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 March 31, 2000
Commission file number 1-11438
WORLDTEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-178927
(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
- ----------------------- ---------------------- ----------------------
May 15, 2000 Common Stock 14,271,171
<PAGE>
WORLDTEX, INC.
INDEX
PAGE NUMBER
PART I - Financial Information
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended March 31, 2000 and 1999 1
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited) for the Three Months Ended March 31, 2000 and 1
1999
Consolidated Balance Sheets at March 31, 2000 (Unaudited)
and December 31, 1999 2
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements (Unaudited) 4-11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-16
PART II - Other Information 17
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Net sales $73,934 78,017
Costs of goods sold 63,323 64,489
-------- --------
Gross profit 10,611 13,528
Selling & administrative expense 5,838 5,852
Goodwill amortization 765 841
-------- --------
Operating profit 4,008 6,835
Interest expense 5,173 4,906
Other income (expense) - net 152 (509)
-------- --------
Income (loss) before income taxes (1,013) 1,420
Provision for income taxes 62 605
-------- --------
Net income (loss) $(1,075) 815
======== ========
Net income (loss) per share:
Basic $ (.08) .06
======== ========
Diluted $ (.08) .06
======== ========
Weighted average shares outstanding
Basic 14,271 14,271
======== ========
Diluted 14,271 14,271
======== ========
</TABLE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Net income (loss) $(1,075) 815
Other comprehensive loss:
Foreign currency translation adjustments (2,859) (4,757)
-------- --------
Comprehensive loss $(3,934) (3,942)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,228 5,686
Accounts and notes receivable, less allowance for
doubtful accounts of $ 6,707 in 2000 and $ 6,568
in 1999 44,653 39,877
Inventories 56,590 61,817
Prepaid expenses and other current assets 5,568 5,791
---------- ----------
Total current assets 112,039 113,171
Property, plant and equipment - net 107,079 110,025
Other assets 8,712 8,625
Cost in excess of net assets of acquired businesses,
net of accumulated amortization of $ 12,141 in
2000 and $ 11,546 in 1999 81,302 82,615
---------- ----------
$ 309,132 314,436
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $4,701 6,423
Current installments of long-term debt 18,477 25,092
Accounts payable-trade and other liabilities 42,002 33,780
Income taxes payable 272 481
---------- ----------
Total current liabilities 65,452 65,776
Long-term debt 182,417 182,539
Other long-term liabilities 3,047 3,073
Deferred income taxes 9,658 10,556
---------- ----------
Total liabilities 260,574 261,944
---------- ----------
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 44,949 46,024
Accumulated other comprehensive loss (24,273) (21,414)
Treasury stock, at cost (430 shares in 2000 and
1999) (2,349) (2,349)
---------- ----------
Total stockholders' equity 48,558 52,492
---------- ----------
$ 309,132 314,436
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,075) 815
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 3,244 3,092
Amortization 765 841
Provision for losses on accounts receivable 134 121
Deferred income taxes (449) (1,169)
Change in assets and liabilities:
Accounts and notes receivable (5,528) (10,232)
Inventories 4,540 1,931
Prepaid expenses and other current assets 193 301
Accounts payable - trade and other liabilities 8,475 9,327
Income taxes payable (197) 997
-------- --------
Net cash provided by operating activities 10,102 6,024
-------- --------
Cash flows from investing activities:
Capital expenditures (1,890) (3,036)
Other investing activities (139) (745)
-------- --------
Net cash used in investing activities (2,029) (3,781)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit arrangements - -
Payments under line of credit arrangements (1,722) (118)
Borrowings under revolving credit facility 300 2,000
Payments under revolving credit facility (5,160) -
Other financing activities (1,792) (1,822)
-------- --------
Net cash provided by (used in) financing
activities (8,374) 60
-------- --------
Effects of exchange rate changes on cash (157) 356
-------- --------
Net increase (decrease) in cash and cash
equivalents (458) 2,659
Cash and cash equivalents at beginning of period 5,686 6,715
-------- --------
Cash and cash equivalents at end of period $ 5,228 9,374
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 796 655
======== ========
Income taxes $ 708 6,511
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
Note 1 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position and results of operations for the interim periods reported
hereon. It is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes
thereto included in the Company's annual report for the fiscal year ended
December 31, 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:
March 31, December 31,
2000 1999
---- ----
Raw materials $ 15,429 17,836
Work-in-process 12,797 14,035
Finished goods 28,364 29,946
--------- --------
Total inventories $ 56,590 61,817
========= ========
Property, plant and equipment are 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 which substantially extend the useful life of
an asset are capitalized and depreciated. Property, plant and equipment consists
of the following:
March 31, December 31,
2000 1999
---- ----
Land $ 2,814 2,889
Buildings and leasehold improvements 42,103 42,752
Machinery and equipment 113,256 113,180
-------- --------
158,173 158,821
Less accumulated depreciation and 51,094 48,796
amortization -------- --------
$107,079 110,025
======== ========
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,
Notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(Dollars in thousands)
unconditional and joint and several. There are no restrictions on the ability of
the guarantor subsidiaries to make distributions to the Company, except those
generally applicable under relevant corporation laws. Separate financial
statements of each guarantor subsidiary have not been presented because
management has determined that they are not material to investors. The following
pages include summarized consolidating financial information for the Company,
segregating the parent, the guarantor subsidiaries and nonguarantor
subsidiaries.
Notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Operations
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 53,104 26,011 (5,181) 73,934
Cost of goods sold - 47,220 21,229 (5,126) 63,323
---------- --------- --------- ---------- ---------
Gross profit - 5,884 4,782 (55) 10,611
Selling and administrative
expense 1,036 3,395 2,172 - 6,603
---------- --------- --------- --------- ---------
Operating profit (loss) (1,036) 2,489 2,610 (55) 4,008
Interest expense 4,872 85 216 - 5,173
Intercompany interest
(income) expense (2,601) 2,398 203 - -
Intercompany administrative
charges (797) 546 251 - -
Other income (expense) - net 63 72 17 - 152
---------- --------- --------- --------- ---------
Income (loss) before
income taxes (2,447) (468) 1,957 (55) (1,013)
Provision (benefit) for
income taxes 409 (199) (148) - 62
Undistributed earnings of 1,836 2,105 - (3,941) -
expense ---------- --------- --------- --------- ---------
Net income (loss) $ (1,020) 1,836 2,105 (3,996) (1,075)
========== ========= ========= ========== ==========
</TABLE>
Notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Operations
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Domestic Foreign
WORLDTEX, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - 52,994 30,535 (5,512) 78,017
Cost of goods sold - 45,354 24,647 (5,512) 64,489
---------- --------- --------- ---------- ---------
Gross profit - 7,640 5,888 - 13,528
Selling and administrative
expense 718 3,635 2,340 - 6,693
---------- --------- --------- ---------- ---------
Operating profit (loss) (718) 4,005 3,548 - 6,835
Interest expense 4,529 93 284 - 4,906
Intercompany interest
(income) expense (2,701) 2,469 232 - -
Intercompany administrative
charges (654) 404 250 - -
Other income (expense) - net 53 25 (587) - (509)
---------- --------- --------- ---------- ---------
Income (loss) before
income taxes (1,839) 1,064 2,195 - 1,420
Provision (benefit) for
income taxes (744) 552 797 - 605
Undistributed earnings of
subsidiaries 1,910 1,398 - (3,308) -
---------- --------- --------- ---------- ---------
Net income $ 815 1,910 1,398 (3,308) 815
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Balance Sheet
March 31, 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 $ 3,274 (3,274) 5,228 - 5,228
Accounts and notes receivable,
net 976 23,135 20,542 - 44,653
Inventories - 37,387 19,695 (492) 56,590
Prepaid expenses and other
current assets 4,523 404 641 - 5,568
---------- --------- --------- ---------- ---------
Total current assets 8,773 57,652 46,106 (492) 112,039
Property, plant and equipment, net 5,632 56,287 45,201 (41) 107,079
Other assets 7,665 275 772 - 8,712
Cost in excess of net assets of
acquired businesses, net - 63,733 17,569 - 81,302
Intercompany investments 108,874 97,282 - (206,156) -
Intercompany advances 148,770 - - (148,770) -
---------- --------- --------- ---------- ---------
$ 279,714 275,229 109,648 (355,459) 309,132
========== ========= ========= ========== =========
Liabilities and Stockholders'
Equity
Current liabilities
Short-term borrowings $ - - 4,701 - 4,701
Current installments of
long-term debt 18,260 - 217 - 18,477
Accounts payable-trade and
other liabilities 14,780 13,436 13,786 - 42,002
Income taxes payable 1,296 (1,466) 442 - 272
---------- --------- --------- ---------- ---------
Total current liabilities 34,336 11,970 19,146 - 65,452
Long-term debt 175,000 6,000 1,417 - 182,417
Other long-term liabilities 2,547 - 500 - 3,047
Deferred income taxes (5,534) 6,421 8,771 - 9,658
Intercompany payables - 141,965 6,805 (148,770) -
---------- --------- --------- ---------- ---------
Total liabilities 206,349 166,356 36,639 (148,770) 260,574
---------- --------- --------- ---------- ---------
Stockholders' equity
Common stock 147 - 37,720 (37,720) 147
Paid-in capital 30,084 38,793 - (38,793) 30,084
Retained earnings 45,483 70,080 59,562 (130,176) 44,949
Accumulated other comprehensive
loss - - (24,273) - (24,273)
Less-treasury stock, at cost (2,349) - - - (2,349)
---------- --------- --------- ---------- ---------
Total stockholders' equity 73,365 108,873 73,009 (206,689) 48,558
---------- --------- --------- ---------- ---------
$ 279,714 275,229 109,648 (355,459) 309,132
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated 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
receivable, net 315 18,173 21,389 - 39,877
Inventories - 40,719 21,535 (437) 61,817
Prepaid expenses and other
current assets 4,200 666 925 - 5,791
---------- --------- --------- ---------- ---------
Total current assets 6,284 57,789 49,535 (437) 113,171
Property, plant and equipment,
net 5,160 57,366 47,540 (41) 110,025
Other assets 7,499 312 814 - 8,625
Cost in excess of net assets
of acquired businesses, net - 64,364 18,251 - 82,615
Intercompany investments 107,038 95,177 - (202,215) -
Intercompany advances 154,811 - - (154,811) -
---------- --------- --------- ---------- ---------
$ 280,792 275,008 116,140 (357,504) 314,436
========== ========= ========= ========== =========
Liabilities and Stockholders'
Equity
Current liabilities
Short-term borrowings $ - - 6,423 - 6,423
Current installments of
long-term debt 24,860 - 232 - 25,092
Accounts payable-trade and
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 financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Cash Flows
Three Months Ended March 31, 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) $ (1,020) 1,836 2,105 (3,996) (1,075)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Undistributed earnings of
subsidiaries (1,836) (2,105) - 3,941 -
Depreciation and amortization 204 2,332 1,472 1 4,009
Provision for losses on
accounts receivable - 78 56 - 134
Deferred income taxes (57) 266 (658) - (449)
Change in assets and
liabilities:
Accounts and notes
receivable (660) (5,040) 172 - (5,528)
Inventories - 3,333 1,153 54 4,540
Prepaid expenses and other
current assets (319) 260 252 - 193
Accounts payable - trade and
other current liabilities 6,535 3,043 (1,103) - 8,475
Income taxes payable 67 (35) (229) - (197)
---------- --------- --------- ---------- ---------
Net cash provided by
operating activities 2,914 3,968 3,220 - 10,102
---------- --------- --------- ---------- ---------
Cash flows from investing
activities:
Capital expenditures (677) (620) (593) - (1,890)
Other investing activities (168) 37 (8) - (139)
---------- --------- --------- ---------- ---------
Net cash used in investing
activities (845) (583) (601) - (2,029)
---------- --------- --------- ---------- ---------
Cash flows from financing
activities:
Payments under line of
credit arrangements - - (1,722) - (1,722)
Borrowings under revolving
credit facility 300 - - - 300
Payments under revolving
credit facility (5,160) - - - (5,160)
Advances - affiliated
companies 6,040 (4,890) (1,120) (30) -
Other financing activities (1,717) - (46) (29) (1,792)
---------- --------- --------- ---------- ---------
Net cash used in
financing activities (537) (4,890) (2,888) (59) (8,374)
---------- --------- --------- ---------- ---------
Effects of exchange rate
changes in cash (27) - (189) 59 (157)
---------- --------- --------- ---------- ---------
Net increase (decrease) in
cash 1,505 (1,505) (458) - (458)
Cash at beginning of period 1,769 (1,769) 5,686 - 5,686
---------- --------- --------- ---------- ---------
Cash at end of period $ 3,274 (3,274) 5,228 - 5,228
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated financial statements
<PAGE>
WORLDTEX, INC.
Note 3 - Supplemental Consolidating Financial Information
(Dollars in thousands)
Consolidating Statements of Cash Flows
Three Months Ended March 31, 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 $ 815 1,910 1,398 (3,308) 815
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Undistributed earnings of
subsidiaries (1,910) (1,398) - 3,308 -
Depreciation and amortization 5 2,489 1,439 - 3,933
Provision for losses on
accounts receivable - 16 105 - 121
Deferred income taxes (1,366) 167 30 - (1,169)
Change in assets and
liabilities:
Accounts and notes - (8,800) (1,432) - (10,232)
receivable
Inventories - 743 1,188 - 1,931
Prepaid expenses and other
current assets (198) 75 424 - 301
Accounts payable - trade and
other current liabilities 3,294 4,215 1,818 - 9,327
Income taxes payable 605 392 - - 997
---------- --------- --------- ---------- ---------
Net cash provided by (used
in) operating activities 1,245 (191) 4,970 - 6,024
---------- --------- --------- ---------- ---------
Cash flows from investing
activities:
Capital expenditures (56) (1,937) (1,043) - (3,036)
Acquisitions, net of cash
acquired 4,985 - - (4,985) -
Other investing activities 205 (859) (91) - (745)
---------- --------- --------- ---------- ---------
Net cash provided by (used
in) investing activities 5,134 (2,796) (1,134) (4,985) (3,781)
---------- --------- --------- ---------- ---------
Cash flows from financing
activities:
Payments under line of
credit arrangements - - (118) - (118)
Borrowings under revolving 2,000 - - - 2,000
credit facility
Advances - affiliated
companies (2,966) 3,533 259 (826) -
Other financing activities (1,974) - (83) 235 (1,822)
---------- --------- --------- ---------- ---------
Net cash provided by (used
in) financing activities (2,940) 3,533 58 (591) 60
---------- --------- --------- ---------- ---------
Effects of exchange rate
changes in cash (4,756) - (464) 5,576 356
---------- --------- --------- ---------- ---------
Net increase (decrease) in
cash (1,317) 546 3,430 - 2,659
Cash at beginning of period 2,596 14 4,105 - 6,715
---------- --------- --------- ---------- ---------
Cash at end of period $ 1,279 560 7,535 - 9,374
========== ========= ========= ========== =========
</TABLE>
Notes to consolidated 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
March 31,
2000 1999
---- ----
Net sales 100.0% 100.0%
-------- --------
Gross margin 14.3% 17.3%
-------- --------
Selling & administrative expense 7.9% 7.5%
Goodwill amortization 1.0% 1.1%
-------- --------
Operating profit 5.4% 8.7%
Interest expense 7.0% 6.3%
Other income (expense) - net .2% (.6%)
-------- ---------
Income (loss) before income taxes (1.4%) 1.8%
========= ========
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999:
For the quarter ended March 31, 2000, sales decreased by $4.1 million
or 5.3% compared with the first quarter of 1999. In general, sales decreases
were attributable to lower unit volume, an unfavorable change in product mix
and lower unit pricing. Narrow elastic fabric sales were $33.8 million for
the first quarter of 2000, compared with $32.0 million in the 1999 quarter,
an increase of 5.6%. This represented 46% of total revenues, which is above
the Company's 2000 target of 40% of total revenue for these products.
Covered elastic yarn sales were $40.1 million for the quarter compared with
$46.0 in the prior year, a decline of 12.8%. The decline was due primarily
to reduced pantyhose demand as well as continued currency issues in Europe.
Gross profit for the three months ended March 31, 2000 was $10.6
million or 14.3% compared to $13.5 million or 17.3% for the same period in
1999. The decrease was due to an unfavorable change in product mix
consisting of higher volumes of lower margin commodity products, reduced
demand in covered yarns for pantyhose, and manufacturing inefficiencies
during the consolidation of the Company's covered yarn operations. Selling
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
and administrative expenses and goodwill amortization in the quarter were $6.6
million or 8.9% of sales as compared to $6.7 million or 8.6% of sales for the
same period in 1999. Operating income was $4.0 million in the first quarter
compared to $6.8 million in the first quarter of 1999.
Other income for the quarter increased $.7 million over the first
quarter of 1999. The current quarter included a one-time charge of $.8
million relating to the estimated costs and expenses arising from the impact
on various Worldtex agreements of the "change of control event" resulting
from the acquisition of approximately 34% of the Worldtex common stock by
certain investment managers. However, these costs were offset by the
recognition of $.8 million in income arising from the agreement of such
investment managers to reimburse Worldtex for its costs and expenses in such
amount. The prior year quarter expense resulted primarily from foreign
currency losses relating to certain French intercompany financing.
Interest expense for the three months ended March 31, 2000 increased
from the corresponding period in 1999 by $.3 million due to a slight increase
in debt, higher borrowing costs under the Company's domestic credit facility
related to rising interest rates and higher pricing for domestic borrowings
as a result of the Company's financial performance.
During the first quarter of 2000, the corporate tax rate in France
decreased from 40% to 36.67% resulting in a $.8 million reduction to the 2000
income tax provision to decrease the deferred tax liability as of January 1,
2000. The Company recorded a $1.1 million valuation allowance for deferred
tax assets due to uncertainty as to the future benefit of domestic federal
net operating loss for 2000.
As a result of the above, net loss for the quarter was $1.1 million
compared with net income of $.8 million in the prior year quarter. Diluted
loss per share was $.08 for the 2000 three month period compared with income
of $.06 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 $5.2 million at March 31, 2000, representing a net decrease
of $.5 million for the three months then ended. Cash flows from operating
activities and from financing activities are the principal indicators of the
Company's liquidity. During the first three months of 2000, $10.1 million was
generated from operating activities primarily 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 three months of 2000, $1.9 million was utilized
for the purchase and upgrading of equipment and facilities. The Company
anticipates that its capital expenditures during 2000 will approximate $10 to
$12 million, primarily for the purchase of equipment.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 months ended March 31, 2000 and 1999 was $8.0 million and $10.8 million,
respectively. Depreciation and amortization for the three months ended March 31,
2000 and 1999 was $4.0 million and $3.9 million, respectively.
Working capital was $46.6 million at March 31, 2000 and $47.4 million
at December 31, 1999, reflecting a decrease of $.8 million and current ratios
of 1.7 at March 31, 2000 and December 31, 1999.
The Company has a domestic revolving credit facility that provides for
revolving credit borrowings in an aggregate principal amount of up to $25.0
million. The revolving credit facility terminates and all amounts borrowed
thereunder will be due December 1, 2002. Loans under the revolving credit
facility bear interest at rates based upon a base rate (the higher of the
Bank of America, N.A. prime rate or the Federal Funds rate), certificates of
deposit rates or Eurodollar rates, in each case plus an applicable margin.
Loans under the revolving credit facility are guaranteed by all U.S.
subsidiaries of the Company and are required to be secured by liens on the
accounts receivable and inventory of the Company and its U.S. subsidiaries,
100% of the outstanding capital stock of the Company's U.S. subsidiaries and
65% of the outstanding capital stock of each of the non-U.S. subsidiaries.
At March 31, 2000, the Company had indebtedness of $18.3 million and
$6.7 million was available for future borrowings under the domestic credit
facility. In addition, at such date the Company's foreign subsidiaries had
$17.9 million of U.S. dollar equivalent credit availability under bank lines
of credit. Amounts outstanding as of March 31, 2000 were $4.7 million. The
most restrictive covenant of the domestic revolving credit facility and
Indenture for the Company's 9 5/8% Senior Notes limits short-term borrowings
by the Company's foreign subsidiaries to a total of $15.0 million, excluding
certain existing indebtedness.
At March 31, 2000, Worldtex was not in compliance with a financial
covenant relating to its interest coverage ratio in its domestic credit
facility. The Company obtained a waiver from the lenders for this covenant.
The Company has entered into an agreement in principle with a financial
institution for a new credit facility providing for borrowings of up to $60
million, which will be secured by substantially all assets of the Company and
its domestic subsidiaries. Proceeds from the new facility will be used to
repay the existing domestic facility and for general corporate purposes. The
Company expects the new facility to be implemented during the second quarter
of 2000, although the availability of such facility is subject to
satisfaction of certain conditions including negotiation of definitive
documentation. As a result of the proposed refinancing, the $18.3 million
outstanding balance under the domestic credit facility has been classified as
current installments of long-term debt as of March 31, 2000.
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Worldtex believes that its lines of credit, as expected to be
refinanced, together with internally generated funds will provide sufficient
liquidity for the Company's expected short-term and long-term cash
requirements.
YEAR 2000 COMPLIANCE
Worldtex established a Year 2000 project team in 1998 and retained an
independent consulting group to provide assistance in assessing Year 2000
risks and to provide recommendations for remediation. The project scope
included both information technology and computer based embedded technology.
The project team has focused its efforts on information systems software and
hardware, manufacturing equipment and facilities, and third-party
relationships.
The Company is near completion of a worldwide business system
replacement project that uses programs primarily from one vendor. The
initial implementation of the new systems is generally scheduled to be
complete during the second quarter of 2000. Remediation for other
information systems and computer based embedded technology systems was
completed as of December 31, 1999 so that all systems were Year 2000
compliant. The Company has experienced no discernable problems with any
computer-based applications as a result of the Year 2000.
NEW ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments embedded in other
contracts (collectively referred to as embedded derivatives) and for hedging
activities. The new standard requires an entity to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 was amended by SFAS
No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
DEFERRAL OF THE EFFECTIVE DATE FOR FASB STATEMENT NO. 133, which delays the
Company's effective date until the first quarter of the year ending December
31, 2001. Management is currently evaluating the effects of SFAS No. 133 on
the Company's financial statements and current disclosures.
EUROPEAN MONETARY UNION - EURO
The Company conducts business in multiple currencies, including the
currencies of various European countries in the European Union which are
participating in the single European currency by adopting the Euro as their
common currency on January 1, 1999, the date that the Euro commenced trading on
currency exchanges. The legal currencies of the participating countries will
remain legal tender for a transition period between January 1, 1999 and January
1, 2002. During the transition period, wire transfers can be made in the Euro
with payment for goods and services in either the Euro or the legacy currency.
Between January 1, 2002 and July 1, 2002, the participating countries will
<PAGE>
WORLDTEX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
three 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 Employment Contract, dated as of April 20,
2000, between the Company and Barry D.
Setzer -- filed herewith.
27.1 Financial Data Schedule (filed with EDGAR
only)
(b) Reports on Form 8-K
During the quarter ended March 31, 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: May 15, 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
EMPLOYMENT CONTRACT dated as of April 20, 2000, between Worldtex,
Inc. ("Worldtex"), whose business address is Westover Park, Suite 106, 915
Tate Boulevard, S.E., Hickory, North Carolina 28602, and Barry D. Setzer,
whose business address is Westover Park, Suite 106, 915 Tate Boulevard, S.E.,
Hickory, North Carolina 28602 ("Employee").
Employee has been performing services in a senior executive
capacity for Worldtex pursuant to an existing employment contract dated as of
November 15, 1993 (the "Existing Contract"). As a result of the acquisition
by William Ehrman and certain related persons (collectively, the "EGS
Parties") of the beneficial ownership of approximately 34.2% of the
outstanding shares of Worldtex common stock, a "Change in Control Event" as
defined under the Existing Contract occurred. Employee has asserted that, as
a result of such "Change in Control Event", he is entitled to terminate his
employment with Worldtex and receive a "Severance Benefit" (as such term is
defined in the Existing Contract). Worldtex has taken the position that
Employee is not entitled to the Severance Benefit. In order to settle the
matter and induce Employee to continue to perform services in a senior
executive capacity for Worldtex, Worldtex and Employee desire to terminate
the Existing Contract and enter into this Employment Contract, on the terms
and conditions hereinafter set forth.
Accordingly, in consideration of the premises and the mutual
agreements hereafter set forth, the parties hereby agree as follows:
1. TERMINATION OF EXISTING CONTRACT
The Existing Contract shall terminate effective as of the date of
this Employment Contract, and Worldtex shall take the following action:
(i) Worldtex shall pay to Employee within two business
days after the date of this Employment Contract, by wire transfer
of immediately available funds to an account designated by
Employee, the sum of $350,000;
(ii) Worldtex shall grant to Employee options to purchase
325,000 shares of Worldtex common stock at an exercise price per
share equal to $1.50 and otherwise substantially in accordance
with the grant letter attached as Exhibit B hereto.
2. TERM; NATURE OF SERVICES
(a) Worldtex agrees to employ Employee to perform services in a
senior executive capacity for a period commencing with the date of this
Agreement and continuing until terminated in accordance with Section 8
or Section 9 (the "Employment Period").
(b) Initially and for so long during the Employment Period as
is required by Worldtex's Board of Directors, Employee shall be
employed as President and Chief Executive Officer of Worldtex. In the
performance of his duties, Employee shall be subject to the direction
<PAGE>
of the Board of Directors of Worldtex. Employee's principal services
shall be rendered in the Hickory, North Carolina area.
3. AGREEMENT TO SERVE
Employee agrees to his employment as described in Section 2 and
agrees to devote all of his business time and efforts during the Employment
Period to the performance of his duties under this Employment Contract;
PROVIDED, HOWEVER, that he shall be permitted to pursue personal and family
business and investment activities of a non-competitive nature so long as
such activities in the aggregate do not consume a material amount of business
time and effort and do not, in any event, interfere with the performance of
his duties under this Employment Contract.
4. COMPENSATION AND BENEFITS
(a) Employee's salary during the Employment Period shall be
fixed from time to time by the Compensation Committee of the Board of
Directors of Worldtex (the "Committee") but shall not be less than
$400,000 per annum.
(b) During the Employment Period, Employee shall be entitled
to: (i) reimbursement for reasonable travel, entertainment and other
expenses necessarily incurred in the performance of his duties
hereunder upon submission and approval of written statements in
accordance with Worldtex's standard policies as in effect from time to
time; (ii) reasonable vacations in accordance with Worldtex's then
current regular procedures governing executives; (iii) participation in
such group insurance, retirement and other group benefit programs as
from time to time may be extended generally to Worldtex executives;
(iv) medical, hospital and dental insurance benefits, which shall be at
least equal to those benefits that Employee received under the Existing
Contract; (v) use of an automobile comparable to that being used by him
as of the date of this Agreement, for which Worldtex agrees to pay all
insurance, maintenance and fuel costs and license and registration
fees; (vi) participation in all coverage under all compensation,
pension, welfare and fringe benefit plans, programs and policies of
Worldtex applicable to senior executives of Worldtex; and (vii) such
additional compensation, in the form of incentive compensation or
otherwise, and such participation in Worldtex stock option, stock
award, stock purchase or other stock plans, as the Committee may from
time to time provide.
(c) In addition, with respect to each fiscal year during the
Employment Period (commencing with the 2000 fiscal year), Worldtex
shall pay Employee for such fiscal year an amount equal to 2% of
Marginal Net Income of Worldtex and its subsidiaries (the "Worldtex
Group") for such fiscal year less any awards earned under the annual
award plan of Regal Manufacturing Company ("Regal") for such year.
"Marginal Net Income of the Worldtex Group" shall be the net income of
the Worldtex Group before all taxes and after interest charges (but at
an assumed interest rate of 4.5% per annum without regard to the actual
rate), if any, which exceed 12% of Net Assets Employed by the Worldtex
Group for the particular fiscal year. "Net Assets Employed by the
Worldtex Group," with respect to a particular fiscal year (the
<PAGE>
"Applicable Year"), shall be the mean between (i) the tangible net
worth of the Worldtex Group as of the end of the Applicable Year and
(ii) the tangible net worth of the Worldtex Group as of the end of the
immediately preceding fiscal year. Marginal Net Income of the Worldtex
Group and Net Assets Employed by the Worldtex Group shall be determined
in accordance with generally accepted accounting principles by
Worldtex's Compensation Committee following the end of each such fiscal
year and payment of any amount due to Employee shall be made not later
than 30 days following the completion of the annual audit for such
fiscal year. In the event the Employment Period is terminated during a
fiscal year, the amount payable to Employee pursuant to the foregoing
provisions of this Section 4(c) with respect to such fiscal year shall
be in the same ratio to the amount which would have been payable for
the full fiscal year as the ratio of the number of days in such fiscal
year up to the date of termination to 365; and the amount due shall be
paid at the time prescribed for payment with respect to a full fiscal
year. In addition, Employee shall be entitled to receive such bonus
or bonuses, with respect to each calendar year or portion thereof
during which the Employment Period is in effect, as may be provided by
the Committee.
(d) Worldtex shall pay the premiums on the insurance policies
on the life of Employee listed on Exhibit A so as to maintain their
effectiveness during the Employment Period.
5. NON-COMPETITION
Employee agrees that he will not, directly or indirectly
(individually or for, with or through any other person, firm or corporation),
compete with Worldtex or any of its subsidiaries (i) during the Employment
Period with respect to any business carried on by Worldtex or any of its
subsidiaries or (ii) for a period of one year after the end of the Employment
Period with respect to any business carried on at the end of the Employment
Period by Worldtex or any of its subsidiaries.
(a) If, however, Worldtex wrongfully terminates the Employment
Period, the foregoing provisions of this Section 5 shall cease to apply
from and after such wrongful termination.
(b) Notwithstanding the foregoing, Employee shall be permitted
to own not in excess of one percent of any class of securities of any
publicly traded company, PROVIDED Employee is not part of any
controlling group and is solely a passive investor.
6. PATENTS, INVENTIONS
All of Employee's interest in patents, patent applications,
inventions, technological innovations, copyrights, developments and processes
now or hereafter during the Employment Period owned or developed by Employee
relating to the business of Worldtex or any affiliate of Worldtex, shall
belong to Worldtex, and without further compensation, but at Worldtex's
expense, forthwith upon request of Worldtex, Employee shall execute any and
all such assignments and other documents and take any and all such other
<PAGE>
action as Worldtex may reasonably request in order to vest in Worldtex all
Employee's right, title and interest in and to such patents, patent
applications, inventions, technological innovations, copyrights, developments
or processes, free and clear of liens, charges and encumbrances.
7. CONFIDENTIAL INFORMATION
All confidential information which Employee may now have or may
obtain during the Employment Period relating to the business of Worldtex or
any affiliate thereof shall not be disclosed to any other person (except as
required by law) either during or after the termination of the Employment
Period without the prior written permission of Worldtex, and Employee shall
return all tangible evidence of such confidential information to Worldtex
prior to or at the termination of the Employment Period. Such information
shall not include any information otherwise publicly known.
8. TERMINATION - GENERAL
Notwithstanding anything herein contained:
(a) If, during the Employment Period, Employee shall (i) die,
(ii) become physically or mentally incapacitated or disabled for a
period of six consecutive months to an extent which renders Employee
unable to perform his services under this Employment Contract as
evidenced by the written confirmation of an independent physician
selected by Worldtex and not unreasonably rejected by Employee or his
legal representatives (such incapacity or disability being hereafter
referred to as "Disability") or (iii) be convicted of a felony relating
to the conduct of the business of Worldtex or any affiliate of Worldtex
or commit an act of personal dishonesty which was intended to
personally enrich Employee or members of his family at the financial
expense of Worldtex or any affiliate of Worldtex (such conviction or
commission of such an act being hereafter referred to as "Cause"), then
Worldtex shall have the right to give immediate notice of termination
of the Employment Period whereupon the same shall be deemed terminated.
(b) Employee shall have the right to give notice of termination
for any reason of the Employment Period as of a date (not earlier than
six months after such notice) to be specified in such notice.
(c) Worldtex shall have the right to give notice of termination
of the Employment Period for any reason other than those set forth
above in this Section 8, effective as of a date (not earlier than 30
days after such notice) to be specified in such notice.
(d) Employee (or his estate or legal representatives) shall be
entitled to receive, in the event of termination of the Employment
Period pursuant to Sections 8(a), 8(b) or 8(c), (i) salary at the
highest annual rate in effect at any time during the period of 12
months preceding the giving of notice of termination (the "then current
rate") to the last day of the calendar month in which termination shall
take effect and (ii) such bonus and other benefits, payable following
the end of the calendar year in which the Employment Period terminates,
<PAGE>
as may be provided by the Committee. Benefits, or other amounts to
which Employee has become entitled during his employment, under Section
4 or any other program or plan of Worldtex ("Plan Benefits"), including
those which are payable at or following the termination of the
Employment Period shall be paid in accordance with the particular
program or plan, except as otherwise expressly provided in this
Employment Contract. In addition, in the case of a termination of the
Employment Period pursuant to Section 8(c), Employee shall be entitled
to receive upon effectiveness of such termination in a lump sum an
amount equal to three times the then current rate.
9. TERMINATION AFTER A CHANGE IN CONTROL EVENT
Upon the occurrence of a Change in Control Event, unless the
Employment Period shall previously have been terminated, the Employment
Period shall continue until the third anniversary of the date of the Change
in Control Event subject to termination as provided in Section 8 (but without
giving effect to Section 8(c)) and as hereafter provided in this Section 9.
(a) "Change in Control Event" shall mean:
(1) the date that any person or group deemed a person
under Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, other than Worldtex and its Subsidiaries as
determined immediately prior to that date, in a transaction or
series of transactions has become the beneficial owner, directly
or indirectly (with beneficial ownership determined as provided
in Rule 13d-3, or any successor rule, under such Act) of more
than 50% of the outstanding securities of Worldtex having the
right under ordinary circumstances to vote at an election of the
Board of Directors;
(2) the date on which one-third or more of the members of
the Board of Directors shall consist of persons other than
Current Directors (for these purposes, a "Current Director" shall
mean any member of the Board of Directors as of March 31, 2000
and any successor of a Current Director whose nomination or
election has been approved by a majority of the Current Directors
then on the Board of Directors); or
(3) the date of approval by the stockholders of Worldtex
of an agreement providing for (x) the merger or consolidation of
Worldtex with another corporation where the stockholders of
Worldtex, immediately prior to the merger or consolidation, would
not beneficially own, immediately after the merger or
consolidation, shares entitling such stockholders to 50% or more
of all votes (without consideration of the rights of any class of
stock to elect directors by a separate class vote) to which all
stockholders of the corporation issuing cash or securities in the
merger or consolidation would be entitled in the election of
directors or where the members of the Board of Directors of
Worldtex, immediately prior to the merger or consolidation, would
not, immediately after the merger or consolidation, constitute a
majority of the Board of Directors of the corporation issuing
cash or securities in the merger or consolidation or (y) the sale
<PAGE>
or other disposition of all or substantially all the assets of
Worldtex.
(b) "Severance Benefit" shall mean a lump sum cash amount equal
to 2.99 times Employee's "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); PROVIDED, HOWEVER, that if any payment by Worldtex or its
affiliates to or for the benefit of Employee (whether payable pursuant
to the terms of this Employment Contract or otherwise) would not be
deductible by Worldtex or its affiliates for Federal income tax
purposes solely by reason of Section 280G of the Code, the amount
referred to in this clause (b) shall be reduced to such lesser amount
as shall permit all, or the maximum possible amount, of the payments by
Worldtex or its affiliates to or for the benefit of Employee to be so
deductible in accordance with such Section 280G. The determination of
any reduction in the amount referred to in the preceding sentence shall
be made by Employee in good faith with the reasonable advice of
Employee's tax advisor, and as so made shall be conclusive and binding
on Worldtex, its affiliates and Employee.
(c) If (i) Worldtex gives notice of termination of the
Employment Period or takes other action which effectively terminates
the Employment Period (other than for death, Disability or Cause)
during the period commencing upon the occurrence of a Change in Control
Event and ending on the third anniversary of the date of the Change in
Control Event (the "Post-Change Period") or (ii) Employee gives notice
of termination of the Employment Period during the Post-Change Period
after Employee determines in good faith that there has been any of the
following occurrences
(1) an assignment to Employee of duties or
responsibilities, or a change in reporting responsibilities or
titles (but not including naming another person Chairman of the
Board), which is inconsistent with his status immediately prior
to the Change in Control Event, or any other action by Worldtex
which results in a diminution in such status, excluding any
action which is both inadvertent and immaterial and is remedied
by Worldtex promptly after receipt of notice thereof from
Employee,
(2) a reduction in salary, or reduction in ratio of
supplemental compensation or fringe benefits to salary, from that
in effect immediately prior to the Change in Control Event,
(3) a material increase in the amount of travel required
of him or a requirement that he perform significant regular
services outside the Hickory, North Carolina area or transfer to
a location necessitating a change in his principal residence or
(4) a failure by Worldtex to have a successor corporation
assume Worldtex's obligations under this Employment Contract as
specified in Section 14,
<PAGE>
then the Employment Period shall be deemed terminated upon the giving
of such notice or taking of such action and not later than 15 days
thereafter Worldtex shall pay to Employee the Severance Benefit (but
not the amount referred to in the last sentence of Section 8(d)).
Payment of the Severance Benefit shall be in lieu of any damages
Employee might otherwise assert for breach of this Employment Contract.
(d) The payment of Plan Benefits shall be unaffected by a
Change in Control Event and shall be made in accordance with the
particular program or plan.
(e) If Worldtex wrongfully terminates the Employment Period
prior to the occurrence of any Change in Control Event but after (i)
Worldtex enters into an agreement or arrangement the consummation of
which would result in a Change in Control Event or (ii) any person
(including Worldtex) publicly announces an intention to take or
consider taking actions which if consummated would result in a Change
in Control Event, then Employee's damages for such wrongful termination
shall be not less than the amount of the Severance Benefit if a Change
in Control Event occurs within the three-year period following such
termination.
10. INDEMNIFICATION
In addition to (and not in lieu of) any of Employee's rights to
indemnification or otherwise, contained in Worldtex's certificate of
incorporation and by-laws, or any other agreement, if any action, suit,
proceeding (including any arbitration proceeding) or claim shall be brought
or asserted with respect to the enforcement or interpretation of this
Employment Contract or any provision contained herein, Worldtex, to the full
extent permitted by applicable law and its certificate of incorporation and
by-laws as then in effect (or, if a Change in Control Event shall have
occurred, as in effect immediately prior to the Change in Control Event),
hereby indemnifies Employee for his reasonable attorneys' fees and other
expenses incurred in connection with such action, suit, proceeding or claim
and agrees to pay or reimburse the same promptly upon demand by Employee
regardless of the outcome thereof (plus interest at the applicable Federal
rate provided in Section 7872(f)(2) of the Code). Worldtex shall preserve and
make available to Employee all documents and information now or hereafter in
the possession of Worldtex which may be required by Employee for the
prosecution or defense of any such action, suit, proceeding or claim.
11. PAYMENT OBLIGATION ABSOLUTE
Worldtex's obligation to make payments provided for in this
Employment Contract and otherwise perform its obligations hereunder shall be
absolute and unconditional and shall not be affected by any setoff,
counterclaim, recoupment, defense or other circumstance or rights which
Worldtex may have against Employee or anyone else (including without
limitation any rights which Worldtex may have against Employee for violation
of Sections 5 or 7 of this Employment Contract, all of which shall be
required to be asserted in independent proceedings). Employee shall not be
required to mitigate the amount of any payment provided for herein by seeking
other employment or taking any other action nor, except as provided in
Section 19(d)(ii), shall the amount of any payment provided for herein be
<PAGE>
reduced by amounts earned by Employee from other employment or otherwise
after the termination of the Employment Period.
12. ENTIRE AGREEMENT; SEVERABILITY
This Employment Contract sets forth the entire understanding of
the parties with respect to the subject matter herein and may be modified
only by a written instrument duly executed by each party. The invalidity or
unenforceability of any provision of this Employment Contract shall not
affect the validity or enforceability of any other provision.
13. NOTICES
Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be given by registered mail,
telex, telecopy (or like transmission) or delivery against receipt to the
party to whom it is to be given (i) at such party's address set forth in the
preamble to this Employment Contract or (ii) to such other address as the
party shall have furnished in writing in accordance with the provisions of
this Section 13. Any notice or other communication shall be deemed to have
been given as of the date so delivered or transmitted by telex or telecopy
(or like transmission) and the appropriate answerback received or three days
after the date so mailed.
14. ASSIGNMENT; ASSUMPTION
In the event of a future disposition of (or including) the
properties and business of Worldtex, substantially as an entirety, by merger,
consolidation, sale of stock or assets or otherwise, then Worldtex shall
require the acquiring or surviving corporation (which shall be substituted
for Worldtex hereunder) to expressly assume and agree to perform this
Employment Contract in the same manner and to the same extent that Worldtex
would have been required to perform it had no such disposition occurred.
Employee's rights under this Employment Contract shall not be transferable by
assignment or otherwise, shall not be subject to commutation or encumbrance
and shall not be subject to the claims of Employee's creditors.
15. BINDING EFFECT; INUREMENT
This Employment Contract shall be binding upon and inure to the
benefit of Worldtex, its successors and those who are its assigns under
Section 14.
16. ARBITRATION
Any controversy or claim arising out of or in connection with
this Employment Contract shall be settled by arbitration held in Charlotte,
North Carolina in accordance with the rules of the American Arbitration
Association then in effect, and judgment upon the award rendered may be
entered in any court having jurisdiction. Without limiting the provisions of
Section 10, the costs of the arbitration proceedings shall be borne by
Worldtex.
<PAGE>
17. GOVERNING LAW
This Employment Contract shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
conflict of laws.
18. WITHHOLDING
Worldtex shall withhold from all amounts payable to Employee
under this Employment Contract all federal, state and local taxes required by
law to be withheld with respect to such payments.
19. SUPPLEMENTAL BENEFIT
(a) SUPPLEMENTAL RETIREMENT BENEFIT
Employee shall receive, upon his termination of employment for
any reason on or following his 65th birthday (his "Normal Payment
Date"), if he was in the employ of Worldtex or any of its subsidiaries
immediately prior to his 65th birthday, a benefit (the "Retirement
Benefit"), payable in monthly installments over the ten-year period
commencing upon his Normal Payment Date, in an aggregate amount equal
to the product obtained by multiplying (i) four hundred percent by (ii)
the highest total cash compensation (including base salary and bonus
but excluding any payments pursuant to Section 9 of this Agreement)
paid by Worldtex to Employee in any calendar year during his employment
by Worldtex. If Employee shall die following his Normal Payment Date
and shall then be entitled to all or any part of the Retirement
Benefit, the amount of the Retirement Benefit not theretofore paid to
him shall be paid in similar monthly installments to his beneficiaries.
(b) SUPPLEMENTAL DEATH OR DISABILITY BENEFIT
Employee's beneficiaries shall receive, following his death prior
to his 65th birthday, and Employee or his legal representatives shall
receive, following his retirement prior to his 65th birthday on account
of his Disability, if he was in the employ of Worldtex or any of its
subsidiaries at the time of death or Disability, a benefit, payable in
monthly installments over the ten-year period commencing with the month
following death or Disability, in an aggregate amount equal to the
product obtained by multiplying (i) four hundred percent by (ii) the
highest total cash compensation (including base salary and bonus but
excluding any payments pursuant to Section 9 of this Agreement) paid by
Worldtex to Employee in any calendar year during his employment by
Worldtex.
(c) INVOLUNTARY TERMINATION
Upon involuntary termination of Employee's employment prior to
his 65th birthday (other than for death or Disability or for Cause),
the Retirement Benefit shall be computed as though the date of
involuntary termination were Employee's Normal Payment Date and such
Retirement Benefit (the "Vested Benefit") shall be deemed vested. A
<PAGE>
portion of the Vested Benefit which is in the same ratio to the full
Vested Benefit as the ratio of the number of Employee's full years of
service with Worldtex and Regal prior to termination of employment with
Worldtex to the number of full years Employee would have worked with
Worldtex and Regal had he continued in Worldtex's employ up to his 65th
birthday shall be payable in monthly installments over the ten-year
period commencing on the date of termination.
(d) EARLY RETIREMENT
Upon voluntary retirement prior to Employee's 65th birthday
(other than following Disability), the Vested Benefit shall be computed
as though the date of voluntary retirement were Employee's Normal
Payment Date and shall become payable as follows:
(i) The portion of the Vested Benefit which would have
been payable pursuant to Section 19(c) had Employee been
involuntarily terminated on the date of voluntary retirement
shall be payable in monthly installments over the period of ten
years commencing on such date. If Employee shall die during such
ten-year period, any part of such portion of the Vested Benefit
not theretofore paid to him shall be paid in similar monthly
installments to his beneficiaries.
(ii) The remaining portion of the Vested Benefit shall be
payable in monthly installments over the period of ten years
commencing on the date of voluntary retirement (i) provided that
Employee enters into and continues to perform a ten-year
consulting agreement with Worldtex (a "Consulting Agreement")
containing provisions substantially as set forth in Section 19(e)
and such additional or different provisions (not materially more
burdensome to Employee) as may be specified by the Committee and
(ii) provided further that the portion of the Vested Benefit
payable under this Section 19(d)(ii) shall be subject to
reduction to the extent the Employee realizes income from regular
employment during the term of the Consulting Agreement.
(e) CONSULTING AGREEMENT
Any Consulting Agreement to which Employee is a party shall
contain the following provisions unless the Committee shall otherwise
specify:
(i) Unless Disability has occurred, Employee shall be
obligated to devote the equivalent of 15 business days to his
consulting duties during any yearly period to the extent his
physician advises his health permits.
(ii) Such consultation shall be rendered at such times as
Employee shall reasonably advise the Board of Directors are
appropriate giving effect to his then regular personal and other
business activities. Worldtex's chief executive officer shall
give Employee reasonable advance notice of any requirements for
consultation and he shall use his reasonable best efforts to
perform such consultation on the schedule requested. Where
<PAGE>
Employee is required to render any service on a particular day,
he shall receive credit for a full day's service.
(iii) Employee shall be entitled to reimbursement for
expenses reasonably and necessarily incurred by him in connection
with the performance of his consulting duties, in accordance with
Worldtex's then applicable procedures, including without
limitation reimbursement for travel and related expenses to and
from whatever may be his then current place of residence or place
where he may be conducting other business activities.
(iv) In the event of death or Disability during the term
of the Consulting Agreement, any unpaid part of the portion of
the Vested Benefit payable pursuant to Section 19(d)(ii) shall
become payable in monthly installments to Employee's
beneficiaries. Upon termination of the Consulting Agreement for
Cause, however, no further amounts shall be payable pursuant to
Section 19(d)(ii).
(f) NO MITIGATION OR OFFSET
Employee shall not be obligated to mitigate the amount of any
payment provided for under this Section 19 by seeking other employment
or taking any other action nor, except as provided in Section
19(d)(ii), shall the amount of any payment provided for herein be
reduced by amounts earned by Employee from other employment or
otherwise after termination or retirement.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Employment Contract as of the date first above written.
WORLDTEX, INC.
By
------------------------------------
------------------------------------
Barry D. Setzer
<PAGE>
EXHIBIT A
DESCRIPTION OF LIFE INSURANCE POLICIES
<TABLE>
<CAPTION>
Policy
NUMBER FACE AMOUNT
------ -----------
<S> <C> <C>
General American Life 16,043,180 $2,000,000
Insurance Company
First Colony Life Insurance 5,463,051 $1,000,000
Company
First Colony Life Insurance 5,413,272 $2,000,000
Company
</TABLE>
<PAGE>
EXHIBIT B
WORLDTEX, INC.
WESTOVER PARK - SUITE 106
915 TATE BOULEVARD, S.E.
HICKORY, NORTH CAROLINA 28602
[DATE]
[NAME]
c/o Worldtex, Inc.
Westover Park - Suite 106
915 Tate Boulevard, S.E.
Hickory, North Carolina 28602
Dear [NAME]:
We are pleased to inform you that the Compensation Committee of the
Board of Directors of Worldtex, Inc. (the "Company") has today granted you an
option pursuant to the Company's 1992 Stock Incentive Plan, as amended (the
"Plan"), to purchase an aggregate of [_______________] shares of the Common
Stock of the Company on the following terms and conditions:
1. The purchase price per share of the shares of Common Stock
subject to this option is [_______________] per share.
2. This option shall expire at the close of business on
[____________________]. [Fifth anniversary] Subject to acceleration in the
event of a Change of Control (as defined in the Plan), you must remain in the
employ of the Company or a Related Company (as defined in the Plan) for one
year from the date hereof before you can exercise any part of this option.
Thereafter this option will become exercisable in installments as follows:
[_______________] shares on [____________________]; an additional
[_______________] shares on [____________________]; and the final
[_______________] shares on [____________________]. [33 1/3% per year]
3. This option is not intended to qualify as an "Incentive Stock
Option" within the provisions of Section 422 of the Internal Revenue Code.
4. The option price shall be payable by you at the time this option
is exercised, either (i) in cash or (ii) by delivering shares of Common Stock
of the Company which you have owned for a least six months prior to such
exercise, or a combination of cash and such shares, having an aggregate value
equal to the aggregate option price of the shares as to which this option is
exercised (basing the value of any such shares of Common Stock on the fair
market value of the Common Stock on the date of exercise). No shares of
Common Stock shall be issued pursuant to exercise of this option until full
payment therefor has been made.
<PAGE>
5. In tandem with this option, the Company has also granted you
today a limited Stock Appreciation Right, which entitles you to elect to
receive within sixty days following the occurrence of a Change of Control, in
lieu of exercising this option, a payment equal in value to the product of
the number of shares of Common Stock as to which you elect to exercise this
limited Stock Appreciation Right multiplied by the excess of the Change of
Control Price (as defined in the Plan) over $[_______________] [strike
price]. If the Change of Control occurs more than six months from today this
payment will be made to you in cash. Otherwise, payment will be made in
shares of Common Stock.
6. This option and related Stock Appreciation Right may be exercised
only by you and may not be transferred except by will or the laws of descent
and distribution. In the event of your death, your legal representatives may
exercise this option as to the shares of Common Stock which were immediately
purchasable by you at the date of death, within 12 months following the date
of death (even if such date is later than [____________________]. [Fifth
anniversary.]
7. Upon termination of your employment (upon retirement in
accordance with the Company's retirement policy or for any reason beyond your
control other than your death), your option privileges shall be limited to
the shares of Common Stock which were immediately purchasable by you at the
date of such termination and such option privileges shall expire unless
exercised within three months after the date of such termination and prior to
the close of business on [____________________]. [Fifth anniversary.] If
your employment is terminated for reasons within your control, including,
without limitation, cause and voluntary resignation, all rights under this
option shall expire on the date of such termination.
8. Notwithstanding anything in this letter, the Company shall not be
obligated to issue any shares of Common Stock upon any exercise of this
option or related Stock Appreciation Right if such issuance would violate any
applicable law, including the Securities Act of 1933.
9. Nothing herein shall restrict the right of the Company or any
Related Company to terminate your employment at any time, with or without
cause.
10. This option and related Stock Appreciation Right is subject to
all of the other terms, provisions and conditions of the Plan, a copy of
which has been furnished to you and other copies of which may be obtained by
you from the Company.
Very truly yours,
WORLDTEX, INC.
By
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLDTEX,
INC. FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,228
<SECURITIES> 0
<RECEIVABLES> 51,360
<ALLOWANCES> 6,707
<INVENTORY> 56,590
<CURRENT-ASSETS> 112,039
<PP&E> 158,173
<DEPRECIATION> 51,094
<TOTAL-ASSETS> 309,132
<CURRENT-LIABILITIES> 65,452
<BONDS> 182,417
0
0
<COMMON> 147
<OTHER-SE> 48,411
<TOTAL-LIABILITY-AND-EQUITY> 309,132
<SALES> 73,934
<TOTAL-REVENUES> 73,934
<CGS> 63,323
<TOTAL-COSTS> 63,323
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 134
<INTEREST-EXPENSE> 5,173
<INCOME-PRETAX> (1,013)
<INCOME-TAX> 62
<INCOME-CONTINUING> (1,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,075)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
