FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 1-11438
WORLDTEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1789271
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
915 Tate Boulevard, S.E., Suite 106, Hickory, North Carolina 28602
(Address of principal executive offices) (Zip Code)
(828) 322-2242
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
----------------------- ---------------------- -------------------
November 14, 2000 Common Stock 14,271,171
<PAGE>
WORLDTEX, INC.
INDEX
PAGE NUMBER
PART I - Financial Information
Consolidated Statements of Operations (Unaudited) for the
Three and Nine Months Ended September 30, 2000 and 1999 1
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited) for the Three and Nine Months Ended September 1
30, 2000 and 1999
Consolidated Balance Sheets at September 30, 2000
(Unaudited) and December 31, 1999 2
Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 2000 and 1999 3
Notes to Consolidated Condensed Financial Statements 4-12
(Unaudited)
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-18
PART II - Other Information 19
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $56,339 69,721 197,882 221,345
Costs of goods sold 48,507 59,254 167,860 183,217
------- ------- -------- --------
Gross profit 7,832 10,467 30,022 38,128
Selling & administrative expense 6,327 5,898 19,636 18,588
Goodwill amortization 761 719 2,301 2,247
------- ------- ------- -------
Operating profit 744 3,850 8,085 17,293
Interest expense 5,351 5,007 15,808 14,965
Other income (expense) - net (146) (402) (238) (387)
-------- -------- -------- --------
Income (loss) before income
taxes (4,753) (1,559) (7,961) 1,941
Income tax provision (benefit) 204 (847) 899 578
------- -------- -------- --------
Income (loss) before
extraordinary item (4,957) (712) (8,860) 1,363
Extraordinary item, net (564) - (564) -
-------- ------- -------- -------
Net income (loss) $(5,521) (712) (9,424) 1,363
======== ======== ======== =======
Basic and diluted net income
(loss) per share:
Income (loss) before $ (.35) (.05) (.62) .10
extraordinary item
Extraordinary item, net (.04) - (.04) -
-------- ------- -------- -------
Net income (loss) $ (.39) (.05) (.66) .10
======== ======= ======== =======
Weighted average shares outstanding:
Basic 14,271 14,271 14,271 14,271
======= ======= ======= =======
Diluted 14,271 14,271 14,271 14,271
======= ======= ======= =======
</TABLE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(5,521) (712) (9,424) 1,363
Other comprehensive income (loss):
Foreign translation adjustment (4,307) 1,748 (7,283) (8,058)
-------- ------- -------- --------
Comprehensive income (loss) $(9,828) 1,036 (16,707) (6,695)
======== ======= ======== ========
See accompanying notes to consolidated condensed financial statements
</TABLE>
<PAGE>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,946 5,686
Accounts and notes receivable, less allowance
for doubtful accounts of $6,844 in 2000 and
$6,568 in 1999 35,886 39,877
Inventories 52,227 61,817
Prepaid expenses and other current assets 5,507 5,791
-------- --------
Total current assets 101,566 113,171
Property, plant and equipment - net 101,449 110,025
Other assets 8,424 8,625
Cost in excess of net assets of acquired businesses,
net of accumulated amortization of $13,403
in 2000 and $11,546 in 1999 78,916 82,615
-------- --------
$290,355 314,436
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,543 6,423
Current installments of long-term debt 1,331 25,092
Accounts payable-trade and other liabilities 37,317 33,780
Income taxes payable 1,154 481
-------- --------
Total current liabilities 43,345 65,776
Long-term debt 198,840 182,539
Other long-term liabilities 3,013 3,073
Deferred income taxes 9,372 10,556
-------- --------
Total liabilities 254,570 261,944
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock - -
Common stock (shares issued of 14,701
in 2000 and 1999) 147 147
Paid-in capital 30,084 30,084
Retained earnings 36,600 46,024
Accumulated other comprehensive loss (28,697) (21,414)
Treasury stock, at cost (430 shares in
2000 and 1999) (2,349) (2,349)
-------- --------
Total stockholders' equity 35,785 52,492
-------- --------
$290,355 $314,436
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(9,424) 1,363
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 10,162 9,364
Amortization 2,301 2,247
Provision for losses on accounts receivable 449 480
Deferred income taxes (34) (2,305)
Change in assets and liabilities:
Accounts and notes receivable 1,867 (10,278)
Inventories 7,730 (3,534)
Prepaid expenses and other current assets 203 271
Accounts payable - trade and other liabilities 4,275 11,453
Income taxes payable 786 532
------- -------
Net cash provided by operating activities 18,315 9,593
------- -------
Cash flows from investing activities:
Capital expenditures (5,578) (13,280)
Other investing activities 99 1,704
------- -------
Net cash used in investing activities (5,479) (11,576)
------- -------
Cash flows from financing activities:
Borrowings under line of credit arrangements - 866
Payments under line of credit arrangements (2,880) -
Borrowings under revolving credit facility 134,265 71,600
Payments under revolving credit facility (148,821) (68,390)
Borrowings under long-term loans 7,500 -
Payments under long-term loans - (1,520)
Other financing activities (185) 3,121
------- -------
Net cash provided by (used in) financing (10,121) 5,677
activities ------- -------
Effects of exchange rate changes on cash (455) (721)
------- -------
Net increase in cash and cash equivalents 2,260 2,973
Cash and cash equivalents at beginning of period 5,686 6,715
------- -------
Cash and cash equivalents at end of period $ 7,946 9,688
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $11,332 10,862
======= =======
Income taxes $ 146 2,351
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position and results of operations for the interim periods reported
herein. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's annual report for the fiscal year ended December 31, 1999. The
December 31, 1999 amounts included in the financial statements are derived from
December 31, 1999 audited financial statements and notes thereto. Certain prior
period amounts have been reclassified to conform to the current period
presentation. The reclassifications did not impact net income as previously
reported.
Note 2 - Summary of Significant Accounting Policies
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. The major classes of inventory are as follows:
September 30, December 31,
2000 1999
---- ----
Raw materials $ 16,610 17,836
Work-in-process 5,936 14,035
Finished goods 29,681 29,946
-------- -------
Total inventories $ 52,227 61,817
======== =======
Property, plant and equipment is recorded at cost and depreciated
primarily using the straight-line method over the estimated useful lives of the
related assets. Repairs and maintenance costs are charged to expense as
incurred. Renewals and betterments that substantially extend the useful life of
an asset are capitalized and depreciated. Property, plant and equipment consists
of the following:
September 30, December 31,
2000 1999
---- ----
Land $ 2,699 2,889
Buildings and leasehold improvements 41,059 42,752
Machinery and equipment 113,819 113,180
-------- -------
157,577 158,821
Less accumulated depreciation and 56,128 48,796
amoritization -------- -------
$101,449 110,025
======== =======
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Note 3 - Debt Refinancing
On July 25, 2000, the Company and its U.S. subsidiaries, jointly as
borrowers, entered into a new domestic credit facility with Bank of America, as
agent. The facility provides for revolving credit of up to $40.0 million, with
loan availability determined under a "borrowing base" formula derived from
Worldtex's domestic accounts receivable and inventory as most recently
calculated at the time of the borrowing. In addition, the facility provides for
a term loan of $7.5 million, $3.0 million of which was borrowed on July 25, 2000
and $4.5 million of which was borrowed on September 29, 2000. Loans under the
credit facility bear interest payable monthly at LIBOR or Bank of America's
prime rate, as selected by the Company, in each case plus a margin determined
based on the ratio of the Company's funded debt to EBITDA. The credit facility
requires that the Company comply with certain covenants, including restrictions
on incurrence of additional debt and maintenance of certain minimum levels of
EBITDA. At July 31, 2000, the Company was not in compliance with the minimum
EBITDA debt covenant but has subsequently received a waiver of non-compliance
from the lender. The term loan is payable in quarterly installments of 5% of the
aggregate original term loan amount, commencing January 1, 2001. The term loan
is due in full, and the revolving credit facility terminates, on July 25, 2005.
The Company's obligations under the facility are secured by substantially all of
the assets of the Company and its U.S. subsidiaries.
Note 4 - Extraordinary Item
On July 25, 2000, the Company and its U.S. subsidiaries entered into a new
domestic credit facility with Bank of America as agent. The Company utilized
approximately $20.0 million of new borrowings under the facility to repay its
existing domestic credit facility and to pay transaction expenses. An
extraordinary charge of $.6 million, net of a tax benefit of $.2 million which
was fully offset with a valuation allowance for deferred tax assets, was
recorded for the early debt extinguishment.
Note 5 - Newly Issued Accounting Guidance
The SEC has issued Staff Accounting Bulletin No. 101 ("SAB 101"), as
amended on June 26, 2000, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB 101
provides SEC guidance on the recognition, presentation and disclosure of revenue
in accordance with generally accepted accounting principles in the financial
statements. The Company must implement any applicable provisions of SAB 101 no
later than the fourth quarter of the current fiscal year. The Company has
determined that implementation of the applicable provisions of SAB 101 will not
have a material effect on the Company's financial statements and current
disclosures.
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
The Company plans to adopt SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which requires that all derivative
instruments be reported as either assets or liabilities in the statement of
financial position and measure those instruments at fair value, on January 1,
2001. Derivatives that are not designated as hedges must be adjusted to fair
value with the gain or loss recorded in earnings in the period of the change.
Derivatives designated as hedges, depending on the intended use of the
derivative and the resulting designation, are adjusted to fair value with the
gain or loss either recognized in earnings in the period of change together with
offsetting gain or loss on the hedged item or recognized in comprehensive income
until the hedged item is recognized in earnings. The effect is to immediately
reflect in earnings the ineffective portion of the change in fair value. The
Company currently has interest rate swap agreements and swap option agreements
that currently qualify as hedges. The Company enters into forward exchange
contracts as a hedge against accounts payable denominated in foreign currency.
Management has determined that implementing SFAS No. 133 will not have a
material affect on the Company's results of operations or financial position.
Note 6 - Supplemental Consolidating Financial Information
Long-term debt includes $175,000 of senior notes that are guaranteed by
each of the U.S. subsidiaries of the Company. The guarantor subsidiaries are
wholly-owned subsidiaries of the Company and the guarantees are full,
unconditional and joint and several. There are no restrictions on the ability of
the guarantor subsidiaries to make distributions to the Company, except those
generally applicable under relevant corporation laws. Separate financial
statements of each guarantor subsidiary have not been presented because
management has determined that they are not material to investors. The following
pages include summarized consolidating financial information for the Company,
segregating the parent, the guarantor subsidiaries and nonguarantor
subsidiaries. Certain prior period amounts have been reclassified to conform to
the current period presentation. The reclassification did not impact net income
as previously reported.
Notes to consolidated condensed financial statements
<PAGE>
<TABLE>
WORLDTEX, INC.
Note 6 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Operations
Three Months Ended September 30, 2000
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 40,490 18,444 (2,595) 56,339
Cost of goods sold - 35,744 15,380 (2,617) 48,507
-------- --------- -------- -------- --------
Gross profit - 4,746 3,064 22 7,832
Selling and administrative 1,688 3,429 1,971 - 7,088
expense -------- --------- -------- -------- --------
Operating profit (loss) (1,688) 1,317 1,093 22 744
Interest expense 5,131 114 106 - 5,351
Intercompany interest
(income) expense (2,506) 2,281 225 - -
Intercompany administrative
charges (1,142) 874 268 - -
Other income (expense) - net 105 57 (308) - (146)
-------- --------- -------- -------- --------
Income (loss) before
income taxes (3,066) (1,895) 186 22 (4,753)
Income tax provision
(benefit) 382 (399) 221 - 204
Extraordinary item, net (564) - - - (564)
Equity in earnings (loss) of
subsidiaries (1,531) (35) - 1,566 -
-------- --------- -------- -------- --------
Net loss $ (5,543) (1,531) (35) 1,588 (5,521)
======== ========= ======== ======== ========
</TABLE>
<TABLE>
Consolidating Statements of
Operations Three Months
Ended September 30, 1999
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 50,624 23,939 (4,842) 69,721
Cost of goods sold - 45,059 19,037 (4,842) 59,254
-------- --------- -------- -------- --------
Gross profit - 5,565 4,902 - 10,467
Selling and administrative
expense 762 3,401 2,454 - 6,617
-------- --------- -------- -------- --------
Operating profit (loss) (762) 2,164 2,448 - 3,850
Interest expense 4,767 69 171 - 5,007
Intercompany interest (2,349) 2,121 228 - -
(income) expense
Intercompany administrative (686) 435 251 - -
charges
Other income (expense) - net (753) 382 (31) - (402)
-------- --------- -------- -------- --------
Income (loss) before
income taxes (3,247) (79) 1,767 - (1,559)
Income tax provision
(benefit) (1,187) 55 285 - (847)
Equity in earnings of 1,348 - - (1,348) -
subsidiaries -------- --------- -------- --------- --------
Net income (loss) $ (712) (134) 1,482 (1,348) (712)
======== ========= ======== ========= ========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
<TABLE>
WORLDTEX, INC.
Note 6 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Operations
Nine Months Ended September 30, 2000
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 141,468 68,918 (12,504) 197,882
Cost of goods sold - 124,403 55,931 (12,474) 167,860
-------- ------- ------- -------- --------
Gross profit - 17,065 12,987 (30) 30,022
Selling and administrative
expense 4,121 10,782 7,034 - 21,937
-------- ------- ------- -------- --------
Operating profit (loss) (4,121) 6,283 5,953 (30) 8,085
Interest expense 15,055 312 441 - 15,808
Intercompany interest
(income) expense (7,676) 7,034 642 - -
Intercompany administrative
charges (3,077) 2,290 787 - -
Other income (expense) - net 134 216 (588) - (238)
-------- ------- ------- -------- --------
Income (loss) before
income taxes (8,289) (3,137) 3,495 (30) (7,961)
Income tax provision
(benefit) 1,431 (968) 436 - 899
Extraordinary item, net (564) - - - (564)
Equity in earnings of
subsidiaries 890 3,059 - (3,949) -
-------- ------- ------- -------- --------
Net income (loss) $ (9,394) 890 3,059 (3,979) (9,424)
======== ======= ======= ======== ========
</TABLE>
<TABLE>
Consolidating Statements of Operations
Nine Months Ended September 30, 1999
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 156,800 83,469 (18,924) 221,345
Cost of goods sold - 135,594 66,547 (18,924) 183,217
-------- ------- ------- -------- --------
Gross profit - 21,206 16,922 - 38,128
Selling and administrative
expense 2,531 10,525 7,779 - 20,835
-------- ------- ------- -------- --------
Operating profit (loss) (2,531) 10,681 9,143 - 17,293
Interest expense 13,819 305 841 - 14,965
Intercompany interest
(income) expense (7,701) 7,032 669 - -
Intercompany administrative
charges (1,994) 1,242 752 - -
Other income (expense) - net (458) 421 (350) - (387)
-------- ------- ------- -------- --------
Income (loss) before
income taxes (7,113) 2,523 6,531 - 1,941
Income tax provision
(benefit) (2,702) 1,292 1,988 - 578
Equity in earnings of
subsidiaries 5,774 4,543 - (10,317) -
-------- ------- ------- -------- --------
Net income $ 1,363 5,774 4,543 (10,317) 1,363
======== ======= ======= ======== ========
Notes to consolidated condensed financial statements
</TABLE>
<PAGE>
<TABLE>
WORLDTEX, INC.
Note 6 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
September 30, 2000
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 2,448 (2,448) 7,946 - 7,946
Accounts and notes
receivable, net 247 16,980 18,659 - 35,886
Inventories - 34,686 18,011 (470) 52,227
Prepaid expenses and other
current assets 4,805 190 512 - 5,507
-------- ------- ------- -------- --------
Total current assets 7,500 49,408 45,128 (470) 101,566
Property, plant and
equipment, net 6,061 54,205 41,220 (37) 101,449
Other assets 7,560 170 694 - 8,424
Cost in excess of net assets
of acquired businesses, net - 62,470 16,446 - 78,916
Intercompany investments 107,929 98,236 - (206,165) -
Intercompany advances 139,323 - - (139,323) -
-------- ------- ------- -------- --------
$268,373 264,489 103,488 (345,995) 290,355
======== ======= ======= ======== ========
Liabilities and stockholders'
equity
Current liabilities
Short-term borrowings $ - - 3,543 - 3,543
Current installments of
long-term debt 1,125 - 206 - 1,331
Accounts payable-trade and
other liabilities 12,238 12,144 12,935 - 37,317
Income taxes payable
(refundable) 1,462 (1,672) 1,364 - 1,154
Total current liabilities 14,825 10,472 18,048 - 43,345
Long-term debt 191,678 6,000 1,162 - 198,840
Other long-term liabilities 2,547 - 466 - 3,013
Deferred income taxes (5,668) 6,807 8,233 - 9,372
Intercompany payables - 133,283 6,040 (139,323) -
-------- ------- ------- -------- --------
Total liabilities 203,382 156,562 33,949 (139,323) 254,570
-------- ------- ------- -------- --------
Stockholders' equity
Preferred stock - - - - -
Common stock 147 - 37,720 (37,720) 147
Paid-in capital 30,084 38,793 - (38,793) 30,084
Retained earnings 37,109 69,134 60,516 (130,159) 36,600
Accumulated other
comprehensive loss - - (28,697) (28,697)
Less-treasury stock,
at cost (2,349) - - - (2,349)
-------- ------- ------- -------- --------
Total stockholders'
equity 64,991 107,927 69,539 (206,672) 35,785
-------- ------- ------- -------- --------
$268,373 264,489 103,488 (345,995) 290,355
======== ======= ======= ========= ========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
<TABLE>
WORLDTEX, INC.
Note 6 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
December 31, 1999
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,769 (1,769) 5,686 - 5,686
Accounts and notes 315 18,173 21,389 - 39,877
receivable, net
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 24,860 - 232 - 25,092
long-term debt
Accounts payable-trade and 8,246 10,393 15,141 - 33,780
other liabilities
Income taxes payable 1,230 682 - 481 (1,431)
-------- -------- -------- -------- --------
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
comprehensive loss - - (21,414) - (21,414)
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>
Notes to consolidated condensed financial statements
<PAGE>
<TABLE>
WORLDTEX, INC.
Note 6 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2000
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(9,394) 890 3,059 (3,979) (9,424)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Undistributed earnings of
subsidiaries (890) (3,059) - 3,949 -
Depreciation and
amortization 910 7,111 4,442 - 12,463
Provision for losses on
accounts
receivable - 219 230 - 449
Deferred income taxes (191) 653 (496) - (34)
Change in assets and
liabilities:
Accounts and notes
receivable 69 974 824 - 1,867
Inventories - 6,040 1,660 30 7,730
Prepaid expenses and
other current assets (606) 477 332 - 203
Accounts payable - trade
and other liabilities 3,993 1,751 (1,469) - 4,275
Income taxes payable 233 (241) 794 - 786
------- ------- ------- -------- -------
Net cash provided by
(used (5,876) 14,815 9,376 - 18,315
-------- ------- ------- -------- -------
in)
operating activities
Cash flows from investing
activities:
Capital expenditures (1,818) (2,058) (1,702) - (5,578)
Other investing activities (62) 142 19 - 99
-------- ------- ------- ------- -------
Net cash used in (1,880) (1,916) (1,683) - (5,479)
investing activities -------- -------- -------- ------- -------
Cash flows from financing
activities:
Payments under line of
credit arrangements - - (2,880) - (2,880)
Borrowings under
revolving credit facility 134,265 - - - 134,265
Payments under revolving (148,821) - - - (148,821)
credit facility
Borrowing under long-term 7,500 - - - 7,500
loans
Advances (repayments) -
affiliated companies 15,277 (13,578) (1,699) - -
Other financing activities - - (185) - (185)
-------- ------- ------- ------- -------
Net cash provided by
(used in) financing 8,221 (13,578) (4,764) - (10,121)
activities -------- ------- ------- ------- -------
Effects of exchange rate 214 - (669) - (455)
-------- ------- -------- ------- --------
changes in cash
Net increase (decrease) 679 (679) 2,260 - 2,260
in cash
Cash at beginning of period 1,769 (1,769) 5,686 - 5,686
-------- ------- ------- ------- --------
Cash at end of period $ 2,448 (2,448) 7,946 - 7,946
======== ======== ======= ======= ========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
<TABLE>
WORLDTEX, INC.
Note 6 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Cash Flows
Nine Months Ended September 30, 1999
<CAPTION>
Guarantor Non-guarantor
Worldtex, Domestic Foreign
Inc. Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 1,363 5,774 4,543 (10,317) 1,363
Adjustments to reconcile net
income to net
cash provided by (used in)
operating
activities:
Undistributed earnings of (5,774) (4,543) - 10,317 -
subsidiaries
Depreciation and 21 7,270 4,320 - 11,611
amortization
Provision for losses on
accounts
receivable - 166 314 - 480
Deferred income taxes (2,965) 968 (308) - (2,305)
Change in assets and
liabilities:
Accounts and notes (204) (9,058) (1,016) - (10,278)
receivable
Inventories - (4,434) 900 - (3,534)
Prepaid expenses and
other current
assets (243) 19 495 - 271
Accounts payable - trade
and other liabilities 5,403 5,587 463 - 11,453
Income taxes payable 47 493 (8) 532
------- ------- -------- ------- -------
Net cash provided by
(used in) operating
activities (2,352) 2,242 9,703 - 9,593
-------- ------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,593) (5,862) (3,825) - (13,280)
Acquisitions, net of cash (4,080) - - 4,080 -
acquired
Other investing activities (371) 1,792 283 - 1,704
-------- ------- ------- ------- -------
Net cash used in (8,044) (4,070) (3,542) 4,080 (11,576)
investing activities -------- ------- ------- ------- --------
Cash flows from financing activities:
Borrowings under line of
credit arrangements - - 866 - 866
Borrowings under
revolving credit facility 71,600 - - - 71,600
Payments under revolving (68,390) - - - (68,390)
credit facility
Payments under long-term - - (1,520) - (1,520)
loans
Advances (repayments) -
affiliated companies 2,343 1,907 (3,583) (667) -
Other financing activities 2,247 - 3,878 (3,004) 3,121
------- ------- ------- -------- -------
Net cash provided by
(used in) financing 7,800 1,907 (359) (3,671) 5,677
activities ------- ------- -------- -------- -------
Effects of exchange rate - - (312) (409) (712)
changes in cash ------- ------- -------- -------- --------
Net increase (decrease) (2,596) 79 5,490 - 2,973
in cash
Cash at beginning of period 2,596 14 4,105 - 6,715
------- ------- ------- ------- -------
Cash at end of period $ - 93 9,595 - 9,688
======= ======= ======= ======= =======
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentages which certain income and
expense items bear to net sales:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Gross margin 13.9% 15.0% 15.2% 17.2%
------ ------ ------ ------
Selling & administrative
expense 11.2% 8.6% 9.9% 8.3%
Goodwill amortization 1.5% .9% 1.2% 1.1%
------- ------- ------- -------
Operating profit 1.2% 5.5% 4.1% 7.8%
Interest expense 9.6% 7.2% 8.0% 6.8%
Other income (expense) - net (.1%) (.6%) (.1%) (.1%)
-------- -------- -------- --------
Income (loss) before income
taxes (8.5%) (2.3%) (4.0%) .9%
======= ======= ======= ======
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999:
For the quarter ended September 30, 2000, sales decreased by $13.4 million
or 19.2% to $56.3 million, compared with $69.7 million in the 1999 quarter. In
general, sales decreases were attributable to lower unit volume and pricing, an
unfavorable change in product mix, reduced demand in covered yarns and currency
issues in Europe and South America. Total sales of narrow elastic fabrics were
$26.5 million in the current quarter compared with $30.8 million in the prior
year quarter, a decline of 14.0%. Covered elastic yarn sales were $29.8 million
for the quarter compared with $38.9 million in the prior year quarter, a decline
of 23.4%. These declines were due primarily to a reduction in pantyhose demand,
softness in demand for intimate apparel and continued currency issues in Europe.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit for the three months ended September 30, 2000 was $7.8
million or 13.9%, compared to $10.5 million or 15.0% for the same period in
1999. The decrease was due to reduced sales and unfavorable changes in product
mix consisting of higher volumes of lower margin commodity products. Selling and
administrative expenses and goodwill amortization for the three months ended
September 30, 2000 were $7.1 million or 12.7% of sales, as compared to $6.6
million or 9.5% of sales for the same period in 1999. The increase primarily
relates to professional fees for management information system implementation
and for investment banking services. As a result, operating income was $.7
million and $3.9 million for the three months ended September 30, 2000 and 1999,
respectively.
Other income and expense, net, for the quarter was an expense of $.1
million, compared with an expense of $.4 million in the prior year quarter, a
decrease of $.3 million. The net expense in 2000 and 1999 relate principally to
currency losses.
Interest expense for the three months ended September 30, 2000 increased
from the corresponding period in 1999 by $.4 million due to higher borrowing
costs under the Company's new domestic credit facility.
On July 25, 2000, the Company and its U.S. subsidiaries entered into a new
domestic credit facility with Bank of America as agent. The Company utilized
approximately $20.0 million of new borrowings under the facility to repay its
existing domestic credit facility and to pay transaction expenses. An
extraordinary charge of $.6 million, net of a tax benefit of $.2 million which
was fully offset with a valuation allowance for deferred tax assets, was
recorded for the early debt extinguishment.
The Company recorded a $1.8 million valuation allowance in the 2000
quarter for deferred tax assets due to uncertainty as to the future benefit of
its domestic federal net operating loss for 2000.
As a result of the above, net loss for the quarter was $5.5 million
compared with $.7 million in the prior year quarter. Diluted loss per share was
$.39 for the 2000 three-month period compared with $.05 per share in 1999.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
For the nine months ended September 30, 2000, sales decreased by $23.4
million or 10.6%, compared to the nine months ended September 30, 1999. In
general, sales decreases were attributable to lower unit volume and pricing, an
unfavorable change in product mix, reduced demand in covered yarns and currency
issues in Europe and South America. Sales of narrow elastic fabrics were $91.8
million for the nine months ended September 30, 2000, compared to $94.2 million
for the same period of 1999, a decrease of 2.5%. Covered elastic yarn revenues
were $106.1 million for the nine months ended September 30, 2000, which were
16.5% below revenues of $127.1 million for the same period in 1999. These
declines were due primarily to reduced pantyhose demand, softness in demand for
intimate apparel and continued currency issues in Europe.
Gross profit for the nine months ended September 30, 2000 was $30.0
million or 15.2%, compared to $38.1 million or 17.2% for the same period in
1999. The decrease was due to reduced demand in covered yarns, unfavorable
changes in product mix consisting of higher volumes of lower margin commodity
products and increases in costs for petroleum-based raw materials. Selling and
administrative expenses and goodwill amortization for the nine months ended
September 30, 2000 were $21.9 million or 11.1% of sales, as compared to $20.8
million or 9.4% of sales for the same period in 1999. As a result, operating
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
income was $8.1 million and $17.3 million for the nine months ended September
30, 2000 and 1999, respectively.
Interest expense for the nine months ending September 30, 2000 increased
from the corresponding period in 1999 by $.8 million due to higher borrowing
costs under the Company's new domestic credit facility and higher costs under
its prior facility related to the rising interest rate environment and increased
basis point margins payable for domestic borrowings as a result of the Company's
financial performance.
The corporate tax rate in France decreased from 40% to 36.67% effective
January 1, 2000 resulting in a $.8 million reduction to the 2000 income tax
provision to decrease the deferred tax liability as of the effective date of the
change in statutory tax rate. The Company recorded a $4.4 million valuation
allowance for deferred tax assets due to uncertainty as to the future benefit of
its domestic federal net operating loss for 2000.
As a result of the above, net loss for the first nine months of 2000 was
$9.4 million, compared with net income of $1.4 million in the first nine months
of 1999. Diluted loss per share was $.66 for the 2000 nine month period compared
with income of $.10 per share in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets both its long-term and short-term liquidity needs
through internally generated funds and outside borrowings.
Cash totaled $7.9 million at September 30, 2000, representing a net
increase of $2.2 million for the nine months then ended. Cash flows from
operating activities and from financing activities are the principal indicators
of the Company's liquidity. During the first nine months of 2000, $18.3 million
was generated from operating activities as a result of the net loss, adjusted
for the effects of depreciation and amortization and changes in the balances of
receivables, payables, inventories and prepaid expenses and other current
assets. During the first nine months of 2000, $5.6 million was utilized for the
purchase and upgrading of equipment and facilities. The Company anticipates that
its capital expenditures during 2000 will approximate $8 million, primarily for
the purchase of equipment.
EBITDA represents operating profit plus depreciation and amortization
(excludes 1999 one-time severance costs associated with the relocation of the
Company's Canadian conventional covered yarn manufacturing operation.) 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 for the
three-month periods ended September 30, 2000 and 1999 was $5.0 million and $8.0
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
million, respectively, and for the nine-month periods ended September 30, 2000
and 1999 was $20.5 million and $29.1 million, respectively. Depreciation and
amortization for the three-month periods ended September 30, 2000 and 1999 was
$4.3 million and $3.9 million, respectively, and for the nine-month periods
ended September 30, 2000 and 1999 was $12.5 million and $11.6 million,
respectively.
Working capital was $58.3 million at September 30, 2000 and $47.4 million
at December 31, 1999, reflecting an increase of $10.9 million and current ratios
of 2.3 and 1.7 at September 30, 2000 and December 31, 1999.
On July 25, 2000, the Company and its U.S. subsidiaries, jointly as
borrowers, entered into a new domestic credit facility with Bank of America, as
agent. The facility provides for revolving credit of up to $40.0 million, with
loan availability determined under a "borrowing base" formula derived from
Worldtex's domestic accounts receivable and inventory as most recently
calculated at the time of the borrowing. In addition, the facility provides for
a term loan of $7.5 million, $3.0 million of which was borrowed on July 25, 2000
and $4.5 million of which was borrowed on September 29, 2000. Loans under the
credit facility bear interest at LIBOR or Bank of America's prime rate, as
selected by the Company, in each case plus a margin determined based on the
ratio of the Company's funded debt to EBITDA. The credit facility requires that
the Company comply with certain covenants, including restrictions on incurrence
of additional debt and maintenance of certain minimum levels of EBITDA. At July
31, 2000, the Company was not in compliance with the minimum EBITDA debt
covenant but has subsequently received a waiver of non-compliance from the
lender. The term loan is payable in quarterly installments of 5% of the
aggregate original term loan amount, commencing January 1, 2001. The term loan
is due in full, and the revolving credit facility terminates, on July 25, 2005.
The Company's obligations under the facility are secured by substantially all of
the assets of the Company and its U.S. subsidiaries, but not assets of its
foreign subsidiaries. The Company utilized approximately $20.0 million of new
borrowings under the facility to repay its existing domestic credit facility and
to pay transaction expenses, and at September 30, 2000, $15.0 million was
available for borrowing under the revolving credit facility.
As a result of the Company's financial results during 2000, the Company
cannot predict whether it will have sufficient liquidity to enable it to make
the interest payment due December 15, 2000 on the 9 5/8% Senior Notes. The
Company's domestic credit facility requires that, after giving effect to the
payment of interest on the 9 5/8% Senior Notes, the Company must have additional
unused borrowing availability under the facility of not less than $8.0 million.
Accordingly, the Company's ability to borrow under the domestic credit facility
to make such interest payment may be restricted. However, the Company expects to
have adequate short-term liquidity in order to meet the normal operational cash
flow needs of its business. The Company is reviewing various alternatives for
restructuring its domestic debt and has engaged the investment banking firm
Houlihan Lokey Howard & Zukin to assist it. In addition, the Company has entered
into discussions with an informal committee of the holders of the 9-5/8% Senior
Notes regarding a restructuring of the Company's domestic debt. The Company has
been advised that the members of such informal committee represent holders of a
majority in principal amount of the 9-5/8% Senior Notes.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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" in Item
7 of the Company's Annual Report on Form 10-K for 1999, the financial strength
of the apparel industry, the level of consumer spending for apparel, changing
consumer preferences, the competitive pricing environment within the apparel
industry, foreign currency translation, success of new product introductions,
and other risk factors. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in, or implied by, such
forward-looking statements, which reflect management's judgment only as of the
date hereof. The Company does not intend to update publicly this information to
reflect new information, future events or otherwise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in market risk during the first nine
months of 2000 from that which was reported in the Company's Annual Report on
Form 10-K for 1999.
<PAGE>
WORLDTEX, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 Loan and Security Agreement, dated as of July 25,
2000, among the lenders named therein, Bank of
America, N.A., as the Agent, and the Company and each
of its U.S. subsidiaries, as the Borrowers
27.1 Financial Data Schedule (filed with EDGAR only)
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the Company did not file any
reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLDTEX, INC.
(Registrant)
Date: November 14, 2000 By: /S/ BARRY D. SETZER
--------------------------
Barry D. Setzer
Chairman of the Board
President, and Chief
Executive Officer
By: /S/ MITCHELL R. SETZER
--------------------------
Mitchell R. Setzer
Chairman of the Board
President, and Chief
Executive Officer
