Back to GetFilings.com
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period for ____________ to ____________
COMMISSION FILE NO. 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) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (706) 645-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of each Class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Common Stock, $.01 par value NYSE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Registrant's knowledge,
in definitive proxy or information statement incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [ ]
The aggregate market value of voting stock held by nonaffiliates of
the registrant was approximately $71,055,791 at March 15, 2002. The number of
shares of Common Stock outstanding at March 15, 2002, was 49,648,157.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date: 49,648,157 at March
21, 2002.
===============================================================================
TABLE OF CONTENTS
Page No.
--------
Item 1. Business.................................................................................. 2
Item 2. Properties................................................................................ 8
Item 3. Legal Proceedings......................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders....................................... 10
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters...................... 10
Item 6. Selected Financial Data................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 13
Item 8. Financial Statements and Supplementary Data............................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 48
Item 10. Directors and Executive Officers of the Registrant........................................ 48
Item 11. Executive Compensation.................................................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................................................... 48
Item 13. Certain Relationships and Related Transactions............................................ 48
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 48
1
ITEM 1. BUSINESS
WestPoint Stevens Inc., a Delaware corporation organized in 1987 (the
"Company"), is the successor corporation to West Point-Pepperell, Inc. through
a series of mergers occurring in December 1993. The Company is a leading
manufacturer, marketer and distributor of an extensive range of bed and bath
home fashions ("Home Fashions") products. The Company's trademark brands
include ATELIER MARTEX(R), CHATHAM(R), GRAND PATRICIAN(R), MARTEX(R),
PATRICIAN(R), UTICA(R), STEVENS(R), LADY PEPPERELL(R), LUXOR(R), and VELLUX(R).
In addition, certain Home Fashions products are manufactured and sold pursuant
to licensing agreements under designer names that include, among others, Ralph
Lauren Home, Sanderson, Glynda Turley, Designers Guild, Dr. Scholl's, Simmons
Beautyrest and Disney Home. The Company is also a manufacturer of the Martha
Stewart and Joe Boxer bed and bath lines. The Company's products are marketed
through leading department stores, mass merchants, specialty stores,
institutional channels, and WestPoint Stevens Stores Inc., among others.
The Company estimates that it has one of the largest market shares in both the
domestic sheet and pillowcase market and the domestic bath towel market. With
the acquisition of the Chatham Consumer Products Division of CMI Industries,
Inc. in January 2001, the Company has the largest market share in domestic
blankets. The Company also has significant market share in the domestic
accessories market, which includes comforters, bedspreads, bed pillows, throw
pillows, and mattress pads, among others.
As a result of a strategic review of the Company's businesses, manufacturing,
other facilities, and products during the year 2000, the Company's Board of
Directors approved a $222.0 million pre-tax charge to cover the cost of
implementing a restructuring plan having eight key elements designed to
streamline operations and improve profitability (the "Eight-Point Plan"). The
majority of the charge, $203.2 million pretax, was recorded during the year
2000, and the remaining $18.8 million pretax charge was recorded in 2001. Of the
$203.2 million pretax charge recorded in 2000, $85.3 million is reflected in
cost of goods sold, the majority of which reflected inventory write-off, and
$117.9 million is reflected in a reduction of goodwill and fixed assets in
addition to severance benefits and other costs. The Eight-Point Plan addresses
the following points: 1) expansion of brands; 2) exploration of new licensing
opportunities; 3) rationalization of manufacturing operations; 4) reduction in
overhead expense; 5) increase in global sourcing; 6) improvement of inventory
utilization; 7) enhancement of supply chain and logistics functions; and 8)
improvement in capital structure. The Company estimates the implementation of
the Eight-Point Plan will generate annual pretax savings of $38 million starting
in 2002. For a complete discussion of the Eight-Point Plan, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As of March 2, 2002, four plant closings have been announced under the
Eight-Point Plan. On October 2, 2000, the Rosemary plant, a towel plant located
in Roanoke Rapids, North Carolina, and the Liebhardt basic bedding plant in
Union, South Carolina, were scheduled for closing. On January 29, 2001, the
Seneca plant, a sheeting plant in Seneca, South Carolina, was scheduled for
closing. On March 1, 2001, the Whitmire yarn plant in Whitmire, South Carolina,
was scheduled for closing. In addition to these closings, a reduction in the
workforce of the remaining facilities at the Rosemary complex was announced on
February 5, 2001. Since the adoption of the Eight-Point Plan, the Company has
terminated and paid severance (including continuing termination benefits) to
approximately 1,700 employees. The restructuring charge was completed in the
fourth quarter of 2001.
For a discussion of the Company's overall financial condition, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCTS
The Company markets a broad range of manufactured and sourced bed, bath and
basic bedding products, including:
Bed and Bath Products
- bath accessories;
- bath towels;
- beach towels;
- bedskirts;
- bedspreads;
- comforters and duvet covers;
- decorative throw pillows;
- drapes and valances;
- quilts;
- scatter rugs;
- shower curtains;
2
- table covers;
- sheets; and
Basic Bedding Products
- bed pillows;
- flocked blankets;
- mattress pads;
- natural fill pillows and comforters; and
- woven blankets and throws.
Such products are made from a variety of fabrics, such as chambray, twill,
sateen, flannel, linen, cotton and cotton blends and are available in a wide
assortment of colors and patterns. The Company has positioned itself as a
single-source supplier to retailers of bed and bath products, offering a broad
assortment of products across multiple price points. Such product and price
point breadth allows the Company to provide a comprehensive product offering
for each major distribution channel.
TRADEMARKS AND LICENSES
The Company's products are marketed under well-known and firmly established
trademarks, brand names and private labels. The Company uses trademarks, brand
names and private labels as merchandising tools to assist its customers in
coordinating their product offerings and differentiating their products from
those of their competitors. Registered trademarks include ATELIER MARTEX(R),
CHATHAM(R), GRAND PATRICIAN(R), MARTEX(R), PATRICIAN(R), UTICA(R), STEVENS(R),
LADY PEPPERELL(R), LUXOR(R), and VELLUX(R). In addition, products are
manufactured and sold pursuant to licensing agreements under designer names
that include, among others, Ralph Lauren Home, Disney Home, Sanderson, Glynda
Turley, Designers Guild, Dr. Scholl's and Simmons Beautyrest. A portion of the
Company's sales is derived from licensed designer brands. The license
agreements for the Company's designer brands generally are for a term of two or
three years. Some of the licenses are automatically renewable for additional
periods, provided that certain sales thresholds set forth in the license
agreements are met. No single license has accounted for more than 12% of the
Company's total sales volume during any of the last five fiscal years. Although
the Company has no reason to believe that it will lose any of its licenses, the
loss of a significant license could have an adverse effect upon the Company's
business, which effect could be material. The licensing agreements with fixed
expiration dates are: Ralph Lauren Home, December 31, 2005 (with option to
renew to December 31, 2008); Glynda Turley, December 31, 2003; Dr. Scholl's,
July 31, 2002; Simmons Beautyrest, June 30, 2004; and Disney Home, December 31,
2005 dependent on the achievement of certain sales goals.
MARKETING
The Company is committed to developing and maintaining integral relationships
with its customers through "Strategic Partnering," a program designed to
improve customers' operating results by leveraging the Company's merchandising,
manufacturing and inventory management skills. "Strategic Partnering" includes
Electronic Data Interchange ("EDI") direct electronic entry systems, "Quick
Response" and "Vendor Managed Inventory" customer delivery programs and
point-of-sale processing. The Company incorporates Strategic Partnering into
its planning, manufacturing and shipping systems, in order to enable it to
efficiently and economically anticipate and respond to customers' inventory
requirements. As a result, the Company is better able to plan and forecast its
own production and inventory requirements. Sales and marketing of the Company's
Home Fashions products are conducted through a recently enhanced organizational
format consisting of divisions for Bed and Bath Products and Basic Bedding
Products, each with supporting domestic sales, marketing and merchandising
teams and international sales and marketing teams. Distribution specific teams
focused on target key accounts are linked with product management, operations,
customer service and distribution to service each segment of retail.
The Bed and Bath Products Division and the Basic Bedding Products Division
focus sales on the following channels of distribution:
- catalogs;
- chain stores;
- department stores;
- mass merchants;
- specialty stores;
- warehouse clubs; and
- healthcare and hospitality institutions.
3
For the Bed and Bath Products Division and the Basic Bedding Products Division
marketing is comprised of the following functions that create products and
services in direct response to recognized consumer trends:
- design;
- marketing;
- advertising;
- licensing;
- consumer research; and
- product innovation.
For the Bed and Bath Products Division and the Basic Bedding Products Division
merchandising is comprised of the following functions:
- product management;
- business management;
- productivity analysis;
- SKU (stock keeping unit) control; and
- design technology.
The Retail/International Division is comprised of the following operating
units:
- Europe - which has distribution facilities and sales offices
located in England supplying European department stores for
private label, company brands, and licensed programs such as
Ralph Lauren Home.
- Americas - which markets to all major stores in Canada,
Mexico, and other parts of Latin America with US-made and
foreign sourced products.
- WestPoint Stevens Stores Inc. - a wholly-owned subsidiary of
the Company ("WestPoint Stores"). WestPoint Stores currently
consists of 59 geographically dispersed, value-priced outlets
throughout the United States and in Canada, most of which are
located in factory outlet shopping centers. The products sold
in WestPoint Stores are first quality (including overstocks),
seconds, discontinued items and other products.
The Company works closely with its major customers to assist them in
merchandising and promoting its products to the consumer. In addition, the
Company periodically meets with its customers in an effort to maximize product
exposure and sales and to jointly develop merchandise assortments and plan
promotional events specifically tailored to the customer. The Company provides
merchandising assistance with store layouts, fixture designs, advertising and
point-of-sale displays. A national consumer and trade advertising campaign and
comprehensive internet web site have served to enhance brand recognition. The
Company also provides its customers with suggested customized advertising
materials designed to increase its product sales. A heightened focus on
consumer research provides needed products on a continual basis.
Approximately 85% of the Company's total sales are made to retail
establishments in the United States, including catalog retailers, chain and
department stores, mass merchants, specialty bed and bath stores, warehouse
clubs and WestPoint Stores. Finished products are distributed to retailers
directly from the Company's plants. The majority of the remaining portion of
the Company's sales of Home Fashions products are through the institutional
channel, which includes hospitality and healthcare establishments, as well as
laundry supply businesses. In addition to domestic sales, the Company
distributes its Home Fashions products for eventual sale to certain foreign
markets, principally Australia, Canada, Mexico, the United Kingdom, continental
Europe, the Middle East and the Far East. International operations accounted
for approximately 5% of the total revenues of the Company in 2001.
INVENTORY MANAGEMENT, ELECTRONIC COMMUNICATION AND DELIVERY
The Company has been recognized as a leader and innovator of advanced
technology, having led the industry with advanced, innovative e-commerce
applications and has been selected as a preferred vendor for customers' web
exchange pilot programs, Quick Response, EDI and Vendor Management Inventory.
The Company utilizes collaborative planning, forecasting and replenishment
practices supported by systems from i2Technologies, Inc., including its retail
merchandising and inventory replenishment system (Inforem(R)) combined with its
forecasting and planning system (Demand Planner(R)). It also deploys Hyperion
business intelligence technologies for inventory optimization and performance
measurement to complement the Company's highly integrated core business
systems, including its supply chain, sourcing and logistics systems. The
Company combines the use of an advanced, customer order fulfillment system,
real-time radio frequency and in-line label printing distribution systems, and
in-house transportation to compress the order to delivery cycle time, maintain
low inventory levels, and
4
achieve high customer scorecard objectives. The Company has placed a strong
emphasis on the supply chain and logistics function, and believes that
continued investment in planning, sourcing, distribution and transportation
capabilities will enhance its ability to provide its customers with superior
service.
CUSTOMERS
The Company is pursuing strategic relationships with key merchandisers. An
important component of the Company's strategy is to increase its share of shelf
and floor space by strengthening its partnership with its customers. The
Company is working closely with retailers and is sharing information and
business practices with them to improve service and achieve higher
profitability for both the retailer and the Company. For example, value has
been added through the Company's focus on supply chain and logistics and Vendor
Managed Inventory.
The Company's Home Fashions products are sold to catalog retailers, chain
stores, mass merchants, department stores, specialty stores, warehouse clubs,
and its own retail stores. The Company's six largest customers, Costco
Wholesale Corporation, J.C. Penney Company, Inc., Kmart Corporation, Sears
Roebuck & Co., Inc., Target Corporation and Wal-Mart Stores, Inc. accounted for
approximately 54% of the net sales of the Company during the fiscal year ended
December 31, 2001. In 2001, sales to Kmart Corporation and Target Corporation
were 15% and 14%, respectively of the net sales of the Company. Each of such
customers has purchased goods from the Company in each of the last 10 years.
Although the Company has no reason to believe that it will lose the business of
any of its largest customers, a loss of any of the largest accounts (or a
material portion of any thereof) would have an adverse effect upon the
Company's business, which could be material.
On January 22, 2002, Kmart Corporation filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code. Kmart
Corporation subsequently received approval of its debtor-in-possession
financing and is currently working towards a restructuring and emergence from
Chapter 11 in 2003. In conjunction with the restructuring, Kmart Corporation
announced the closing of 284 retail store locations. This represents roughly
13% of its total store base. The Company has reviewed its sales and profit
projections for Kmart Corporation for 2002 and believes that the recent Chapter
11 filing for bankruptcy protection by Kmart Corporation will not have a
material adverse effect on the Company's future operations.
MANUFACTURING
The Company currently uses the latest manufacturing and distribution equipment
and technologies in its mills. Management therefore believes that the Company is
one of the most efficient manufacturers in the home fashions industry. Over the
past five years, the Company has spent approximately $585 million to modernize
its manufacturing and distribution systems and has spent approximately $60
million of that amount during 2001. The capital expenditures have been used to,
among other things, replace projectile looms with faster, more efficient air jet
looms, replace ring spinning with open-end and air jet spinning, and further
automate the Company's cut and sew operations. Air jet looms produce at higher
speeds than projectile looms, yielding fewer defects, requiring less maintenance
and providing cleaner and safer working environments. Using air jet technology,
compressed air propels the filling yarn at high speeds, with robotics handling
the cutting and tucking of the filling yarn. The Company's new open-end and air
jet spinning machines use computerized monitors and sensors which track and
analyze the work, streamline information gathering and detect defects
immediately to improve yarn quality. The Company intends to invest approximately
$40 to $50 million in capital improvements in the aggregate in 2002, which
includes the further automation of the cut and sew operations including the
purchase of new hemming machines, and upgrades of automated sortation and
shipping systems. The Company also expects major improvements in the
manufacturing of pillows and blankets with the upgrade of garnett lines, fiber
blowing lines and feather pillow lines along with loom purchases within the
woven blanket operation. These capital programs have resulted, and are expected
to continue to result, in improved product quality, increased efficiency and
capacity, lower costs and quicker response time to customer orders. The Company
(including its subsidiaries) owns and utilizes 22 manufacturing facilities and
leases 5 manufacturing facilities. These facilities are located primarily in the
Southeastern United States. See "Item 2. Properties."
SOURCING
The Company has had a long-standing history of domestic and international
sourcing of selected component products such as specialty yarns and specialty
greige sheeting fabric for use in domestic production of Home Fashion products.
Historically the percentage of sourced components used in domestic production
was not material. However, following the implementation of the Eight-Point Plan
in 2000 increased focus was placed on global sourcing. As such, the Company
today views sourcing as a means to drive business growth and improve
profitability by providing products and services that accelerate product and
packaging innovation resulting in a competitive market advantage. In 2001, the
Company imported both component and finished products from 20 countries, up
from 14
5
countries in 2000. To accelerate speed to market and improve customer service,
in 2001 the Company successfully implemented Third Party Logistic's operations
on the east coast and on the Mexican border. The Company has more than doubled
the number of sourced vendors used in 2001 and estimates that sourced products
account for roughly 13% of the Company's sales. Through global sourcing
operations, the categories of product offerings by the Company to its customers
has been significantly expanded to increase focus on high growth product
categories such as bath accessories, rugs and quilts.
The Company's policy on sourcing prohibits the purchase of merchandise that is
produced in whole or in part by indentured, prison or illegal immigrant or
child labor. The Company requires that vendors certify the locations used for
the production of products it purchases and that the vendors submit to
compliance inspections from the Company or its representatives to ensure that
the Company does not do business with suppliers who violate human rights.
RAW MATERIALS
The principal raw materials used in the manufacture of Home Fashions products
are cotton of various grades and staple lengths, polyester and nylon in staple
and filament form. Cotton, polyester and nylon presently are available from
several sources in quantities sufficient to meet the Company's requirements.
The Company is not dependent on any one supplier as a source of raw materials.
Since cotton is an agricultural product, its supply and quality are subject to
weather patterns, disease and other factors. The price of cotton is also
influenced by supply and demand considerations, both domestically and
worldwide, and by the cost of polyester. Although the Company has always been
able to acquire sufficient quantities of cotton for its operations in the past,
any shortage in the cotton supply by reason of weather, disease or other
factors could adversely affect the Company's operations. The price of man-made
fibers such as polyester and nylon is influenced by demand, manufacturing
capacity and costs, petroleum prices, cotton prices and the cost of polymers
used in producing man-made fibers. Any significant prolonged petrochemical
shortages could significantly affect the availability of man-made fibers and
cause a substantial increase in demand for cotton, resulting in decreased
availability and, possibly, increased price. The Company also purchases
substantial quantities of dyes and chemicals. Dyes and chemicals have been and
are expected to continue to be available in sufficient supply from a wide
variety of sources.
SEASONALITY; CYCLICALITY; INVENTORY
Traditionally, the home fashions industry has been seasonal, with peak sales in
the fall. In accordance with industry practice, the Company increases its Home
Fashions' inventory levels during the first six months of the year to meet
customer demands for the fall peak season. The Company's commitment to EDI,
Quick Response, and Vendor Managed Inventory, however, has facilitated a more
even distribution of products throughout the calendar year and reduced some of
the need to stockpile inventory to meet peak season demands.
The home fashions industry is also cyclical. While the Company's performance
may be negatively affected by downturns in consumer spending, management
believes the effects thereof are mitigated by the Company's large market shares
and broad distribution base.
BACKLOG ORDERS
The backlog of the Company's unfilled customer orders believed by management to
be firm was approximately $57.5 million at February 2, 2002, as compared with
approximately $57.6 million at February 3, 2001. The Company does not believe
that its backlogs are a meaningful indicator of its business due in part to its
use of Vendor Managed Inventory systems.
COMPETITION
The home fashions industry is highly competitive. The Company competes on the
basis of price, quality, design and customer service, among other factors. In
the sheet and towel markets, the Company competes primarily with Springs
Industries, Inc. and Pillowtex Corporation. In the other bedding and accessories
markets, the Company competes with many companies, most of which are much
smaller in size than the Company. The Company has pursued a competitive strategy
focused on providing the best fashion, quality, service and value to its
customers and to the ultimate consumer. The Company believes that there has been
an increase in the sale of imported Home Fashion products in the domestic market
and is actively pursuing its own foreign sourcing opportunities to meet the
demand for such products. The Company believes the level of foreign competition
has been increasing. There can be no assurance that foreign competition will not
grow to a level that could have an adverse effect upon the Company's ability to
compete effectively.
6
OTHER OPERATIONS
The Company's operations include Grifftex Chemicals ("Grifftex") which
formulates chemicals primarily used in the Company's finishing processes and
WestPoint Stevens Graphics ("Graphics") which prints product packaging and
labeling. Neither Grifftex nor Graphics represent a material portion of the
Company's business.
RESEARCH AND DEVELOPMENT
Management believes that research and development in product innovation and
differentiation is important to maintain the Company's competitive edge. The
Company continually seeks to develop new specialty finishes and finishing
techniques that would improve fabric quality and enhance fabric aesthetics.
Research also is conducted to develop new products in response to changing
customer demands and environmental concerns. The Company has continued to
invest in product development to maintain a leadership position in the market
place.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the storage, handling, usage,
discharge and disposal of a variety of hazardous and non-hazardous substances
and wastes used in or resulting from its operations, including, but not limited
to, the Water Pollution Control Act, as amended; the Clean Air Act, as amended;
the Resource Conservation and Recovery Act, as amended; the Toxic Substances
Control Act; and the Comprehensive Environmental Response, Compensation and
Liability Act.
The Company is a defendant in a complaint entitled Pratt v. WestPoint Stevens
Inc., et al, alleging that the Company and other named and unnamed defendants
(including two named employees of the Company) had harmed the six named
plaintiffs and caused property damage under various common law tort claims
including: nuisance, trespass, negligence, wantonness and strict liability. The
claims are based upon routine discharges of wastewater from the Company's
Opelika Finishing Plant and the Plaintiffs seek an unspecified amount in
compensatory and punitive damages. The parties have substantially completed
discovery and the case is to be tried in Macon County, Alabama, though a trial
date has not been established. The Company has prevailed in having the employee
defendants dismissed from the case. The Company believes that the allegations
contained in the complaint are without merit and intends to contest the action
vigorously.
The Company's operations also are governed by laws and regulations relating to
employee safety and health, principally the Occupational Safety and Health Act
and regulations thereunder which, among other things, establish exposure
limitations for cotton dust, formaldehyde, asbestos and noise, and regulate
chemical, physical and ergonomic hazards in the workplace.
Although the Company does not expect that compliance with any of the
aforementioned laws and regulations will have a material adverse effect on its
capital expenditures, earnings or competitive position in the foreseeable
future, there can be no assurances that environmental 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.
EMPLOYEES
The Company (including its subsidiaries) employed approximately 15,337 active
employees as of December 31, 2001. The Company believes that its relations with
all of its employees are excellent. The Company has not experienced a strike or
work stoppage by any of its unionized employees during the past 20 years.
Currently, less than 10% of the Company's employees are unionized.
The Company has developed an effective employee relations and communications
program that includes rules and regulations for employee conduct and procedures
for employee complaints. This long-standing program focuses on and, in the view
of management, has resulted in, strong, positive employee relations practices,
good working conditions, progressive human resources policies and expansive
safety programs.
RECENT DEVELOPMENTS
On June 29, 2001, the Company announced the closing of a $165.0 million
Second-Lien Facility with a maturity date of February 28, 2005. Net proceeds
from the transaction, after payment of approximately $16.3 million of related
transaction fees and expenses, were used to reduce outstanding borrowings under
the Senior Credit Facility as well as provide additional liquidity for working
capital and general corporate purposes. Interest under the Second-Lien Facility
is payable quarterly at an interest rate of prime plus 8% increasing each
quarter after June 30, 2002 by .375% but in no event less than 15%. Loans under
the Second-Lien Facility are secured by a second priority lien on the assets
securing the existing Senior Credit Facility. The approximately $16.3 million
of related transaction
7
fees and expenses were capitalized as deferred financing fees and are being
amortized over the remaining term of the facility.
During the first and second quarters of 2001, the Company's Senior Credit
Facility was amended primarily to modify certain financial ratios, add a
minimum EBITDA covenant, limit restricted debt and equity payments including
dividends, limit capital expenditures, permit the Second-Lien Facility
transaction and provide for scheduled reductions of the revolving commitment.
Effective with the closing of the Second-Lien Facility, the revolving
commitment was reduced to $717.5 million from $800.0 million. The latest
amendment to the Senior Credit Facility provides for a $25.0 million reduction
in the revolver commitment on each of the following dates: November 1, 2002,
February 1, 2003, August 1, 2003 and November 1, 2003 and further provides for
a $17.5 million reduction in the revolver commitment on February 1, 2004 at
which time the revolver commitment will be $600.0 million. The amendments
further provide that any increase in the Trade Receivables Program above the
current $160.0 million limit, up to a $200.0 million limit, would reduce the
revolver commitment under the Senior Credit Facility by a similar amount.
In January 2002, the Company amended and extended its existing Trade
Receivables Program with an independent issuer of receivables backed commercial
paper until January 2003. See "Item 8. Financial Statements and Supplemental
Data - Notes to Consolidated Financial Statements - 2 Indebtedness and
Financial Arrangements."
The Company's access to capital at rates that allow for a reasonable return on
future business can be affected by credit rating agencies' ratings of the
Company's debt. During 2001, the credit ratings of the Company's senior
unsecured notes (the "Notes") were downgraded as follows: on June 8, 2001 Fitch
Ratings ("Fitch") lowered the credit ratings on the Notes from BB- to B-; on
June 25, 2001, Fitch lowered the credit ratings on the Notes from B- to CCC-;
on May 7, 2001, Moody's lowered the credit ratings on the Notes from B1 to
Caa2, the senior implied rating was lowered from Ba3 to Caa1 and the issuer
rating was lowered from B1 to Caa2; on June 19, 2001, Moody's lowered the
credit ratings on the Notes from Caa2 to Ca and the senior implied rating was
lowered from Caa1 to Caa3 and the issuer rating was lowered from Caa2 to Ca; on
May 9, 2001, Standard & Poor's lowered the credit ratings on the Notes from BB-
to B and the corporate rating was lowered from BB to BB-; and on June 11, 2001,
Standard & Poor's lowered the credit ratings on the Notes from B to CCC+ and
the corporate rating was lowered from BB- to B. On February 2, 2001 Standard
& Poor's revised its rating outlook for the Company from stable to negative
and after each credit rating downgrade mentioned above the respective rating
agency's rating outlook for the Company remained negative.
The interest rates paid by the Company on its current indebtedness are not
directly impacted by changes in credit ratings. Although credit ratings may
impact the rate at which the Company can borrow funds, a credit rating is not a
recommendation to buy, sell or hold securities. In addition, a credit rating
is subject to revision or withdrawal at any time by the assigning rating
organization and each rating should be evaluated independently of any other
rating.
OTHER FACTORS
Except for historical information contained herein, certain matters set forth
in this Annual Report on Form 10-K are forward looking statements that involve
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements. Such risks and
uncertainties may be attributable to important factors which include but are
not limited to the following: product margins may vary from those projected;
raw material prices may vary from those assumed; additional reserves may be
required for bad debts, returns, allowances, governmental compliance costs, or
litigation; there may be changes in the performance of financial markets or
fluctuations in foreign currency exchange rates; unanticipated natural
disasters could have a material impact upon results of operations; there may be
changes in the general economic conditions which affect customer payment
practices or consumer spending; competition for retail and wholesale customers,
pricing and transportation of products may vary from time to time due to
seasonal variations or otherwise; customer preferences for our products can be
affected by competition, or general market demand for domestic or imported
goods or the quantity, quality, price or delivery time of such goods; there
could be an unanticipated loss of a material customer or a material license;
the availability and price of raw materials could be affected by weather,
disease, energy costs or other factors. In addition, consideration should be
given to any other risks and uncertainties discussed in other documents filed
by the Company with the Securities and Exchange Commission. The Company assumes
no obligation to update publicly any forward-looking statements, whether as the
result of new information, future events, or otherwise.
ITEM 2. PROPERTIES
The Company's properties are owned or leased directly and indirectly through
its subsidiaries. Management believes that the Company's facilities and
equipment are in good condition and sufficient for current operations.
The Company owns office space in West Point, Georgia, and Lanett and Valley,
Alabama, and leases various additional office space, including approximately
140,000 square feet in New York City, of which approximately 36,000 square feet
is subleased to other tenants. The Company also owns or leases various
administrative, storage and office space.
The Company and its subsidiaries own and utilize 22 manufacturing facilities
located in Alabama, Florida, Georgia, Indiana, Maine, North Carolina, South
Carolina and Virginia which contain in the aggregate approximately 8,723,000
square feet of floor space and lease 5 manufacturing facilities in Alabama,
Georgia, Louisiana, Nevada and North Carolina which contain in the aggregate
approximately 563,000 square feet of floor space.
The Company owns a chemical plant containing approximately 43,000 square feet
of floor space from which Grifftex Chemicals operates. In addition, the Company
owns a printing facility consisting of 38,000 square feet in which Graphics
prints product packaging and labeling.
The Company and its subsidiaries also own 13 distribution centers and
warehouses for their operations which contain approximately 3,805,000 square
feet of floor space. In addition, the Company and its subsidiaries lease 5
distribution outlets and warehouses containing approximately 554,000 square
feet of floor space.
WestPoint Stores owns 2 retail stores and leases its 57 other retail stores,
all of which are dispersed throughout the United States and Canada.
8
The owned properties of the Company are subject to liens held by the Company's
secured lenders. See "Item 8. Financial Statements and Supplemental Data -
Notes to Consolidated Financial Statements -2 Indebtedness and Financial
Arrangements."
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a complaint entitled Pratt v. WestPoint Stevens
Inc., et al, alleging that the Company and other named and unnamed defendants
(including two named employees of the Company) had harmed the six named
plaintiffs and caused property damage under various common law tort claims
including: nuisance, trespass, negligence, wantonness and strict liability. The
claims are based upon routine discharges of wastewater from the Company's
Opelika Finishing Plant and the Plaintiffs seek an unspecified amount in
compensatory and punitive damages. The parties have substantially completed
discovery and the case is to be tried in Macon County, Alabama though a trial
date has not been established. The Company has prevailed in having the employee
defendants dismissed from the case. The Company believes that the allegations
contained in the complaint are without merit and intends to contest the action
vigorously.
On October 5, 2001, a purported stockholder class action suit, entitled Norman
Geller v. WestPoint Stevens Inc., et al., was filed against the Company and
certain of its officers and directors in the United States District Court for
the Northern District of Georgia. (A subsequent and functionally identical
complaint was also filed.) The Complaints allege that, during the putative
class period (i.e., February 10, 1999 to October 10, 2000), WestPoint Stevens
and certain of its officers and directors caused false and misleading
statements to be issued regarding, inter alia, alleged overcapacity and
excessive inventories of the Company's towel-related products and customer
demand for such products. The Complaints refer to WestPoint Stevens' press
releases and quarterly and annual reports on Securities Exchange commission
Forms 10-Q and 10-K, which discuss the Company's results and forecasts for the
Fiscal years 1999 and 2000. Plaintiffs allege that these press releases and
public filings were false and misleading because they failed to disclose that
the Company allegedly "knew sales would be adversely affected in future
quarters and years." Plaintiffs also allege in general terms that the Company
materially overstated revenues by making premature shipments of products.
The Complaints assert claims against all Defendants under ss. 10(b) of the
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and against the
Company and Defendant Green as "controlling persons" under ss. 20(a) of the
Exchange Act. The actions were consolidated by Order dated January 25, 2002.
Plaintiffs have been ordered to serve a Consolidated Amended Complaint by March
26, 2002.
The Company believes that the allegations are without merit and intends to
contest the action vigorously, on behalf of its officers and directors.
On March 11, 2002, a shareholder derivative action, entitled Gordon Clark v.
Holcombe T. Green, Jr., et al., was filed against certain of the Company's
directors and officers in the Superior Court of Fulton County, Georgia. The
Complaint alleges that the named individuals breached their fiduciary duties by
acting in bad faith and wasting corporate assets. The Complaint also asserts
claims under Georgia Code Ann. ss.ss.14-2-740 to 14-2-747, and 14-2-831. The
claims are based on the same or similar facts as are alleged in the Geller
action.
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.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 2001, no matters were submitted by the
Company to a vote of its security holders.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the New York Stock Exchange
("NYSE") under the ticker symbol WXS. Such listing became effective on October
15, 1999. Prior thereto, the Company's Common Stock was listed on the National
Association of Securities Dealers Automated Quotation System - National Market
System ("NASDAQ") under the ticker symbol WPSN from August 2, 1993. Following
the Securities and Exchange Commission order to convert to decimal pricing, the
NYSE began the conversion in September 2000. WestPoint Stevens' Common Stock
was converted to decimal trading on December 4, 2000, with all prior periods
restated accordingly.
High and low share prices of the Company's Common Stock, as reported, each
quarterly period within the two most recent fiscal years were:
Quarter Ended Share Prices
- ------------- -----------------------------------------------
2001 2000
---------------------- -------------------
High Low High Low
-------- ------- -------- -------
March 31 $ 10.15 $ 7.37 $ 19.00 $ 13.75
June 30 $ 10.00 $ 0.96 $ 19.63 $ 8.38
September 30 $ 2.70 $ 1.50 $ 14.31 $ 10.56
December 31 $ 3.50 $ 1.52 $ 12.38 $ 5.94
The Company paid dividends of $.02 per share on March 1, June 1, September 1
and December 1, 2000, March 1, June 1, 2001. On June 1, 2000, the Company paid,
in addition to the regular dividend of $.02 per share, a special dividend of
$2.00 per share. Under its existing credit facilities, as amended June 29,
2001, the Company is not permitted to pay dividends. See "Item 1. Business -
Recent Developments."
As of March 15, 2002, there were approximately 13,931 holders of the Company's
Common Stock. Of that total, approximately 282 were stockholders of record and
approximately 13,649 held their stock in nominee name through the Depository
Trust Company.
10
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data presented below for 2001, 2000 and 1999
were derived from the Audited Consolidated Financial Statements of the Company
and its subsidiaries as of and for the years ended December 31, 2001, 2000 and
1999 (the "Consolidated Financial Statements"), and should be read in
conjunction therewith, including the notes thereto and the other financial
information included elsewhere in this report. The statement of operations data
reflect the discontinuance of the Alamac Knit Fabrics subsidiary and accordingly
only reflect the operations of Home Fashions.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS DATA:
Net sales $ 1,765.1 $ 1,815.9 $ 1,883.3 $ 1,779.0 $ 1,657.5
Gross earnings (1) 378.3 388.4 505.3 474.7 419.8
Operating earnings (2) 115.3 34.9 268.1 248.3 214.9
Interest expense 141.6 122.3 102.4 105.7 102.2
Income (loss) from continuing operations
before income tax expense
(benefit) and extraordinary items (3) (42.6) (98.8) 162.9 141.7 110.2
Income (loss) from continuing operations
before extraordinary items (4) (27.3) (63.3) 104.1 90.6 69.3
Net income (loss) (4) (27.3) (63.3) 104.1 40.0 78.0
Diluted net income (loss) per common share:
Continuing operations (.55) (1.28) 1.84 1.51 1.11
Discontinued operations -- -- -- -- .14
Extraordinary item - loss on extinguishment of debt (5) -- -- -- (.84) --
--------- --------- --------- --------- ---------
Net income (loss) per common share (.55) (1.28) 1.84 .67 1.25
Diluted average common shares outstanding 49.6 49.6 56.6 59.9 62.7
DECEMBER 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets $1,368.8 $1,458.4 $1,540.7 $1,391.2 $1,291.1
Working capital (6) 242.1 180.1 233.1 178.2 212.2
Total debt 1,672.5 1,627.8 1,464.8 1,335.4 1,187.7
Stockholders' equity (deficit) (778.4) (712.8) (498.0) (487.5) (425.0)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT RATIOS)
OTHER DATA:
Depreciation and amortization:
Continuing operations $ 83.9 $ 80.8 $ 84.1 $ 80.6 $ 71.7
Discontinued operations -- -- -- -- 5.5
Capital expenditures:
Continuing operations 60.5 76.7 148.6 147.5 148.9
Discontinued operations -- -- -- -- 3.2
Continuing operations-adjusted operating earnings (7) 134.0 229.5 268.1 248.3 214.9
Continuing operations-adjusted net income (loss) (8) (15.4) 66.7 104.1 90.6 69.3
Continuing operations-adjusted operating margin (9) 7.6% 12.6% 14.2% 14.0% 13.0%
See footnotes on following page.
11
(1) Gross earnings for the years ended December 31, 2001 and 2000 include
costs of the Eight-Point Plan of $13.7 million and $85.3 million, respectively.
(2) Operating earnings for the years ended December 31, 2001 and 2000
include restructuring and impairment charges of $5.0 million and $109.2
million, respectively, and other costs of the Eight-Point Plan of $13.7 million
and $85.3 million, respectively, totaling $18.7 million and $194.5 million,
respectively.
(3) Loss from continuing operations before income tax benefit for the
years ended December 31, 2001 and 2000 include restructuring and impairment
charges of $5.0 million and $109.2 million, respectively, and other costs of
the Eight-Point Plan and other charges of $13.7 million and $94.0 million,
respectively, totaling $18.7 million and $203.2 million, respectively.
(4) Loss from continuing operations and net loss for the years ended
December 31, 2001 and 2000 include restructuring and impairment charges of $5.0
million and $109.2 million, respectively, and other costs of the Eight-Point
Plan and other charges of $13.7 million and $94.0 million, respectively,
totaling $18.7 million and $203.2 million, respectively, before income tax
benefit of $6.7 million and $73.1 million, respectively, for a net amount of
$11.9 million and $130.1 million, respectively.
(5) In 1998, the Company recorded an extraordinary item of $50.6 million,
net of income taxes of $28.5 million, for the early extinguishment of debt. The
extraordinary charge consisted primarily of tender premiums and the write-off
of deferred debt costs.
(6) Working capital at December 31, 2001, 2000, 1999, 1998 and 1997
includes the current portion of bank indebtedness and other long-term debt of
$107.5 million, $152.8 million, $89.8 million, $60.4 million and $41.4 million,
respectively.
(7) Continuing operations-adjusted operating earnings represents operating
earnings from continuing operations, adjusted to remove the impact of the
restructuring and impairment charges and other costs of the Eight-Point Plan.
Such amounts are presented to facilitate comparisons between periods since
there were no similar charges for the years ended December 31, 1999, 1998 and
1997.
(8) Continuing operations-adjusted net income represents net income from
continuing operations, adjusted to remove the impact of the restructuring and
impairment charges and other costs of the Eight-Point Plan and other charges
and before extraordinary items and discontinued operations.
(9) Continuing operations-adjusted operating margin represents continuing
operations adjusted operating earnings as a percentage of net sales for the
periods presented.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND-LIEN FACILITY AND SENIOR CREDIT FACILITY
On June 29, 2001, the Company announced the closing of a $165.0 million
Second-Lien Facility with a maturity date of February 28, 2005. Net proceeds
from the transaction, after payment of approximately $16.3 million of related
transaction fees and expenses, were used to reduce outstanding borrowings under
the Senior Credit Facility as well as provide additional liquidity for working
capital and general corporate purposes. Interest under the Second-Lien Facility
is payable quarterly at an interest rate of prime plus 8% increasing each
quarter after June 30, 2002 by .375% but in no event less than 15%. Loans under
the Second-Lien Facility are secured by a second priority lien on the assets
securing the existing Senior Credit Facility. The approximately $16.3 million
of related transaction fees and expenses were capitalized as deferred financing
fees and are being amortized over the remaining term of the facility.
During the first and second quarters of 2001, the Company's Senior Credit
Facility was amended primarily to modify certain financial ratios, add a
minimum EBITDA covenant, limit restricted debt and equity payments including
dividends, limit capital expenditures, permit the Second-Lien Facility
transaction and provide for scheduled reductions of the revolving commitment.
Effective with the closing of the Second-Lien Facility, the revolving
commitment was reduced to $717.5 million from $800.0 million. The latest
amendment to the Senior Credit Facility provides for a $25.0 million reduction
in the revolver commitment on each of the following dates: November 1, 2002,
February 1, 2003, August 1, 2003 and November 1, 2003 and further provides for
a $17.5 million reduction in the revolver commitment on February 1, 2004 at
which time the revolver commitment will be $600.0 million. The amendments
further provide that any increase in the Trade Receivables Program above the
current $160.0 million limit, up to a $200.0 million limit, would reduce the
revolver 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 1.25% or at LIBOR plus 3%. The
Company pays a facility fee in an amount equal to 0.50% of each Bank's
commitment under the Revolver. 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.
RESTRUCTURING, IMPAIRMENT, 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 $222.0 million pretax charge to cover the cost of
implementing an Eight-Point Plan that is designed to streamline operations and
improve profitability
The Eight-Point Plan addresses the following points: 1) expansion of brands; 2)
exploration of new licensing opportunities; 3) rationalization of manufacturing
operations; 4) reduction in overhead expense; 5) increase in global sourcing; 6)
improvement of inventory utilization; 7) enhancement of supply chain and
logistics functions; and 8) improvement in capital structure. The Company
estimates the implementation of the Eight-Point Plan will generate annual pretax
savings of $38.0 million starting in 2002. Given the disruptive nature of the
restructuring activity that includes significant machinery relocation and
realignment, the Company does not anticipate any significant benefit from the
restructuring plan until the first quarter of 2002. The estimated annual pretax
savings of $38.0 million (of which $35.0 million are estimated cash savings
primarily in the form of labor and overhead savings and $3.0 million are
estimated depreciation savings) will be reflected for the most part as a
reduction in cost of goods sold and to a lesser extent as a reduction in general
and administrative expenses.
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 of March 2, 2002, four plant closings have been announced under the
Eight-Point Plan. On October 2, 2000, the Rosemary greige plant, a towel plant
located in Roanoke Rapids, North Carolina, and the Liebhardt basic bedding
plant in Union, South
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING, IMPAIRMENT, AND OTHER CHARGES--CONTINUED
Carolina, were scheduled for closing. On January 29, 2001, the Seneca plant, a
sheeting plant in Seneca, South Carolina, was scheduled for closing. On March
1, 2001, the Whitmire yarn plant in Whitmire, South Carolina, was scheduled for
closing. In addition to these closings, a reduction in the workforce of the
remaining finishing and fabricating facilities at the Rosemary complex was
announced on February 5, 2001. These plant closings will enable the Company to
consolidate its manufacturing in locations that allow the most efficient work
flow.
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
$5.0 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 $4.0
million. The components of the restructuring and impairment charge in 2001
included $7.0 million in reserves to cover cash expenses related to severance
benefits and a reduction in reserves for other exit costs of $2.0 million.
Since the adoption of the Eight-Point Plan, the Company has terminated and
agreed to pay severance (including continuing termination benefits) to
approximately 1,700 employees. The restructuring plan was completed in the
fourth quarter of 2001.
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
Fourth Quarter - 2.0 (2.0) -
------ ----- ----- -------
Total 2001 Charge - 7.0 (2.0) 5.0
Writedown Assets to Net Recoverable Value (90.5) - - (90.5)
2000 Cash Payments - (4.7) (0.3) (5.0)
2001 Cash Payments - (15.0) (0.1) (15.1)
------ ----- ----- -------
Balance at December 31, 2001 $ - $ 2.0 $ 1.6 $ 3.6
====== ===== ===== =======
During 2000, other costs of the Eight-Point Plan and other charges of $94.0
million, before taxes, were recognized including inventory writedowns of $74.2
million; claims of $5.0 million; other expenses of $6.1 million consisting
primarily of $2.2 million for the relocation of machinery, $2.4 million of
related unabsorbed overhead and other expenses of $1.5 million, all reflected
in cost of goods sold; and other costs of $8.7 million consisting primarily of
$5.7 million of unusual contractual severance and other expenses of $3.0
million reflected in Other expense-net. During 2001, other costs for the
completion of the Eight-Point Plan of $13.7 million, before taxes, were
recognized consisting primarily of $10.0 million for the relocation of
machinery, $3.0 million of related unabsorbed overhead and other expenses of
$0.7 million all reflected in cost of goods sold.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table below is a summary of the Company's operating results for the years
ended December 31, 2001, 2000 and 1999. The following discussion is limited to
an analysis of the results of continuing operations (in millions of dollars and
as percentages of net sales).
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2001 2000 1999
---------- ---------- ----------
Net sales $1,765.1 $1,815.9 $1,883.3
Gross earnings $ 378.3 $ 388.4 $ 505.3
Restructuring and impairment charge $ 5.0 $ 109.2 -
Operating earnings $ 115.3 $ 34.9 $ 268.1
Interest expense $ 141.6 $ 122.3 $ 102.4
Other expense-net $ 16.3 $ 11.4 $ 2.8
Income (loss) from operations before taxes $ (42.6) $ (98.8) $ 162.9
Income (loss) from operations $ (27.3) $ (63.3) $ 104.1
Gross margin 21.4% 21.4% 26.8%
Operating margin 6.5% 1.9% 14.2%
2001 COMPARED WITH 2000
NET SALES. Net sales for the year ended December 31, 2001 decreased $50.7
million, or 2.8%, to $1,765.1 million compared with net sales of $1,815.9
million for the year ended December 31, 2000. The decrease resulted from
difficult conditions at retail for all of 2001 that caused a decline in sales
across all product categories with the exception of basic bedding accessories.
Sales were also negatively impacted by increased promotional pricing activity
due to the weak retail sales environment.
For the year ended December 31, 2001, bed products sales were $1,024.3 million
compared with $1,054.0 million in 2000, bath products sales were $524.0 million
compared with $551.8 million in 2000 and other sales (consisting primarily of
sales from the Company's retail stores and foreign operations) were $216.9
million compared with $210.1 million in 2000.
GROSS EARNINGS/MARGINS. Gross earnings before restructuring charges for the
year ended December 31, 2001 of $392.0 million decreased $81.8 million, or
17.3%, compared with $473.8 million for 2000 and reflect gross margins of 22.2%
in 2001 and 26.1% in 2000. Gross earnings after the restructuring charge were
$378.3 million for the year ended December 31, 2001 compared with $388.4
million in 2000. Gross earnings and margins deteriorated in 2001 due to
increased raw material costs, primarily cotton, and a weakness in retail
markets that resulted in increased promotional activity and lower sales that
necessitated selected production downtime and resulted in under absorption of
fixed costs.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses before
restructuring charges increased $13.7 million, or 5.6%, in 2001 compared with
2000, and as a percentage of net sales represent 14.6% in 2001 and 13.5% in
2000. Restructuring charges of $5.0 million were incurred in 2001 related to
the Company's Eight-Point Plan. The increase in selling, general and
administrative expenses in 2001 was primarily due to increased bad debt expense
and expenses associated with the acquired Chatham blanket unit that were
partially offset by reduced litigation reserves.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--CONTINUED
2001 COMPARED WITH 2000--CONTINUED
Operating earnings for the year ended December 31, 2001 before restructuring
charges were $134.0 million, or 7.6% of sales, and decreased $95.5 million, or
41.6%, compared with operating earnings of $229.5 million, or 12.6% of sales,
for 2000. Operating earnings for the year ended December 31, 2001 after the
restructuring charge were $115.3 million compared with $34.9 million in 2000.
The increase in operating earnings in 2001 resulted from the reduced level of
charges related to the Company's restructuring program.
INTEREST EXPENSE. Interest expense for the year ended December 31, 2001 of
$141.6 million increased $19.3 million compared with interest expense for the
year ended December 31, 2000. The increase in interest expense was due
primarily to higher average debt levels and higher average interest rates on
the Company's variable rate bank debt and Second-Lien Facility.
OTHER EXPENSE-NET. Other expense-net increased $13.6 million for the year ended
December 31, 2001 to $16.3 million from $2.7 million for the year ended
December 31, 2000 before costs of the Eight-Point Plan of $8.7 million. The
charges were comprised of a $7.5 million non-cash charge to adjust to market
value its basis in an unconsolidated limited liability corporation, $2.3
million in charges for cotton derivatives in accordance with FASB 133,
Accounting for Derivative Instruments and Hedging Activities and also included
the amortization of deferred financing fees of $6.9 million in 2001 compared
with $3.2 million in the 2000 period, less certain miscellaneous items. The
primary asset of the limited liability corporation was an airplane that was
sold during the year for less than its book value and generated $3.3 million in
cash; as a result the Company anticipates annual cash savings of $5.0 million.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and non-deductible items.
NET INCOME. Before charges associated with the Eight-Point Plan, net income for
fiscal year 2001 was a loss of $15.4 million, or a loss of $0.31 per share
diluted, and a loss of $27.3 million after the charges, or a loss of $0.55 per
share diluted. Net income for 2000 before charges associated with the
Eight-Point Plan was $66.7 million or $1.34 per share diluted and after charges
was a loss of $63.3 million or a loss of $1.28 per share diluted.
Diluted per share amounts are based on 49.6 million average shares outstanding
for both the 2001 and 2000 periods, respectively.
2000 COMPARED WITH 1999
NET SALES. Net sales for the year ended December 31, 2000 decreased $67.4
million, or 3.6%, to $1,815.9 million compared with net sales of $1,883.3
million for the year ended December 31, 1999. The decrease resulted from
difficult conditions at retail in the latter part of 2000 that caused a
significant decline in towel sales and to a lesser degree a decline in sheet
sales despite increased sales of blankets, and growth in sales at the retail
stores division. Sales were also negatively impacted due to the disruptive
effect of a tornado that damaged the Abbeville (AL.) Distribution Center in
December.
For the year ended December 31, 2000, bed products sales were $1,054.0 million
compared with $1,082.8 million in 1999, bath products sales were $551.8 million
compared with $596.5 million in 1999 and other sales (consisting primarily of
sales from the Company's retail stores and foreign operations) were $210.1
million compared with $203.9 million in 1999.
GROSS EARNINGS/MARGINS. Gross earnings before restructuring charges for the
year ended December 31, 2000 of $473.8 million decreased $31.5 million, or 6.2%
compared with $505.3 million for 1999 and reflect gross margins of 26.1% in
2000 and 26.8% in 1999. Gross earnings after the restructuring charge were
$388.4 million for the year ended December 31, 2000. Gross earnings and margins
deteriorated in 2000 due to a weakness in retail markets during the second half
of the year that necessitated selected production downtime and resulted in
under absorption of fixed costs that were only partially offset by lower raw
material costs.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--CONTINUED
2000 COMPARED WITH 1999--CONTINUED
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses before
restructuring charges increased $7.0 million, or 3.0%, in 2000 compared with
1999, and as a percentage of net sales represent 13.5% in 2000 and 12.6% in
1999. Restructuring charges of $109.2 million were incurred in 2000 related to
the Company's Eight-Point Plan. The increase in selling, general and
administrative expenses in 2000 was primarily due to increased warehousing and
shipping expenses that were only partially offset by ongoing cost reduction
programs.
Operating earnings for the year ended December 31, 2000 before restructuring
charges were $229.5 million, or 12.6% of sales, and decreased $38.6 million, or
14.4%, compared with operating earnings of $268.1 million, or 14.2% of sales,
for 1999. Operating earnings for the year ended December 31, 2000 after the
restructuring charge was $34.9 million. The deterioration of operating earnings
resulted from the decrease in gross earnings and the increase in selling,
general and administrative expenses discussed above.
INTEREST EXPENSE. Interest expense for the year ended December 31, 2000 of
$122.3 million increased $19.9 million compared with interest expense for the
year ended December 31, 1999. The increase in interest expense was due
primarily to higher average debt levels and higher average interest rates on
the Company's variable rate bank debt.
OTHER EXPENSE-NET. Other expense-net decreased a minimal amount for the year
ended December 31, 2000 before costs of the Eight-Point Plan and other charges
to $2.7 million from $2.8 million for the year ended December 31, 1999. After
costs of the Eight-Point Plan and other charges, other expense-net increased
$8.6 million for the year ended December 31, 2000 to $11.4 million. The charges
were comprised of amortization of deferred financing fees of $3.2 million and
costs of the Eight-Point Plan and other charges of $8.7 million in 2000, and
amortization of deferred financing fees of $2.9 million in 1999, and other
miscellaneous income and expense items in both periods.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and non-deductible items.
NET INCOME. Before charges associated with the Eight-Point Plan, net income for
fiscal year 2000 was $66.7 million, or $1.34 per share diluted, and a loss of
$63.3 million after the charges, or a loss of $1.28 per share diluted. Net
income for 1999 was $104.1 million, or $1.84 per share diluted.
Diluted per share amounts are based on 49.6 million and 56.6 million average
shares outstanding for the 2000 and 1999 periods, respectively. The decrease in
the average shares outstanding was primarily the result of the purchase by the
Company of shares under the stock repurchase programs.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in certain
commodity prices and interest rates. These exposures primarily relate to the
acquisition of raw materials and changes in interest rates.
Commodities Risk. The Company selectively uses commodity futures contracts,
forward purchase commodity contracts and option contracts primarily to manage
its exposure to cotton commodity price risk. The Company does not hold or issue
derivative instruments for trading purposes.
At December 31, 2001 and 2000, the Company, in its normal course of business,
had entered into various commodity futures contracts and forward purchase
commodity contracts. Based on year-end forward cotton prices, the Company's
futures contracts and forward purchase contracts at December 31, 2001 (which
covered a portion of its 2002 needs) had a net deferred loss of approximately
$3.8 million. At December 31, 2000, the net deferred loss was approximately
$2.1 million.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK--CONTINUED
Based on a sensitivity analysis for commodities, the hypothetical net deferred
loss for the combined commodity positions at December 31, 2001 is estimated to
be approximately $8.1 million ($11.0 million at December 31, 2000), assuming a
decrease of 10% in such commodity prices. Actual commodity price volatility is
dependent on many varied factors impacting supply and demand that are
impossible to forecast. Therefore, actual changes in fair value over time could
differ substantially from the hypothetical change disclosed above.
Interest Rate Risk. At December 31, 2001 and 2000, the Company's floating
interest rate debt outstanding was $672.5 million (of which $165.0 million was
the Second-Lien Facility) and $627.8 million, respectively. A 100 basis point
increase in market rates would increase interest expense and decrease income
before income taxes by approximately $5.0 million and $6.3 million at December
31, 2001 and 2000, respectively. The amount was determined by calculating the
effect of the hypothetical interest rate change on the Company's floating
interest rate debt excluding the Second-Lien Facility. Based on market rates at
December 31, 2001, a 100 basis point increase in market rates would not
increase the minimum interest rate under the Second-Lien Facility.
The fair market value of long-term fixed interest rate debt is also subject to
interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise.
The estimated fair market value of the Company's total long-term fixed interest
rate debt at December 31, 2001 was approximately $312.3 million, which was
below its carrying value by approximately $687.7 million. At December 31, 2000,
the estimated fair market value of the Company's long-term fixed interest rate
debt was approximately $730.8 million, which was below its carrying value by
approximately $269.2 million. A hypothetical 100 basis point decrease in the
prevailing interest rates at December 31, 2001 would result in an increase in
the fair market value of total long-term fixed interest rate debt by
approximately $8.6 million ($30.9 million at December 31, 2000). Fair market
values are determined from quoted market prices where available or based on
estimates.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's Consolidated Financial Statements are prepared in accordance with
accounting principles generally accepted in the United States, which require
the Company to make estimates and assumptions. See Note 1 - Summary of
Significant Accounting Policies in the Notes to Consolidated Financial
Statements. Management believes that the following are some of the more
critical judgment areas in the application of the Company's accounting policies
that currently affect financial condition and results of operations.
Accounts Receivable. The Company maintains returns and allowances reserves as
well as reserves for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments, including bad debt losses
under the Trade Receivables Program special purpose entity. Returns and
allowances reserves are based primarily on historical data available to the
Company. Reserves for doubtful accounts are based on historical data as well as
other current data available to the Company that includes the overdue status,
financial status and credit ratings of its customers, and estimates of ultimate
recoverability from customers in bankruptcy. At December 31, 2001 and 2000, the
Company had accounts receivable reserves of $33.6 million and $22.1 million,
respectively. Management believes that its estimates are conservative; however,
if the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Inventories. The Company's inventories are stated at the lower of cost or
market (net realizable value) and include material, labor and factory overhead.
At December 31, 2001, approximately 78% of the Company's inventories are valued
at the lower of cost or market using the "dollar value" last-in, first-out
(LIFO) method. The remaining inventories are valued at the lower of cost or
market using substantially the first-in, first-out (FIFO) method. The Company
maintains market reserves for estimated obsolete, excess, aged or off-quality
inventories equal to the difference between the cost of the inventory and the
estimated market value based upon assumptions about future demand, channels of
distribution and market conditions. At December 31, 2001 and 2000, the Company
had market reserves of $73.1 million and $63.4 million, respectively.
Management believes that its estimates are conservative; however, if market
conditions were to deteriorate, resulting in higher levels of obsolete, excess,
aged or off-quality inventories or lower estimated market values, additional
market reserves may be required.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACCOUNTING POLICIES NOT YET ADOPTED
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Statement 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Statement 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
The Company will apply Statement 142 beginning in the first quarter of 2002.
The Company will test goodwill for impairment using the two-step process
prescribed in Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the impairment, if
any. The Company expects to perform the first of the required impairment tests
of goodwill as of January 1, 2002 in the first quarter of 2002. Any impairment
charge resulting from these transitional impairment tests will be reflected as
the cumulative effect of a change in accounting principle in the first quarter
of 2002. The Company has not yet determined what the effect of these tests will
be on earnings and financial position of the Company.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations for a
disposal of a segment of a business. Statement 144 is effective for fiscal
years beginning after December 15, 2001. The Company will adopt Statement 144
as of January 1, 2002 and it does not expect that the adoption will have a
significant impact on the Company's financial position and results of
operations.
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.
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 March 2,
2002, the maximum commitment under the Senior Credit Facility was $717.5
million and the Company had unused borrowing availability under the Senior
Credit Facility totaling $123.2 million. The Senior Credit Facility contains
covenants, which, among other things, limit indebtedness and require the
maintenance of certain financial ratios, minimum EBITDA and minimum net worth
(as defined). The latest amendment to the Senior Credit Facility provides for a
$25.0 million reduction in the revolver commitment on each of the following
dates: November 1, 2002, February 1, 2003, August 1, 2003 and November 1, 2003
and further provides for a $17.5 million reduction in the revolver commitment
on February 1, 2004 at which time the revolver commitment will be $600.0
million. The amendments further provide that any increase in the Trade
Receivables Program above the current $160.0 million limit, up to a $200.0
million limit, would reduce the revolver commitment under the Senior Credit
Facility by a similar amount.
On January 22, 2002, Kmart Corporation filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code. Kmart
Corporation subsequently received approval of its debtor-in-possession
financing and is currently working towards a restructuring and emergence from
Chapter 11 in 2003. In conjunction with the restructuring, Kmart Corporation
announced the closing of 284 retail store locations. This represents roughly
13% of its total store base. The Company has reviewed its sales and profit
projections for Kmart Corporation for 2002 and believes that the recent Chapter
11 filing for bankruptcy protection by Kmart Corporation will not have a
material adverse effect on the Company's future operations.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--CONTINUED
LIQUIDITY AND CAPITAL RESOURCES--CONTINUED
At December 31, 2001, the Company was in compliance with all its covenants
under the Senior Credit Facility and Second-Lien Facility, and based on
management's projections of 2002 results expects to remain in compliance with
all the covenants under its credit agreements.
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 $60.5 million
in 2001 on capital expenditures and intends to invest approximately $40.0 to
$50.0 million in 2002. The Board of Directors approved the payment of quarterly
cash dividends of $.02 per share, which were paid on March 1, 2001 and June 1,
2001, totaling approximately $2.0 million. The latest amendment of the Senior
Credit Facility does not permit future cash dividends.
The Board of Directors has approved the purchase of up to 27 million shares of
the Company's common stock, subject to the Company's debt limitations. At
December 31, 2001, approximately 3.6 million shares remained to be purchased
under these programs. The latest amendment of the Senior Credit Facility does
not permit future stock repurchases.
The Company, through a "bankruptcy remote" receivables subsidiary, has a Trade
Receivables Program that provides for the sale of accounts receivable on a
revolving basis at rates more favorable than the Senior Credit Facility. In
March 2001, the Company amended and extended the maturity date of its existing
Trade Receivables Program with an independent issuer of receivables backed
commercial paper until January 2002, and in January 2002 amended and extended
the maturity date of its existing Trade Receivables Program until January 2003.
Under the terms of the Trade Receivables Program, the Company has agreed to sell
on an ongoing basis, and without recourse, an undivided ownership interest in
its accounts receivable portfolio. The Company maintains the balance in the
designated pool of accounts receivable sold by selling undivided interests in
new receivables as existing receivables are collected. The agreement permits the
sale of up to $160.0 million of accounts receivable. The cost of the Trade
Receivables Program is charged to selling expense in the accompanying
Consolidated Statements of Operations and is estimated to total approximately
$4.8 million in 2002, compared with $6.5 million in 2001. At December 31, 2001
and 2000, $152.6 million and $140.0 million, respectively, of accounts
receivable had been sold pursuant to the Trade Receivables Programs and the sale
is reflected as a reduction of accounts receivable in the accompanying
Consolidated Balance Sheets.
Debt service requirements for interest payments in 2002 are estimated to total
approximately $138.0 million (excluding amounts related to the Trade
Receivables Program) compared with interest payments of $143.0 million in 2001.
The Company's long-term indebtedness has no scheduled principal reduction
requirements during 2002.
Management believes that cash from the Company's operations and borrowings
under its credit agreements 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.
At December 31, 2001, the Company's major contractual obligations were as
follows (in millions of dollars):
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------
LATER
TOTAL 2002 2003 2004 2005 2006 PERIODS
--------- -------- ------- -------- -------- -------- -------
Senior Notes $1,000.0 $525.0 $475.0
Senior Credit Facility $ 507.5 $507.5
Second-Lien Facility $ 165.0 $165.0
Operating Leases $ 76.6 $21.2 $19.6 $ 15.0 $ 11.5 $4.9 $ 4.4
Inventory Contracts $ 49.1 $49.1
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for the years ended December 31, 2001, 2000
and 1999
Report of Ernst & Young LLP, Independent Auditors......................... 22
Consolidated Balance Sheets............................................... 23 - 24
Consolidated Statements of Operations..................................... 25
Consolidated Statements of Stockholders' Equity (Deficit)................. 26
Consolidated Statements of Cash Flows..................................... 27
Notes to Consolidated Financial Statements................................ 28 - 47
21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
WESTPOINT STEVENS INC.
We have audited the accompanying consolidated balance sheets of WestPoint
Stevens Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the index at
Item 14 (a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of
WestPoint Stevens Inc. and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Notes 1 and 7 to the consolidated financial statements, in 2001
the Company changed its method of accounting for derivative instruments and
hedging activities.
/s/Ernst & Young LLP
Atlanta, Georgia
February 4, 2002
22
WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------------------
2001 2000
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents ................................ $ 3,170 $ 167
Accounts receivable (less allowances of $33,573
and $22,063, respectively) .......................... 105,136 99,191
Inventories .............................................. 397,192 407,332
Prepaid expenses and other current assets ................ 29,613 42,247
----------- -----------
Total current assets ........................... 535,111 548,937
Property, Plant and Equipment
Land ..................................................... 6,765 6,767
Buildings and improvements ............................... 359,014 341,932
Machinery and equipment .................................. 1,008,713 991,481
Leasehold improvements ................................... 12,320 11,478
----------- -----------
1,386,812 1,351,658
Less accumulated depreciation and amortization ........... (637,486) (579,638)
----------- -----------
Net property, plant and equipment .............. 749,326 772,020
Other Assets
Deferred financing fees (less accumulated amortization
of $14,680 and $7,714, respectively) ................ 32,879 18,497
Prepaid pension and other assets ......................... 4,243 72,829
Goodwill (less accumulated amortization of $4,488
and $3,193, respectively) ........................... 47,288 46,166
----------- -----------
Total other assets ............................. 84,410 137,492
----------- -----------
$ 1,368,847 $ 1,458,449
=========== ===========
See accompanying notes.
23
WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------------------
2001 2000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility .................................................... $ 107,501 $ 152,849
Accrued interest payable .................................................. 3,856 4,734
Accounts payable .......................................................... 67,218 75,883
Accrued employee compensation ............................................. 21,166 24,755
Accrued customer incentives ............................................... 31,577 28,721
Other accrued liabilities ................................................. 61,723 81,928
----------- -----------
Total current liabilities ................................. 293,041 368,870
Long-Term Debt ..................................................................... 1,565,000 1,475,000
Noncurrent Liabilities
Deferred income taxes ..................................................... 182,822 265,812
Pension and other liabilities ............................................. 106,351 61,588
----------- -----------
Total noncurrent liabilities .............................. 289,173 327,400
Stockholders' Equity (Deficit)
Common Stock and capital in excess of par value:
Common Stock, $.01 par value; 200,000,000
shares authorized; 71,099,649 shares issued ..................... 395,903 367,515
Accumulated deficit ....................................................... (680,789) (650,943)
Treasury stock; 21,528,567 and 21,686,082 shares at cost, respectively .... (418,781) (420,421)
Accumulated other comprehensive income (loss) ............................. (69,386) (1,774)
Unearned compensation ..................................................... (5,314) (7,198)
----------- -----------
Total stockholders' equity (deficit) ...................... (778,367) (712,821)
----------- -----------
$ 1,368,847 $ 1,458,449
=========== ===========
See accompanying notes.
24
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Net sales ............................................... $ 1,765,146 $ 1,815,870 $ 1,883,263
Cost of goods sold ...................................... 1,386,804 1,427,447 1,377,917
----------- ----------- -----------
Gross earnings .................................... 378,342 388,423 505,346
Selling, general and administrative expenses ............ 258,007 244,278 237,246
Restructuring and impairment charge ..................... 5,008 109,199 --
----------- ----------- -----------
Operating earnings ................................ 115,327 34,946 268,100
Interest expense ........................................ 141,606 122,287 102,395
Other expense-net ....................................... 16,294 11,419 2,843
----------- ----------- -----------
Income (loss) from operations
before income tax expense (benefit) .... (42,573) (98,760) 162,862
Income tax expense (benefit) ............................ (15,225) (35,450) 58,750
----------- ----------- -----------
Net income (loss) ................................. $ (27,348) $ (63,310) $ 104,112
=========== =========== ===========
Basic net income (loss) per common share ................ $ (.55) $ (1.28) $ 1.89
=========== =========== ===========
Diluted net income (loss) per common share .............. $ (.55) $ (1.28) $ 1.84
=========== =========== ===========
Basic average common shares outstanding ................. 49,606 49,635 55,119
Dilutive effect of stock options and
stock bonus plan .................................. -- -- 1,479
----------- ----------- -----------
Diluted average common shares outstanding ............... 49,606 49,635 56,598
=========== =========== ===========
See accompanying notes.
25
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
COMMON
STOCK
AND CAPITAL
IN ACCUMULATED
EXCESS OF TREASURY STOCK OTHER
COMMON PAR --------------------- ACCUMULATED COMPREHENSIVE
SHARES VALUE SHARES AMOUNT DEFICIT INCOME (LOSS)
------ ----------- -------- ---------- ----------- -------------
Balance, January 1, 1999 ................................ 70,862 $343,437 (14,577) $(242,844) $(585,115) $ (2,930)
Comprehensive income:
Net income .................................... -- -- -- -- 104,112 --
Foreign currency translation adjustment ....... -- -- -- -- -- 818
Comprehensive income ...............................
Exercise of management stock options
including tax benefit ......................... 238 8,744 399 112 -- --
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit .................... -- 2,184 295 3,193 -- --
Issuance of restricted stock ....................... -- 7,139 501 2,255 -- --
Amortization of compensation ....................... -- -- -- -- -- --
Purchase of treasury shares ........................ -- -- (5,477) (126,688) -- --
Cash dividends ..................................... -- -- -- -- (3,355) --
Stock dividends pursuant to Stock Bonus Plan ....... -- -- -- -- (20) --
------ -------- ------- --------- --------- --------
Balance, December 31, 1999 .............................. 71,100 361,504 (18,859) (363,972) (484,378) (2,112)
Comprehensive income (loss):
Net loss ...................................... -- -- -- -- (63,310) --
Foreign currency translation adjustment ....... -- -- -- -- -- 338
Comprehensive income (loss) ........................
Exercise of management stock options
including tax benefit ......................... -- 4,148 754 5,251 -- --
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit .................... -- 1,858 248 2,602 -- --
Issuance of restricted stock ....................... -- 5 2 14 -- --
Amortization of compensation ....................... -- -- -- -- -- --
Purchase of treasury shares ........................ -- -- (3,831) (64,316) -- --
Cash dividends ..................................... -- -- -- -- (103,253) --
Stock dividends pursuant to Stock Bonus Plan ....... -- -- -- -- (2) --
------ -------- ------- --------- --------- --------
Balance, December 31, 2000 .............................. 71,100 367,515 (21,686) (420,421) (650,943) (1,774)
Comprehensive income (loss):
Net loss ...................................... -- -- -- -- (27,348) --
Minimum pension liability adjustment,
net of tax of $37,494 .................. -- -- -- -- -- (66,655)
Foreign currency translation adjustment ....... -- -- -- -- -- (60)
Cash flow hedges:
Cumulative effect of change in accounting,
net of tax of $544 ..................... -- -- -- -- -- (968)
Net derivative gains, net of tax of $38 .... -- -- -- -- -- 71
Comprehensive income (loss) ........................
Issuance of stock pursuant to Stock Bonus
Plan including tax expense .................... -- 1,589 146 1,565 -- --
Issuance of restricted stock ....................... -- (19) 11 75 -- --
Amortization of compensation ....................... -- -- -- -- -- --
Net operating loss benefit ......................... -- 26,818 -- -- -- --
Cash dividends ..................................... -- -- -- -- (2,015) --
Stock dividends pursuant to Stock Bonus Plan ....... -- -- -- -- (483) --
------ -------- ------- --------- --------- --------
Balance, December 31, 2001 .............................. 71,100 $395,903 (21,529) $(418,781) $(680,789) $(69,386)
====== ======== ======= ========= ========= ========
UNEARNED
COMPENSATION TOTAL
------------ ---------
Balance, January 1, 1999 ................................ $ -- $(487,452)
Comprehensive income:
Net income .................................... -- 104,112
Foreign currency translation adjustment ....... -- 818
--------
Comprehensive income ............................... 104,930
--------
Exercise of management stock options
including tax benefit ......................... -- 8,856
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit .................... -- 5,377
Issuance of restricted stock ....................... (9,394) --
Amortization of compensation ....................... 332 332
Purchase of treasury shares ........................ -- (126,688)
Cash dividends ..................................... -- (3,355)
Stock dividends pursuant to Stock Bonus Plan ....... -- (20)
-------- --------
Balance, December 31, 1999 .............................. (9,062) (498,020)
Comprehensive income (loss):
Net loss ...................................... -- (63,310)
Foreign currency translation adjustment ....... -- 338
--------
Comprehensive income (loss) ........................ (62,972)
--------
Exercise of management stock options
including tax benefit ......................... -- 9,399
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit .................... -- 4,460
Issuance of restricted stock ....................... (19) --
Amortization of compensation ....................... 1,883 1,883
Purchase of treasury shares ........................ -- (64,316)
Cash dividends ..................................... -- (103,253)
Stock dividends pursuant to Stock Bonus Plan ....... -- (2)
------- ---------
Balance, December 31, 2000 .............................. (7,198) (712,821)
Comprehensive income (loss):
Net loss ...................................... -- (27,348)
Minimum pension liability adjustment,
net of tax of $37,494 .................. -- (66,655)
Foreign currency translation adjustment ....... -- (60)
Cash flow hedges:
Cumulative effect of change in accounting,
net of tax of $544 ..................... -- (968)
Net derivative gains, net of tax of $38 .... -- 71
--------
Comprehensive income (loss) ........................ (94,960)
--------
Issuance of stock pursuant to Stock Bonus
Plan including tax expense .................... -- 3,154
Issuance of restricted stock ....................... (76) (20)
Amortization of compensation ....................... 1,960 1,960
Net operating loss benefit ......................... -- 26,818
Cash dividends ..................................... -- (2,015)
Stock dividends pursuant to Stock Bonus Plan ....... -- (483)
------- ---------
Balance, December 31, 2001 .............................. $(5,314) $(778,367)
======= =========
See accompanying notes.
26
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2000 1999
------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ (27,348) $ (63,310) $ 104,112
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and other amortization .................................. 83,920 80,775 84,091
Deferred income taxes ................................................ (10,441) (41,735) 52,213
Changes in assets and liabilities excluding the effect of
acquisitions, dispositions and the Trade Receivables Program:
Accounts receivable ............................................ (14,453) 228 (24,333)
Inventories .................................................... 14,640 39,785 (67,865)
Prepaid expenses and other current assets ...................... 3,606 (6,697) 4,209
Accrued interest payable ....................................... (878) 398 (441)
Accounts payable and other accrued liabilities ................. (29,754) (4,605) (95)
Other-net ...................................................... 12,377 (9,562) (18,828)
Non-cash component of restructuring and impairment charge .......... -- 90,478 --
----------- ----------- -----------
Total adjustments .................................................. 59,017 149,065 28,951
----------- ----------- -----------
Net cash provided by operating activities ...................................... 31,669 85,755 133,063
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................... (60,524) (76,742) (148,610)
Net proceeds from sale of assets ........................................... 1,253 624 537
Purchase of business ....................................................... (8,363) -- --
----------- ----------- -----------
Net cash used for investing activities ......................................... (67,634) (76,118) (148,073)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings .............................................................. 1,231,132 1,337,785 1,016,621
Repayments .............................................................. (1,351,480) (1,174,739) (887,218)
Proceeds from Trade Receivables Program .................................... 12,600 (14,000) 9,000
Proceeds from issuance of Common Stock ..................................... -- 8,891 6,285
Purchase of Common Stock for treasury ...................................... -- (64,316) (126,688)
Cash dividends paid ........................................................ (2,015) (103,253) (3,355)
Proceeds from Second-Lien Facility ......................................... 165,000 -- --
Fees associated with refinancing ........................................... (16,269) -- --
----------- ----------- -----------
Net cash provided by (used for) financing activities ........................... 38,968 (9,632) 14,645
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ........................... 3,003 5 (365)
Cash and cash equivalents at beginning of period ............................... 167 162 527
----------- ----------- -----------
Cash and cash equivalents at end of period ..................................... $ 3,170 $ 167 $ 162
=========== =========== ===========
See accompanying notes.
27
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS. WestPoint Stevens Inc. (the "Company") is a manufacturer and marketer
of bed and bath products, including sheets, pillowcases, comforters, blankets,
bedspreads, pillows, mattress pads, towels and related products. The Company
conducts its operations in the consumer home fashions (bed and bath products)
industry.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Company include the accounts of the Company and all of its subsidiaries. All
material intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES. The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
During the fourth quarter of 2001, the Company recorded bad debt expense of $7.0
million net of taxes related to the write-down of receivables as a result of
Kmart Corporation's bankruptcy filing in January 2002. The Company also reviewed
its litigation exposures and other contingency issues, and as a result of
favorable litigation settlements in 2001 and other evaluations reduced its
reserves for related exposures by approximately $5.0 million net of taxes during
the fourth quarter of 2001.
RECLASSIFICATIONS. Certain amounts in the 2000 and 1999 financial statements
have been reclassified to conform to the current year presentation.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash investments and trade accounts receivable.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. The Company performs periodic
evaluations of the relative credit standing of those financial institutions that
are considered in the Company's investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base; however, as of December 31, 2001, substantially all of the Company's
receivables were from companies in the retail industry. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Short-term investments (consisting primarily of commercial paper and
certificates of deposit) totaling approximately $3.2 million and $0.2 million
are included in cash and cash equivalents at December 31, 2001 and 2000,
respectively. These investments are carried at cost, which approximates market
value.
INVENTORIES. Inventory costs include material, labor and factory overhead.
Inventories are stated at the lower of cost or market (net realizable value). At
December 31, 2001 and 2000, approximately 78% of the Company's inventories are
valued at the lower of cost or market using the "dollar value" last-in,
first-out ("LIFO") method. The remaining inventories (approximately $88.3
million and $89.2 million at December 31, 2001 and 2000, respectively) are
valued at the lower of cost or market using substantially the first-in,
first-out method.
Inventories consisted of the following (in thousands of dollars):
DECEMBER 31,
-----------------------------
2001 2000
---------- ----------
Finished goods ................... $ 176,043 $ 183,660
Work in process .................. 170,854 169,745
Raw materials and supplies ....... 50,295 55,569
LIFO reserve ..................... -- (1,642)
--------- ---------
$ 397,192 $ 407,332
========= =========
28
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
PROPERTY, PLANT AND EQUIPMENT. As a result of the adoption of Fresh Start
reporting, as of September 30, 1992, property, plant and equipment were adjusted
to their estimated fair values and historical accumulated depreciation was
eliminated. Additions since September 30, 1992 are stated at cost.
Depreciation is computed over estimated useful lives using the straight-line
method for financial reporting purposes and accelerated methods for income tax
reporting. Depreciation expense was approximately $82.6 million, $79.2 million
and $82.3 million in the years ended December 31, 2001, 2000 and 1999,
respectively.
Estimated useful lives for property, plant and equipment are as follows:
Buildings and improvements ............... 10 to 40 Years
Machinery and equipment .................. 3 to 18 Years
Leasehold improvements ................... Lease Terms
DERIVATIVES. Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by Statement 137 and Statement 138. As
discussed further in Note 7, the 2001 Consolidated Financial Statements were
prepared in accordance with the provisions of Statement 133. Prior year's
financial statements have not been restated. As required by Statement 133, the
2000 and 1999 Consolidated Financial Statements were prepared in accordance with
the applicable professional literature for derivatives and hedging instruments
in effect at that time.
INCOME TAXES. The Company accounts for income taxes under Statement No. 109,
Accounting for Income Taxes. Under Statement 109, deferred income taxes are
provided at the enacted marginal rates on the differences between the financial
statement and income tax bases of assets and liabilities. See Note 5 - Income
Taxes.
PENSION PLANS. The Company has defined benefit pension plans covering
essentially all employees. The benefits are based on years of service and
compensation. The Company's practice is to fund amounts that are required by the
Employee Retirement Income Security Act of 1974. See Note 3 - Employee Benefit
Plans.
The Company also sponsors an employee savings plan covering eligible employees
who elect to participate. Participants in this plan make contributions as a
percent of earnings. The Company matches certain amounts of employee
contributions. See Note 3 - Employee Benefit Plans - Retirement Savings Plan.
OTHER EMPLOYEE BENEFITS. The Company accounts for post-retirement and
post-employment benefits in accordance with Statement No. 106, Employer's
Accounting for Post Retirement Benefits Other Than Pensions and Statement No.
112, Employer's Accounting for Postemployment Benefits. See Note 3 - Employee
Benefit Plans - Other Post-Retirement Benefit Plans.
STOCK-BASED COMPENSATION. The Company grants stock options for a fixed number of
shares in accordance with certain of its benefit plans. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, recognizes no compensation expense for
the stock option grants if the exercise price is equal to or more than the fair
value of the shares at the date of grant. Pro forma information regarding net
income and earnings per share, as calculated under the provisions of Statement
No. 123, Accounting for Stock-Based Compensation, are disclosed in Note 6 -
Stockholders' Equity (Deficit).
FAIR VALUE DISCLOSURES. Cash and cash equivalents: The carrying amounts reported
in the balance sheets for cash and cash equivalents approximate its fair value.
29
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Accounts receivable and accounts payable: The carrying amounts reported in the
balance sheets for accounts receivable and accounts payable approximate their
fair value.
Long-term and short-term debt: The fair value of the Company's outstanding debt
is estimated based on the quoted market prices for the same issues where
available or based on estimates. The fair value of the $1,672.5 million and
$1,627.8 million of outstanding debt at December 31, 2001 and 2000 was
approximately $908.7 million and $1,358.6 million, respectively.
ACQUISITIONS AND GOODWILL. The Company's acquisitions are accounted for under
the purchase method of accounting. Under the purchase method of accounting, the
results of operations of the acquired businesses are included in the
accompanying consolidated financial statements as of their respective
acquisition dates. Assets acquired and liabilities assumed of purchased
businesses have been recorded at their estimated fair values. The excess of the
purchase price over identified assets is classified as goodwill and is amortized
on a straight-line basis over a forty-year period. See Accounting Policies Not
Yet Adopted below.
The Company's enterprise level goodwill and other intangible assets are
periodically reviewed for impairment to ensure they are appropriately valued.
Conditions that may indicate impairment exists include an economic downturn in
the Company's markets or a change in the assessment of future operations. In the
event that a condition is identified that may indicate impairment exists, then
the amount of impairment, if any, is determined by comparing the undiscounted
net cash flows of the operations to which the goodwill applies to the net book
value of the operations, including goodwill.
In January 2001, the Company acquired the operations of a manufacturer of
bedding products for approximately $8.4 million. The assets acquired consisted
of property and equipment, inventories, accounts receivables and other related
assets. The excess of the purchase price over the assets acquired was
approximately $2.4 million.
Pro forma results have not been presented, as they are not significantly
different than reported amounts.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, including related goodwill,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The Company evaluates the
recoverability of its long-lived assets and related goodwill by comparing
estimated future undiscounted cash flows with the asset's carrying amount to
determine if impairment exists. Impairment, if any, is then measured by
comparing carrying value to market value or discounted cash flow.
REVENUE RECOGNITION. The Company recognizes revenue when title to the goods sold
passes to the buyer, which is generally at the time of shipment. The Company
does recognize certain sales on a bill and hold basis consistent with industry
practice, and such sales at the end of each period presented were not material.
CUSTOMER INCENTIVES. Incentives are provided to customers primarily for new
sales programs. These incentives begin to accrue when a commitment has been made
to the customer and are recorded as a reduction to sales.
EARNINGS PER COMMON SHARE. Basic and diluted earnings per share are calculated
in accordance with Statement No. 128, Earnings per Share. Basic earnings per
share is based on the weighted average number of common shares outstanding, and
diluted earnings per share includes any dilutive effects of stock options and
the Company's stock bonus plan.
SEGMENT INFORMATION. The Company is in one business segment, the consumer home
fashions business, and follows the requirements of Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information.
ACCOUNTING POLICIES NOT YET ADOPTED. In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Statement 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets arising from business combinations completed after June 30,
2001. Statement 142 prohibits the amortization of goodwill and intangible assets
with indefinite useful lives.
30
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The Company will apply Statement 142 beginning in the first quarter of 2002. The
Company will test goodwill for impairment using the two-step process prescribed
in Statement 142. The first step is a screen for potential impairment, while the
second step measures the amount of the impairment, if any. The Company expects
to perform the first of the required impairment tests of goodwill as of January
1, 2002 in the first quarter of 2002. Any impairment charge resulting from these
transitional impairment tests will be reflected as the cumulative effect of a
change in accounting principle in the first quarter of 2002. The Company has not
yet determined what the effect of these tests will be on earnings and financial
position of the Company.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
Statement 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. Statement 144 is effective for fiscal years beginning
after December 15, 2001. The Company will adopt Statement 144 as of January 1,
2002 and it does not expect that the adoption will have a significant impact on
the Company's financial position and results of operations.
2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS
Indebtedness is as follows (in thousands of dollars):
DECEMBER 31,
------------------------------
2001 2000
---------- ----------
Short-term indebtedness
Senior Credit Facility ........... $ 107,501 $ 152,849
========== ==========
Long-term indebtedness
Senior Credit Facility ........... $ 400,000 $ 475,000
7-7/8% Senior Notes due 2005 ..... 525,000 525,000
7-7/8% Senior Notes due 2008 ..... 475,000 475,000
Second-Lien Facility ............. 165,000 --
---------- ----------
$1,565,000 $1,475,000
========== ==========
The Company's Senior Credit Facility with certain lenders (collectively, the
"Banks") consists of a $717.5 million revolving credit facility ("Revolver"),
subject to scheduled reductions, with a Revolver expiration date of November 30,
2004. The Company has included $400.0 million of Revolver in long-term debt at
December 31, 2001 because the Company intends that at least that amount would
remain outstanding during the next twelve months. Borrowing availability under
the Senior Credit Facility was reduced by approximately $43.3 million of
outstanding letters of credit at December 31, 2001.
In the second quarter of 2000, the Company's Senior Credit Facility was amended
primarily to permit certain restructuring, impairment and other charges and the
payment of a special dividend, plus add an additional financial ratio. During
the first and second quarters of 2001, the Company's Senior Credit Facility was
amended primarily to modify certain financial ratios, add a minimum EBITDA
covenant, limit restricted debt and equity payments including dividends and
stock repurchases, limit capital expenditures, permit the Second-Lien Facility
transaction and provide for scheduled reductions of the revolving commitment.
Effective with the closing of the Second-Lien Facility, the revolving commitment
was reduced to $717.5 million from $800.0 million. The latest amendment to the
Senior Credit Facility provides for a $25 million reduction in the revolver
commitment on each of the following dates: November 1, 2002, February 1, 2003,
August 1, 2003 and November 1, 2003 and further provides for a $17.5 million
reduction in the revolver commitment on February 1, 2004 at which time the
revolver commitment will be $600.0 million. The amendments further provide that
any increase in the Trade Receivables Program above the current $160.0 million
limit, up to a $200.0 million limit, would reduce the revolving commitment under
the Senior Credit Facility by a similar amount.
31
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED
At the option of the Company, interest under the Senior Credit Facility will be
payable monthly, either at the prime rate plus 1.25% or at LIBOR plus 3%. The
Company pays a facility fee in an amount equal to 0.50% of each Bank's
commitment under the revolver. 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.
On June 29, 2001, the Company announced the closing of a $165.0 million
Second-Lien Senior Credit Facility ("Second-Lien Facility") with a maturity date
of February 28, 2005. Net proceeds from the transaction, after payment of
approximately $16.3 million of related transaction fees and expenses, were used
to reduce outstanding borrowings under the Senior Credit Facility as well as
provide additional liquidity for working capital and general corporate purposes.
Interest under the Second-Lien Facility is payable quarterly at an interest rate
of prime plus 8% increasing each quarter after June 30, 2002 by .375% but in no
event less than 15%. Loans under the Second-Lien Facility are secured by a
second priority lien on the assets securing the existing Senior Credit Facility.
The $16.3 million of related transaction fees and expenses were capitalized as
deferred financing fees and are being amortized over the remaining term of the
facility.
The 7-7/8% Senior Notes due 2005 and 7-7/8% Senior Notes due 2008 (together, the
"Senior Notes") are general unsecured obligations of the Company and rank pari
passu in right of payment with all existing or future unsecured and
unsubordinated indebtedness of the Company and senior in right of payment to all
subordinated indebtedness of the Company. The Senior Notes bear interest at the
rate of 7-7/8% per annum, payable semi-annually on June 15 and December 15 of
each year. The Senior Notes are redeemable, in whole or in part, at any time at
the option of the Company at 100% of the principal amount thereof plus the
Make-Whole Premium (as defined) plus accrued and unpaid interest, if any, to the
date of purchase. In addition, in the event of a Change of Control (as defined),
the Company will be required to make an offer to purchase the notes at a price
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase.
The Company's credit agreements contain a number of customary covenants
including, among others, restrictions on the incurrence of indebtedness,
transactions with affiliates, and certain asset dispositions as well as
limitations on restricted debt and equity payments and capital expenditures.
Certain provisions require the Company to maintain certain financial ratios, a
minimum interest coverage ratio, a minimum debt to EBITDA ratio, a minimum
EBITDA and a minimum consolidated net worth (as defined). At December 31, 2001,
the Company could not make restricted debt and equity payments.
Effective April 1, 2001, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities, that replaces, in its
entirety, Statement 125. Accordingly, the Company has modified several
agreements to meet the new requirements to enable it to continue recognizing
transfers of certain receivables to special-purpose entities as sales of
receivables. As a result, the impact of adoption on net income in 2001 was
immaterial.
The Company, through a "bankruptcy remote" receivables subsidiary, has a Trade
Receivables Program which provides for the sale of accounts receivable on a
revolving basis. In March 2001, the Company amended and extended the maturity
date of its existing Trade Receivables Program with an independent issuer of
receivables backed commercial paper until January 2002, and in January 2002
amended and extended the maturity date of its existing Trade Receivables Program
until January 2003. Under the terms of the Trade Receivables Program, the
Company has agreed to sell on an ongoing basis, and without recourse, an
undivided ownership interest in its accounts receivable portfolio. The Company
maintains the balance in the designated pool of accounts receivable sold by
selling undivided interests in new receivables as existing receivables are
collected. The agreement permits the sale of up to $160.0 million of accounts
receivable. The cost of the Trade Receivables Program is charged to selling
expense in the accompanying Consolidated Statements of Operations. At December
31, 2001 and 2000, $152.6 million and $140.0 million, respectively, of accounts
receivable had been sold pursuant to the Trade Receivables Program and the sale
is reflected as a reduction of accounts receivable in the accompanying
Consolidated Balance Sheets.
32
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED
Excluding amounts related to the Senior Credit Facility and Second-Lien
Facility, maturities of long-term debt for the next three years is zero, in 2005
is $525.0 million and in 2006 is zero. The maturity date of the Senior Credit
Facility is November 30, 2004 and the maturity date of the Second-Lien Facility
is February 28, 2005, with no required principal payments prior to the maturity
dates of either facility.
3. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The following table sets forth data for the Company's pension plans and amounts
recognized in the accompanying Consolidated Balance Sheets at December 31, 2001
and 2000 (in thousands of dollars):
YEAR ENDED DECEMBER 31,
-----------------------------
2001 2000
--------- ---------
Change in benefit obligation:
Projected benefit obligation at beginning of year ...... $ 323,956 $ 306,248
Service cost ........................................... 8,490 8,077
Interest cost .......................................... 24,529 24,224
Actuarial (gains) or losses ............................ 12,619 12,887
Benefit payments ....................................... (28,123) (27,480)
Curtailments ........................................... (262) --
--------- ---------
Projected benefit obligation at end of year ................ $ 341,209 $ 323,956
========= =========
Change in plan assets:
Fair value of plan assets at beginning of year ......... $ 305,171 $ 313,278
Actual return on plan assets ........................... (4,914) 15,978
Employer contributions ................................. 493 3,395
Benefit payments ....................................... (28,123) (27,480)
--------- ---------
Fair value of plan assets at end of year ................... $ 272,627 $ 305,171
========= =========
DECEMBER 31,
-----------------------------
2001 2000
--------- ---------
Funded status:
Projected benefit obligation ........................... $(341,209) $(323,956)
Fair value of assets ................................... 272,627 305,171
--------- ---------
Funded status .......................................... (68,582) (18,785)
--------- ---------
Unrecognized amounts:
Prior service cost .................................. (20) 23
Net actuarial losses ................................ 122,452 80,280
--------- ---------
Total unrecognized .................................. 122,432 80,303
--------- ---------
Prepaid pension cost at year-end ........................... $ 53,850 $ 61,518
========= =========
Amounts recognized in the Consolidated Balance Sheets:
Accrued (liability) asset ........................... $ (50,420) $ 61,518
Intangible asset .................................... 121 --
Accumulated other comprehensive income .............. 104,149 --
--------- ---------
Net amount recognized ...................................... $ 53,850 $ 61,518
========= =========
The accumulated benefit obligation and the fair value of assets for pension
plans with accumulated benefit obligations in excess of plan assets were $323.0
million and $272.6 million, respectively, as of December 31, 2001.
33
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EMPLOYEE BENEFIT PLANS--CONTINUED
PENSION PLAN--CONTINUED
DECEMBER 31,
----------------------
2001 2000
------ ------
Weighted average assumptions as of December 31:
Discount rate .......................................... 7.50% 7.75%
Expected return on plan assets ......................... 10.0% 10.0%
Rate of compensation increase .......................... 3.5% 3.5%
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------- -------- --------
Components of net periodic pension cost (benefit):
Service cost ...................................... $ 8,490 $ 8,077 $ 8,601
Interest cost ..................................... 24,529 24,224 23,305
Expected return on plan assets .................... (29,482) (30,326) (33,058)
Net amortization .................................. 4,551 1,891 1,124
-------- -------- --------
Net periodic pension expense (benefit) ................ 8,088 3,866 (28)
Additional pension expense due to curtailment ..... 73 -- --
-------- -------- --------
Total periodic pension expense (benefit) .............. $ 8,161 $ 3,866 $ (28)
======== ======== ========
Plan assets are primarily invested in United States Government and corporate
debt securities and equity securities. At December 31, 2001 and 2000, the
Company's pension plans held 705,558 shares of the Company's common stock with
an aggregate cost of $20.0 million and market values of $1.7 million and $5.3
million, respectively.
RETIREMENT SAVINGS PLAN
The Company matches 50% of each employee's before-tax contributions up to 2% of
the employee's compensation. Company contributions may be made either in cash or
in shares of Common Stock of the Company. During 2001, 2000 and 1999, the
Company charged $2.1 million, $2.5 million and $2.6 million, respectively, to
expense in connection with the Retirement Savings Plan.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to sponsoring defined benefit pension plans, the Company sponsors
various defined benefit post-retirement plans that provide health care and life
insurance benefits to certain current and future retirees. All such
post-retirement benefit plans are unfunded. The following table presents the
status of post-retirement plans (in thousands of dollars):
DECEMBER 31,
---------------------------
2001 2000
-------- --------
Accumulated post-retirement benefit obligation at beginning of year .. $ 14,260 $ 14,603
Service cost ..................................................... -- 1
Interest cost .................................................... 1,134 1,126
Actuarial (gains) or losses ...................................... 1,896 (83)
Benefit payments ................................................. (1,588) (1,387)
-------- --------
Accumulated post-retirement benefit obligation at end of year ........ $ 15,702 $ 14,260
======== ========
34
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EMPLOYEE BENEFIT PLANS--CONTINUED
OTHER POST-RETIREMENT BENEFIT PLANS--CONTINUED
Net periodic post-retirement benefit plans expense is not material during the
three-year period ended December 31, 2001.
As of December 31, 2001, the actuarial assumptions include a discount rate of
7.5% and a medical care trend rate of 9.0% for 2002, grading down to 6.0% by
2008. These trend rates reflect the Company's prior experience and management's
expectation of future rates. Increasing the assumed health care cost trend rates
by one percentage point in each year would increase the accumulated
post-retirement benefit plans obligations as of December 31, 2001 by
approximately $0.5 million, and the aggregate service and interest cost
components of net periodic post-retirement benefit cost for the year ended
December 31, 2001 by an immaterial amount.
4. DEFERRED FINANCING FEES
Included in Other expense-net in the accompanying Consolidated Statements of
Operations for each of the years in the three-year period ended December 31,
2001, 2000 and 1999, is the amortization of deferred financing fees of $6.9
million, $3.2 million and $2.9 million, respectively. Amendment fees related to
the Senior Credit Facility and transaction fees and expenses related to the
Second-Lien Facility are capitalized in the period incurred and amortized over
the remaining term of the facilities.
5. INCOME TAXES
The Company accounts for income taxes in accordance with Statement 109;
accordingly deferred income taxes are provided at the enacted marginal rates on
the difference between the financial statement and income tax bases of assets
and liabilities. Deferred income tax provisions or benefits are based on the
change in the deferred tax assets and liabilities from period to period.
The total provision (benefit) for income taxes consisted of the following (in
thousands of dollars):
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------- -------- --------
Current
Federal .......... $ -- $ 5,041 $ 2,039
State ............ 133 1,184 2,018
Foreign .......... (21) (122) (136)
Deferred
Federal .......... (13,520) (34,814) 51,961
State ............ -- (6,467) 3,063
Foreign .......... (1,817) (272) (195)
-------- -------- --------
$(15,225) $(35,450) $ 58,750
======== ======== ========
35
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES--CONTINUED
Income tax expense (benefit) differs from the statutory federal income tax rate
of 35% for the following reasons (in thousands of dollars):
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------- -------- ---------
Income tax expense (benefit) at federal statutory income
tax rate ............................................... $(14,901) $(34,566) $ 57,002
State income taxes (net of effect of federal income tax) ... 86 (3,434) 3,303
Other-net .................................................. (410) 2,550 (1,555)
-------- -------- --------
Income tax expense (benefit) ............................... $(15,225) $(35,450) $ 58,750
======== ======== ========
Components of the net deferred income tax liability are as follows (in thousands
of dollars):
DECEMBER 31,
------------------------------
2001 2000
---------- ----------
Deferred tax liabilities:
Basis differences resulting from reorganization ............................ $(126,526) $(185,375)
Basis differences resulting from fixed assets .............................. (79,855) (69,401)
Income taxes related to prior years, including interest .................... (17,283) (17,283)
Nondeductible expenses ..................................................... (30,780) (37,881)
Deferred tax assets:
Reserves for litigation, environmental, employee benefits and other ... 55,506 26,953
Other ................................................................. 29,053 38,883
--------- ---------
$(169,885) $(244,104)
========= =========
Current deferred tax asset (included in other current assets) ...................... $ 12,937 $ 21,708
Long-term deferred tax liability ................................................... (182,822) (265,812)
--------- ---------
Net deferred income tax liability .......................................... $(169,885) $(244,104)
========= =========
At December 31, 2001, the Company has estimated net operating loss carryforwards
("NOLs") of approximately $263.0 million available to reduce future federal
taxable income, of which approximately $168.0 million expires in 2003-2008 and
approximately $95.0 million expires in 2020-2021. Due to the ownership change
which occurred September 16, 1992 in connection with a reorganization, the
utilization of NOLs generated prior to this date are subject to limitation under
Internal Revenue Code Section 382. Because of the complex tax rules related to
these carryforwards and the uncertainty of ultimately realizing benefit from the
losses, the Company did not record full benefit for these NOLs.
During the second quarter of 2001, certain federal and state contingencies
related to the NOLs were resolved and the Company reevaluated its position on
the tax benefits associated with these carryforwards. As a result of this
analysis, the Company recorded a $26.8 million benefit in the second quarter.
Because the NOLs involved were generated prior to emergence from bankruptcy, the
accounting rules of Statement of Position 90-7, Financial Reporting by Entities
in Reorganization under the Bankruptcy Code, require that the benefit be
recorded in equity rather than in the income statement.
36
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT)
COMPREHENSIVE INCOME
Statement No. 130, Reporting Comprehensive Income, requires presentation of
comprehensive income (loss) that consisted of the following (in thousands of
dollars):
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------- -------- --------
Net income (loss) .......................................... $(27,348) $(63,310) $104,112
Minimum pension liability adjustment, net of tax ........... (66,655) -- --
Foreign currency translation adjustment .................... (60) 338 818
Gain (loss) on derivative instruments, net of tax:
Cumulative effect of adopting Statement No. 133 .... (968) -- --
Net changes in fair value of derivatives ........... (19,051) -- --
Net losses reclassified from other comprehensive
income into earnings ......................... 19,122 -- --
-------- -------- --------
Comprehensive income (loss) ................................ $(94,960) $(62,972) $104,930
======== ======== ========
Components of accumulated other comprehensive income (loss) consisted of the
following (in thousands of dollars):
DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------- -------- --------
Foreign currency translation adjustment .................... $ (1,834) $ (1,774) $ (2,112)
Minimum pension liability adjustment, net of tax benefit ... (66,655) -- --
Gain (loss) on derivative instruments, net of tax .......... (897) -- --
-------- -------- --------
Accumulated other comprehensive income (loss) .............. $(69,386) $ (1,774) $ (2,112)
======== ======== ========
STOCK OPTIONS AND RESTRICTED STOCK
The Company has granted stock options under various stock plans to key employees
and to non-employee directors. Also the Company granted certain contractual
stock options that were not granted pursuant to any plan. The Omnibus Stock
Incentive Plan (the "Omnibus Stock Plan"), an amendment and restatement of the
1993 Management Stock Option Plan, covers approximately 7.3 million shares of
Common Stock, and also replaced the 1994 Non-Employee Directors Stock Option
Plan after the 300,000 shares of Common Stock authorized under that plan had
been granted. The Omnibus Stock Plan allows for six categories of incentive
awards: options, stock appreciation rights, restricted shares, deferred shares,
performance shares and performance units. Key employees are granted options
under the various plans at terms (purchase price, expiration date and vesting
schedule) established by a committee of the Board of Directors. Options granted
either in accordance with contractual arrangements or pursuant to the various
plans have been at a price which is equal to fair market value on the date of
grant as determined by the closing price of the shares on the date the options
were issued. Such options are exercisable on the date of grant for a period of
ten years. The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement No. 123, Accounting for Stock-Based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
37
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT)--CONTINUED
STOCK OPTIONS AND RESTRICTED STOCK--CONTINUED
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted using the fair
value method of that Statement. The weighted-average fair value of options at
the grant date were $4.70, $5.11 and $12.42 for the years ended December 31,
2001, 2000 and 1999, respectively. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 2001, 2000 and 1999,
respectively: risk-free interest rates of 5.2%, 5.9% and 5.8%; volatility
factors of the expected market price of the Company's Common Stock of .581, .543
and .300; and a weighted-average expected life of the option of 8 years. A
weighted-average dividend yield of 1.07% and 1.01% was used for the 2001 and
2000 valuations, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Pro forma stock based
compensation costs resulted in 2001 pro forma net loss of $30.5 million (or pro
forma diluted net loss per share of $0.61), 2000 pro forma net loss of $69.8
million (or pro forma diluted net loss per share of $1.41) and 1999 pro forma
net income of $96.6 million (or pro forma diluted net income per share of
$1.71).
Changes in outstanding options were as follows:
NUMBER OF SHARES
(IN THOUSANDS) WEIGHTED AVERAGE
--------------------------------------------- OPTION PRICE
QUALIFIED PLANS CONTRACTUAL TOTAL PER SHARE
--------------- ----------- ------- ----------------
Options outstanding at January 1, 1999 4,191 40 4,231 $17.71
Granted 2,477 -- 2,477 $25.98
Exercised (703) -- (703) $11.76
Terminated (114) (20) (134) $27.42
------ ------ ------ ------
Options outstanding at December 31, 1999 5,851 20 5,871 $21.42
Granted 2,171 -- 2,171 $ 8.82
Exercised (756) -- (756) $11.79
Terminated (597) -- (597) $26.67
------ ------ ------ ------
Options outstanding at December 31, 2000 6,669 20 6,689 $18.16
Granted 864 -- 864 $ 7.84
Exercised -- -- -- --
Terminated (1,499) -- (1,499) $18.84
------ ------ ------ ------
Options outstanding at December 31, 2001 6,034 20 6,054 $16.64
====== ====== ====== ======
At December 31, 2001, options for 3,345,517 shares were exercisable at prices
ranging from $3.92 to $36.81 per share.
38
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT)--CONTINUED
STOCK OPTIONS AND RESTRICTED STOCK--CONTINUED
The following table summarizes information about stock options at December 31,
2001 (shares in thousands):
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
------------------------------------------------- ----------------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------ ------ ---------------- ---------------- ---------- ----------------
$3.92 to $10.00 2,605 8.59 years $ 7.42 1,039 $ 7.19
$10.01 to $20.00 1,704 7.22 years $17.54 933 $16.63
$20.01 to $30.00 743 6.00 years $21.51 711 $21.26
$30.01 to $36.81 982 7.13 years $35.89 663 $35.73
----- ---------- ------- ----- ------
$3.92 to $36.81 6,034 7.65 years $16.64 3,346 $18.46
===== ========== ======= ===== ======
During 1999, 2000 and 2001 the Company awarded to certain key employees 545,000
restricted shares, of which 500,000 were not granted pursuant to any plan. The
awards are subject to certain vesting requirements and 517,000 restricted shares
were actually issued. The value of such stock was established by the market
price on the date of grant and was recorded as unearned compensation. The
unearned compensation is shown as a reduction of stockholders' equity in the
accompanying Consolidated Balance Sheets and is being amortized ratably over the
applicable restricted stock vesting period. During 2001, 2000 and 1999, $2.0
million, $1.9 million and $0.3 million, respectively, was charged to expense
related to restricted shares. In conjunction with one of the restricted stock
awards, income tax withholding obligations were paid by the Company on November
26, 1999, and the Company received reimbursement for those income tax
withholding obligations (plus interest) from the employee on February 4, 2000.
STOCKHOLDER RIGHTS PLAN
On May 9, 2001 the Company's Board of Directors adopted a Stockholder Rights
Plan ("Rights Plan") designated to protect Company stockholders interests in the
event of a takeover attempt. The Board of Directors did not adopt the Rights
Plan in response to any specific takeover threat.
In adopting the Rights Plan, the Board declared a dividend distribution of one
common stock purchase right for each outstanding share of common stock of the
Company, payable to stockholders of record at the close of business on May 21,
2001. The rights will become exercisable only in the event, with certain
exceptions, a person or group of affiliated or associated persons acquires 15%
or more of the Company's voting stock, or a person or group of affiliated or
associated persons commences a tender or exchange offer that, if successfully
consummated, would result in such person or group owning 15% or more of the
Company's voting stock. A stockholder who owns 15% or more of the Company's
voting stock as of May 9, 2001, will not trigger this provision unless the
stockholder thereafter acquires an additional one percent or more of the
outstanding stock. The rights will expire on May 9, 2011.
Upon the occurrence of certain events, holders of the rights (other than rights
owned by an acquiring person or group) would be entitled to purchase either the
Company's common stock or shares in an "acquiring entity" at approximately half
of market value. Further, at any time after a person or group acquires 15% or
more (but less than 50%) of the Company's outstanding voting stock, subject to
certain exceptions, the Board of Directors may, at its option, exchange part or
all of the rights (other than rights held by an acquiring person or group) for
shares of the Company's common stock having a fair market value on the date of
such acquisition equal to the excess of (i) the fair market value of common
stock issuable upon exercise of the rights over (ii) the exercise price of the
rights.
39
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT)--CONTINUED
STOCKHOLDER RIGHTS PLAN--CONTINUED
The Company generally will be entitled to redeem the rights at $0.001 per right
at any time prior to the close of business on the tenth day after there has been
a public announcement of the beneficial ownership by any person or group of 15%
or more of the Company's voting stock, subject to certain exceptions.
STOCK BONUS PLAN
The Company sponsors an employee benefit plan, the WestPoint Stevens Inc. Key
Employee Stock Bonus Plan, as amended, (the "Stock Bonus Plan"), covering
2,000,000 shares of the Company's Common Stock. Under the Stock Bonus Plan, the
Company may grant bonus awards of shares of Common Stock to key employees based
on the Company's achievement of targeted earnings levels during the Company's
fiscal year. For 2001 and 2000, bonus awards were not earned, and for 1999,
bonus awards were deemed earned by 44 employees covering an aggregate of 194,604
shares of Common Stock. For performance years 1999 and later the Stock Bonus
Plan provided for vesting of the bonus awards, if earned, of 10% on January 1 of
the year following the year of award and 10% in each of the next nine years if
the employee continues employment with the Company and for performance years
prior to 1999 the Stock Bonus Plan provided for the vesting of the bonus awards
of 20% on January 1 of the year following the year of award and 20% in each of
the next four years if the employee continues employment with the Company. The
Company recognized $2.7 million, $4.2 million and $7.9 million of expense in
2001, 2000, and 1999, respectively, in connection with the Stock Bonus Plan.
7. DERIVATIVES
As discussed in Note 1, effective January 1, 2001, the Company adopted the
Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by Statement 137 and Statement
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 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 adoption of Statement 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 Statement 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
40
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DERIVATIVES--CONTINUED
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 Consolidated
Balance Sheet at fair value in either Prepaid expenses and other current assets
or Other 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 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.
At December 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 December 31, 2001, $250.0
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 December 31, 2001 and 2000, these instruments
covered a portion of the Company's 2002 and 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 December 31,
2001, the fair value of this instrument was a $0.7 million liability. The fair
values of exchange traded cotton futures contracts and options are estimated by
obtaining quotes from brokers. At December 31, 2001, the Company's cotton
futures and options contracts qualified for hedge accounting. The fair value
related to cotton futures contracts was a liability of $0.7 million for which
the Company has provided cash margins. The fair value of the cotton option
contracts was an asset of $1.1 million. During the first and second quarters of
2001, the fair value of certain cotton options then outstanding which did not
qualify for hedge accounting in the amount of $2.3 million was classified as
Other expense-net in the accompanying 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 December 31, 2001, the
Company expects to reclassify all net losses on derivative instruments from OCI
to earnings during the next twelve months.
The Company did not discontinue any cash flow hedge relationships during the
year ended December 31, 2001.
8. LEASE COMMITMENTS
The Company's operating leases consist of land, sales offices, manufacturing
equipment, warehouses and data processing equipment with expiration dates at
various times during the next fourteen years. Some of the operating leases
stipulate that the Company can (a) purchase the properties at their then fair
market values or (b) renew the leases at their then fair rental values.
41
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LEASE COMMITMENTS-CONTINUED
The following is a schedule, by year, of future minimum lease payments as of
December 31, 2001 under operating leases that have initial or remaining
noncancelable lease terms in excess of one year (in thousands of dollars):
YEAR ENDING DECEMBER 31,
2002........................................... $21,167
2003........................................... 19,609
2004........................................... 15,011
2005........................................... 11,516
2006........................................... 4,964
Years subsequent to 2006....................... 4,374
-------
Total minimum lease payments................... $76,641
=======
The following schedule shows the composition of total rental expense for all
operating leases, except those with terms of one month or less that were not
renewed (in thousands of dollars):
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
------- ------- -------
Minimum lease payments............................ $37,602 $39,164 $37,256
Less sublease rentals............................. (886) (796) (3,907)
------- ------- -------
Rent expense...................................... $36,716 $38,368 $33,349
======= ======= =======
9. LITIGATION AND CONTINGENT LIABILITIES
The Company is a defendant in a complaint entitled Pratt v. WestPoint Stevens
Inc., et al, alleging that the Company and other named and unnamed defendants
(including two named employees of the Company) had harmed the six named
plaintiffs and caused property damage under various common law tort claims
including: nuisance, trespass, negligence, wantonness and strict liability. The
claims are based upon routine discharges of wastewater from the Company's
Opelika Finishing Plant and the Plaintiffs seek an unspecified amount in
compensatory and punitive damages. The parties have substantially completed
discovery and the case is to be tried in Macon County, Alabama though a trial
date has not been established. The Company has prevailed in having the employee
defendants dismissed from the case.
The Company believes that the allegations contained in the complaint are without
merit and intends to contest the action vigorously.
On October 5, 2001, a purported stockholder class action suit, entitled Norman
Geller v. WestPoint Stevens Inc., et al., was filed against the Company and
certain of its officers and directors in the United States District Court for
the Northern District of Georgia. (A subsequent and functionally identical
complaint was also filed.) The Complaints allege that, during the putative class
period (i.e., February 10, 1999 to October 10, 2000), WestPoint Stevens and
certain of its officers and directors caused false and misleading statements to
be issued regarding, inter alia, alleged overcapacity and excessive inventories
of the Company's towel-related products and customer demand for such products.
The Complaints refer to WestPoint Stevens' press releases and quarterly and
annual reports on Securities Exchange Commission Forms 10-Q and 10-K, which
discuss the Company's results and forecasts for the Fiscal years 1999 and 2000.
Plaintiffs allege that these press releases and public filings were false and
misleading because they failed to disclose that the Company allegedly "knew
sales would be adversely affected in future quarters and years." Plaintiffs also
allege in general terms that the Company materially overstated revenues by
making premature shipments of products.
42
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LITIGATION AND CONTINGENT LIABILITIES--CONTINUED
The Complaints assert claims against all Defendants under ss. 10(b) of the
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and against the
Company and Defendant Green as "controlling persons" under ss. 20(a) of the
Exchange Act. The actions were consolidated by Order dated January 25, 2002.
Plaintiffs have been ordered to serve a Consolidated Amended Complaint by March
26, 2002.
The Company believes that the allegations are without merit and intends to
contest the action vigorously, on behalf of its officers and directors.
On March 11, 2002, a shareholder derivative action, entitled Gordon Clark v.
Holcombe T. Green, Jr., et al., was filed against certain of the Company's
directors and officers in the Superior Court of Fulton County, Georgia. The
Complaint alleges that the named individuals breached their fiduciary duties by
acting in bad faith and wasting corporate assets. The Complaint also asserts
claims under Georgia Code Ann.ss.ss.14-2-740 to 14-2-747, and 14-2-831. The
claims are based on the same or similar facts as are alleged in the Geller
action.
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.
10. CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest......................................... $143,042 $122,903 $104,062
======== ======== ========
Income taxes..................................... $ -- $ 6,587 $ 2,669
======== ======== ========
Included in the above 2001, 2000 and 1999 interest paid is $0.6 million, $1.0
million and $1.2 million, respectively, of capitalized interest related to
capital expenditure projects.
43
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. 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 $222.0 million pretax charge for
restructuring, impairment and other charges to cover the cost of implementing
the Eight-Point Plan that is designed to streamline operations and improve
profitability. 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 greige 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. These
plant closings enable the Company to consolidate its manufacturing in locations
that allow the most efficient work flow.
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 $5.0 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 $4.0 million. The components of the
restructuring and impairment charge in 2001 included $7.0 million in reserves to
cover cash expenses related to severance benefits and a reduction in reserves
for other exit costs of $2.0 million.
The recorded charge of $66.8 million for the impairment of fixed assets and
$23.7 million for the impairment of goodwill and other assets discussed in the
preceding paragraph are associated with the Company's closure and capacity
reduction of certain facilities as discussed in the second preceding paragraph.
None of the impairment charges related to enterprise goodwill. The Company did
not record any impairment charges related to assets transferred to other
facilities. The Company decided to abandon all remaining assets. Accordingly, an
indication of impairment exists, as these assets will not generate future cash
flow. Furthermore, the Company believes that there is no acceptable market for
these assets as it is unwilling to sell the assets to a competitor. Accordingly,
the fair value of these assets was determined by the Company to be minimal.
Since the adoption of the Eight-Point Plan, the Company has terminated and
agreed to pay severance (including continuing termination benefits) to
approximately 1,700 employees. The restructuring plan was completed in the
fourth quarter of 2001.
44
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. 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
Fourth Quarter -- 2.0 (2.0) -
------ ------ ----- ------
Total 2001 Charge -- 7.0 (2.0) 5.0
Writedown Assets to Net Recoverable Value (90.5) -- -- (90.5)
2000 Cash Payments -- (4.7) (0.3) (5.0)
2001 Cash Payments -- (15.0) (0.1) (15.1)
------ ------ ----- ------
Balance at December 31, 2001 $ -- $ 2.0 $ 1.6 $ 3.6
====== ====== ===== ======
During 2000, other costs of the Eight-Point Plan and other charges of $94.0
million, before taxes, were recognized including inventory writedowns of $74.2
million, claims of $5.0 million and other expenses of $6.1 million, consisting
primarily of $2.2 million for the relocation of machinery, $2.4 million of
related unabsorbed overhead and other expenses of $1.5 million, all reflected in
cost of goods sold and other costs of $8.7 million consisting primarily of $5.7
million of unusual contractual severance and other expenses of $3.0 million
reflected in Other expense-net in the accompanying Consolidated Statements of
Operations. During 2001, other costs for the completion of the Eight-Point Plan
of $13.7 million, before taxes, were recognized consisting primarily of $10.0
million for the relocation of machinery, $3.0 million of related unabsorbed
overhead and other expenses of $0.7 million, all reflected in cost of goods
sold.
12. MAJOR CUSTOMER AND PRODUCT LINE INFORMATION
The Company's consumer home fashions products are sold primarily to domestic
catalogs, chain stores, mass merchants, department stores, specialty stores,
warehouse clubs and its own retail stores. Sales to two customers, as a percent
of net sales, amounted to approximately 15% and 14% each for the year ended
December 31, 2001. Sales to two customers, as a percent of net sales, amounted
to approximately 14% each for the year ended December 31, 2000. Sales to three
customers, as a percent of net sales, amounted to approximately 14%, 13% and 11%
for the year ended December 31, 1999. During 2001, 2000 and 1999, the Company's
six largest customers accounted for approximately 54%, 53% and 56%,
respectively, of the Company's net sales.
Net sales of bed products, bath products and other sales (consisting primarily
of sales from the Company's retail stores and foreign operations) consisted of
the following (in thousands of dollars):
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2000 1999
---------- ---------- ----------
Bed products........................ $1,024,320 $1,053,978 $1,082,849
Bath products....................... 523,960 551,778 596,469
Other sales......................... 216,866 210,114 203,945
---------- ---------- ----------
Total net sales..................... $1,765,146 $1,815,870 $1,883,263
========== ========== ==========
45
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
QUARTER
------------------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2001
Net sales ........................................ $ 418.6 $ 401.7 $ 513.1 $ 431.8
Gross earnings (1) ............................... 89.7 71.7 118.0 99.0
Operating earnings (loss) (2) .................... 20.6 7.9 53.0 33.8
Net income (loss) (3) ............................ (10.9) (17.5) 3.6 (2.6)
Basic net income (loss) per common share (4) ..... (.22) (.35) .07 (.05)
Diluted net income (loss) per common share (4) ... (.22) (.35) .07 (.05)
YEAR ENDED DECEMBER 31, 2000
Net sales ........................................ $ 447.8 $ 462.0 $ 487.9 $ 418.2
Gross earnings (1) ............................... 116.4 53.3 130.4 88.3
Operating earnings (loss) (2) .................... 53.9 (104.2) 64.1 21.1
Net income (loss) (3) ............................ 15.6 (89.8) 19.8 (8.9)
Basic net income (loss) per common share (4) ..... .31 (1.81) .40 (.18)
Diluted net income (loss) per common share (4) ... .31 (1.81) .40 (.18)
(1)Gross earnings for the first, second, third and fourth quarter of 2001
include costs of the Eight-Point Plan of $4.0 million, $5.7 million, $2.7
million and $1.2 million, respectively. Gross earnings for the second, third and
fourth quarter of 2000 include costs of the Eight-Point Plan of $67.2 million,
$6.2 million and $11.9 million, respectively.
(2)Operating earnings (loss) for the first quarter of 2001 include restructuring
and impairment charges of $5.0 million, and for the first, second, third and
fourth quarter of 2001 include other costs of the Eight-Point Plan of $4
million, $5.7 million, $2.7 million and $1.2 million, respectively, totaling
$9.0 million, $5.7 million, $2.7 million and $1.2 million, respectively.
Operating earnings (loss) for the second, third and fourth quarter of 2000
include restructuring and impairment charges of $95.9 million, $6.1 million and
$7.2 million, respectively, and other costs of the Eight-Point Plan of $67.2
million, $6.2 million and $11.9 million, respectively, totaling $163.1 million,
$12.3 million and $19.1 million, respectively.
(3)Net income (loss) for the first quarter of 2001 includes restructuring and
impairment charges of $5.0 million, and for the first, second, third and fourth
quarter of 2001 include other costs of the Eight-Point Plan of $4.0 million,
$5.7 million, $2.7 million and $1.2 million, respectively, before income tax
benefit of $3.2 million, $2.1 million, $1.0 million and $0.4 million,
respectively, for a net amount of $5.8 million, $3.7 million, $1.7 million and
$0.8 million, respectively. Net income (loss) for the second, third and fourth
quarter of 2000 includes restructuring and impairment charges of $95.9 million,
$6.1 million and $7.2 million, respectively, other costs of the Eight-Point Plan
and other charges of $72.3 million, $6.2 million and $15.5 million,
respectively, before income tax benefit of $60.5 million, $4.4 million and $8.2
million, respectively, for a net amount of $107.7 million, $7.9 million and
$14.5 million, respectively.
(4)Net income (loss) per common share calculations for each of the quarters is
based on the average common shares outstanding for each period.
46
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. RELATED PARTY TRANSACTIONS
During 2000, the Company acquired an investment in a limited liability
corporation ("LLC") that is accounted for under the equity method. The other
member of the LLC is HTG Corp., which is a company controlled by WestPoint
Stevens Inc.'s Chairman and Chief Executive Officer. Each member of the LLC owns
an equal amount of voting common interests, plus non-voting preferred interests
reflecting capital contributions made by each member in excess of the amounts
paid for the common interest less distributions and other allocations to each
member. The LLC owned and operated a jet aircraft, which was used by the Company
for business travel. During both 2001 and 2000, the Company recorded
approximately $3.0 million in cash expenses related to its ownership of the
aircraft.
During September 2001, the LLC sold the jet aircraft, which was its primary
asset, for less than its book value and generated $3.3 million in cash. After
analyzing the fair market value of the LLC's remaining assets, the Company
concluded that its investment was impaired and recorded a non-cash charge
approximating $7.5 million, including the Company's share of the loss on the
sale of the aircraft in the third quarter of 2001. This charge is classified as
Other expense-net in the accompanying December 31, 2001 Consolidated Statement
of Operations. Following the sale, HTG Corp. had a negative capital account
balance in the LLC of approximately $4.5 million.
On November 29, 2001, the Company entered into an agreement (the "Letter
Agreement") with HTG Corp., the other member of the LLC, pursuant to which HTG
Corp. agreed to restore the negative balance in its capital account in the LLC.
Under the Letter Agreement, HTG Corp. has agreed to restore approximately $4.5
million (the "Amount Due") in installments, with $1.0 million due on November
29, 2002, $2.0 million due on November 29, 2003, and the balance due on
November 29, 2004. The Amount Due will be increased or decreased by one-half of
the loss or gain, respectively, upon the sale or disposition of the remaining
assets of the LLC. HTG Corp. has agreed to pay interest on the Amount Due at
the prime rate of interest in effect from time to time plus three and one-half
percent per annum. The Letter Agreement provides that any and all payments made
by HTG Corp. to reduce the Amount Due will immediately be distributed to the
Company. A company related to HTG Corp. by common ownership guarantees the
Amount Due. Neither the obligation of HTG Corp. nor the guarantee is
collateralized or secured by any assets. Accordingly, as of December 31, 2001,
no amounts have been recorded in the accompanying Consolidated Financial
Statements for the potential recovery of the Amount Due.
During 2000, the Company approved a plan of recapitalization, which was later
terminated, and subsequently paid approximately $850,000 in legal and advisory
fees incurred by Mr. Green's affiliate and the other potential equity investors
in connection with the recapitalization plan.
47
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
The information called for in this item is incorporated by reference from the
Company's 2002 definitive proxy statement (under the caption "Board of
Directors") to be filed with the Securities and Exchange Commission by April 8,
2002 (the "Company's 2002 Proxy Statement").
IDENTIFICATION OF EXECUTIVE OFFICERS
The information called for by this item is incorporated by reference from the
Company's 2002 Proxy Statement (under the caption "Management").
Section 16(a) Beneficial Ownership Reporting Compliance
The information called for by this item is incorporated by reference from the
Company's 2002 Proxy Statement (under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance").
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference from the
Company's 2002 Proxy Statement (under the caption "Executive Compensation").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information called for by this item is incorporated by reference from the
Company's 2002 Proxy Statement (under the caption "Security Ownership of Certain
Beneficial Owners and Management").
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference from the
Company's 2002 Proxy Statement (under the caption "Certain Relationships and
Related Transactions").
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS.
Consolidated Financial Statements for the three years ended December 31,
2001.
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... 22
Consolidated Balance Sheets.................................. 23-24
Consolidated Statements of Operations ...................... 25
Consolidated Statements of Stockholders' Equity (Deficit).... 26
Consolidated Statements of Cash Flows........................ 27
Notes to Consolidated Financial Statements................... 28-47
48
All financial statements required to be filed as part of this Annual Report on
Form 10-K are filed under "Item 8. Financial Statements and Supplementary Data."
FINANCIAL STATEMENT SCHEDULES
PAGE
Schedule II -- Valuation and Qualifying Accounts........... 55
Note: All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore, have
been omitted.
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 2001.
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3.1 Restated Certificate of Incorporation of WestPoint Stevens Inc., as currently in effect, incorporated
by reference to Exhibit 3(a) to the Registration Statement on Form S-4 (Commission File No. 333-59817)
filed by the Company with the Securities and Exchange Commission on August 4, 1998.
3.2 Amended and Restated By-laws of WestPoint Stevens Inc., as currently in effect, incorporated by
reference to the Post-Effective Amendment No. 1 to Registration Statement on Form S-1 (Commission File
No. 33-77726) filed by the Company with the Securities and Exchange Commission on May 19, 1994.
10.1 Form of Registration Rights Agreement, dated as of May 7, 1993, among the Company and the Purchaser
(as defined therein) incorporated by reference to Exhibit 1 to the Form of Securities Purchase
Agreement filed as Exhibit 10.13 to the Registration Statement on Form 10 (Commission File No.
0-21496) filed by the Company with the Commission on July 1, 1993.
10.2 Form of Securities Purchase Agreement, dated as of March 12, 1993, among the Company, New Street
Capital Corporation, Magten Asset Management Corporation and each Other Holder (as defined therein),
incorporated by reference to the Registration Statement on Form 10 (Commission File No. 0-21496) filed
by the Company with the Commission on July 1, 1993.
10.3 Form of directors and officers Indemnification Agreement with West Point-Pepperell, Inc., incorporated
by reference to the Registration Statement on Form S-1 (Commission File No. 33-69858) filed by the
Company with the Commission on October 1, 1993.
10.4 1993 Management Stock Option Plan, incorporated by reference to the Registration Statement on Form 10
(Commission File No. 0-21496) filed by the Company with the Commission on July 1, 1993.
10.5 West Point-Pepperell, Inc. Supplemental Retirement Plan for Eligible Executives, as amended,
incorporated by reference to the Schedule 14D-9 dated November 3, 1988 (Commission File No. 1-4490)
filed by West Point-Pepperell, Inc. with the Commission.
10.6 West Point-Pepperell, Inc. Supplemental Executive Retirement Plan, as amended, incorporated by
reference to the Schedule 14D-9 dated November 3, 1988 (Commission File No. 1-4490) filed by West
Point-Pepperell, Inc. with the Commission.
10.7 WestPoint Stevens Inc. 1994 Non-Employee Directors Stock Option Plan, incorporated by reference to the
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1994 (Commission File No. 0-21496)
filed by the Company with the Commission.
49
10.8 WestPoint Stevens Inc. Amended and Restated 1994 Non-Employee Directors Stock Option Plan,
incorporated by reference to the Form 10-Q for the quarterly period ended June 30, 1995 (Commission
File No. 0-21496) filed by the Company with the Commission on August 9, 1995.
10.9 WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan, incorporated by reference to the
Registration Statement Form S-8 (Registration No. 33-95580) filed by the Company on August 11, 1995.
10.10 Form of directors and officers Indemnification Agreement with the Company, incorporated by reference
to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No.
0-21496) filed by the Company with the Commission.
10.11 WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (As Amended), incorporated by reference to
the Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Commission File No.
0-21496) filed by the Company with the Commission.
10.12 First Amendment to the WestPoint Stevens Inc. Supplemental Retirement Plan dated as of September 6,
1996, incorporated by reference to the Annual Report on Form 10-K/A for the fiscal year ended December
31, 1996 (Commission File No. 0-21496) filed by the Company with the Commission.
10.13 WestPoint Stevens Inc. Omnibus Stock Incentive Plan, incorporated by reference to the Company's 1997
Proxy Statement (Commission File No. 0-21496) filed by the Company with the Commission.
10.14 Indenture dated as of June 9, 1998, between the Company and The Bank of New York, as trustee, for the
7-7/8% Senior Notes due 2005, incorporated by reference to Exhibit 4(a) to Registration Statement on
Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.15 Form of Old 7-7/8% Senior Notes due 2005 (included in the Indenture incorporated by reference as
Exhibit 10.34), incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-4
(Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.16 Form of Exchange 7-7/8% Senior Notes due 2005 (included in the Indenture incorporated by reference as
Exhibit 10.34), incorporated by reference to Exhibit 4(c) to Registration Statement on Form S-4
(Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.17 Registration Rights Agreement dated as of June 9, 1998, among the Company and the Initial Purchasers
with respect to the Senior Notes due 2005, incorporated by reference to Exhibit 4(d) to Registration
Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission on July
24, 1998.
10.18 Indenture for the 7-7/8% Senior Notes due 2008 dated as of June 9, 1998, between the Company and The
Bank of New York, as Trustee, incorporated by reference to Exhibit 4(e) to Registration Statement on
Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.19 Form of Old 7-7/8% Senior Notes due 2008 (included in the Indenture incorporated by reference as
Exhibit 10.38), incorporated by reference to Exhibit 4(f) to Registration Statement on Form S-4
(Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.20 Form of Exchange 7-7/8% Senior Notes due 2008 (included in the Indenture incorporated by reference as
Exhibit 10.38), incorporated by reference to Exhibit 4(g) to Registration Statement on Form S-4
(Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.21 Registration Rights Agreement dated June 9, 1998, among the Company and the Initial Purchasers with
respect to the Senior Notes due 2008, incorporated by reference to Exhibit 4(h) to Registration
Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission on July
24, 1998.
10.22 Second Amended and Restated Credit Agreement, dated as of June 9, 1998, among the Company, WestPoint
Stevens (UK) Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent, and the other
financial institutions party thereto, incorporated by reference to Exhibit 10.59 to Registration
Statement on Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission on July
24, 1998.
50
10.23 Second Amended and Restated Collateral Trust Agreement dated as of June 9, 1998, among WestPoint
Stevens Inc., certain of its Subsidiaries, NationsBank, N.A. (formerly NationsBank of North Carolina,
N.A.), as Trustee, IBJ Schroder Bank & Trust Company as the Stevens Indenture Trustee (as defined
therein) and the other financial institutions party thereto, incorporated by reference to the Form
10-Q for the quarterly period ended June 30, 2001, (Commission File No. 0-21496) filed by the Company
with the Commission.
10.24 Letter Amendment Agreement, dated as of June 30, 1998, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and the other financial
institutions party thereto, incorporated by reference to Exhibit 10.60 to Registration Statement on
Form S-4 (Commission File No. 333-59817) filed by the Company with the Commission on July 24, 1998.
10.25 Letter Amendment Agreement, dated as of July 31, 1998, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited, NationsBank., N.A., as agent and other financial
institutions party thereto, incorporated by reference to the Form 10-Q for the quarterly period ended
September 30, 1998 (Commission File No. 0-21496) filed by the Company with the Commission.
10.26 Letter Amendment Agreement, dated as of October 7, 1998, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and other financial
institutions party thereto, incorporated by reference to the Annual Report on Form 10-K for fiscal
year ended December 31, 1998 (Commission File No. 0-21496) filed by the Company with the Commission.
10.27 Amendment dated October 29, 1998, to the WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan (As
Amended), incorporated by reference to the Annual Report on Form 10-K for fiscal year ended December
31, 1998 (Commission File No. 0-21496) filed by the Company with the Commission.
10.28 Receivables Purchase Agreement dated as of December 18, 1998, by and between the Company and WPS
Receivables Corporation, incorporated by reference to the Annual Report on Form 10-K for fiscal year
ended December 31, 1998 (Commission File No. 0-21496) filed by the Company with the Commission.
10.29 Non-Negotiable Promissory Note, dated as of December 18, 1998, by WPS Receivables Corporation in favor
of the Company, incorporated by reference to the Annual Report on Form 10-K for fiscal year ended
December 31, 1998 (Commission File No. 0-21496) filed by the Company with the Commission.
10.30 Asset Interest Transfer Agreement, dated as of December 18, 1998, among WPS Receivables Corporation,
the Company, Blue Ridge Funding Corporation and Wachovia Bank, N.A., incorporated by reference to the
Annual Report on Form 10-K for fiscal year ended December 31, 1998 (Commission File No. 0-21496) filed
by the Company with the Commission.
10.31 Amendment dated February 1, 1999, to the WestPoint Stevens 1995 Key Employee Stock Bonus Plan (as
amended), incorporated by reference to the Form 10-Q for the quarterly period ended March 31, 1999
(Commission File No. 0-21496) filed by the Company with the Commission.
10.32 Second Amendment dated February 11, 1999, to the WestPoint Stevens Inc. Supplemental Retirement Plan,
incorporated by reference to the Form 10-Q for the quarterly period ended March 31, 1999 (Commission
File No. 0-21496) filed by the Company with the Commission.
10.33 Letter Amendment Agreement, dated as of March 16, 1999, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and other financial
institutions party thereto, incorporated by reference to the Form 10-Q for the quarterly period ended
March 31, 1999 (Commission File No. 0-21496) filed by the Company with the Commission.
10.34 WestPoint Stevens Inc. Omnibus Stock Incentive Plan (As Amended), incorporated by reference to the
Company's 1999 Proxy Statement (Commission File No. 0-21496) filed by the Company with the Commission.
10.35 Second Amendment Agreement dated May 20, 1999, among the Company, WestPoint Stevens (UK) Limited,
WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and the other financial institutions
party thereto, incorporated by reference to the Form 10-Q for the quarterly period ended June 30, 1999
(Commission File No. 0-21496) filed by the Company with the Commission.
51
10.36 Letter Amendment Agreement, dated as of August 31, 1999, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and other financial
institutions party thereto, incorporated by reference to the Form 10-Q for the quarterly period ended
September 30, 1999 (Commission File No. 0-21496) filed by the Company with the Commission.
10.37 Letter Agreement dated November 5, 1999, between the Company and David C. Meek, incorporated by
reference to the Annual Report on Form 10-K for fiscal year ended December 31, 1999 (Commission File
No. 0-21496) filed by the Company with the Commission.
10.38 Letter Amendment Agreement, dated as of November 15, 1999, among the Company, WestPoint Stevens (UK)
Limited, WestPoint Stevens (Europe) Limited, NationsBank, N.A., as agent and the other financial
institutions, party thereto, incorporated by reference to the Annual Report on Form 10-K for fiscal
year ended December 31, 1999 (Commission File No. 0-21496) filed by the Company with the Commission.
10.39 WestPoint Stevens Inc. Stock Award Agreement dated November 18, 1999, between the Company and Holcombe
T. Green, Jr., incorporated by reference to the Annual Report on Form 10-K for fiscal year ended
December 31, 1999 (Commission File No. 0-21496) filed by the Company with the Commission.
10.40 First Amendment, dated as of December 17, 1999, among WPS Receivables Corporation, the Company, Blue
Ridge Funding Corporation and Wachovia Bank, N.A., incorporated by reference to the Annual Report on
Form 10-K for fiscal year ended December 31, 1999 (Commission File No. 0-21496) filed by the Company
with the Commission.
10.41 Description of the Company's Senior Management Incentive Plan, incorporated by reference to the
Company's 2000 Proxy Statement (Commission File No. 0-21496) filed by the Company with the Commission.
10.42 Amendments to Securitization Agreements, dated January 11, 2000, among the Company, WPS Receivables
Corporation, Blue Ridge Asset Funding Corporation and Wachovia Bank, N.A. , incorporated by reference
to the Form 10-Q for the quarterly period ended March 31, 2000 (Commission File No. 0-21496) filed by
the Company with the Commission.
10.43 Third Amendment Agreement dated as of May 30, 2000, among the Company, WestPoint Stevens (UK) Limited,
WestPoint Stevens (Europe) Limited, NationsBank, N.A. as agent and the other financial institutions
party thereto, incorporated by reference to the Form 10-Q for the quarterly period ended June 30, 2000
(Commission File No. 0-21496) filed by the Company with the Commission.
10.44 Employment Agreement, dated as of July 1, 2000, between WestPoint Stevens Inc. and Holcombe T. Green,
Jr., incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-21496) filed by the Company with the Commission.
10.45 Employment Agreement, dated as of July 1, 2000, between WestPoint Stevens Inc. and David C. Meek,
incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-21496) filed by the Company with the Commission.
10.46 Employment Agreement, dated as of July 1, 2000, between WestPoint Stevens Inc. and Thomas J. Ward,
incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-21496) filed by the Company with the Commission.
10.47 Employment Agreement, dated as of July 1, 2000, between WestPoint Stevens Inc. and John T. Toolan,
incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-21496) filed by the Company with the Commission.
10.48 Second Amendment, dated as of December 15, 2000, among WPS Receivables Corporation, the Company, Blue
Ridge Funding Corporation and Wachovia Bank, N.A., incorporated by reference to Form 10-K for the
fiscal year ended December 31, 2000 (Commission File No. 0-21496) filed with the Commission.
52
10.49 Fourth Amendment Agreement dated December 31, 2000, among the Company, WestPoint Stevens (UK) Limited,
WestPoint Stevens (Europe) Limited, Bank of America (formerly NationsBank, N.A.), as agent and the
other financial institutions, party thereto, incorporated by reference to Form 10-K for the fiscal
year ended December 31, 2000 (Commission File No. 0-21496) filed with the Commission.
10.50 Membership Interest Purchase Agreement effective as of February 4, 2000, by and among HTG Falcon LLC,
HTG Corp. and the Company, incorporated by reference to Form 10-K for the fiscal year ended December
31, 2000 (Commission File No. 0-21496) filed with the Commission.
10.51 Separation Agreement and General Release entered into as of October 26, 2000, by and between the
Company and John T. Toolan, incorporated by reference to Form 10-K for the fiscal year ended December
31, 2000 (Commission File No. 0-21496) filed with the Commission.
10.52 Agreement and General Release agreement, entered into as of October 16, 2000, by and between the
Company and Thomas J. Ward, incorporated by reference to Form 10-K for the fiscal year ended December
31, 2000 (Commission File No. 0-21496) filed with the Commission.
10.53 Sublease Agreement made by and between WestPoint Stevens Inc. and HTG Corporation, as of August 15,
2000, incorporated by reference to Form 10-K for the fiscal year ended December 31, 2000 (Commission
File No. 0-21496) filed with the Commission.
10.54 Landlord Consent to Sublease entered into as of the 14th day of February 2001, by and among
EOP-Buckhead, LLC, WestPoint Stevens Inc. and HTG Corporation, incorporated by reference to Form 10-K
for the fiscal year ended December 31, 2000 (Commission File No. 0-21496) filed with the Commission.
10.55 Employment Agreement, dated as of January 5, 2001, between WestPoint Stevens Inc. and M. L. Fontenot,
incorporated by reference to the Form 10-Q for the quarterly period ended March 31, 2001, (Commission
File No. 0-21496) filed by the Company with the Commission.
10.56 Third Amendment, dated as of March 12, 2001, among, WPS Receivables Corporation, the Company, Blue
Ridge Asset Funding Corporation and Wachovia Bank, N.A., incorporated by reference to the Form 10-Q
for the quarterly period ended March 31, 2001, (Commission File No. 0-21496) filed by the Company with
the Commission.
10.57 Fourth Amendment, dated as of March 26, 2001, among, WPS Receivables Corporation, the Company, Blue
Ridge Asset Funding Corporation and Wachovia Bank, N.A., incorporated by reference to the Form 10-Q
for the quarterly period ended March 31, 2001, (Commission File No. 0-21496) filed by the Company with
the Commission.
10.58 Fifth Amendment, 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, incorporated by reference to the Form 10-Q for the
quarterly period ended March 31, 2001, (Commission File No. 0-21496) filed by the Company with the
Commission.
10.59 Conditional Waiver letter dated March 26, 2001, among WPS Receivables Corporation, the Company, Blue
Ridge Asset Funding Corporation and Wachovia Bank, N.A., incorporated by reference to the Form 10-Q
for the quarterly period ended March 31, 2001, (Commission File No. 0-21496) filed by the Company with
the Commission.
10.60 Rights Agreement dated as of May 9, 2001, by and between WestPoint Stevens Inc. and SunTrust Bank, as
Rights Agent including Exhibit A the form of Summary of Rights and Exhibit B the form of Right
Certificate, incorporated by reference to the Form 8-K (Commission File No. 0-21496) filed by the
Company with the Commission on May 9, 2001.
10.61 Separation Agreement and General Release dated as of April 11, 2001, between WestPoint Stevens Inc.
and David C. Meek, incorporated by reference to the Form 10-Q for the quarterly period ended June 30,
2001, (Commission File No. 0-21496) filed by the Company with the Commission.
10.62 Employment Agreement dated April 17, 2001, between WestPoint Stevens Inc. and Lester Dupuy Sears,
incorporated by reference to the Form 10-Q for the quarterly period ended June 30, 2001, (Commission
File No. 0-21496) filed by the Company with the Commission.
53
10.63 Credit Agreement dated as of June 29, 2001, among WestPoint Stevens Inc., certain of its Subsidiaries,
Bankers Trust Company, as Administrative Agent and the Lenders party thereto, incorporated by
reference to the Form 10-Q for the quarterly period ended June 30, 2001, (Commission File No. 0-21496)
filed by the Company with the Commission.
10.64 Amendment Agreement dated June 29, 2001, among WestPoint Stevens Inc., 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, incorporated by reference to the Form 10-Q for the
quarterly period ended June 30, 2001, (Commission File No. 0-21496) filed by the Company with the
Commission.
10.65 Intercreditor and Lien Subordination Agreement dated as of June 29, 2001, among WestPoint Stevens
Inc., certain of its Subsidiaries, Bank of America, N.A. (formerly NationsBank, N.A.) as the
collateral trustee and Bankers Trust Company, as administrative agent, incorporated by reference to
the Form 10-Q for the quarterly period ended June 30, 2001, (Commission File No. 0-21496) filed by the
Company with the Commission.
10.66 Collateral Security Agreement dated as of June 29, 2001, among WestPoint Stevens Inc., certain of its
Subsidiaries and Bankers Trust Company, as administrative agent, incorporated by reference to the Form
10-Q for the quarterly period ended June 30, 2001, (Commission File No. 0-21496) filed by the Company
with the Commission.
10.67 Amendment dated August 9, 2001, to the WestPoint Stevens Inc. 1993 Management Stock Option Plan,
incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 2001,
(Commission File No. 0-21496) filed by the Company with the Commission.
10.68 Amendment dated August 9, 2001, to the WestPoint Stevens Inc. 1994 Non-Employee Directors Stock Option
Plan, incorporated by reference to the Form 10-Q for the quarterly period ended September 30, 2001,
(Commission File No. 0-21496) filed by the Company with the Commission.
10.69 Letter dated April 5, 2001, from the Company to Mr. Bob Dale.
10.70 Letter dated April 9, 2001, from the Company to Mr. Arthur Birkins.
10.71 First Amended and Restated Receivables Purchase Agreement dated as of October 31, 2001, by and between
the Company and WPS Receivables Corporation.
10.72 First Amended and Restated Asset Interest Transfer Agreement dated as of October 31, 2001, among WPS
Receivables Corporation, the Company, Blue Ridge Asset Funding Corporation, North American Capacity
Insurance Company and Wachovia Bank, N.A
10.73 Agreement dated November 29, 2001, among the Company, HTG Corp., Vytech Holdings, Inc., Vytech Midco,
Inc., Vytech Industries, Inc. and Holcombe T. Green, Jr.
10.74 Guaranty Agreement dated as of November 29, 2001, made by Vytech Holdings, Inc. and Holcombe T. Green,
Jr., in favor of the Company.
10.75 Third Amendment dated December 14, 2001, to the WestPoint Stevens Inc. Supplemental Retirement Plan.
10.76 Amendment Letter dated March 22, 2002, between the Company, Holcombe T. Green, Jr. and HTG Corp.
21 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
54
WESTPOINT STEVENS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND OTHER END OF
PERIOD EXPENSES DEDUCTIONS ADJUSTMENTS(3) PERIOD(4)
------------ ---------- ---------- -------------- ----------
Year Ended December 31, 2001
Accounts receivable allowances:
Doubtful accounts ........................ $11,490 $ 14,043 $ 3,200(1) $ -- $22,333
Cash and/or trade discounts
and returns and allowances ..... 10,573 23,813 23,146 -- 11,240
------- -------- ------- ---------- -------
$22,063 $ 37,856 $26,346 $ -- $33,573
======= ======== ======= ========== =======
Inventory reserves:
Market and obsolescence .................. $63,439 $ 9,658(2) $ -- $ -- $73,097
======= ======== ======= ========== =======
Year Ended December 31, 2000
Accounts receivable allowances:
Doubtful accounts ........................ $13,133 $ (1,369) $ 274(1) $ -- $11,490
Cash and/or trade discounts
and returns and allowances ..... 5,817 24,874 20,118 -- 10,573
------- -------- ------- ---------- -------
$18,950 $ 23,505 $20,392 $ -- $22,063
======= ======== ======= ========== =======
Inventory reserves:
Market and obsolescence .................. $31,450 $ 31,989(2) $ -- $ -- $63,439
======= ======== ======= ---------- =======
Year Ended December 31, 1999
Accounts receivable allowances:
Doubtful accounts ........................ $13,348 $ 947 $ 1,162(1) $ -- $13,133
Cash and/or trade discounts
and returns and allowances ..... 5,903 20,251 20,337 -- 5,817
------- -------- ------- ---------- -------
$19,251 $ 21,198 $21,499 $ -- $18,950
======= ======== ======= ========== =======
Inventory reserves:
Market and obsolescence .................. $27,126 $ 4,324(2) $ -- $ -- $31,450
======= ======== ======= ========== =======
(1)Accounts written off, less recoveries of accounts previously written off.
(2)Net change.
(3)Additions relate to acquisitions closed during the period.
(4)Reserves are deducted from assets to which they apply.
55
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.
WESTPOINT STEVENS INC.
(Registrant)
By /s/ Holcombe T. Green, Jr.
---------------------------------
Holcombe T. Green, Jr.
Chairman of the Board and Chief
Executive Officer
March 28, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By /s/ Holcombe T. Green, Jr. By /s/ Lester D. Sears
----------------------------------------- --------------------------------------
Holcombe T. Green, Jr Lester D. Sears
Chairman of the Board and Chief Executive Senior Vice President-Finance
Officer (principal executive officer) and Chief Financial Officer
(principal financial officer)
March 28, 2002 March 28 , 2002
By /s/ M. L. Fontenot By /s/ J. Nelson Griffith
----------------------------------------- --------------------------------------
M. L. (Chip) Fontenot, Director, J. Nelson Griffith
President and Chief Operating Officer Senior Vice President and Controller
(principal accounting officer)
March 28, 2002 March 28, 2002
By /s/ Hugh M. Chapman By /s/ M. Katherine Dwyer
----------------------------------------- --------------------------------------
Hugh M. Chapman M. Katherine Dwyer
Director Director
March 28, 2002 March 28, 2002
56
By /s/ Joseph R. Gladden By /s/ John G. Hudson
----------------------------------------- --------------------------------------
Joseph R. Gladden John G. Hudson
Director Director
March 28, 2002 March 28, 2002
By /s/ J. Hicks Lanier By /s/ Gerald B. Mitchell
----------------------------------------- --------------------------------------
J. Hicks Lanier Gerald B. Mitchell
Director Director
March 28, 2002 March 28, 2002
By /s/ John F. Sorte
-----------------------------------------
John F. Sorte
Director
March 28, 2002
57