY").
The EGS Parties are the beneficial owners of shares of common stock,
par value $.01 per share (the "COMMON STOCK"), of the Company, which in the case
of certain EGS Parties aggregates 4,878,495 shares, or approximately 34.2% of
the outstanding shares. Under the terms of the Rights Agreement, dated as of
August 1, 1992 (the "RIGHTS AGREEMENT"), between the Company and ChaseMellon
Shareholder Services L.L.C., as successor to Chemical Bank, as Rights Agent, the
rights to acquire additional shares of the Company issued under the Rights
Agreement will become exercisable by the shareholders of the Company, other than
the EGS Parties, unless the Rights Agreement is amended or the rights are
redeemed by the Company. In order to induce the Company to amend the Rights
Agreement as provided herein, the EGS Parties have agreed to enter into this
Agreement.
Accordingly, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. (a) The following terms shall have
the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for, or any
indication of interest in, (i) a merger or other business combination involving
the Company or any of its Subsidiaries, (ii) the acquisition by any Person or
Persons of beneficial ownership of Restricted Securities representing, on a
fully exercised basis, more than 5% of the Total Voting Power, or (iii) the
acquisition by any Person or Persons of all or a substantial part of the assets
of the Company or any of its Subsidiaries or of any equity securities of any of
the Company's Subsidiaries.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
such Person. For the purposes of this definition, "CONTROL" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
"AGREEMENT" is defined in the first paragraph of this Agreement.
<PAGE>
"AVERAGE CLOSING PRICE" means, with respect to any Restricted
Security, the arithmetic average of the closing prices of such Restricted
Security on the national securities exchange (as defined under the Exchange Act)
located in or nearest to the City of New York on which such security is then
listed or, if not listed on any national securities exchange, as reported by
NASDAQ, for any specified days.
"BENEFICIAL OWNERSHIP" and "BENEFICIALLY OWN" shall be determined in
accordance with Rule 13d-3 under the Exchange Act.
"BUSINESS DAY" means a day on which the New York Stock Exchange is
open for trading.
"CLOSING DATE" means the date of this Agreement.
"COMMON STOCK" is defined in the second paragraph of this
Agreement.
"COMPANY" is defined in the first paragraph of this Agreement.
"CONTINUING DIRECTOR" means any member of the Board of Directors of
the Company on the date of this Agreement and any successor of a Continuing
Director whose nomination or election has been approved by a majority of the
Continuing Directors then on the Board of Directors.
"EGS MANAGEMENT" is defined in the first paragraph of this
Agreement.
"EGS PARTIES" is defined in the first paragraph of this Agreement.
"EGS PARTNERS" is defined in the first paragraph of this
Agreement.
"EGS PERSON" means any EGS Party and any Affiliate of an EGS
Party.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FK INVESTMENTS" is defined in the first paragraph of this
Agreement.
"FULLY EXERCISED BASIS" means, in determining beneficial ownership
of Voting Securities by any Person, an assumption that all securities and rights
convertible into or exercisable for Voting Securities beneficially owned by such
Person have been fully converted and exercised, regardless of whether by their
terms they may be so converted and exercised at that time, but without assuming
conversion or exercise by any other Person.
"GROUP" shall have the meaning provided under Section 13(d)(3) of
the Exchange Act.
"MANAGED ACCOUNTS" is defined in Section 6(b).
<PAGE>
"PERCENTAGE LIMITATION" means that number of Voting Securities which
then represents the lesser of (i) 34.2% of the Total Voting Power and (ii) the
highest percentage of the Total Voting Power beneficially owned by any EGS
Person immediately following any sale or transfer of shares of Voting Securities
by an EGS Person, PROVIDED that if the percentage under this clause (ii) shall
be less than the Rights Threshold, the applicable percentage under this clause
(ii) shall be deemed to be the Rights Threshold.
"PERSON" means an individual, corporation, partnership, company,
limited liability company, joint venture, association, trust, group, any other
unincorporated organization or entity and a governmental entity or any
department or agency thereof.
"RESTRICTED SECURITIES" means any Voting Securities and any other
securities or rights convertible into or exercisable (whether immediately or
otherwise) for Voting Securities.
"RIGHTS AGREEMENT" is defined in the second paragraph of this
Agreement.
"RIGHTS THRESHOLD" means the minimum percentage of shares of Common
Stock required to be beneficially owned by a Person in order for such Person to
be an "Acquiring Person" under the Rights Agreement, or under any substantially
similar rights agreement subsequently adopted by the Company, as such percentage
may be amended from time to time (which percentage is 20% as of the Closing
Date).
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SUBSIDIARY" means, with respect to any Person, any corporation in
which such Person beneficially owns securities representing a majority of the
combined voting power of voting interests entitled to vote generally for the
election of directors.
"TERM" means the period commencing on the date of this Agreement and
ending on the termination date specified in Section 7.
"TOTAL VOTING POWER" means the aggregate number of votes which may
be cast by holders of outstanding Voting Securities. In determining the number
of outstanding Voting Securities, Voting Securities held in the treasury of the
Company shall not be deemed to be outstanding.
"VOTING SECURITIES" means the Common Stock and any other securities
of the Company entitled to vote generally for the election of directors of the
Company.
(b) Unless herein otherwise provided, or unless the context
shall otherwise require, words importing the singular number shall include the
plural number, and vice versa; the terms "HEREIN", "HEREOF" and "HEREUNDER", or
other similar terms, refer to this Agreement as a whole and not only to the
particular sentence, paragraph, subsection or Section in which any such terms
may be employed; and a reference to any Person shall include such Person's
predecessors and successors.
<PAGE>
2. INVESTMENT COVENANTS. Each EGS Party covenants and agrees as
follows:
(a) Each EGS Party will not, and will not permit its
Affiliates to, directly or indirectly:
(1) Beneficially own any Restricted Security if, on a fully
exercised basis, any EGS Person would, in the aggregate, beneficially own
Voting Securities in excess of the Percentage Limitation, or acquire,
solicit an offer to sell or agree to acquire, any Restricted Security if
the effect of such acquisition, on a fully exercised basis, would be to
increase the aggregate number of Voting Securities then beneficially
owned, directly or indirectly, by any EGS Person, to a number greater than
the Percentage Limitation; PROVIDED that an EGS Person shall not be in
violation of this provision by reason of its beneficial ownership of
Restricted Securities which complied with the Percentage Limitation when
such Restricted Securities first became beneficially owned by it but which
subsequently exceeded the Percentage Limitation as a result of a reduction
in the number of outstanding Voting Securities in a transaction approved
by a majority of the Continuing Directors.
(2) Take any action to advise, encourage or assist any other
Person to purchase or acquire in any manner any Restricted Security, or
participate with or provide assistance to any Person in the purchase or
other acquisition of any Restricted Security, PROVIDED that this provision
shall not prohibit reports to Persons whose funds are managed by an EGS
Party regarding their investment in Restricted Securities that are
beneficially owned by an EGS Party.
(3) Make any public announcement or filing with respect to, or
submit to the Company or any of its directors, officers, employees, agents
or representatives, an Acquisition Proposal, or take any action to advise,
encourage or assist any other Person to make an Acquisition Proposal.
(4) Become a member of a group with respect to any Restricted
Securities, other than a group consisting solely of the EGS Parties and
EGS Persons.
(5) Make, or in any way encourage or support, any
"solicitation" of "proxies" (as such terms are defined in Rule 14a-1 under
the Exchange Act) to vote any Voting Security, or agree or announce its
intention to vote with any Person undertaking a "solicitation," or seek to
advise, encourage or influence any Person with respect to the voting of
any Voting Security.
(6) Deposit any Restricted Security in a voting trust, or,
except as contemplated by this Agreement, subject any Restricted Security
to a voting or similar agreement.
(7) Sell, transfer, pledge or otherwise dispose of or encumber
any Restricted Security or any interest in any Restricted Security, or
agree to take any of the foregoing actions, except
<PAGE>
(i) a sale of a Restricted Security so long as the
amount of Restricted Securities sold, together with all sales
of Restricted Securities of the same class by all EGS Persons
within the preceding 90 days, does not exceed 5% of the
outstanding number of shares or units of such class of
Restricted Securities; PROVIDED that no sale shall be
permitted hereunder if the buyer would, after giving effect to
such sale, be the beneficial owner of Voting Securities
representing 5% or more of the Total Voting Power; PROVIDED,
FURTHER, that a sale of a Restricted Security may be made
without restriction if at the time of such sale the EGS
Persons beneficially own in the aggregate Voting Securities
representing less than 5% of the Total Voting Power; or
(ii) pursuant to a tender or exchange offer made by the
Company or pursuant to other written request of the Company;
or
(iii) pursuant to an Acquisition Proposal approved by a
majority of the Continuing Directors; or
(iv) a BONA FIDE pledge to a nationally recognized
financial institution to secure indebtedness for borrowed
money on a full recourse basis to the pledgor, PROVIDED that
the pledgee agrees, in a manner satisfactory in form and
substance to the Company, to be bound by the obligations of
the EGS Persons under this Agreement if the pledgee forecloses
on such pledged Restricted Securities; or
(v) a BONA FIDE pledge to a nationally recognized
financial institution to secure indebtedness for borrowed
money on a full recourse basis to the pledgor of Restricted
Securities held in a margin account commingled with other
securities under management by an EGS Party if the proceeds of
such borrowings were utilized to purchase securities held in
such account; or
(vi) a transfer to another EGS Party.
(8) Initiate or propose any shareholder proposal for
submission to a vote of holders of Voting Securities, propose any Person
for election to the Board of Directors of the Company or otherwise seek to
control or influence the management or policies of the Company.
(9) Allow any Person other than an EGS Person to have the
power to vote or direct the vote of any Voting Securities beneficially
owned by any EGS Person, except for (i) votes that comply with Section
2(e) and (ii) the grant of a proxy to an officer or director of the
Company.
<PAGE>
(10) Disclose to any other Person, or make any filing under
the Exchange Act disclosing, any intention, plan or arrangement
inconsistent with the provisions of this Section 2(a).
(11) Request the Company (or any of its directors, officers,
employees, agents or representatives) to waive, amend or modify any
provision of this Section 2(a), except in response to a request to an EGS
Party from the Company for some action by such EGS Party.
(b) It shall not be a violation of Section 2(a)(7) if a
Managed Account shall terminate the authority of an EGS Party to manage the
investments of such Managed Account and withdraw the Voting Securities from the
custody and control of all EGS Persons such that no EGS Person is thereafter the
beneficial owner of such Voting Securities. In addition, if FK Investments shall
no longer be an Affiliate of any other EGS Party and shall provide a written
representation, warranty and covenant to the Company, in form and substance
satisfactory to the Company, that neither it nor any of its Affiliates is then,
nor will it at any time during the remainder of the Term become, the beneficial
owner of more than 248,000 shares of Common Stock or any other Voting Security,
then the Company shall release FK Investments from its obligations under this
Agreement (other than with respect to such representation, warranty and
covenant).
(c) [Intentionally omitted]
(d) AGREEMENT TO PROVIDE INFORMATION. Each EGS Party agrees to
provide to the Company all information concerning any EGS Person as may be
necessary for the Company to prepare any reports or filings required by the
Securities Act, the Exchange Act, or other applicable federal and state
securities laws.
(e) VOTING. Each EGS Party shall cause all Voting Securities
beneficially owned by it or any EGS Person over which it or any EGS Person has
the power to vote or direct the vote to be represented, in person or by proxy,
at all meetings of holders of Voting Securities, so that such Voting Securities
may be counted for the purpose of determining the presence of a quorum at such
meetings. On each matter voted upon by holders of Voting Securities, each EGS
Party shall cause all Voting Securities beneficially owned by it or any EGS
Person to be voted, at its option, (i) in the manner recommended by the Board of
Directors of the Company for such matter or (ii) in the same proportion as the
votes of holders of Voting Securities (other than the EGS Persons) voted on such
matter.
(f) ADDITIONAL EGS PARTIES. If any EGS Person not an EGS Party
shall become the beneficial owner of Restricted Securities, the EGS Parties
shall cause such EGS Person prior to its becoming such beneficial owner to
execute and deliver to the Company a valid and binding agreement of such EGS
Person, in form and substance satisfactory to the Company, providing that such
EGS Person shall comply with the obligations set forth in this Agreement of, and
shall be deemed to be, an EGS Party.
<PAGE>
3. RIGHT TO PURCHASE RESTRICTED SECURITIES. Each EGS Party agrees
that, in the event of any violation of Section 2(a)(1), in addition to its other
rights and remedies, the Company or any Person designated by the Company shall
have the right and option to purchase from each EGS Party and each of its
Affiliates, and each EGS Party shall sell and cause their Affiliates to sell,
such Restricted Securities beneficially owned by them as is necessary to reduce
the total combined voting power of all Voting Securities beneficially owned, on
a fully exercised basis, by all EGS Persons, in the aggregate, to the then
applicable Percentage Limitation. Any Restricted Securities purchased by the
Company or its designee pursuant to this Section shall be purchased for cash at
a price per share or other unit equal to the lower of (i) the weighted average
cost per share or other unit to all EGS Persons of all Restricted Securities of
the class to be purchased then held by them, and (ii) the Average Closing Price
of the Restricted Securities of the class to be purchased for the 20 consecutive
Business Days ending five Business Days preceding the date on which the Company
or its designee gives written notice to EGS Management of its intent to exercise
its option under this Section. The right and option provided for in this Section
shall be exercised by the Company's delivery of written notice, within 180 days
after the Company first learns of the event giving rise to such option, to EGS
Management specifying the nature of such event, the number and class of
Restricted Securities to be purchased and the date on which said purchase shall
occur, which date shall be not less than five nor more than 60 days after the
date on which such notice was given to EGS Management.
4. FEES AND EXPENSES. In reimbursement of the Company's current and
future expenses relating to the negotiation of this Agreement, the EGS Parties
agree, jointly and severally, to pay to the Company (a) $400,000 on April 3,
2000, (b) $200,000 on the fifth Business Day after January 1, 2001 and (c)
$200,000 on the fifth Business Day after January 1, 2002.
5. AMENDMENT OF RIGHTS AGREEMENT. On the Closing Date, the Company
shall amend the Rights Agreement as provided in Exhibit A to this Agreement (the
"RIGHTS PLAN AMENDMENT").
6. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each EGS Party that (i) the Company has the corporate
power and authority to enter into and perform this Agreement and the Rights Plan
Amendment, (ii) the execution and delivery of this Agreement by the Company and
the performance by it of its obligations under this Agreement have been duly
authorized by the Company, and (iii) this Agreement constitutes a valid, binding
and enforceable agreement of the Company.
(b) REPRESENTATIONS AND WARRANTIES OF THE EGS PARTIES. Each
EGS Party represents and warrants to the Company that (i) such EGS Party has
full legal right, power and authority to enter into and perform this Agreement,
(ii) the execution and delivery of this Agreement by such EGS Party and
performance by such EGS Party of its obligations under this Agreement have been
duly authorized by such EGS Party, (iii) this Agreement constitutes a valid,
binding and enforceable Agreement of such EGS Party, (iv) William Lautman is
not, as of the date of this Agreement, an Affiliate of any EGS Person and is not
the beneficial owner of any Restricted Securities, (v) each EGS Party
<PAGE>
beneficially owns the number of shares of Common Stock set forth opposite its
name on Exhibit B hereto and no other Voting Securities, (vi) 3,110,618 shares
of Common Stock are held in discretionary accounts for the benefit of Persons
other than EGS Persons (together the "MANAGED ACCOUNTS"), in each case under the
investment management of EGS Partners, (vii) EGS Partners has the sole
discretion to vote and to dispose of the shares of Common Stock held in the
Managed Accounts, (viii) the statements in the Statement on Schedule 13D, dated
February 28, 2000, filed by the EGS Parties with the SEC relating to the Common
Stock (the "SCHEDULE 13D") are true and correct as of the Closing Date in all
material respects and do not as of the Closing Date omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that the number of shares of Common Stock
beneficially owned as of the Closing Date is correctly stated in Exhibit B
hereto) and (ix) no EGS Party has any agreement, arrangement or understanding
with any Person with respect to any matter that such EGS Party is prohibited to
do by this Agreement.
7. TERM. The obligations of the parties under this Agreement shall
terminate and be of no further force and effect on and after the tenth (10th)
anniversary of the Closing Date.
8. MISCELLANEOUS.
(a) SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of and be enforceable by and against the
successors and assigns of the parties hereto. No right or obligation hereunder
of any EGS Party shall be assignable without the consent of the Company, and any
such purported assignment shall be void.
(c) ENTIRE AGREEMENT; MODIFICATION. This Agreement sets forth
the entire agreement and understanding among the parties with respect to the
subject matter hereof and supersedes all agreements and understandings among the
parties with respect to the subject matter hereof entered into prior to the
execution hereof. This Agreement may be modified only by a written instrument
duly executed by or on behalf of each party and, in the case of the Company,
only if approved by a majority of the Continuing Directors. No breach of any
covenant, agreement, warranty or representation shall be deemed waived unless
expressly waived in writing by and on behalf of the party who might assert such
breach and, in the case of a breach of any EGS Party, only if approved by a
majority of the Continuing Directors.
(d) NOTICES. Any notice, direction or other advice or
communication required or permitted to be given hereunder shall be in writing
and shall be given by certified mail, next business day delivery service such as
Federal Express or personal delivery against receipt to the party to whom it is
to be given at such party's address set forth below or to such other address as
the party shall have furnished in writing in accordance with the provisions of
<PAGE>
this Section. Any notice or other communication shall be deemed to have been
given on the fifth business day after so mailed, on the next business day after
dispatch when sent by such delivery service or as of the date so personally
delivered.
If to the Company:
Worldtex, Inc.
915 Tate Boulevard, S.E., Suite 106
Hickory, North Carolina 28602
Attention: Chief Executive Officer
If to any EGS Party:
c/o EGS Management L.L.C.
350 Park Avenue, 11th Floor
New York, New York 10022
Attention: William Ehrman
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of Delaware
without giving effect to the principles of conflict of laws thereof.
(f) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(g) EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction thereof.
(h) SPECIFIC PERFORMANCE. Each EGS Party recognizes that any
breach of the terms of this Agreement by an EGS Person shall give rise to
irreparable harm for which money damages would not be an adequate remedy, and
accordingly agrees that, in addition to other remedies, the Company shall be
entitled to enforce the terms of this Agreement by a decree of specific
performance without the necessity of proving the inadequacy as a remedy of money
damages.
(i) CONSENT TO JURISDICTION; RECEIPT OF PROCESS. Each party
hereby consents to the jurisdiction of, and confers non-exclusive jurisdiction
upon, any federal court located in the State of Delaware and the Chancery Court
of the State of Delaware, and appropriate appellate courts therefrom, over any
action, suit or proceeding arising out of or relating to this Agreement, or any
of the transactions contemplated hereby. Each party hereby irrevocably waives,
and agrees not to assert as a defense in any such action, suit or proceeding,
any objection which it may now or hereafter have to venue of any such action,
suit or proceeding brought in any such federal or state court and hereby
irrevocably waives any claim that any such action, suit or proceeding brought in
any such court or tribunal has been brought in an inconvenient forum. Process in
any such action, suit or proceeding may be served on any party anywhere in the
<PAGE>
world, whether within or without the State of Delaware, provided that notice
thereof is provided pursuant to provisions for notice under this Agreement.
[Remainder of this page blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto and have caused this
Agreement to be duly executed as of the day and year first above written.
WORLDTEX, INC. EGS ASSOCIATES, L.P.
BEV PARTNERS, L.P.
JONAS PARTNERS, L.P.
By:___________________________ FK INVESTMENTS, L.P.
Name: By: EGS MANAGEMENT, L.L.C.,
Title: as General Partner
By:___________________________
Name: William Ehrman
Title: Managing Member
EGS MANAGEMENT, L.L.C.
By:___________________________
Name: William Ehrman
Title: Managing Member
EGS PARTNERS, L.L.C.
By:___________________________
Name: William Ehrman
Title: Member
______________________________
William Ehrman
______________________________
Frederic Greenberg
______________________________
Jonas Gerstl
______________________________
Julia Oliver
<PAGE>
EXHIBIT A TO
STANDSTILL AGREEMENT
AMENDMENT NO. 5 TO RIGHTS AGREEMENT
-----------------------------------
AMENDMENT NO. 5, dated as of March 27, 2000 (the "Amendment"), to
the Rights Agreement, dated as of August 1, 1992 (the "Rights Agreement"),
between Worldtex, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company, as
successor to Chemical Bank (the "Rights Agent"). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Rights
Agreement.
WHEREAS, the Company and the Rights Agent entered into the Rights
Agreement specifying the terms of the Rights; and
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 28 thereof;
NOW, THEREFORE, in consideration of the premises and mutual
agreements set forth in the Rights Agreement and this Amendment, the parties
hereby agree as follows:
1. The last sentence of Section 1(a) is amended by inserting,
immediately following the words "Notwithstanding the foregoing,":
(x) no EGS Person (as defined in the Standstill Agreement)
shall on or prior to March 22, 2000 be deemed to have been or
thereafter shall be or become an "Acquiring Person" during the
Term (as defined in the Standstill Agreement) unless the Board
of Directors of the Company shall have determined in its sole
and absolute discretion that there has been a breach of any
covenant, agreement, warranty or representation of an EGS
Person made in or pursuant to the Standstill Agreement that is
not waived by the Company in accordance with the requirements
of the Standstill Agreement, in which case any EGS Person that
would be an Acquiring Person but for this clause (x) shall
immediately be deemed an "Acquiring Person"; and (y).
2. Section 1(x) is amended to insert the following at the end of
such sentence: ", PROVIDED that the date of any public announcement prior to
March 22, 2000 that any EGS Person (as defined in the Standstill Agreement) has
acquired the beneficial ownership of 20% or more of the Common Shares shall not
be deemed to be a Share Acquisition Date."
3. Section 1 is amended to insert after subsection (aa) thereof the
following:
<PAGE>
(bb) "Standstill Agreement" shall mean the Standstill
Agreement, dated as of March 27, 2000, among (i) EGS
Associates, L.P., a Delaware limited partnership, (ii) EGS
Partners, L.L.C., a Delaware limited liability company, (iii)
Bev Partners, L.P., a Delaware limited partnership, (iv) Jonas
Partners, L.P., a New York limited partnership, (v) FK
Investments, L.P., a Delaware limited partnership, (vi)
William Ehrman, (vii) Frederic Greenberg, (viii) Jonas Gerstl,
(ix) Julia Oliver, (x) EGS Management, L.L.C., a Delaware
limited liability company, and (xi) the Company.
4. The term "Agreement" as used in the Rights Agreement shall be
deemed to refer to the Rights Agreement as amended hereby.
5. This Amendment may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
[Remainder of this page blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
WORLDTEX, INC.
By:___________________________________
Name: Barry D. Setzer
Title: Chairman of the Board,
President and Chief
Executive Officer
CHASEMELLON SHAREHOLDER SERVICES,
L.L.C.
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT B TO
STANDSTILL AGREEMENT
SHARES OF COMMON STOCK
NAME BENEFICIALLY OWNED
- ---- ------------------
EGS Associates, L.P. 1,083,430
EGS Partners, L.L.C. 3,110,618
Bev Partners, L.P. 414,947
Jonas Partners, L.P. 21,500
FK Investments, L.P. 248,000
William Ehrman 4,878,495
Frederic Greenberg 4,878,495
Jonas Gerstl 4,878,495
Julia Oliver 4,878,495
EGS Management, L.L.C. 1,767,877
---------
Total for all EGS Persons 4,878,495
EXHIBIT 21.1
WORLDTEX, INC.
SUBSIDIARIES
________________________________________________________________________________
STATE OR OTHER JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
__________________ ___________________________
Filix, s.a. France
Moulinage de la Galaure France
Worldtex France, s.a. France
Willcox & Gibbs Filix of Delaware, Delaware
Inc.
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
Worldtex Valliappa Private Limited India
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Worldtex, Inc.:
We consent to the incorporation by reference in Registration Statements on Form
S-8 (Nos. 33-55124, 33-72640, 33-97276 and 333-68975 of Worldtex, Inc. and
subsidiaries of our audit report dated February 27, 1998, relating to
consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows and related schedule for the year ended
December 31, 1997, which report appears in the December 31, 1999 Annual Report
on Form 10-K of Worldtex, Inc.
/s/ KPMG LLP
KPMG LLP
Atlanta, Georgia
March 27, 2000
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-55124, 33-72640, 33-97276 and 333-68975 of Worldtex, Inc. on Form S-8 of our
report dated March 30, 2000, appearing in this Annual Report on Form 10-K of
Worldtex, Inc. for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Hickory, North Carolina
March 30, 2000
<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, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,686
<SECURITIES> 0
<RECEIVABLES> 46,445
<ALLOWANCES> 6,568
<INVENTORY> 61,817
<CURRENT-ASSETS> 113,171
<PP&E> 158,821
<DEPRECIATION> 48,796
<TOTAL-ASSETS> 314,436
<CURRENT-LIABILITIES> 65,776
<BONDS> 182,539
0
0
<COMMON> 147
<OTHER-SE> 52,345
<TOTAL-LIABILITY-AND-EQUITY> 314,436
<SALES> 285,787
<TOTAL-REVENUES> 285,787
<CGS> 243,052
<TOTAL-COSTS> 243,052
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,830
<INTEREST-EXPENSE> 19,952
<INCOME-PRETAX> (9,975)
<INCOME-TAX> 170
<INCOME-CONTINUING> (10,145)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,145)
<EPS-BASIC> (.71)
<EPS-DILUTED> (.71)
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