1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number 0-21496
WESTPOINT STEVENS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3498354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
507 WEST TENTH STREET
WEST POINT, GEORGIA 31833
(Address of principal executive offices, including Zip Code)
(706) 645-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Common shares outstanding at May 4, 2001: 49,551,001 shares of Common Stock,
$.01 par value.
1
2
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
March 31, 2001 (Unaudited) and
December 31, 2000 3
Condensed Consolidated Statements of
Operations (Unaudited); Three
Months Ended March 31, 2001
and March 31, 2000 4
Condensed Consolidated Statements of Cash
Flows (Unaudited); Three
Months Ended March 31, 2001
and March 31, 2000 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) (Unaudited);
Three Months Ended March 31, 2001 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
2
3
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents .................................. $ 520 $ 167
Accounts receivable ........................................ 153,065 99,191
Inventories ................................................ 405,907 407,332
Prepaid expenses and other current assets .................. 46,344 42,247
----------- -----------
Total current assets ............................................ 605,836 548,937
Property, Plant and Equipment, net .............................. 765,367 772,020
Other Assets
Deferred financing fees .................................... 22,018 18,497
Prepaid pension and other assets ........................... 72,929 72,829
Goodwill ................................................... 45,857 46,166
----------- -----------
$ 1,512,007 $ 1,458,449
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility ..................................... $ 223,050 $ 152,849
Accrued interest payable ................................... 24,359 4,734
Trade accounts payable ..................................... 74,894 75,883
Other accounts payable and accrued liabilities ............. 139,002 135,404
----------- -----------
Total current liabilities ....................................... 461,305 368,870
Long-Term Debt .................................................. 1,475,000 1,475,000
Noncurrent Liabilities
Deferred income taxes ...................................... 251,668 265,812
Other liabilities .......................................... 61,142 61,588
----------- -----------
Total noncurrent liabilities .................................... 312,810 327,400
Stockholders' Equity (Deficit) .................................. (737,108) (712,821)
----------- -----------
$ 1,512,007 $ 1,458,449
=========== ===========
See accompanying notes
3
4
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
----------- -----------
Net sales ....................................................... $ 418,613 $ 447,815
Cost of goods sold .............................................. 328,907 331,385
----------- -----------
Gross earnings ............................................. 89,706 116,430
Selling, general and administrative expenses .................... 64,075 62,549
Restructuring and impairment charge ............................. 5,008 --
----------- -----------
Operating earnings ......................................... 20,623 53,881
Interest expense ................................................ 34,230 29,027
Other expense, net .............................................. 3,388 529
----------- -----------
Income (loss) before income tax expense (benefit) .......... (16,995) 24,325
Income tax expense (benefit) .................................... (6,095) 8,775
----------- -----------
Net income (loss) .......................................... $ (10,900) $ 15,550
=========== ===========
Basic net income (loss) per common share ........................ $ (.22) $ .31
=========== ===========
Diluted net income (loss) per common share ...................... $ (.22) $ .31
=========== ===========
Basic average common shares outstanding ......................... 49,559 49,633
Dilutive effect of stock options and stock bonus plan ...... -- 488
----------- -----------
Diluted average common shares outstanding ....................... 49,559 50,121
=========== ===========
See accompanying notes
4
5
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (10,900) $ 15,550
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and other amortization .................. 20,475 21,143
Deferred income taxes ................................ (6,405) 7,781
Changes in working capital ........................... (40,555) (62,219)
Other - net .......................................... (3,286) (6,446)
Restructuring and impairment charge .................. 5,008 --
----------- -----------
Net cash used for operating activities .......................... (35,663) (24,191)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (13,727) (14,492)
Net proceeds from sale of assets ........................... 212 371
Purchase of business ....................................... (8,363) --
----------- -----------
Net cash used for investing activities .......................... (21,878) (14,121)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings ........................................... 269,500 371,500
Repayments ........................................... (199,299) (276,108)
Net proceeds from Trade Receivables Program ................ (11,300) --
Purchase of common stock for treasury ...................... -- (61,203)
Proceeds from issuance of stock ............................ -- 5,501
Cash dividends paid ........................................ (1,007) (1,000)
----------- -----------
Net cash provided by financing activities ....................... 57,894 38,690
----------- -----------
Net increase in cash and cash equivalents ....................... 353 378
Cash and cash equivalents at beginning of period ................ 167 162
----------- -----------
Cash and cash equivalents at end of period ...................... $ 520 $ 540
=========== ===========
See accompanying notes
5
6
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
COMMON ACCUMU-
STOCK LATED
AND CAPITAL OTHER
IN COMPRE-
EXCESS OF TREASURY STOCK HENSIVE
COMMON PAR -------------------- ACCUMULATED INCOME UNEARNED
SHARES VALUE SHARES AMOUNT DEFICIT (LOSS) COMPENSATION TOTAL
------ ----------- ------- --------- ----------- --------- ------------ ---------
Balance, January 1, 2001 .......... 71,100 $367,515 (21,686) $(420,421) $(650,943) $ (1,774) $(7,198) $(712,821)
Comprehensive income (loss):
Net income (loss) ........... -- -- -- -- (10,900) -- -- (10,900)
Foreign currency
translation adjustment ... 305 305
Cash flow hedges:
Cumulative effect of
change in accounting,
net of tax of $544..... (968) (968)
Net derivative losses, net
of tax of $8,205....... (14,584) (14,584)
---------
Comprehensive income (loss) (26,147)
---------
Issuance of stock pursuant
to Stock Bonus Plan
including tax expense ....... -- 1,418 132 1,412 -- -- -- 2,830
Amortization of
compensation ................ -- -- -- -- -- -- 474 474
Stock dividends pursuant
to Stock Bonus Plan ......... -- -- -- -- (437) -- -- (437)
Cash dividends ................. -- -- -- -- (1,007) -- -- (1,007)
------ -------- ------- --------- --------- -------- ------- ---------
Balance, March 31, 2001 ........... 71,100 $368,933 (21,554) $(419,009) $(663,287) $(17,021) $(6,724) $(737,108)
====== ======== ======= ========= ========= ======== ======= =========
See accompanying notes
6
7
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ended March 31,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K for WestPoint Stevens Inc. (the "Company") for the year
ended December 31, 2000.
2. INVENTORIES
The Company uses the last-in, first-out ("LIFO") method of accounting for
substantially all inventories for financial reporting purposes. Interim
determinations of LIFO inventories are necessarily based on management's
estimates of year-end inventory levels and costs. Subsequent changes in these
estimates, including the final year-end LIFO determination, and the effect of
such changes on earnings are recorded in the interim periods in which they
occur.
Inventories consisted of the following at March 31, 2001 and December 31, 2000
(in thousands of dollars):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Finished goods $ 190,407 $ 183,660
Work in progress 166,808 169,745
Raw materials and supplies 52,737 55,569
LIFO reserve (4,045) (1,642)
--------- ---------
$ 405,907 $ 407,332
========= =========
7
8
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS
Indebtedness is as follows (in thousands of dollars):
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
Short-term indebtedness
Senior Credit Facility
Revolver $ 223,050 $ 152,849
=========== ===========
Long-term indebtedness
Senior Credit Facility
Revolver $ 475,000 $ 475,000
7 7/8% Senior Notes due 2005 525,000 525,000
7 7/8% Senior Notes due 2008 475,000 475,000
----------- -----------
$ 1,475,000 $ 1,475,000
=========== ===========
At March 31, 2001 and December 31, 2000, $128.7 million and 140.0 million,
respectively, of accounts receivable had been sold pursuant to a trade
receivables program (the "Trade Receivables Program") and the sale is reflected
as a reduction of accounts receivable in the accompanying Condensed Consolidated
Balance Sheets.
During the first quarter of 2001, the Company's Senior Credit Facility was
amended primarily to modify certain financial covenant ratios, limit restricted
equity payments and capital expenditures, and provide for scheduled reductions
of the $800 million revolving commitment. The latest amendment to the Senior
Credit Facility provides for a $25 million reduction in the revolving commitment
on each of the following dates: August 1, 2001, November 1, 2001, February 1,
2002, July 1, 2002, November 1, 2002, February 1, 2003, July 1, 2003 and
November 1, 2003. The amendment further provides that any increase in the Trade
Receivables Program above the current $160 million limit, up to a $200 million
limit, would reduce the revolving commitment under the Senior Credit Facility by
a similar amount.
At the option of the Company, interest under the Senior Credit Facility will be
payable monthly, either at the prime rate plus 1.00% or at LIBOR plus 2.75%. The
Company pays a facility fee in an amount equal to 0.25% prior to April 1, 2001
and 0.50% thereafter of each Bank's commitment under the Revolver. Upon the
Company achieving certain ratios of debt to EBITDA (as defined) the facility fee
will be reduced to 0.375%. The loans under the Senior Credit Facility are
secured by the pledge of all the stock of the Company's material subsidiaries
and a first priority lien on substantially all of the assets of the Company,
other than the Company's accounts receivable.
8
9
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES
In 2000, the Company announced that its Board of Directors had approved the new
Eight-Point Plan, which was created to be the guiding discipline for the Company
in a global economy. The Board also approved a $222 million pretax charge for
restructuring, impairment and other charges to cover the cost of implementing
the plan. The Eight-Point Plan addresses the following points: 1) expand brands;
2) explore new licensing opportunities; 3) rationalize manufacturing; 4) reduce
overhead; 5) increase global sourcing; 6) improve inventory utilization; 7)
enhance supply chain and logistics; and 8) improve capital structure.
During 2000, the Company conducted an intense evaluation of its manufacturing
process flow and capacity and how they relate to market demand. The Company
adopted a plan to close certain manufacturing plants and consolidate
manufacturing operations in an arrangement that will reduce costs and enable
more efficient production. The Company also evaluated its internal support and
administrative functions and adopted a plan to consolidate as well as outsource
certain internal support and administrative functions.
As a result of the manufacturing rationalization, the Company announced the
closure of its Rosemary (NC) terry facility, its Union (SC) pillow and mattress
pad facility, its Seneca (SC) sheeting facility and its Whitmire (SC) yarn
facility. The manufacturing rationalization also included capacity reductions at
its Rosemary (NC) terry finishing and fabrication facilities and the conversion
of its Carter (AL) sheeting facility to a terry facility.
The cost of the manufacturing rationalization and certain overhead reduction
costs were reflected in a restructuring and impairment charge of $109.2 million,
before taxes, in 2000 and a restructuring and impairment charge of $5 million,
before taxes, in 2001. The components of the restructuring and impairment charge
in 2000 included $66.8 million for the impairment of fixed assets, $23.7 million
for the impairment of goodwill and other assets and $18.7 million in reserves to
cover cash expenses related to severance benefits of $14.7 million and other
exit costs, including lease terminations, of $4 million. The components of the
restructuring and impairment charge in 2001 included $5 million in reserves to
cover cash expenses related to severance benefits.
9
10
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES--CONTINUED
The following is a summary of the restructuring and impairment activity in the
related reserves (in millions):
EMPLOYEE OTHER
WRITEDOWN TERMINATION EXIT TOTAL
ASSETS BENEFITS COSTS CHARGE
--------- ----------- -------- -------
2000 Restructuring and Impairment Charge:
Second Quarter $ 87.9 $ 4.6 $ 3.4 $ 95.9
Third Quarter -- 5.8 0.3 6.1
Fourth Quarter 2.6 4.3 0.3 7.2
------- ------ ------ -------
Total 2000 Charge 90.5 14.7 4.0 109.2
2001 Restructuring and Impairment Charge:
First Quarter -- 5.0 -- 5.0
------- ------ ------ -------
Total 2001 Charge -- 5.0 -- 5.0
Writedown Assets to Net Recoverable Value (90.5) -- -- (90.5)
Cash Payments -- (9.7) (0.4) (10.1)
------- ------ ------ -------
Balance at March 31, 2001 $ -- $ 10.0 $ 3.6 $ 13.6
======= ====== ====== =======
During 2000, other costs of the Eight-Point Plan and other charges of $94
million, before taxes, were recognized including inventory writedowns of $74.2
million, claims of $5 million and other expenses of $6.1 million all reflected
in cost of goods sold and other costs of $8.7 million reflected in other
expense, net. During 2001, other costs of the Eight-Point Plan of $4 million,
before taxes, were recognized including other expenses of $4 million reflected
in cost of goods sold.
The Company expects to incur additional charges during 2001 related to
relocation of machinery and other costs in connection with the Eight-Point Plan.
5. DERIVATIVES
Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standard No. 133 "Accounting
for Derivative Instruments and Hedging Activities" SFAS No. 133 as amended by
SFAS No. 137 and SFAS No. 138. These statements require the Company to recognize
all derivative instruments on the balance sheet at fair value. These statements
also establish new accounting rules for hedging instruments, which depend on the
nature of the hedge relationship. A fair value hedge requires that the effective
portion of the change in the fair value of a derivative instrument be offset
against the change in the fair value of the underlying asset, liability, or firm
commitment being hedged through earnings. A cash flow hedge requires that the
effective portion of the change in the fair value of a derivative instrument be
10
11
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. DERIVATIVES--CONTINUED
recognized in Other Comprehensive Income (OCI), a component of Stockholders'
Equity, and reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. The ineffective portion of a
derivative instrument's change in fair value is immediately recognized in
earnings. The first quarter of 2001 unaudited condensed consolidated financial
statements include the provisions required by SFAS No. 133, while the first
quarter of 2000 unaudited condensed consolidated financial statements were
prepared in accordance with the applicable professional literature for
derivatives and hedging instruments in effect at that time. Although the Company
believes that these statements will not have a material impact on the annual
consolidated financial results, the requirements of these statements may result
in slightly increased volatility in the Company's future quarterly unaudited
condensed consolidated financial results.
The adoption of SFAS No. 133 resulted in the Company recording transition
adjustments to recognize its derivative instruments at fair value and to
recognize the ineffective portion of the change in fair value of its
derivatives. The cumulative effect of these transition adjustments was an
after-tax net decrease to OCI approximating $968,000. There was no cumulative
effect of transition adjustments on the Company's consolidated statement of
operations due to the adoption of SFAS No. 133.
The Company uses derivative financial instruments primarily to reduce exposure
to adverse fluctuations in interest rates and cotton prices. When entered into,
the Company formally designates and documents the financial instrument as a
hedge of a specific underlying exposure, as well as the risk management
objectives and strategies for undertaking the hedge transaction. Because of the
high degree of effectiveness between the hedging instrument and the underlying
exposure being hedged, fluctuations in the value of the derivative instruments
are generally offset by changes in the value or cash flows of the underlying
exposures being hedged. Derivatives are recorded in the Condensed Consolidated
Balance Sheet at fair value in either Prepaid expenses and other current assets
or Other accounts payable and accrued liabilities, depending on whether the
amount is an asset or liability. The fair values of derivatives used to hedge or
modify the Company's risks fluctuate over time. These fair value amounts should
not be viewed in isolation, but rather in relation to the fair values or cash
flows of the underlying hedged transactions and other exposures and to the
overall reduction in Company risk relating to adverse fluctuations in interest
rates, commodity prices and other market factors. In addition, the earnings
impact resulting from the effective portion of the Company's derivative
instruments is recorded in the same line item within the Condensed Consolidated
Statement of Operations as the underlying exposure being hedged. The Company
also formally assesses, both at the inception and at least quarterly thereafter,
whether the financial instruments that are used in hedging transactions are
effective at offsetting changes in either the fair value or cash flows of the
related underlying exposures. Any material ineffective portion of a financial
instrument's change in fair value is immediately recognized in earnings.
11
12
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. DERIVATIVES--CONTINUED
At March 31, 2001, the Company had only entered into cash flow hedges.
Cash Flow Hedging Strategy
Management has been authorized to manage the Company's exposure to adverse
changes in interest rates. During January 2001, the Company entered into an
interest rate swap agreement that effectively converted a portion of its
floating-rate bank debt to a fixed-rate basis, thus reducing the impact of
interest-rate changes on future interest expense. At March 31, 2001, $250
million of the Company's Senior Credit Facility was designated as the hedged
item to an interest rate swap agreement through January 2002.
Management has also been authorized to manage exposure to price fluctuations
relevant to the forecasted purchase of cotton through the use of a variety of
derivative nonfinancial instruments. At March 31, 2001 and December 31, 2000,
these instruments covered a portion of the Company's 2001 cotton needs and
include exchange traded cotton futures contracts and options.
The fair value of the Company's interest rate swap agreement is estimated by
obtaining quotes from a bank and is the estimated amount that the Company would
receive or pay to terminate the agreement at the reporting date. At March 31,
2001, the fair value of this instrument was a $1.5 million liability. The fair
values of exchange traded cotton futures contracts and options are estimated by
obtaining quotes from brokers. At March 31, 2001 only the Company's cotton
futures contracts qualified for hedge accounting. The fair value related to
cotton futures contracts was a liability of $22.8 million for which the Company
has provided cash margins. The fair value of the cotton option contracts was a
liability of $2.4 million for which the Company has also provided cash margins.
Such amount related to cotton options is classified as other expense in the
accompanying Condensed Consolidated Statement of Operations. The fair values of
the Company's interest rate swap and cotton futures contracts have been recorded
as a component of OCI, net of tax. At March 31, 2001, the Company expects to
reclassify all net losses on derivative instruments from OCI to earnings during
the next twelve months. Amounts reclassified during the current quarter were not
material.
12
13
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the first quarter of 2001 and 2000 is as
follows:
QUARTER ENDED
-------------------------------
MARCH 31, MARCH 31,
2001 2000
--------- ---------
Net income (loss) $(10,900) $15,550
Foreign currency translation
adjustment 305 (16)
Loss on derivative instruments,
net of taxes (15,552) -
--------- ---------
Comprehensive income (loss) $(26,147) $15,534
========= =========
13
14
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES
As a result of a strategic review of the Company's businesses, manufacturing and
other facilities, and products in the second quarter of 2000, the Company's
Board of Directors approved a $222 million pre-tax charge to cover the cost of
implementing an Eight-Point Plan that is designed to streamline operations and
improve profitability. The majority of the charge, $203.2 million pretax, was
recorded during Year 2000, and $9.0 million pretax was recorded in the first
quarter of 2001. The remaining $9.7 million pretax charge is expected to be
recorded in the second and third quarter of 2001. Of the $9.0 million pretax
charge recorded in the current quarter, $4.0 million is reflected in cost of
goods sold, the majority of which reflected equipment relocation costs, and $5.0
million is reflected in a restructuring and impairment charge related to
increased current liabilities for severance benefits. The Company estimates the
implementation of the Eight-Point Plan will generate annual savings of $38
million pre-tax starting in 2002.
14
15
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2001
The table below is a summary of the Company's operating results for the three
months ended March 31, 2001 and March 31, 2000 (in millions of dollars and as
percentages of net sales).
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------
2001 2000
------------------------------------------------ ---------
PROFORMA RESTRUCTURING
BEFORE AND OTHER
RESTRUCTURING ITEMS ACTUAL ACTUAL
------------- ------------- --------- ---------
Net sales ............................................. $ 418,613 $ -- $ 418,613 $ 447,815
Cost of goods sold .................................... 324,916 3,991 328,907 331,385
--------- -------- --------- ---------
Gross earnings (loss) ......................... 93,697 (3,991) 89,706 116,430
Selling, general and administrative
expenses .......................................... 64,075 -- 64,075 62,549
Restructuring and impairment charge ................... -- 5,008 5,008 --
--------- -------- --------- ---------
Operating earnings (loss) ..................... 29,622 (8,999) 20,623 53,881
Interest expense ...................................... 34,230 -- 34,230 29,027
Other expense, net .................................... 3,388 -- 3,388 529
--------- -------- --------- ---------
Income (loss) before income
tax expense (benefit) ..................... (7,996) (8,999) (16,995) 24,325
Income tax expense (benefit) .......................... (2,855) (3,240) (6,095) 8,775
--------- -------- --------- ---------
Net income (loss) ............................. $ (5,141) $ (5,759) $ (10,900) $ 15,550
========= ======== ========= =========
Basic net income (loss) per common
share ............................................. $ (.10) $ (.22) $ .31
========= ========= =========
Diluted net income (loss) per common
share ............................................. $ (.10) $ (.22) $ .31
========= ========= =========
Basic average common shares
outstanding ....................................... 49,559 49,559 49,633
Dilutive effect of stock options
and stock bonus plan ...................... -- -- 488
--------- --------- ---------
Diluted average common shares
outstanding ....................................... 49,559 49,559 50,121
========= ========= =========
See accompanying notes.
15
16
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2001 (CONTINUED)
NET SALES. Net sales for the three months ended March 31, 2001, decreased 6.5%
or $29.2 million to $418.6 million compared with $447.8 million a year ago.
Excluding sales from the recently acquired Chatham Consumer Products division
and sales of the newly acquired Disney Home license, sales declined 8% in the
period. Continued weak retail demand for home fashion products during the
quarter led to an increase in promotional activity. As a result, sales declined
in all product categories with the exception of the Company's Liebhardt basic
bedding products that experienced strong double-digit growth in the quarter, as
well as towels and the Company's retail stores division which experienced modest
increases in sales.
GROSS EARNINGS/MARGINS. Excluding charges associated with the Eight-Point Plan,
gross earnings for the three months ended March 31, 2001 decreased $22.7 million
or 19.5%, to $93.7 million compared with $116.4 million for the same period of
2000 and reflect gross margins of 22.4% for the 2001 period versus 26.0% for the
2000 period. Gross earnings decreased as a result of a highly promotional mix of
sales, under absorption of fixed overhead due to selected production downtime,
and increases in raw material costs. Included in the cost of goods sold in the
first quarter of 2001 are charges associated with the Eight-Point Plan of $4.0
million, the majority of which reflected equipment relocation costs. Including
the charges, gross earnings for the three months ended March 31, 2001 decreased
$26.7 million, or 23%, to $89.7 million compared with $116.4 million for the
same period of 2000.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased $1.5 million, or 2.4%, in the first quarter of 2001 compared with the
same period of last year, and as a percentage of net sales represent 15.3% in
the 2001 period versus 14.0% in the 2000 period. The increase in selling,
general and administrative expenses in the first quarter of 2001 was primarily
due to increased selling expenses reflecting the costs of additional retail
stores opened in the latter part of 2000.
Before charges associated with the Eight-Point Plan, operating earnings for the
first quarter of 2001 decreased 45.0% to $29.6 million or 7.1% of sales,
compared with operating earnings of $53.9 million, or 12.0% of sales for the
same period in 2000. This decline reflected the sales decline, promotional
product mix, increased raw material and energy costs and under-absorption of
overhead due to additional downtime taken in the quarter to reduce inventories.
Including the charges, operating earnings for the three months ended March 31,
2001 decreased $33.3 million, or 61.7%, to $20.6 million compared with $53.9
million for the same period of 2001.
16
17
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2001 (CONTINUED)
INTEREST EXPENSE. Interest expense for the three months ended March 31, 2001 of
$34.2 million increased $5.2 million compared with interest expense of $29.0
million for the three months ended March 31, 2000. The increase was due
primarily to higher interest rates on the Company's variable rate bank debt and
higher average debt levels in the first quarter of 2001 compared with
corresponding 2000 average debt levels.
OTHER EXPENSE, NET. Other expense, net in the first quarter of 2001 of $3.4
million consisted primarily of a $2.4 million charge for cotton derivatives in
connection with the Company's overall cotton hedging program. Other expense, net
also includes the amortization of deferred financing fees, less certain
miscellaneous income items.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and nondeductible items.
NET INCOME. Net income, before charges associated with the Eight-Point Plan,
decreased $20.7 million, to a loss of $5.1 million, or $0.10 per share diluted,
from net income of $15.6 million, or $0.31 per share diluted, in the same period
of last year. After the charges, the net loss for the first quarter of 2001 was
$10.9 million, or $0.22 per share diluted.
Diluted per share amounts are based on 49.6 million and 50.1 million average
shares outstanding for the 2001 and 2000 periods, respectively. The decrease in
average shares outstanding was primarily the result of the absence of a dilutive
effect of stock options and stock bonus plan, which reduced average common
shares outstanding by approximately 500,000 shares, and to a lesser extent by
the purchase of shares by the Company under its various stock repurchase
programs.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on its sales or profitability.
17
18
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are expected to be cash from its
operations and funds available under the Senior Credit Facility. At May 4, 2001,
the maximum commitment under the Senior Credit Facility was $800 million and the
Company had unused borrowing availability under the Senior Credit Facility
totaling approximately $98 million. The Senior Credit Facility contains
covenants which, among other things, limit indebtedness and require the
maintenance of certain financial ratios and minimum net worth (as defined).
The Company's principal uses of cash for the next several years will be
operating expenses, capital expenditures and debt service requirements related
primarily to interest payments. The Company spent approximately $76.7 million in
2000 on capital expenditures and intends to invest approximately $65 million in
2001. The Board of Directors approved the payment of a quarterly cash dividend
of $.02 per share which was paid on March 1, 2001 totaling approximately $1
million and has approved the payment of a quarterly cash dividend of $.02 per
share payable on June 1, 2001 to shareholders of record as of May 21, 2001.
The Board of Directors has approved the purchase of up to twenty-seven million
shares of the Company's common stock, subject to the Company's debt limitations.
At March 31, 2001, approximately 3.6 million shares remained to be purchased
under these programs. At the present time, the Company has suspended its stock
repurchases.
The Company has a Trade Receivables Program which provides for the sale of
accounts receivable, on a revolving basis. At March 31, 2001 and December 31,
2000, $128.7 million and $140 million, respectively, had been sold under this
program and the sale is reflected as a reduction of accounts receivable in the
accompanying Condensed Consolidated Balance Sheets. The cost of the Trade
Receivables Program in 2001 is estimated to total approximately $8.6 million,
compared with $9.6 million in 2000, and will be charged to selling, general and
administrative expenses.
Debt service requirements for interest payments in 2001 are estimated to total
approximately $135 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $122.9 million in 2000. The
Company's long-term indebtedness has no scheduled principal payment requirement
during 2001.
18
19
WESTPOINT STEVENS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Management believes that cash from the Company's operations and borrowings under
its credit agreement will provide the funding necessary to meet the Company's
anticipated requirements for capital expenditures, operating expenses and to
enable it to meet its anticipated debt service requirements.
19
20
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and nonhazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. Certain of the Company's facilities (including certain facilities no
longer owned or utilized by the Company) have been cited or are being
investigated with respect to alleged violations of such laws and regulations.
The Company is cooperating fully with relevant parties and authorities in all
such matters. The Company believes that it has adequately provided in its
financial statements for any expenses and liabilities that may result from such
matters. The Company also is insured with respect to certain of such matters.
The Company's operations are governed by laws and regulations relating to
employee safety and health which, among other things, establish exposure
limitations for cotton dust, formaldehyde, asbestos and noise, and regulate
chemical and ergonomic hazards in the workplace.
Although the Company does not expect that compliance with any of such laws and
regulations will adversely affect the Company's operations, there can be no
assurance such regulatory requirements will not become more stringent in the
future or that the Company will not incur significant costs in the future to
comply with such requirements.
The Company and its subsidiaries are involved in various other legal
proceedings, both as plaintiff and as defendant, which are normal to its
business. It is the opinion of management that the aforementioned actions and
claims, if determined adversely to the Company, will not have a material adverse
effect on the financial condition or operations of the Company taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended March 31, 2001.
20
21
WESTPOINT STEVENS INC.
PART II - OTHER INFORMATION--CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A.) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.1 Employment Agreement, dated as of January 5, 2001, between
WestPoint Stevens Inc. and M.L. Fontenot.
10.2 Third Amendment, dated as of March 12, 2001, among, WPS
Receivables Corporation, the Company, Blue Ridge Asset Funding
Corporation and Wachovia Bank, N.A.
10.3 Fourth Amendment, dated as of March 26, 2001, among WPS
Receivables Corporation, the Company, Blue Ridge Asset
Funding Corporation and Wachovia Bank, N.A.
10.4 Fifth Amendment Agreement, dated as of March 26, 2001, among
the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
(Europe) Limited, Bank of America, N.A. (formerly NationsBank,
N.A.), as agent and the other financial institutions party thereto.
10.5 Conditional Waiver letter dated March 26, 2001, among WPS
Receivables Corporation, the Company, Blue Ridge Asset Funding
Corporation and Wachovia Bank, N.A.
b.) The Company filed a Current Report on Form 8-K on February 27, 2001.
The item reported was "Item 5. Other Events" and "Item 7. Financial Statements
and Exhibits."
21
22
WESTPOINT STEVENS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WESTPOINT STEVENS INC.
REGISTRANT
/s/ L. Dupuy Sears
-----------------------------
L. Dupuy Sears
Senior Vice President-Finance
and Chief Financial Officer
Date: May 15, 2001
22
23
WESTPOINT STEVENS INC.
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER NUMBER
- ------- ------
10.1 Employment Agreement, dated as of January 5, 2001,
between WestPoint Stevens Inc. and M. L. Fontenot.
10.2 Third Amendment, dated as of March 12, 2001, among,
WPS Receivables Corporation, the Company, Blue Ridge
Asset Funding Corporation and Wachovia Bank, N.A.
10.3 Fourth Amendment, dated as of March 26, 2001, among
WPS Receivables Corporation, the Company, Blue Ridge
Asset Funding Corporation and Wachovia Bank, N.A.
10.4 Fifth Amendment Agreement, dated as of March 26, 2001,
among the Company, WestPoint Stevens (UK) Limited,
WestPoint Stevens (Europe) Limited, Bank of America,
N.A. (formerly NationsBank, N.A.), as agent and the
other financial institutions party thereto.
10.5 Conditional Waiver letter dated March 26, 2001, among
WPS Receivables Corporation, the Company, Blue Ridge
Asset Funding Corporation and Wachovia Bank, N.A.
23