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 June 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 (I.R.S. Employer
of incorporation or Identification No.)
organization)
915 Tate Boulevard, S.E., Suite 106, 28602
Hickory, North Carolina (Zip Code)
(Address of principal executive offices)
(828) 322-2242
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Date Class Shares Outstanding
------------------ ---------------- ----------------------
August 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 Six Months Ended June 30, 2000 and 1999 1
Consolidated Statements of Comprehensive Loss (Unaudited)
for the Three and Six Months Ended June 30, 2000 and 1999 1
Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December 31, 1999 2
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 2000 and 1999 3
Notes to Consolidated Condensed Financial Statements
(Unaudited) 4-12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-17
PART II - Other Information 18
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $67,609 73,607 141,543 151,624
Costs of goods sold 56,030 60,090 119,353 124,579
-------- -------- -------- --------
Gross profit 11,579 13,517 22,190 27,045
Selling and administrative expense 7,471 6,222 13,309 12,073
Goodwill amortization 775 687 1,540 1,529
-------- -------- -------- --------
Operating profit 3,333 6,608 7,341 13,443
Interest expense 5,284 5,052 10,457 9,958
Other income (expense) - net (244) 524 (92) 15
-------- -------- -------- --------
Income (loss) before income taxes (2,195) 2,080 (3,208) 3,500
Provision for income taxes 633 820 695 1,425
-------- -------- -------- --------
Net income (loss) $(2,828) 1,260 (3,903) 2,075
======== ======== ======== ========
Net income (loss) per share:
Basic $ (.20) .09 (.27) .15
======== ======== ======== ========
Diluted $ (.20) .09 (.27) .15
======== ======== ======== ========
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 LOSS
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(2,828) 1,260 (3,903) 2,075
Other comprehensive loss:
Foreign translation adjustment (117) (5,049) (2,976) (9,806)
-------- -------- -------- --------
Comprehensive loss $(2,945) (3,789) (6,879) (7,731)
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,990 5,686
Accounts and notes receivable, less allowance
for doubtful accounts of $6,700 in 2000 and
$6,568 in 1999 41,036 39,877
Inventories 55,879 61,817
Prepaid expenses and other current assets 5,479 5,791
Total current assets 109,384 113,171
-------- --------
Property, plant and equipment - net 105,766 110,025
Other assets 8,610 8,625
Cost in excess of net assets of acquired
businesses, net of accumulated amortization of
$12,911 in 2000 and $11,546 in 1999 80,500 82,615
-------- --------
$304,260 314,436
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,190 6,423
Current installments of long-term debt 219 25,092
Accounts payable-trade and other liabilities 37,762 33,780
Income taxes payable 1,620 481
-------- --------
Total current liabilities 43,791 65,776
Long-term debt 201,979 182,539
Other long-term liabilities 3,049 3,073
Deferred income taxes 9,828 10,556
-------- --------
Total liabilities 258,647 261,944
-------- --------
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 42,121 46,024
Accumulated other comprehensive loss (24,390) (21,414)
Treasury stock, at cost (430 shares in 2000 and
1999) (2,349) (2,349)
-------- --------
Total stockholders' equity 45,613 52,492
-------- --------
$304,260 314,436
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,903) 2,075
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation 6,663 6,195
Amortization 1,540 1,529
Provision for losses on accounts
receivable 259 303
Deferred income taxes (247) (426)
Change in assets and liabilities:
Accounts and notes receivable (2,108) (12,022)
Inventories 5,180 (4,140)
Prepaid expenses and other current 271 (455)
assets
Accounts payable -trade and other 4,286 7,839
current liabilities
Income taxes payable 1,164 270
-------- --------
Net cash provided by operating
activities 13,105 1,168
-------- --------
Cash flows from investing activities:
Capital expenditures (4,086) (8,848)
Other investing activities (30) 2,153
-------- --------
Net cash used in investing activities (4,116) (6,695)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit - 367
arrangements
Payments under line of credit (2,233) -
arrangements
Borrowings under revolving credit 47,760 38,250
facility
Payments under revolving credit facility (52,950) (29,000)
Payments under long-term loans - (1,520)
Other financing activities (148) 2,575
-------- --------
Net cash provided by (used in)
financing activities (7,571) 10,672
-------- --------
Effects of exchange rate changes on cash (114) (1,030)
-------- --------
Net increase in cash and cash
equivalents 1,304 4,115
Cash and cash equivalents at beginning of
period 5,686 6,715
-------- --------
Cash and cash equivalents at end of period $ 6,990 10,830
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9,926 9,854
======== ========
Income taxes - 3,183
======== ========
</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.
Note 2 - Summary of Significant Accounting Policies
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. The major classes of inventory are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Raw materials $ 17,734 17,836
Work-in-process 7,127 14,035
Finished goods 31,018 29,946
-------- --------
Total inventories $ 55,879 61,817
======== ========
</TABLE>
Property, plant and equipment is recorded at cost and depreciated
primarily using the straight-line method over the estimated useful lives of the
related assets. Repairs and maintenance costs are charged to expense as
incurred. Renewals and betterments that substantially extend the useful life of
an asset are capitalized and depreciated. Property, plant and equipment consists
of the following:
<TABLE>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Land $ 2,811 2,889
Buildings and leasehold improvements 42,171 42,752
Machinery and equipment 115,145 113,180
--------- ---------
160,127 158,821
Less accumulated depreciation and 54,361 48,796
amortization --------- ---------
$105,766 110,025
========= =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Note 3 - Supplemental Consolidating Financial Information
Long-term debt includes $175,000 of senior notes which are guaranteed by
each of the U.S. subsidiaries of the Company. The guarantor subsidiaries are
wholly-owned subsidiaries of the Company and the guarantees are full,
unconditional and joint and several. There are no restrictions on the ability of
the guarantor subsidiaries to make distributions to the Company, except those
generally applicable under relevant corporation laws. Separate financial
statements of each guarantor subsidiary have not been presented because
management has determined that they are not material to investors. The following
pages include summarized consolidating financial information for the Company,
segregating the parent, the guarantor subsidiaries and nonguarantor
subsidiaries. Certain prior period amounts have been reclassified to conform
with the current period presentation. The reclassification did not impact net
income as previously reported.
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Operations
Three Months Ended June 30, 2000
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 47,873 24,463 (4,727) 67,609
Cost of goods sold - 41,438 19,322 (4,730) 56,030
---------- --------- --------- ---------- ---------
Gross profit - 6,435 5,141 3 11,579
Selling and administrative
expense 1,398 3,958 2,890 - 8,246
---------- --------- --------- ---------- ---------
Operating profit (loss) (1,398) 2,477 2,251 3 3,333
Interest expense 5,052 114 118 - 5,284
Intercompany interest
(income) expense (2,569) 2,355 214 - -
Intercompany administrative
charges (1,139) 869 270 - -
Other income (expense) - net (34) 88 (298) - (244)
---------- --------- --------- ---------- ---------
Income (loss) before income
taxes (2,776) (773) 1,351 3 (2,195)
Provision (benefit) for
income taxes 641 (371) 363 - 633
Undistributed earnings of
subsidiaries 586 988 - (1,574) -
---------- --------- --------- ---------- ---------
Net income (loss) $ (2,831) 586 988 (1,571) (2,828)
========== ========= ========= ========== =========
</TABLE>
Consolidating Statements of Operations
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 51,873 28,157 (6,423) 73,607
Cost of goods sold - 43,871 22,642 (6,423) 60,090
---------- --------- --------- ---------- ---------
Gross profit - 8,002 5,515 - 13,517
Selling and administrative
expense 1,051 3,488 2,370 - 6,909
---------- --------- --------- ---------- ---------
Operating profit (loss) (1,051) 4,514 3,145 - 6,608
Interest expense 4,523 143 386 - 5,052
Intercompany interest
(income) expense (2,651) 2,442 209 - -
Intercompany administrative
charges (654) 403 251 - -
Other income (expense) - net 243 13 268 - 524
---------- --------- --------- ---------- ---------
Income (loss) before income
taxes (2,026) 1,539 2,567 - 2,080
Provision (benefit) for
income taxes (771) 685 906 - 820
Undistributed earnings of
subsidiaries 2,515 1,661 - (4,176) -
---------- --------- --------- ---------- ---------
Net income $ 1,260 2,515 1,661 (4,176) 1,260
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Operations
Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 100,978 50,474 (9,909) 141,543
Cost of goods sold - 88,659 40,551 (9,857) 119,353
---------- --------- --------- ---------- ---------
Gross profit - 12,319 9,923 (52) 22,190
Selling and administrative
expense 2,433 7,353 5,063 - 14,849
---------- --------- --------- ---------- ---------
Operating profit (loss) (2,433) 4,966 4,860 (52) 7,341
Interest expense 9,924 198 335 - 10,457
Intercompany interest
(income) expense (5,170) 4,753 417 - -
Intercompany administrative
charges (1,935) 1,416 519 - -
Other income (expense) - net 29 159 (280) - (92)
---------- --------- --------- ---------- ---------
Income (loss) before income
taxes (5,223) (1,242) 3,309 (52) (3,208)
Provision (benefit) for
income taxes 1,049 (569) 215 - 695
Undistributed earnings of
subsidiaries 2,421 3,094 - (5,515) -
---------- --------- --------- ---------- ---------
Net income (loss) $ (3,851) 2,421 3,094 (5,567) (3,903)
========== ========= ========= ========== =========
</TABLE>
Consolidating Statements of Operations
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 104,867 58,692 (11,935) 151,624
Cost of goods sold - 89,225 47,289 (11,935) 124,579
---------- --------- --------- ---------- ---------
Gross profit - 15,642 11,403 - 27,045
Selling and administrative
expense 1,769 7,123 4,710 - 13,602
---------- --------- --------- ---------- ---------
Operating profit (loss) (1,769) 8,519 6,693 - 13,443
Interest expense 9,052 236 670 - 9,958
Intercompany interest (5,352) 4,911 441 - -
(income) expense
Intercompany administrative
charges (1,308) 807 501 - -
Other income (expense) - net 296 38 (319) - 15
---------- --------- --------- ---------- ---------
Income (loss) before income
taxes (3,865) 2,603 4,762 - 3,500
Provision (benefit) for
income taxes (1,515) 1,237 1,703 - 1,425
Undistributed earnings of
subsidiaries 4,425 3,059 - (7,484) -
---------- --------- --------- ---------- ---------
Net income $ 2,075 4,425 3,059 (7,484) 2,075
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
June 30, 2000
<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 $ 1,410 (1,410) 6,990 - 6,990
Accounts and notes 273 19,364 21,399 - 41,036
receivable, net
Inventories - 36,064 20,307 (492) 55,879
Prepaid expenses and other
current assets 4,598 424 457 - 5,479
---------- --------- --------- ---------- ---------
Total current assets 6,281 54,442 49,153 (492) 109,384
Property, plant and
equipment, net 6,026 55,404 44,374 (38) 105,766
Other assets 7,556 286 768 - 8,610
Cost in excess of net assets
of acquired businesses, net - 63,102 17,398 - 80,500
Intercompany investments 109,459 98,271 - (207,730) -
Intercompany advances 142,042 - - (142,042) -
---------- --------- --------- ---------- ---------
$ 271,364 271,505 111,693 (350,302) 304,260
========== ========= ========= ========== =========
Liabilities and Stockholders'
Equity
Current liabilities
Short-term borrowings $ - - 4,190 - 4,190
Current installments of
long-term debt - - 219 - 219
Accounts payable-trade and
other liabilities 7,780 13,039 16,943 - 37,762
Income taxes payable 1,396 (1,555) 1,779 - 1,620
---------- --------- --------- ---------- ---------
Total current liabilities 9,176 11,484 23,131 - 43,791
Long-term debt 194,670 6,000 1,309 - 201,979
Other long-term liabilities 2,547 - 502 - 3,049
Deferred income taxes (5,563) 6,671 8,720 - 9,828
Intercompany payables - 137,892 4,150 (142,042) -
---------- --------- --------- ---------- ---------
Total liabilities 200,830 162,047 37,812 (142,042) 258,647
---------- --------- --------- ---------- ---------
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 42,652 70,665 60,551 (131,747) 42,121
Accumulated other
comprehensive loss - - (24,390) - (24,390)
Less-treasury stock, at cost (2,349) - - - -
---------- --------- --------- ---------- ---------
Total stockholders' equity 70,534 109,458 73,881 (208,260) 45,613
---------- --------- --------- ---------- ---------
$ 271,364 271,505 111,693 (350,302) 304,260
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 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
long-term debt 24,860 - 232 - 25,092
Accounts payable-trade and
other liabilities 8,246 10,393 15,141 - 33,780
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
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>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Cash Flows
Six Months Ended June 30, 2000
<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) $ (3,851) 2,421 3,094 (5,567) (3,903)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Undistributed earnings of
subsidiaries (2,421) (3,094) - 5,515 -
Depreciation and
amortization 532 4,738 2,933 - 8,203
Provision for losses on
accounts receivable - 150 109 - 259
Deferred income taxes (85) 517 (679) - (247)
Change in assets and
liabilities:
Accounts and notes 41 (1,341) (808) - (2,108)
receivable
Inventories - 4,655 471 54 5,180
Prepaid expenses and other
current assets (397) 243 425 - 271
Accounts payable - trade
and other current
liabilities (465) 2,646 2,105 - 4,286
Income taxes payable 165 (124) 1,123 - 1,164
---------- --------- --------- ---------- ---------
Net cash provided by
(used in) operating
activities (6,481) 10,811 8,773 2 13,105
---------- --------- --------- ---------- ---------
Cash flows from investing
activities:
Capital expenditures (1,404) (1,513) (1,169) - (4,086)
Other investing activities (51) 23 - (2) (30)
---------- --------- --------- ---------- ---------
Net cash used in
investing activities (1,455) (1,490) (1,169) (2) (4,116)
---------- --------- --------- ---------- ---------
Cash flows from financing
activities:
Payments under line of
credit arrangements - - (2,233) - (2,233)
Borrowings under revolving
credit facility 47,760 - - - 47,760
Payments under revolving
credit facility (52,950) - - - (52,950)
Advances - affiliated
companies 12,662 (8,962) (3,700) - -
Other financing activities - - (148) - (148)
---------- --------- --------- ---------- ---------
Net cash provided by (used
in) financing activities 7,472 (8,962) (6,081) - (7,571)
---------- --------- --------- ---------- ---------
Effects of exchange rate
changes in cash 105 - (219) - (114)
---------- --------- --------- ---------- ---------
Net increase (decrease) in
cash (359) 359 1,304 - 1,304
Cash at beginning of year 1,769 (1,769) 5,686 - 5,686
---------- --------- --------- ---------- ---------
Cash at end of period $ 1,410 (1,410) 6,990 - 6,990
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Cash Flows
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 2,075 4,425 3,059 (7,484) 2,075
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Undistributed earnings of
subsidiaries (4,425) (3,059) - 7,484 -
Depreciation and
amortization 12 4,833 2,879 - 7,724
Provision for losses on
accounts receivable - 93 210 - 303
Deferred income taxes (1,582) 828 328 - (426)
Change in assets and
liabilities:
Accounts and notes
receivable - (11,886) (136) - (12,022)
Inventories - (3,856) (284) - (4,140)
Prepaid expenses and other
current assets (955) 102 398 - (455)
Accounts payable - trade
and other current
liabilities (1,245) 6,125 2,959 - 7,839
Income taxes payable 29 424 (183) - 270
---------- --------- --------- ---------- ---------
Net cash provided by
(used in) operating
activities (6,091) (1,971) 9,230 - 1,168
---------- --------- --------- ---------- ---------
Cash flows from investing
activities:
Capital expenditures (1,876) (4,650) (2,322) - (8,848)
Acquisitions, net of cash
acquired (2,250) - - 2,250 -
Other investing activities 589 1,652 (88) - 2,153
---------- --------- --------- ---------- ---------
Net cash used in investing
activities (3,537) (2,998) (2,410) 2,250 (6,695)
---------- --------- --------- ---------- ---------
Cash flows from financing
activities:
Borrowings under line of
credit arrangements - - 367 - 367
Borrowings under revolving
credit facility 38,250 - - - 38,250
Payments under revolving
credit facility (29,000) - - - (29,000)
Payments under long-term
loans - - (1,520) - (1,520)
Advances - affiliated
companies (4,465) 4,961 (742) 246 -
Other financing activities 2,247 - 2,574 (2,246) 2,575
---------- --------- --------- ---------- ---------
Net cash provided by
financing activities 7,032 4,961 679 (2,000) 10,672
---------- --------- --------- ---------- ---------
Effects of exchange rate
changes in cash - - (780) (250) (1,030)
---------- --------- --------- ---------- ---------
Net increase (decrease) in
cash (2,596) (8) 6,719 - 4,115
Cash at beginning of year 2,596 14 4,105 - 6,715
---------- --------- --------- ---------- ---------
Cash at end of period $ - 6 10,824 - 10,830
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated condensed financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Note 4 - 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 is expected to be borrowed before September 15, 2000, upon
satisfaction of certain conditions. 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. 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 July 31, 2000, $10.7 million was available for borrowing under the revolving
credit facility.
Note 5 - Newly Issued Accounting Guidance
The SEC has issued Staff Accounting Bulletin No. 101 ("SAB 101"), as
amended on June 26, 2000, titled "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. However, the SEC has recently indicated that it intends to issue
further guidance with respect to adoption of specific issues addressed by SAB
101. Until such time as this additional guidance is issued, the Company is
unable to assess the impact, if any, it may have on the Company's financial
statements and current disclosures.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentages which certain income and
expense items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Gross margin 17.1% 18.4% 15.7% 17.8%
----- ----- ----- -----
Selling & administrative expense 11.1% 8.5% 9.4% 8.0%
Goodwill amortization 1.1% .9% 1.1% .9%
---- --- ---- ---
Operating profit 4.9% 9.0% 5.2% 8.9%
Interest expense 7.8% 6.9% 7.4% 6.6%
Other income (expense) - net (.4%) .7% (.1 %) -. %
----- --- ------ ----
Income (loss) before income taxes (3.3%) 2.8% (2.3%) 2.3%
====== ==== ====== ====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
For the quarter ended June 30, 2000, sales decreased by $6.0 million or
8.2% to $67.6 million, compared with $73.6 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
$31.4 million in the current and prior year quarter. Covered elastic yarn sales
were $36.2 million for the quarter compared with $42.2 million in the prior year
quarter, a decline of 14.2%. The decline was due primarily to reduced pantyhose
demand as well as continued currency issues in Europe.
Gross profit for the three months ended June 30, 2000 was $11.6 million or
17.1%, compared to $13.5 million or 18.4% for the same period in 1999. The
decrease was due to reduced sales, 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 three months ended June 30, 2000 were $8.2 million or 12.2%
of sales, as compared to $6.9 million or 9.4% of sales for the same period in
1999. The increase primarily relates to professional fees for management
information
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
system implementation. As a result, operating income was $3.3 million and $6.6
million for the three months ended June 30, 2000 and June 30, 1999,
respectively.
Other income and expense, net, for the quarter was an expense of $.2
million, compared with income of $.5 million in the prior year quarter, a
decrease of $.7 million. The net expense in 2000 relates principally to currency
losses, and the 1999 quarter income resulted primarily from foreign currency
gains relating to certain intercompany financing transactions that offset
currency losses.
Interest expense for the three months ended June 30, 2000 increased from
the corresponding period in 1999 by $.2 million due to higher borrowing costs
under the Company's domestic credit facility related to the rising interest rate
environment and increased margins payable for domestic borrowings as a result of
the Company's financial performance.
The Company recorded a $1.5 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 $2.8 million
compared with net income of $1.3 million in the prior year quarter. Diluted loss
per share was $.20 for the 2000 three month period compared with income of $.09
per share in 1999.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
For the six months ended June 30, 2000, sales decreased by $10.1 million
or 6.7%, compared to the six months ended June 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 $65.2 million for
the six months ended June 30, 2000, compared to $63.4 million for the same
period of 1999, an increase of 2.8%. Covered elastic yarn revenues were $76.3
million for the six months ended June 30, 2000, which were 13.5% below revenues
of $88.2 million for the same period in 1999. The decline was due primarily to
reduced pantyhose demand as well as continued currency issues in Europe.
Gross profit for the six months ended June 30, 2000 was $22.2 million or
15.7%, compared to $27.0 million or 17.8% 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 six months ended June 30, 2000 were
$14.8 million or 10.5% of sales, as compared to $13.6 million or 8.9% of sales
for the same period in 1999. As a result, operating income was $7.3 million and
$13.4 million for the six months ended June 30, 2000 and June 30, 1999,
respectively.
Interest expense for the six months ending June 30, 2000 increased from
the corresponding period in 1999 by $.5 million due to higher borrowing costs
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
under the Company's domestic credit facility related to the rising interest rate
environment and increased 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 $2.6 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 six months of 2000 was
$3.9 million, compared with net income of $2.1 million in the first six months
of 1999. Diluted loss per share was $.27 for the 2000 six month period compared
with income of $.15 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 $7.0 million at June 30, 2000, representing a net increase of
$1.3 million for the six months then ended. Cash flows from operating activities
and from financing activities are the principal indicators of the Company's
liquidity. During the first six months of 2000, $13.1 million was generated from
operating activities as a result of 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 six months of 2000, $4.1 million was utilized for the purchase and
upgrading of equipment and facilities. The Company anticipates that its capital
expenditures during 2000 will approximate $10 million, primarily for the
purchase of equipment.
EBITDA represents operating profit plus depreciation and amortization.
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 June 30, 2000 and 1999 was $7.5 million and $10.4
million, respectively, and for the six month periods ended June 30, 2000 and
1999 was $15.5 million and $21.2 million, respectively. Depreciation and
amortization for the three month periods ended June 30, 2000 and 1999 was $4.2
million and $3.8 million, respectively, and for the six month periods ended June
30, 2000 and 1999 was $8.2 million and $7.7 million, respectively.
Working capital was $65.6 million at June 30, 2000 and $47.4 million at
December 31, 1999, reflecting an increase of $18.2 million and current ratios of
2.5 and 1.7 at June 30, 2000 and December 31, 1999.
The Company's domestic revolving credit facility as of June 30, 2000,
which was terminated on July 25, 2000, provided for revolving credit borrowings
in an aggregate principal amount of up to $25.0 million. Loans under the
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
revolving credit facility bore interest at rates based upon a base rate (the
higher of the Bank of America, N.A. prime rate or the Federal Funds rate),
certificates of deposit rates or Eurodollar rates, in each case plus an
applicable margin. Loans under the revolving credit facility were guaranteed by
all U.S. subsidiaries of the Company and were 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 June 30,
2000, Worldtex was not in compliance with financial covenants relating to the
leverage ratio, interest coverage ratio, and minimum tangible net worth of the
domestic credit facility that was terminated on July 25, 2000. The $19.7 million
outstanding balance under the domestic credit facility was classified as current
installments of long-term debt as of June 30, 2000.
At June 30, 2000, the Company had indebtedness of $19.7 million and $5.3
million was available for future borrowings under the domestic credit facility.
In addition, at such date the Company's foreign subsidiaries had $17.3 million
of U.S. dollar equivalent credit availability under bank lines of credit, of
which $4.2 million was outstanding as of June 30, 2000. The most restrictive
covenant of the Indenture for the Company's 9 5/8% Senior Notes (the "9 5/8%
Notes") limits short-term borrowings by the Company's foreign subsidiaries to a
total of $15.0 million, excluding certain existing indebtedness.
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 is expected to be borrowed before September 15, 2000, upon
satisfaction of certain conditions. 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. 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 July 31, 2000, $10.7 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% Notes. The Company's
domestic credit facility requires that, after giving effect to the payment of
interest on the 9 5/8% Notes, the Company must have additional unused borrowing
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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. As a result, the Company is reviewing
various alternatives for restructuring its domestic debt and has engaged the
investment banking firm Houlihan Lokey Howard & Zukin to evaluate various
strategic alternatives. The Company believes that it has adequate liquidity to
continue to meet its other short-term obligations, including trade payables,
absent significant changes in the terms of those obligations.
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.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in market risk during the first six
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 24, 2000. At
the meeting, the following persons were elected as directors of the Company by
the votes indicated below:
<TABLE>
<CAPTION>
NAME AUTHORITY FOR WITHHELD
---- ------------- --------
<S> <C> <C>
Salim M. Ibrahim 8,862,209 1,611,373
Barry D. Setzer 8,858,994 1,614,588
</TABLE>
In addition, the terms as directors of the Company of Claude D. Egler,
John B. Fraser, Willi Roelli, and John K. Ziegler continued after the annual
meeting.
Also submitted to a vote of the stockholders were certain amendments to
the Company's 1992 Stock Incentive Plan. These amendments were adopted by a vote
of 6,824,516 shares for, 3,628,829 shares against, 20,237 shares abstaining and
no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
27.1 Financial Data Schedule (filed with EDGAR only)
(b) Reports on Form 8-K
During the quarter ended June 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: August 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
Treasurer and Secretary;
Acting Chief Financial
Officer
