ITEM 1. BUSINESS - ------- --------
Worldtex, Inc. ("Worldtex" or the "Company") is a holding company engaged through its subsidiaries in the manufacture of covered elastic yarn and narrow elastic fabrics, which are used in the production of a broad range of apparel products. Worldtex is a Delaware corporation organized in July 1992 to acquire the covered yarn manufacturing operations of Willcox & Gibbs, Inc., a New York corporation that later changed its name to Rexel, Inc. ("W&G"). Prior to November 12, 1992, Worldtex was a wholly owned subsidiary of W&G. On that date, W&G declared a dividend of one share of Worldtex Common Stock for each share of W&G Common Stock outstanding on November 23, 1992 (the "Distribution").
Worldtex's principal subsidiaries are (i) Regal Manufacturing Company, Inc. ("Regal"), based in Hickory, North Carolina, (ii) Rubyco (1987), Inc. ("Rubyco"), based in Montreal, Canada, (iii) Filix Lastex, S.A. ("Filix"), based in Troyes, France, (iv) Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia, (v) Elastex, Inc. ("Elastex"), based in Asheboro, North Carolina, and (vi) the Elastic Corporation of America, Inc. ("ECA"), based in Columbiana, Alabama. W&G acquired Regal in 1983, acquired Rubyco in 1986 and acquired Filix in 1990, and transferred them to Worldtex in August 1992. Worldtex acquired Fibrexa as of April 1, 1995, Elastex on October 3, 1997 and ECA on December 1, 1997. Regal, Rubyco, Filix and Fibrexa are engaged in the production of covered elastic yarn, and Elastex and ECA are engaged in the production of narrow elastic fabrics.
The Company believes that it is one of the largest independent suppliers of covered elastic yarn in the world (based on 1997 net sales). Covered elastic yarns are used by the Company's customers to produce stretch fabrics for apparel that provide enhanced styling capabilities, better shape retention, and improved aesthetics, durability and comfort. The principal products that utilize covered elastic yarn produced by the Company are sheer and opaque pantyhose, men's, women's and children's socks, sweaters, swimwear, active and athletic wear and men's, women's and children's stretch apparel. During 1997, Worldtex yarns were used in the products of some of the world's best known brands and designers, including Giorgio Armani, Hugo Boss, Pierre Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal, Fruit of the Loom, Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the Clock, Nina Ricci, Ellen Tracy and others. The Company, which was one of the first independent producers of covered elastic yarn when it began operations in 1934, currently operates 11 manufacturing and distribution facilities located in the United States, Canada, France and South America. The Company also has a 38% interest in a joint venture production facility in Estonia, and currently plans joint venture production facilities in China and India.
The Company also believes that it is the largest manufacturer of woven and knitted narrow elastic fabrics in the world (based on 1997 net sales). Narrow elastic fabrics are elasticized fabric bands, typically under six inches in width, that are used as components in the production of a broad range of apparel products, such as waistbands for men's, women's and children's underwear, athletic apparel and other garments, straps, facing and edgings in
women's intimate apparel and elastic bands in women's hosiery. During 1997, ECA's and Elastex's narrow elastic fabrics were used in apparel produced by Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey, Michael Jordan Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell Corporation, Sara Lee (Hanes products), Vanity Fair, Warnaco (Warner, Olga and Speedo brands) and others. ECA and Elastex together own a total of five manufacturing facilities, which are located in Alabama, North Carolina, South Carolina and Virginia.
COVERED ELASTIC YARN BUSINESS
Worldtex believes that Regal is one of the two largest suppliers of covered elastic yarn in the United States, that Filix is the largest in Europe, that Rubyco is the largest in Canada and that Fibrexa is the largest in South America (in each case measured by 1997 net sales). Regal's and Rubyco's products are sold primarily in their respective home countries, Filix sells principally to European Community countries and Fibrexa sells principally in South American countries, as well as to other Worldtex subsidiaries. See Note 12 to Worldtex's Consolidated Financial Statements for information relating to Worldtex's domestic and foreign operations.
PRODUCTS
The covered elastic yarn manufactured by Worldtex is produced by wrapping material, principally nylon, polyester, cotton or other fibers, around spandex or latex rubber. The core of spandex or rubber provides stretch capability and durability, while the wrapped fiber results in more comfort to the touch. Advanced manufacturing equipment permits production of ultrafine covered elastic yarns that result in fabrics comparable in appearance to natural fibers, but with superior flexibility, shape retention and durability.
Historically, covered elastic yarns were principally used in the manufacture of women's pantyhose and other hosiery products. However, advances in production techniques and trends in consumer apparel preferences have led to a substantial expansion of the end uses for covered elastic yarn. Today, covered elastic yarn is used in a broad range of apparel, including sweaters, swimwear, running clothes, athletic uniforms, slacks, skirts and dresses, as well as in pantyhose and socks.
SALES AND DISTRIBUTION
The Company's manufacturing and distribution centers are strategically located to serve the Company's principal markets. The Company's operations in the United States and Canada serve customers throughout North America, its operations in France and joint venture in Estonia serve Europe and its operations in Bogota, Colombia serve South America and also provide lower-cost products for the Company's other markets. In addition, the Company has entered into a joint venture for the establishment of manufacturing facilities in China, and it is currently in negotiations for a similar venture in India. Upon implementation of the Chinese and Indian ventures, the Company will have strategically located manufacturing facilities able to promptly supply customers' needs in major fabric producing markets around the world.
As of December 31, 1997, the Company maintained a marketing staff located in Hickory, North Carolina, Troyes, France, Montreal, Canada, and Bogota, Colombia. Each sales employee has a designated territory. In addition, certain sales personnel are specialists in designated applications for covered yarn, such as circular knitting or woven fabrics. The sales staff is compensated by salary and sales incentive bonus. The Company also has a network of independent sales agents compensated on a commission basis.
The Company's sales force is trained to work with the customer to develop new uses for covered elastic yarns that may improve the customer's products. The Company's significant experience in the production and utilization of covered elastic yarns has provided the Company with expertise not generally available to more broadly-based fabric and apparel producers. The Company utilizes this expertise to develop solutions utilizing covered elastic yarns for the customer's fabric needs.
CUSTOMERS
In 1997, the Company served over 1,500 customers, and no single customer accounted for more than 10% of 1997 sales. The Company's ten largest customers in 1997 accounted for 28% of 1997 sales.
The Company's customers are principally producers of fabric sold for use in apparel products. In 1997, the Company's principal customers included, in the United States, Jockey International, Ithaca Industries, U.S. Textile Corp. and Danskin; in Europe, Iril, S.A., Vanwijnsberghe and Gaillard, S.A.; in Canada, Doris Hosiery, Hafner Elastics and Nalpac; and in South America, Richi, CMR and Valenciana. During 1997, Worldtex yarns were used in the products of some of the world's best known brands and designers, including Giorgio Armani, Hugo Boss, Pierre Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal, Fruit of the Loom, Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the Clock, Nina Ricci and Ellen Tracy.
MANUFACTURING
Covered elastic yarns are produced by wrapping strands of conventional fabric materials around elastic materials such as spandex or latex rubber. In the manufacturing process, a "cover component" such as nylon, polyester, cotton, or other fiber is fed through high-speed spindles where it is wrapped or twisted around a "core component" of spandex or latex rubber. Strands of elastic may be single or double covered, depending on the desired end use application. After wrapping, the yarn, which is white in color and otherwise unfinished, is then wound on a "take-up package" which is adaptable to the customer's machinery and equipment for further processing.
Worldtex's research and development activities are directed toward improvements in existing products and manufacturing processes and toward development of new uses for its products. During 1997, Worldtex's expenditures for these purposes totaled less than 1% of its sales.
RAW MATERIALS
In 1997, approximately 60% of the Company's operating expenses were attributable to raw material costs. The principal raw materials utilized by the Company are spandex, nylon and rubber. Spandex is principally supplied by DuPont, Globe and Bayer, and Globe is also a principal supplier of rubber. The major suppliers of nylon to the Company in 1997 were DuPont, BASF, Nilit, Nylstar and Radaci. In 1997 Worldtex purchased over half of its nylon and spandex from a single source, DuPont. In recent years, DuPont and its competitors have expanded their spandex production capacity, and Worldtex has been able to obtain sufficient supplies to meet its customers' requirements. If the supply of spandex from DuPont should be interrupted or cease for any reason, Worldtex believes it might be difficult to find adequate alternative suppliers of spandex.
COMPETITION
While Worldtex believes that it is one of the largest suppliers of covered elastic yarn in the world, several companies actively compete with Worldtex, at least one of which has greater assets and financial resources than Worldtex. In the United States, Unifi, Spanco and Worldtex are the leading suppliers of covered elastic yarn, and in 1997 Unifi acquired Spanco. The Company cannot predict the effect that such acquisition will have on its business. Most of Worldtex's major customers do not buy exclusively from Worldtex. Competition is based primarily on product quality, customer service and price.
EMPLOYEES
As of December 31, 1997, Worldtex had a total of approximately 1,227 employees engaged in its covered elastic yarn operations. Of these, approximately 422 were employed in the United States by Regal, approximately 160 were employed in Canada by Rubyco, approximately 333 were employed in France by Filix and approximately 312 were employed in Colombia by Fibrexa. A substantial amount of the covered elastic yarn sold by Filix is produced by subcontractors, whose employees are not included in the foregoing totals. Employees of Regal and Fibrexa are not covered by collective bargaining agreements, and certain employees of Filix and Rubyco are covered by such agreements. Worldtex has experienced no significant labor problems during recent years in its covered elastic yarn operations and considers its employee relations to be good.
NARROW ELASTIC FABRICS BUSINESSES ACQUIRED IN 1997
The Company believes that ECA and Elastex together comprise the leading supplier of woven and knitted narrow elastic fabrics to the apparel industry in the world (based on 1997 net sales).
PRODUCTS
Narrow elastic fabrics are elasticized fabric bands, typically under six inches in width, that are used as components in the production of a broad
range of apparel products, such as waistbands for men's, women's and children's underwear, athletic apparel and other garments, straps, facings and edgings in women's intimate apparel and elastic bands in women's hosiery.
ECA and Elastex manufacture a full range of narrow elastic fabric products, from specialty designs to commodity items. These varied product offerings, together with sophisticated weaving and dyeing capabilities, enable the Company to provide bundled and customized products to its customers.
In addition to a traditional line of woven elastic inserts and commodity narrow elastic fabrics, ECA has enhanced its product line with several narrow elastic fabric product advancements. For example, in 1983, ECA developed and patented QuikCord, which embeds a drawstring within an elastic waistband. This product offers cost savings to apparel manufacturers by avoiding the costly operation of threading the drawstring cord through the elastic. Cordon Cristal(TM), a banded silicon-backed narrOw elastic fabric used in women's thigh-high hosiery, is another trademarked ECA product. ECA's most advanced narrow fabrics products are waistbands with brand name logos and other designs woven into the elastics, principally used in designer label underwear. ECA believes that it currently has the largest number of operating logo looms in the United States.
Elastex produces generic narrow elastic fabric for use in apparel. In addition, Elastex manufactures gauze and elastic wrap products for the medical industry and specialized elastic fabric used by the automotive industry.
SALES AND DISTRIBUTION
ECA and Elastex sell their products to apparel manufacturers throughout the United States, and have begun selling to foreign manufacturers. ECA has a sales staff with an average of over ten years of experience in the narrow elastics industry. Sales offices are based in Greensboro, North Carolina, Miami, Florida, San Francisco and Los Angeles, California, and New York, New York. There is no product specialization among the salesforce, and each salesperson calls on an average of 25 accounts regularly. The salesforce is compensated by salary and bonus incentive awards.
ECA's key marketing strategy is to sell a customized product and service program that meets specific customer needs and to create relationships with designers at premier apparel manufacturers such as Calvin Klein, Ralph Lauren, Tommy Hilfiger, Donna Karan and Jockey. A customer's order often comprises more than one type of narrow elastic fabric product, and ECA believes that it is critical to offer a coordinated comprehensive supply program for its customers.
CUSTOMERS
In 1997, ECA and Elastex served over 700 customer accounts. Two customers were responsible for 32% of 1997 sales, and the ten largest customers accounted for 53% of 1997 sales.
ECA's and Elastex's top customers in 1997 included apparel manufacturers such as Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey, Michael Jordan Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell Corporation, Sara Lee (Hanes products), Vanity Fair, Warnaco (Warner, Olga and Speedo brands) and others. The principal customer in 1997 for Elastex's medical product was Johnson & Johnson and for its automotive products was Crotty Corporation, a supplier to General Motors Corporation.
MANUFACTURING
Knit elastic fabrics are primarily used in underwear and sportswear applications. Most commodity knit elastic products are not "finished," and the elastic yarn in the fabric is often bare. In contrast, the elastic yarn used in woven elastic fabrics is covered by natural or synthetic yarns and the products are finished or dyed. ECA and Elastex each operate a dye house for such purpose.
Nylon, polyester, spandex and rubber are the basic raw materials used in the manufacture of narrow elastic fabrics. For the manufacturing of knit elastics, the natural or synthetic yarns (such as nylon, polyester or cotton) and the elastic threads (spandex or rubber) are knitted together to form the knitted elastic narrow fabric products on the knitting machines. In woven narrow elastic fabrics, the elastic threads must be covered. High-speed covering machines wrap the elastic core with natural or synthetic yarns under tension to cover the elastic. The covered elastic is collected on take-up packages and then is typically put onto beams. ECA's proprietary covering technology allows the covered elastic to be fed directly onto the loom, thereby eliminating a step wherein the covered elastic is wound onto beams and then sent to the looms. On ECA's weaving looms, the covered elastic is woven with the natural or synthetic yarns (such as nylon, polyester or cotton) to create the narrow elastic fabrics. If logos are required, special looms are used and programmed to weave into the narrow elastic fabric the name of the designer or brand, such as Calvin Klein or Jockey.
All woven narrow fabrics are "finished." The rough-edged materials that result from the weaving process are put through a finishing process during which the narrow elastic fabrics are wetted and resin-treated and then dried. Certain knitted narrow elastics are finished as well, depending on customer requirements. Due to ECA's focus on the high-end knitted products for intimate apparel, many of its fine quality knitted elastics are finished and dyed.
Narrow fabrics may be dyed according to color formulations developed in-house to meet specific customer color requirements. ECA's dyeing processes include continuous acid, pressure beam or batch dyeing methods. ECA believes that it has the largest and most diversified dye lab, computer color matching equipment and dyeing equipment in the industry. ECA uses lab equipment which simulates the dye process, resulting in high accuracy of dye quality and color uniformity in actual production.
ECA licensed the process for making silicon-backed fabrics from Cheynet, a major French narrow elastic fabric manufacturer, in 1989. This process is typically used for narrow elastics found in hosiery products, particularly in thigh-high stockings. Silicon is applied to knit, lace and simulated lace uniformly on one side of the fabric and then dried to create a
non-slip band. The band grips the thigh allowing the stocking to stay in place without garters. The silicon-backed fabrics are banded (requiring special robotic equipment) to the specific size requirements of the customers before inspection and final packaging.
RAW MATERIALS
Raw materials costs comprised approximately 42% of ECA's 1997 costs of production. Key raw materials for ECA include synthetic fibers, such as nylon and polyester, spandex, rubber, cotton, chemical dyes and silicon. The Company buys its synthetic materials and spandex primarily from DuPont and Bayer. Its rubber supply originates in Malaysia and is obtained via various US importers. Chemical dyes and auxiliary dye ingredients are supplied by various prominent chemical companies, such as Crompton & Knowles and Ciba-Geigy, and silicon is supplied by Dow Corning.
COMPETITION
ECA believes that it is the leader in many of the market categories in which it operates. There are approximately ten competitors who manufacture narrow elastic fabrics for the apparel industry. Principal competitors in logo elastics include CMI--United Elastics and George C. Moore. Over the years, competitors have created their own drawstring systems which compete with the QuikCord design, and principal competitors with regard to this product include Southern Webbing and Asheboro Elastics.
EMPLOYEES
As of December 31, 1997, Worldtex had a total of approximately 845 employees engaged in its narrow elastic fabrics operations. Of these, approximately 639 were employed by ECA and 206 were employed by Elastex. None of these employees are unionized.
ITEM 2.
ITEM 2. PROPERTIES - ------- ----------
Worldtex maintains its headquarters in Hickory, North Carolina, on property owned by Regal and used for its administrative personnel.
COVERED ELASTIC YARN
The Company operates a total of eleven covered elastic yarn manufacturing plants and distribution centers, of which seven are owned and four are leased. In addition, the Company has a 38% interest in a joint venture in Estonia that owns and operates a 52,000 square foot covered elastic yarn manufacturing and distribution facility. In general, the Company's facilities are adequate and suitable for the purposes for which they are utilized by the Company. The plants and distribution centers are listed below:
NARROW ELASTIC FABRICS
ECA and Elastex operate a total of five manufacturing plants, all of which are owned. In addition, a rented sales office is maintained in New York City. The manufacturing plants are listed below.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------- -----------------
There are no material pending legal proceedings as of the date of this Report to which the Company or any of its subsidiaries is a party or to which any of their property is subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ---------------------------------------------------
During the last quarter of the Company's 1997 fiscal year no matters were submitted to a vote of the Company's security holders.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT - -------- ------------------------------------
Barry D. Setzer and Mitchell R. Setzer are not related. Richard J. Mackey and Barry D. Setzer also serve as directors of the Company.
The officers of the Company are elected annually by the Board of Directors.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- ---------------------------------------------------------------------
The Company's Common Stock is listed on the New York Stock Exchange. The following table sets forth the high and low per share sales prices for the Common Stock on the New York Stock Exchange for each quarter since December 31, 1995.
At March 6, 1998 there were approximately 1,102 holders of record of Common Stock.
The Company has not paid any dividends since its Common Stock was distributed in the Distribution. Future payment of cash dividends by the Company will be dependent on such factors as business conditions, earnings and the financial condition of the Company. The Company's Revolving Credit Agreement and the Indenture for the Company's 9 5/8% Senior Notes restrict the payment of dividends by the Company. Under the most restrictive of these debt agreements, $0.4 million was available for the payment of dividends and other distributions as of December 31, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity; Capital Resources."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- WORLDTEX, INC. AND SUBSIDIARIES -------------------------------
The following table sets forth certain financial data of Worldtex for the five fiscal years ended December 31, 1997, which has been derived from Worldtex's audited financial statements for such years. This data should be read in conjunction with the Consolidated Financial Statements of Worldtex and the Notes thereto appearing elsewhere herein. Results are not directly comparable due to the acquisition of ECA as of December 1, 1997, Elastex as of October 3, 1997 and Fibrexa as of April 1, 1995. See Management's Discussion and Analysis,
Item 7.
Item 7. Historical financial information may not be indicative of Worldtex's future performance. Earnings per share are calculated based upon the weighted average number of common shares outstanding and common equivalent shares during such year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------- ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
The Company believes that it is one of the largest suppliers of covered elastic yarn in the world and the largest manufacturer of woven and knitted narrow elastic fabrics in the world (based on 1997 net sales). Covered elastic yarns manufactured by the Company are principally used in the production of sheer and opaque pantyhose, men's, women's and children's socks, sweaters, swimwear, active and athletic wear and men's, women's and children's stretch apparel. Narrow elastic fabrics are elasticized fabric bands, typically under six inches in width, that are used as components in the production of a broad range of apparel products, such as waistbands for men's, women's and children's underwear, athletic apparel and other garments, straps, facings and edgings in women's intimate apparel and elastic bands in women's hosiery.
The Company's covered elastic yarn business operates around the world through its subsidiaries Regal, based in Hickory, North Carolina, Rubyco, based in Montreal, Canada, Filix, based in Troyes, France, and Fibrexa, based in Bogota, Colombia. The Company also has a 38% interest in a manufacturing joint venture in Estonia, has entered into a joint venture agreement for the
establishment of manufacturing operations in China and is currently in negotiations for a similar venture in India.
The Company's narrow elastic fabrics business is conducted through Elastex, acquired October 3, 1997 (the "Elastex Acquisition"), based in Asheboro, North Carolina and through ECA, acquired on December 1, 1997 (the "ECA Acquisition") based in Columbiana, Alabama. ECA and Elastex together own five manufacturing facilities, in Columbiana, Alabama, Asheboro, North Carolina, Hemingway, South Carolina and Woolwine, Virginia.
Worldtex is a holding company, the only assets of which are the stock of its subsidiaries. All of the operations of Worldtex are conducted through its direct and indirect wholly owned subsidiaries. Accordingly, Worldtex's ability to service its indebtedness and meet its other obligations is dependent upon earnings and cash flow of its subsidiaries and the payment of funds by those subsidiaries to Worldtex in the form of loans, dividends or otherwise. In addition, the ability of Worldtex's subsidiaries to pay dividends, repay intercompany liabilities or make other advances to Worldtex is subject to restrictions imposed by corporate law and certain United States, state and foreign tax considerations.
A substantial portion of the Company's sales and operating profits have historically been derived from international operations and export sales, which are subject in varying degrees to risks inherent in doing business abroad. Such risks include the possibility of unfavorable circumstances arising from host country laws or regulations. In addition, foreign operations include risks of partial or total expropriation; currency exchange rate fluctuations and restrictions on currency repatriation; significant taxation policies; the disruption of operations from labor and political disturbances, insurrection or war; and the requirements of partial local ownership of operations in certain countries. Moreover, any change in the value of the currencies of the foreign countries in which the Company does business against the U.S. dollar could have a material adverse impact on the Company's business, financial condition and results of operations.
The textile and retail apparel industries are highly cyclical and are characterized by rapid shifts in fashion and consumer demand, as well as competitive pressures and price and demand volatility. The demand for the Company's products is principally dependent upon the level of United States demand for retail apparel. The demand for retail apparel is in turn dependent on United States consumer spending, which may be adversely affected by an economic downturn, changing retailer and consumer demands, a decline in consumer confidence or spending, and other factors beyond the Company's control. In recent years, sales in the United States of sheer pantyhose have declined. Although pantyhose manufacturers have historically accounted for a significant portion of the Company's sales of covered elastic yarn, the Company's business strategy includes the continued development of new end use applications for covered elastic yarn.
Spandex and nylon are the principal raw materials used in the manufacture of covered elastic yarn by Worldtex. In 1997 Worldtex purchased over half of its nylon and spandex from a single source, DuPont. In recent years,
DuPont and its competitors have expanded their spandex production capacity, and Worldtex has been able to obtain sufficient supplies to meet its customers' requirements. If the supply of spandex from DuPont should be interrupted or cease for any reason, Worldtex believes it might be difficult to find adequate alternative suppliers of spandex.
The textile and apparel industries are highly competitive. The apparel markets are served by a variety of producers, many of which are located in rapidly growing, low-wage countries and use textiles produced in those regions. Many of these textile producers have substantially greater financial and other resources and lower cost of funds than the Company. Unifi, Spanco and Worldtex are the three largest suppliers of covered elastic yarns in the United States. Unifi, which is also a leading producer of other yarns, acquired Spanco in 1997. The Company cannot predict the effect that such acquisition will have on the Company, although Unifi has substantially greater financial resources than the Company and is less leveraged.
The Company is in the process of assessing the Year 2000 issue and the estimated costs necessary for the Company's remediation plan. The Company does not expect the Year 2000 issue to have a material effect on the Company's business, operations or financial condition. The Company plans to remediate all Year 2000 issues during 1998 and 1999 and does not expect remediation costs to have a material impact on results of operations, liquidity and capital resources.
The following table sets forth the percentage of Worldtex's historical sales and operating profit (loss) accounted for by each of Worldtex's geographic areas during the periods indicated, which in the case of 1997 reflects the ECA Acquisition (effective from December 1, 1997) and the Elastex Acquisition (effective from October 3, 1997). For purposes of determining operating profit, parent company expenses have been allocated to each area in accordance with its percentage of total sales. See Note 12 of the Notes to Consolidated Financial Statements of Worldtex for additional financial information (net sales, operating profits and identifiable assets) by geographic location.
RESULTS OF OPERATIONS - ---------------------
The following table sets forth the relationship of percentages which certain income and expense items have to net sales:
1997 VS. 1996 -------------
Sales for the twelve months ended December 31, 1997 were $203.3 million and net income before extraordinary item was $6.5 million, compared with sales of $207.8 million and net income of $10.9 million for the comparable period in 1996. Diluted net income per share was $.44 for 1997 compared with $.75 in 1996. Worldtex's sales in 1997 decreased $4.6 million, or 2.2%, when compared with 1996. Sales in the Company's European operations decreased $17.4 million, or 15.8%, compared with 1996, primarily because of the stronger U.S. dollar versus the French franc, which reduced the French subsidiary's sales by approximately $12.7 million (assuming currency translation of 1997 sales at the rate applicable to 1996 results). In the Company's North American operations, sales increased $11.9 million, or 13.7%, from 1996 levels, primarily because of the inclusion of the narrow fabrics operations acquired in October and December which added $8.8 million in sales. The reduced value of the Canadian dollar lowered North American sales by approximately $0.4 million in currency translations (assuming currency translation of 1997 sales at the rate applicable to 1996 results). Sales in the Company's South American operation, net of intercompany sales of $9.5 million and $6.1 million for 1997 and 1996, respectively, increased 7.6% compared with the prior year. The reduced value of the Colombian peso lowered 1997 sales by $2.4 million (assuming currency translation of 1997 sales at the rate applicable to 1996 results).
The volume increase for 1997 in North America was due primarily to increased market share and expanding diversification into markets that offer higher margins. Sales from the French operations, net of currency translations for reporting purposes, decreased approximately 4.3% in 1997 compared with 1996 primarily due to soft economic conditions in Europe. The volume increases in South America reflect the Company's continuing efforts to expand production in its lower cost operations.
Worldtex's gross margin in 1997 decreased to 17.7% of net sales as compared to 18.8% for 1996. Gross profit margins decreased primarily due to an unfavorable change in the French subsidiary's product mix. Gross profit margins also decreased because the Company's manufacturing costs were spread over lower sales. Selling and administrative expenses increased as a percentage of net sales to 8.2% in 1997 from 8% in 1996 primarily because the fixed component of these expenses was spread over a lower sales base.
The increase in interest expense of $1.2 million was caused primarily by the $175 million Senior Notes issued December 1, 1997 in connection with the acquisitions of Elastex and ECA.
1996 VS. 1995 -------------
Worldtex's sales in 1996 increased $19.8 million, or 10.6%, when compared with 1995. Sales in the Company's European operations increased $9.2 million, or 9.2%, compared with 1995, primarily because of increased demand for covered yarn used by the weaving industry in Europe. The lower value of the French franc compared with the U.S. dollar reduced 1996 sales by $2.6 million (assuming currency translation of 1996 sales at the rate applicable to 1995 results). In the Company's North American operations, sales increased $5.6 million, or 6.9%, from 1995 levels, primarily because of increased demand in
non-pantyhose end uses for covered elastic yarn. Sales in the Company's South American operation were $11.8 million (excluding $6.1 million of inter-company sales) compared with $6.7 million in 1995 primarily due to a full year of operation in 1996 compared with the partial year of 1995. The reduced value of the Colombian peso lowered 1996 sales by $1.8 million (assuming currency translation of 1996 sales at the rate applicable to 1995 results).
Worldtex's gross margin increased in 1996 to 18.8% of sales as compared to 16.7% for 1995. This increase was primarily caused by increased sales resulting from the Company's continuing efforts to develop additional applications and end uses for its products, lower manufacturing costs of the Company's Colombian operations and reduced costs associated with the 1995 restructuring. Additionally, the Company's fixed expenses were spread over substantially higher sales.
Selling and administrative expense increased in 1996 by $.9 million to $16.6 million. The increase was caused principally by the increased business levels in 1996 and the full year operation of the Colombian subsidiary acquired in April 1995.
The increase in interest expense of $.1 million was caused primarily by weighted average outstanding debt increasing approximately 8% but was mostly offset by lower average interest rates.
INCOME TAXES - ------------
Income tax provisions for Worldtex have been calculated in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for tax purposes and financial statement purposes and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The French parliament enacted a provision that increased the corporate tax rate from 33.33% to 36.67% in July 1995. The rate increase resulted in a $0.9 million charge to the 1995 tax provision to increase the deferred tax liability as of January 1, 1995 to the higher enacted income tax rate. In 1997, France increased the corporate tax rate from 36.67% to 41.67%, which resulted in a charge to increase the reserve for deferred income taxes of approximately $1.2 million and an additional charge of $.5 million in the fourth quarter to reflect the retroactive effect of the tax increase for all of 1997.
LIQUIDITY; CAPITAL RESOURCES - ----------------------------
The principal indicators of the Company's liquidity are cash flows from operating activities and cash flows from financing activities, primarily borrowings under the Company's credit facilities.
On December 1, 1997, the Company issued and sold $175.0 million principal amount of its 9 5/8% Senior Notes due 2007 (the "Notes") under an Indenture, dated as of December 1, 1997 (the "Indenture") for net proceeds (before deduction of transaction expenses) of approximately $170.0 million (the "Offering"), which was used to pay the purchase price in the ECA Acquisition, repay certain indebtedness and to pay transaction fees and expenses relating thereto. The Company expects to use the balance of the net proceeds from the sale of the Notes for general corporate purposes.
Worldtex used $1.5 million from its operating activities in 1997, compared to generating $15 million in 1996 and $12 million in 1995. The decrease in net cash provided in 1997 was caused primarily by the decrease in net income and the increase in working capital investments.
EBITDA represents income before income taxes plus interest expense, depreciation and amortization and is provided as additional information relating to the Company's debt service capacity. EBITDA for the years ended December 31, 1997, 1996 and 1995 was $25.8 million, $29.5 million and $22.1 million, respectively. Depreciation and amortization for the years ended December 31, 1997, 1996 and 1995 was $6.8 million, $6.3 million and $6.1 million, respectively.
During 1997, capital expenditures amounted to $7.7 million. Capital expenditures were $13.8 million in 1996 and $8.4 million in 1995. The majority of such capital expenditures during the years 1995-1997 was primarily used to purchase additional manufacturing equipment in order to increase and improve efficiencies to the Company's production capacity. The Company currently expects that capital expenditures for 1998 will aggregate approximately $12.0 million, primarily for machinery and property improvements.
During the second quarter of 1995, a wholly owned subsidiary of the Company acquired substantially all of the assets of Fibrexa, S.A., a manufacturer of covered yarn based in Bogota, Colombia. The consideration for the purchase of Fibrexa was approximately $4.4 million in cash, assumption of approximately $6.5 million in debt and contingent payments based on earnings from the Company's South American operations over a five year period.
On October 3, 1997, the Company purchased Elastex for approximately $7.7 million and paid $0.6 million to cancel an equipment operating lease assumed from the seller, which funds were borrowed under the Company's Credit Facility, dated as of November 12, 1992, as amended (the "Existing Credit Facility"). On December 1, 1997, a wholly-owned subsidiary of the Company purchased substantially all of the assets of ECA for a cash purchase price of approximately $76.3 million, which was funded with a portion of the net proceeds from the Offering. In connection with the ECA Acquisition, such subsidiary of the Company assumed an industrial revenue bond obligation relating to ECA in the aggregate principal amount of $6.0 million, operating leases (as to which the present value of remaining lease payment obligations will not exceed $2.3 million) and certain current liabilities.
The Company's business strategy includes the pursuit of strategic acquisitions of other businesses. Any acquisition would be funded through cash
on hand (including the balance of the net proceeds from the Offering and cash generated by the Company's operations), the issuance of additional securities, the sale of other assets or the incurrence of additional indebtedness (including borrowings under the New Credit Facility (as defined below)). The Company's ability to sell assets and incur indebtedness are restricted under the Indenture and the New Credit Facility.
In 1994, the Company entered into an interest rate swap agreement with a commercial bank that effectively converted the interest rate on one-half of its $50 million 7.50% senior notes to a floating rate for three years ending July 1999. The agreement effectively changed the interest rate to approximately 6.24%, 7.87%, 7.08%, 6.59%, 6.77%, 6.52% and 6.77% for the six month intervals ended January 21, 1995 through January 21, 1998. The effective rate was 6.49% for the six months ending July 21, 1998. Net amounts due under this agreement decreased interest expense for 1997 by $.257 million, for 1996 by $.20 million and for 1995 by $.02 million. The 7.50% senior notes were repaid with a portion of the proceeds of the Offering. Such interest rate swap agreement was terminated effective March 26, 1998, and such termination will not have a material effect on the financial condition or results of operations of the Company. The Company may enter into interest rate swap agreements relating to the Notes in the future.
In connection with the ECA Acquisition, the Company entered into a new Credit Agreement (the "New Credit Facility") and repaid and terminated the Existing Credit Facility. The New Credit Facility provides for revolving credit borrowings in an aggregate principal amount of up to $25.0 million. The New Credit Facility terminates and all amounts borrowed thereunder will be due December 1, 2002. Loans under the New Credit Facility bear interest at rates based upon a base rate (the higher of the NationsBank, 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 New 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 (the "Foreign Subsidiaries").
At December 31, 1997, the Company has indebtedness of $188.2 million and $25.0 million was available for future borrowings under the New Credit Facility. In addition, at such date Filix had $15.0 million, Rubyco $1.0 million and Fibrexa $4.8 million of U.S. dollar equivalent credit availability under bank lines of credit. Amounts outstanding as of December 31, 1997 were $1.5 million for Fibrexa, $0.3 million for Rubyco and none outstanding for Filix. The most restrictive covenant of the New Credit Facility and Indenture limits short-term borrowings by the Company's subsidiaries to a total of $15.0 million. Worldtex believes that these lines of credit, together with internally generated funds and access to other financing sources, will provide sufficient liquidity for the Company's expected short-term and long-term cash requirements.
As a result of the ECA Acquisition and the Offering, the Company is highly leveraged. The Company's ability to make scheduled payments of principal
of, or to pay the interest or applicable liquidated damages, if any, on, or to refinance, its indebtedness (including the Notes), or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations and anticipated revenue growth, management believes that cash flow from operations and available cash, together with available borrowings under the New Credit Facility, will be adequate to meet the Company's future liquidity needs for at least the next several years. The Company may, however, need to refinance all or a portion of the principal of the Notes on or prior to maturity. There can be no assurance that the Company's business will generate sufficient cash flow from operations, that anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or to fund its other liquidity needs. In addition, there can be no assurance that the Company will be able to effect any such refinancing on commercially reasonable terms or at all.
The Company's high degree of leverage could have important consequences to the Company, including, but not limited to: (i) making it more difficult for the Company to satisfy its obligations, (ii) increasing the Company's vulnerability to general adverse economic and industry conditions, (iii) limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures, and other general corporate requirements, (iv) requiring the dedication of a substantial portion of the Company's cash flow from operations to the payment of principal of, and interest on, its indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, research and development or other general corporate purposes, (v) limiting the Company's flexibility in planning for, or reacting to, changes in its business and the industry, and (vi) placing the Company at a competitive disadvantage vis-a-vis less leveraged competitors. In addition, the Indenture and the New Credit Facility contain financial and other restrictive covenants that limit the ability of the Company to, among other things, borrow additional funds. Failure by the Company to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on the Company.
THREE-YEAR COMPARISONS - ----------------------
Total long-term debt was $185.8 million, $67.8 million and $68.9 million, respectively, at December 31, 1997, 1996 and 1995.
Working capital was $87.7 million, $47.5 million and $47.3 million, respectively, at December 31, 1997, 1996 and 1995.
Net worth was $77.5 million, $85.2 million and $78.9 million, respectively, at December 31, 1997, 1996 and 1995. (See the Consolidated Statements of Stockholders' Equity of Worldtex for additional information.)
The number of days that sales were represented by accounts receivable was 68 (net of $10.3 million net receivables acquired on December 1, 1997 in connection with the ECA Acquisition), 69 and 68, respectively, at December 31, 1997, 1996 and 1995. Net accounts receivable increased by approximately $6.5
million (including the acquired ECA receivables), or 16.2%, in 1997 compared with 1996, and sales increased 2.2%. Inventories, as a percentage of cost of sales, were 32.4% (including $11.6 million of inventory or 6.9% of cost of sales assumed in connection with the ECA Acquisition on December 1, 1997) at December 31, 1997, 22.1% at December 31, 1996 and 21.5% at December 31, 1995.
The results of operations and financial condition of Worldtex are based upon historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of estimates required, Worldtex believes the effects on the results of operations and financial condition have been minor. Worldtex will continue to monitor the impact of inflation in setting its pricing and other policies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
The following financial statements, supplementary financial information and schedules are filed as part of this Report:
WORLDTEX, INC.
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Income, Years Ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheets, December 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity, Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Supplementary Financial Information
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 1997, 1996 and 1995
All schedules not mentioned above are omitted for the reason that they are not required or are not applicable, or the information is included in the Consolidated Financial Statements or the Notes thereto.
INDEPENDENT AUDITORS' REPORT
The Board of Directors Worldtex, Inc.:
We have audited the accompanying consolidated balance sheets of Worldtex, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Worldtex, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Atlanta, Georgia February 27, 1998
WORLDTEX, INC. CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
WORLDTEX, INC. CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------- DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
WORLDTEX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
WORLDTEX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 1 - ORGANIZATION AND BUSINESS
Worldtex, Inc. ("Worldtex" or the "Company"), a Delaware corporation organized in July 1992, is a holding company engaged through its subsidiaries in the manufacture of covered elastic yarn, which is used to manufacture hosiery products and other apparel items, and narrow elastic fabrics, that are used as components in the production of apparel products and elastic bands in women's hosiery. Worldtex's principal markets are in North America, South America and Europe.
Worldtex's principal subsidiaries are Regal Manufacturing Company, Inc. ("Regal"), based in Hickory, North Carolina, Rubyco (1987), Inc. ("Rubyco"), based in Montreal, Canada, Filix Lastex, S.A. ("Filix"), based in Troyes, France, and Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia. During 1997, Worldtex acquired Elastex, Inc. ("Elastex"), based in Asheboro, North Carolina, and Elastic Corporation of America, Inc. ("ECA"), based in Columbiana, Alabama as discussed in Note 14. Reference to Worldtex shall include its subsidiaries unless the context shall indicate otherwise.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements of Worldtex as of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995 include the accounts of Regal, Rubyco, Filix, Fibrexa effective April 1, 1995, Elastex effective October 3, 1997 and ECA effective December 1, 1997. All significant intercompany balances and transactions for all periods are eliminated in the consolidated financial statements.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH AND CASH EQUIVALENTS
At December 31, 1997, cash includes a $9,160 demand deposit with a commercial bank earning daily money market investment yields. At December 31, 1997 and 1996, restricted cash on deposit of $2,123 and $2,004, respectively, are included in other assets as security for loans to Fibrexa in Colombia, South America.
(B) INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market.
As of December 31, 1997 and 1996, the major classes of inventory are:
(C) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated primarily using the straight-line method over the following estimated useful lives of the related assets: machinery and equipment (6 to 20 years, with approximately 60% being depreciated over 20 years), structures (20 to 40 years), other equipment (5 to 10 years). Leasehold improvements are amortized over their respective lease terms or their estimated useful lives, if shorter. Repair and maintenance costs are charged to expense as incurred. Renewals and betterments which substantially extend the useful life of an asset are capitalized and depreciated. As of December 31, 1997 and 1996, property, plant and equipment consists of:
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(D) COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES
The cost in excess of net assets of acquired businesses is amortized using the straight-line method over the expected periods to be benefited, generally 40 years. The Company assesses the recoverability of these intangible assets by determining whether the amortization of the cost in excess of net assets of acquired businesses over their remaining lives can be recovered through the undiscounted future operating cash flows of the acquired business. The assessment of the recoverability of goodwill will be impacted if estimated future cash flows are not achieved.
(E) FORWARD EXCHANGE CONTRACTS
Rubyco enters into forward exchange contracts as a hedge against accounts payable denominated in foreign currency. These contracts are used by Rubyco to minimize exposure and reduce risk from exchange rate fluctuations in the regular course of its foreign business. Gains and losses on forward contracts, which are not material, are deferred and included in the measurement of the related foreign currency transactions. The impact of forward contracts on cash flows is reflected in the change in accounts and notes payable - trade. As of December 31, 1997 and 1996, $0 and $500, respectively, in contracts were outstanding.
(F) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for tax purposes and financial statement purposes and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
No provision is made for income taxes which may be payable if undistributed earnings of foreign subsidiaries were to be paid as dividends to Worldtex, since Worldtex intends that such earnings will continue to be invested in those countries. At December 31, 1997, the cumulative amount of foreign undistributed earnings amounted to approximately $48,509. Foreign tax credits may be available as a reduction of United States income taxes in the event of such distributions.
(G) FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies have been translated into U. S. dollars at the period-end exchange rate. Revenues and expenses denominated in foreign currencies have been translated into U.S. dollars at the weighted average exchange rate. Translation gains and losses are accounted for in a separate component of stockholders' equity. The exchange gains and losses arising on transactions are charged to income as incurred.
(H) NET INCOME PER SHARE
Basic earnings per share are calculated based upon the weighted average number of common shares outstanding during the year. Diluted earnings per share are based upon the weighted average number of common shares and dilutive common equivalent shares outstanding during the year. The reconciliation of income available to common stockholders and weighted average number of common shares
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
for basic and dilutive per share amounts as required by SFAS No. 128, EARNINGS PER SHARE is as follows:
(I) REVENUE RECOGNITION
Revenue from sales is recognized when goods are shipped to the customer, at which point the risk of loss has passed to the customer. The Company provides allowances for expected cash discounts based upon historical bad debts and related claims experience and upon periodic evaluations of the aging of the accounts receivable.
(J) INTEREST RATE SWAP
The interest rate swap agreement is accounted for like a hedge of the underlying debt obligation and interest expense is recorded using the revised interest rate, with fees and other payments amortized as yield adjustments.
(K) STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion no 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma net income per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(L) ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
(M) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications did not impact net income as previously reported.
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 4 - NOTES RECEIVABLE
Filix has the U.S. dollar equivalent of approximately $2,812 and $4,500 of non-interest bearing notes receivable as of December 31, 1997 and 1996, respectively, with maturities within four months of the periods ended.
NOTE 5 - SHORT-TERM BORROWINGS
Short-term debt consists of notes payable to banks and advances under bank lines of credit and overdraft facilities.
Fibrexa has available the U.S. dollar equivalent of $4,170 under various bank lines of credit providing for unsecured borrowings and letter of credit financing generally due in 90 days. At December 31, 1997 and 1996, $1,560 and $1,324, respectively, were outstanding under these agreements at average interest rates of 7.75% and 7.57% respectively.
Filix has available the U.S. dollar equivalent of $15,049 under various unsecured bank lines of credit and overdraft facilities bearing interest at 4.28%. At December 31, 1997 and 1996, no amounts were outstanding under these facilities.
Rubyco has available the U.S. dollar equivalent of $1,049 under a bank line of credit, due on demand, providing for unsecured borrowings and letter of credit financing at the bank's prime rate (5.5% at December 31, 1997). The line of credit is guaranteed by the Company. At December 31, 1997 and 1996, $259 and $18 amounts, respectively, were outstanding under this agreement.
NOTE 6 - LONG-TERM DEBT
As of December 31, 1997 and 1996, long-term debt consists of:
The aggregate annual maturities of long-term debt during each of the five years subsequent to December 31, 1997 are as follows:
The Company entered into an indenture dated December 1, 1997, under which a total of $175,000 Senior Notes due December 15, 2007 were issued with interest
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
at the annual rate of 9.625%. The notes are unconditionally guaranteed by each of the U.S. subsidiaries of the Company. The Company may redeem the notes on or after December 15, 2002, at redemption prices ranging from 104.813% in 2002 to 100% in 2005. Up to 35% of the aggregate principal amount of notes originally issued may be redeemed at a price of 109.625% with the net proceeds of a public offering of common stock at any time on or before December 15, 2000. The indenture restricts the ability of the Company and its subsidiaries to incur additional indebtedness and issue preferred stock, enter into sale and leaseback transactions, incur liens, pay dividends or make certain other restricted payments, apply net proceeds from certain asset sales, enter into certain transactions with affiliates, and assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company. At December 31, 1997, Worldtex was in compliance with the various covenants.
On December 1, 1997, the Company repaid the $50,000 Senior Notes due July 2004 with part of the proceeds from the sale of the $175,000 Senior Notes due 2007. An extraordinary charge of $1,344, net of a tax benefit of $693, was recorded for the early debt extinguishment.
In 1994, the Company entered into an interest rate swap agreement with a commercial bank that effectively converted a portion of its $50,000 Senior Notes from fixed rate debt to a floating rate based on LIBOR for a period of three years ending July 1999. At December 31, 1997, the swap agreement had a notional principal amount of $25,000. The floating rate is reset every six months during the term of the interest rate swap agreement with interest due January 21 and July 21. The agreement effectively changed the interest rate on $25,000 from 7.5% to approximately 6.24%, 7.87%, 7.08%, 6.59%,6.77%, 6.52% and 6.77% for the six month intervals ended January 21, 1995 through January 21, 1998 at which time the effective interest rate for this portion of the debt was decreased to 6.49% for the next six months. The estimated amount at which the Company could terminate this agreement was approximately $354 at December 31, 1997. Net amounts due under this agreement decreased interest expense for 1997 by $257, for 1996 by $201 and for 1995 by $20. The $50,000 Senior Notes were repaid on
December 1, 1997. The Company terminated the swap agreement effective March 26, 1998. The termination did not have a material effect on the financial condition or results of operations of the Company.
In connection with the ECA acquisition, the Company entered into a new credit facility and repaid and terminated the existing credit facility. The new facility provides for revolving credit borrowings in an aggregate principal amount of up to $25,000. The new credit facility terminates and all amounts borrowed thereunder will be due December 1, 2002. Loans under the new credit facility bear interest at variable rates. Loans are guaranteed by all U.S. subsidiaries of the Company and are required to be secured by liens on the accounts receivable and inventory of the Company and its U.S. subsidiaries, 100% of the outstanding capital stock of the Company's U.S. subsidiaries and 65% of the outstanding capital stock of each of the foreign subsidiaries. No loans were outstanding at December 31, 1997. The new credit facility carries a commitment fee of .375% of the unused available borrowings. The new credit facility contains customary covenants and restrictions on the Company's ability to engage in certain activities. In addition, the new credit facility provides that the Company must meet certain financial covenants, including a minimum consolidated current ratio, a maximum leverage ratio and a minimum interest coverage ratio. In addition, the new credit facility restricts the payment of dividends. At December 31, 1997, Worldtex was in compliance with the various covenants.
Under the most restrictive of these debt agreements, $.4 million of retained earnings was unrestricted as to the payment of dividends and other distributions as of December 31, 1997.
NOTE 7 - STOCKHOLDERS' EQUITY
Worldtex is authorized to issue up to forty million shares of common stock, $.01 par value, and ten million shares of preferred stock, $.01 par value. As of December 31, 1997 and 1996, there were issued and outstanding 14,428,671 and 14,403,271 shares of common stock, respectively, and no shares of preferred
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
stock. Worldtex is authorized to repurchase up to one million shares of its common stock. Through December 1997, 266,300 shares had been purchased and are carried at cost as Treasury Stock.
Preferred stock is issuable in one or more series with dividend rates, liquidation preferences and redemption, conversion and voting rights as may be determined by Worldtex's Board of Directors.
In connection with Worldtex's formation, each shareholder received, in addition to one share of Worldtex common stock, one share purchase right for each outstanding share of the former parent's common stock. Each right entitles the registered holder to purchase from Worldtex a unit ("Unit") consisting of one one-hundredth of a share of preferred stock of Worldtex, at a price of $30 per Unit. The share purchase rights are not exercisable or transferable apart from Worldtex common stock until the earlier to occur of 1) the tenth day following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding Worldtex common stock (an "Acquiring Person"), or 2) the tenth business day following the commencement of a tender offer or exchange offer if, upon consummation thereof, any person or group would be an Acquiring Person. The share purchase rights will expire at the close of business on December 31, 2002, unless earlier redeemed or exchanged by Worldtex.
Under the terms of the Worldtex 1992 Stock Incentive Plan, as amended by the stockholders in May 1994, options to purchase up to 1,400,000 shares of common stock may be awarded to officers and employees. Options granted under the plan may be for such terms and exercised at such times as determined at the time of grant by the Compensation Committee of the Board of Directors. In addition, the Plan provides that each outside director will be granted an option to purchase 10,000 shares of common stock of the Company. As of December 31, 1997, 1,000 shares were reserved for future awards under the plan. In addition, in connection with the Company's acquisition of Elastic Corporation of America ("ECA") in December 1997, the Company granted to a senior executive of ECA an
option outside of the 1992 Stock Incentive Plan to purchase 50,000 shares of common stock of the Company. The 1992 Stock Incentive Plan also includes provisions for the granting of stock appreciation rights, restricted stock, deferred stock, employee loans and tax offset payments. At December 31, 1997, no such grants had been issued, except for limited stock appreciation rights applicable if there is a change of control (as defined) of the Company.
The following table summarizes stock option activity during each of the last three years:
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Options outstanding at December 31, 1997:
Options exercisable at December 31, 1997:
The Company continues to apply Accounting Principles Board Opinion No. 25 and accordingly recognizes compensation expense to the extent the quoted market price of the stock exceeds the amount the employee is required to pay as of the date of grant of the option. 200,000 options were issued at less than quoted market value and $30 has been charged to compensation cost in 1997, 1996 and 1995 respectively. These 200,000 options, plus 200,000 options issued at quoted market value, vest ratably over three years while all other options vest ratably over five years. The options have a ten year term.
Had compensation cost for the Company's stock option plan been determined consistent with Financial Accounting Standards Statement No. 123, "Accounting for Stock-Based Compensation", the Company's net income and net income per share would be as follows:
The fair value of each option grant is established on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995: dividend yield of 0%; expected volatility of 33%, 27% and 29%; risk-free interest rates of 5.5% and expected lives of eight years.
NOTE 8 - EMPLOYEE BENEFIT PLANS
Employees of Regal participate in a non-contributory profit-sharing plan for all eligible employees, including officers. The plan provides for minimum employer contribution of the lesser of five percent of Regal's income before taxes plus a discretionary amount determined by the Regal Board of Directors or the maximum amount deductible for Federal income tax purposes. Provisions for the years ended December 31, 1997, 1996 and 1995 were $89, $60 and $27 respectively.
Regal employees participate in the Worldtex Employee Stock Ownership Plan ("Worldtex ESOP"). The Worldtex ESOP provides eligible employees with an opportunity to purchase Worldtex common stock through payroll deductions, and subject to certain limitations was matched by Worldtex. The Worldtex contribution was suspended indefinitely effective June 1, 1996. Effective January 11, 1998, Worldtex reinstituted its matching program at the rate of one-third of the employee contribution up to a maximum employee contribution of 6% of salary. Contributions to the Worldtex ESOP are invested by an independent trustee in common stock of Worldtex. Stock attributable to Worldtex contributions vests at the rate of 20% for after two years of service, with 20% vesting added for each year, up to five years of service, at which point an employee is 100% vested in the plan. Contributions to the Worldtex ESOP were $0,
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
$50 and $124 in 1997, 1996 and 1995 respectively. Effective June 1, 1996, the Company amended and renamed the plan The Worldtex, Inc. Profit Sharing and Retirement Savings Plan in order to merge the Regal profit-sharing, the Worldtex ESOP, and the Worldtex, Inc. 401(k) plans. All vesting schedules for Company contributions were conformed to the one described above for the ESOP plan.
Employees of Rubyco participate in a Registered Retirement Savings plan. The plan provides for employee contributions of 4% of salary to a maximum of $3.5 with corresponding contributions by Rubyco of 5% of salary to a maximum of $3.5. Provisions for the years ended December 31, 1997, 1996 and 1995 were $32, $27 and $27 respectively.
Filix is legally obligated to contribute to an employee profit-sharing plan whereby annual contributions are determined on the basis of a prescribed formula using capitalization, salaries and certain revenues. Amounts are paid into a bank trust fund the year following the contribution calculation. Provisions for the years ended December 31, 1997, 1996 and 1995 were $720, $902 and $780 respectively.
Under the terms of an industry-wide labor agreement, Filix employees are entitled to a lump-sum payment at normal retirement age of up to four months salary depending on their number of years of service. Such amounts are payable only if the employee remains with Filix until retirement. The plan is not funded. The following table sets forth the plan's unfunded status as of December 31, 1997 and 1996:
The projected benefit obligation at December 31, 1997 and 1996 was determined using an assumed discount rate of 7.25% and 7.5% respectively. The assumed long-term rate of increase in compensation was 3% for 1997 and 1996.
Worldtex has a unfunded supplemental death and retirement plan for certain key employees. The accrued pension liability at December 31, 1997 and 1996 was $1,487 and $1,287. Net periodic pension cost was $200, $522 and $72 in 1997, 1996 and 1995 respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under noncancelable operating leases, primarily for real property, as of December 31, 1997 are:
1998 $ 2,174 1999 1,936 2000 1,904 2001 1,924 2002 404 --------- Total $ 8,342 =========
Rental expense for cancelable and noncancelable operating leases charged to operations for the years ended December 31, 1997, 1996 and 1995 was approximately $1,134, $974 and $647 respectively.
In the normal course of business, Worldtex and its subsidiaries may sometimes be named as a defendant in litigation. In the opinion of management, based upon the advice of counsel, any uninsured liability which may result from the resolution
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
of any present litigation or asserted claim will not have a material effect on Worldtex's operations, financial position or liquidity.
NOTE 10 - ACCOUNTS AND NOTES PAYABLE - TRADE AND OTHER LIABILITIES
Accounts and notes payable - trade and other liabilities consist of the following as of December 31, 1997 and 1996:
NOTE 11 - INCOME TAXES
The provisions for income taxes for the years ended December 31, 1997, 1996 and 1995 are as follows:
Income before income taxes for the years ended December 31, 1997, 1996 and 1995 is comprised as follows:
A reconciliation for the years ended December 31, 1997, 1996 and 1995 between the amount computed using the U. S. Federal income tax rate and the effective rate of tax on book income is as follows:
In October 1997, the French parliament enacted a provision that increased the tax rate from 36.67% to 41.67%. The 36.67% rate was increased from 33.33% in July 1995. The rate increases resulted in a $1,156 charge in 1997 and a $889 charge in 1995 to income tax provision to increase the deferred tax liability as of January 1 of each year to the higher enacted income tax rate.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1997 and 1996 are as follows:
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Deferred taxes are classified in the accompanying Consolidated Balance Sheets captions as follows:
There was a $91 valuation allowance established in 1997 for deferred tax assets attributable to items when realized will result in adjustments to goodwill as of December 31, 1997. There was no valuation allowance for years ended December 31, 1996 and 1995. Based upon the level of historical taxable income and the expected reversal of future taxable temporary differences, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at December 31, 1997.
NOTE 12 - GEOGRAPHIC INFORMATION
Financial information by geographic area for the years ended December 31, 1997, 1996 and 1995 is summarized as follows:
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires all entities to disclose the fair value of certain on- and off-balance sheet financial instruments in their financial statements.
(A) CASH, ACCOUNTS AND NOTES RECEIVABLE AND ACCOUNTS AND NOTES PAYABLE
The carrying amount approximates fair value because of the short maturity of these instruments.
(B) LONG-TERM DEBT
The fair values of each of the Company's long-term debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity. The estimated fair values of the Company's long-term debt instruments are:
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(C) FORWARD EXCHANGE CONTRACTS
The forward exchange contracts described in Note 3 (e) are relatively simple, short-term instruments in which future exchange rates are locked in for a fee.
(D) INTEREST RATE SWAP
The interest rate swap described in Note 3 (j) is discussed further in Note 6.
(E) LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
NOTE 14 - ACQUISITIONS
On December 1, 1997, the Company completed the acquisition of substantially all of the assets of the Elastic Corporation of America division ("ECA") of NFA Corp. for approximately $76,300 in cash and the assumption of $6,000 in long term debt. ECA is a supplier of woven and knitted narrow elastic fabrics to the apparel industry. On October 3, 1997, the Company purchased substantially all of the assets of the Narrow Fabrics division ("Elastex") of Texfi Industries, Inc. for approximately $8,400 in cash. Elastex is a supplier of knitted narrow elastic fabrics to the apparel industry. The net proceeds from the sale of the $175,000 senior notes were used to fund the acquisition on December 1, 1997 of ECA and to reduce outstanding indebtedness incurred to finance the acquisition on October 3, 1997, of Elastex. The excess of cost over fair value of net assets acquired was approximately $52,887 for ECA and approximately $3,837 for Elastex as of December 31, 1997, which will be amortized using the straight-line method over 40 years. The acquisitions were accounted for as a purchase and, accordingly, the net assets and operations of ECA and Elastex have been included in the Company's consolidated financial statements beginning on the acquisition effective dates.
The following unaudited pro forma data presents 1997 and 1996 results of operations of the Company, Elastex and ECA as though the acquisitions had occurred at the beginning of each period presented, giving effect to depreciation and amortization of assets on the accounting basis recognized in recording the purchase and the interest on funds used to effect the purchase.
During the second quarter of 1995, a wholly owned subsidiary of the Company acquired substantially all of the assets of Fibrexa, S.A. ("Fibrexa"), a manufacturer of covered yarn based in Bogota, Colombia. The consideration for the purchase was approximately $4,400 in cash, assumption of approximately $6,500 in debt and contingent payments based on earnings from the Company's South American operations over a five-year period. The funds for this purchase were obtained from the Company's cash on hand and borrowings under the Company's Revolving Credit Agreement. The excess of cost over fair value of the net assets acquired was approximately $800 at acquisition and $1,500 at year end 1995, $2,000 at December 1996, and $2,800 at December 1997 due to contingency payments per the purchase agreement, which will be amortized using the straight-line method over 40 years. The acquisition was accounted for as a purchase and, accordingly, the net assets and operations of Fibrexa have been included in the Company's consolidated financial statements beginning on the effective acquisition date of April 1, 1995.
NOTE 15 - RELATED PARTY TRANSACTIONS
In 1997, 1996 and 1995, other assets include a $600 noninterest bearing note receivable due in the year 2000 from a senior executive.
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 16 - CONCENTRATIONS
The Company currently buys a significant portion of its Lycra and spandex yarn, an important component of its products, from a single supplier. There are a limited number of manufacturers of this raw material and a change in suppliers could cause a delay in manufacturing and a possible loss of sales, which would adversely affect operating results.
In 1995, one customer accounted for 10.5% of Worldtex's consolidated net sales. In 1997 and 1996, no customer represented over 10% of consolidated net sales. The majority of Worldtex's sales during 1997 were attributable to the sale of covered elastic yarn. In 1997, Worldtex acquired two narrow elastic fabric businesses. Any significant decline in demand for covered elastic yarn or narrow elastic fabrics would have a material adverse effect on the operations of Worldtex.
NOTE 17 - RESTRUCTURING CHARGE
In December 1995, the Company recorded a year-end charge of $1,715 (or eight cents per share, net of taxes) for the closure of a Canadian manufacturing facility and the Company's Buenos Aires, Argentina distribution branch. The charge included accruals for severance, inventory adjustments, accounts receivable reserves, and equipment and building write downs to estimated fair market values. $1,300 was reflected as cost of goods sold and $400 as selling and administrative expenses.
As of December 31, 1997, $507 is reserved primarily for inventory valuation and allowances for the collectibility of accounts receivables related to the closed operations.
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
The $175,000 Senior Notes are guaranteed by each of the U.S. subsidiaries of the Company, which consist of Regal, Willcox & Gibbs Filix of Delaware, Inc., Regal Yarns of Argentina, Inc., WTX Colombia I, Inc. and WTX Colombia II, Inc., ECA and Elastex. The guarantor subsidiaries are wholly owned subsidiaries of the
Company and the guarantees are full, unconditional and joint and several. There are no restrictions on the ability of the guarantor subsidiaries to make distributions to the Company, except those generally applicable under relevant corporation laws. Separate financial statements of each guarantor subsidiary have not been presented because management has determined that they are not material to investors. The following pages include summarized consolidating financial information for the Company, segregating the parent, the guarantor subsidiaries and the nonguarantor subsidiaries.
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
WORLDTEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS)
WORLDTEX, INC. SUPPLEMENTARY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
WORLDTEX, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- --------------------------------------------------
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- --------------------------------------------------------------
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
Reference is made to the information responsive to the Items comprising this Part III that is contained in Worldtex's definitive proxy statement for its 1998 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, which is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------- ---------------------------------------------------------------
FINANCIAL STATEMENTS AND SCHEDULES - ----------------------------------
The financial statements and financial statement schedules included in this Report are listed in the introductory portion of Item 8.
EXHIBITS - --------
The following exhibits are filed as part of this Report (for convenience of reference, exhibits are listed according to numbers assigned in the exhibit tables of Item 601 of Regulation S-K under the Securities Exchange Act of 1934 and management contracts or compensatory plans are indicated by an asterisk):
Exhibit NO. DESCRIPTION ------- -----------
2.1 Purchase Agreement, dated as of March 28, 1995, among Fibrexa, S.A., the stockholders of Fibrexa, Worldtex Colombiana, Ltda. and Worldtex -- filed as Exhibit 2 to the Company's report on Form 8-K dated June 5, 1995 and incorporated herein by reference.
2.2 Asset Purchase Agreement, dated as of October 29, 1997, among Elastic Corporation of America, Inc. (a wholly-owned subsidiary of Worldtex, Inc.), Worldtex, Inc., and NFA Corp. -- filed as Exhibit 2.1 to the Worldtex, Inc. Current Report on Form 8-K dated December 1, 1997 and incorporated herein by reference.
3.1 Certificate of Incorporation of Worldtex -- filed as Exhibit 3.1 to Worldtex's Registration Statement on Form 10, dated October 1, 1992, as amended, and incorporated herein by reference.
3.2 By-Laws of Worldtex -- filed as Exhibit 3.2 to Worldtex's Registration Statement on Form 10, dated October 1, 1992, as amended, and incorporated herein by reference.
4.1 Share Purchase Rights Agreement, dated as of August 1, 1992, by and between Worldtex and Chemical Bank as Rights Agent -- filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference.
4.2 Indenture, dated as of December 1, 1997, by and among Worldtex, Inc., Willcox & Gibbs Filix of Delaware, Inc., Regal Manufacturing Company, Inc., Elastic Corporation of America, Inc., Elastex, Inc., Regal Yarns of Argentina, Inc., WTX Colombia I, Inc. and WTX Colombia II, Inc. (together, other than Worldtex, Inc., the "Guarantors"), and IBJ Schroder Bank & Trust Company, as Trustee, with respect to the 9 5/8% Senior Notes due 2007 -- filed as Exhibit 4.1 to the Company's Registration Statement on Form S-4 (No. 333-45331) and incorporated herein by reference.
4.3 Registration Rights Agreement, dated as of December 1, 1997, by and among Worldtex, Inc., the Guarantors and the Initial Purchasers -- filed as Exhibit 4.3 to the Company's Registration Statement on Form S-4 (No. 333-45331) and incorporated herein by reference.
4.4 Form of 9 5/8% Note - included in Exhibit 4.2.
10.1 Distribution Agreement dated as of November 12, 1992, between W&G and Worldtex -- filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference.
10.2 Tax Sharing Agreement dated as of November 12, 1992, between W&G and Worldtex -- filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference.
10.3 Employment Agreement, dated November 15, 1993, between Worldtex and Richard J. Mackey -- filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for 1993 and incorporated herein by reference.*
Exhibit NO. DESCRIPTION ------- -----------
10.4 Employment Agreement, dated November 15, 1993, between Worldtex and Barry D. Setzer -- filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for 1993 and incorporated herein by reference.*
10.5 1992 Stock Incentive Plan of Worldtex, as amended -- filed as Appendix A to Worldtex's proxy statement, dated April 1, 1994, for the 1994 Annual Meeting of Stockholders, and incorporated herein by reference*.
10.6 Credit Agreement, dated as of December 1, 1997, among Worldtex, the Guarantors, the Lenders named therein and NationsBank, N.A., as Agent -- filed herewith.
11.1 Statement re computation of earnings per share -- filed herewith.
21.1 Subsidiaries of Worldtex -- filed herewith.
23.1 Consent of KPMG Peat Marwick LLP -- filed herewith.
24.1 Powers of Attorney executed by certain directors and officers of Worldtex -- filed as Exhibit 25.1 to the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference.
24.2 Powers of Attorney executed by Mitchell R. Setzer -- filed as Exhibit 24.2 to the Company's Annual Report on Form 10-K for 1994 and incorporated herein by reference.
24.3 Powers of Attorney executed by Claude D. Egler -- filed as Exhibit 24.3 to the Company's Annual Report on Form 10-K for 1996 and incorporated herein by reference.
27.1 Financial Data Schedule (filed with EDGAR only).
8-K REPORTS - -----------
A Current Report on Form 8-K, dated December 1, 1997, was filed with the SEC, reporting under Items 2 and 7 and including the following financial statements:
ELASTIC CORPORATION OF AMERICA (A DIVISION OF NFA CORP.) Audited Financial Statements: Independent Auditors' Report Statements of assets, liabilities and divisional equity as of December 28, 1996, December 30, 1995 and December 31, 1994 Statements of income and divisional equity for the fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994
Statements of cash flows for the fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994 Notes to Financial Statements
Unaudited Financial Statements: Statement of assets, liabilities and divisional equity as of September 27, Statements of income and divisional equity for the thirty-nine weeks ended September 27, 1997 and September 28, 1996 Statements of cash flows for the thirty-nine weeks ended September 27, 1997 and September 28, 1996 Notes to Unaudited Financial Statements
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1998
WORLDTEX, INC.
By /S/ RICHARD J. MACKEY -------------------------------------- Richard J. Mackey Chairman of the Board and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 31, 1998 by the following persons on behalf of the registrant and in the capacities indicated.
/S/ RICHARD J. MACKEY - ---------------------------------------------- Richard J. Mackey, Chairman of the Board, Chief Financial Officer, Director and Attorney for the persons indicated by asterisk
BARRY D. SETZER* Barry D. Setzer, President, Chief Executive Officer and Director
CLAUDE D. EGLER* Claude D. Egler, Director
JOHN B. FRASER* John B. Fraser, Director
- -------------------------------- Salim M. Ibrahim, Director
WILLI ROELLI* Willi Roelli, Director
MICHAEL B. WILSON* Michael B. Wilson, Director
JOHN K. ZIEGLER* John K. Ziegler, Director