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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, 1998
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 NASDAQ
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 $1,033,248,307 at March 19, 1999. The number of
shares of Common Stock outstanding at March 19, 1999, was 55,543,959.
(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. 55,543,959 at March
19, 1999
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement to be mailed to
stockholders in connection with the registrant's May 12, 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
Page No.
Item 1. Business ............................................................................ 3
Item 2. Properties .......................................................................... 8
Item 3. Legal Proceedings ................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ................................. 9
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ................ 9
Item 6. Selected Financial Data ............................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 8. Financial Statements and Supplementary Data ......................................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40
Item 10. Directors and Executive Officers of the Registrant ................................. 40
Item 11. Executive Compensation ............................................................. 40
Item 12. Security Ownership of Certain Beneficial Owners and Management ..................... 40
Item 13. Certain Relationships and Related Transactions ..................................... 40
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................... 40
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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 engaged directly
and indirectly through its subsidiaries in the manufacture, marketing and
distribution of bed and bath home fashions ("Home Fashions") products.
The Company manufactures and markets Home Fashions products for distribution to
chain and department stores, mass merchants and specialty stores. Home Fashions
products are manufactured and distributed under owned trademarks and pursuant to
various licensing agreements. See "- Trademarks and Licenses."
On October 30, 1998, an indirect wholly owned subsidiary of the Company
purchased substantially all of the assets of Liebhardt Mills, Inc., a leading
domestic manufacturer and marketer of bed pillows and related bedding products.
The Company's management estimates that it has the largest market share
(approximately 36%) in the domestic sheet and pillowcase market and the largest
market share (approximately 43%) in the domestic bath towel market. Such
estimates are calculated by the Company based on United States government data
(source: United States Census Bureau Current Industrial Report dated February 8,
1999), publicly available information about the Company's competitors and
information in trade publications. In addition, according to such United States
government data, each of these markets had over $1 billion in annual sales
during each of the past five years.
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 manufactures and markets a broad range of bed and bath products,
including:
- decorative sheets and towels,
- designer sheets and accessories,
- sheets and towels for institutions,
- blankets,
- private label sheets and towels,
- bedskirts,
- bedspreads,
- comforters,
- duvet covers,
- drapes,
- valances,
- throw pillows,
- bed pillows,
- mattress pads,
- shower curtains and
- table covers.
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. Home Fashions trademarks include ATELIER MARTEX(R),
MARTEX(R), UTICA(R), STEVENS(R), LADY PEPPERELL(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
Collection, Sanderson, Larry Laslo, Joe Boxer, Glynda Turley, Designers Guild,
Esprit and Star Wars.
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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 11% 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 following are the
expiration dates for the licensing agreements discussed above: Ralph Lauren,
December 31, 2000; Sanderson, March 31, 2000; Larry Laslo, March 31, 2000; Joe
Boxer, January 1, 2002; Glynda Turley, December 31, 2001; Esprit, December 31,
2000; and Star Wars, September 30, 2001.
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 domestic sales, domestic marketing and
international sales and marketing. Distribution specific teams are linked with
product management, operations, customer service and distribution to service
each segment of Retail.
The Domestic Sales Division focuses on the following channels of distribution:
- mass merchants;
- department and specialty stores;
- custom brands;
- Ralph Lauren;
- health and hospitality institutions; and
- specialized areas, including freestanding window treatments
and blankets.
The Domestic Marketing Division is comprised of the following functions which
create products and services in direct response to recognized consumer trends:
- design;
- operating;
- marketing;
- advertising;
- licensing;
- consumer research;
- product innovation; and
- corporate communications.
The International Sales and Marketing Division is organized to tailor its
products and operations to the unique needs of the consumers and retailers in
the world's leading markets. Operating units include:
- Europe - which has manufacturing facilities and sales offices
located in England supplying European department stores for
private label, company brands, and licensed programs such as
Ralph Lauren Home Collection and Designers Guild.
- Americas - which markets to all major stores in Canada,
Mexico, and Latin America with US-made and foreign sourced
products.
- Asia - which obtains foreign sourced goods for the United
States and European markets.
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
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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 86% of the Company's sales are made to retail establishments in
the United States, including chain and department stores, mass merchants, and
specialty bed and bath stores. Finished products are distributed to retailers
directly from the Company's plants. Distribution to hospitals and other
healthcare establishments accounts for most of the remaining portion of the
Company's sales of Home Fashions products. Certain institutional products also
are sold directly and through distributors to major hotel and motel chains, and
to laundry supply businesses. In addition to domestic sales, the Company
distributes its Home Fashions products for eventual sale to certain foreign
markets, principally Canada, Mexico, the United Kingdom, continental Europe, the
Middle East and the Far East. International operations accounted for less than
5% of the total revenues of the Company in 1998.
In addition, certain products of the Company are sold through WestPoint Stevens
Stores Inc., a wholly-owned subsidiary of the Company ("WestPoint Stores").
WestPoint Stores currently consists of 44 geographically dispersed, value-priced
outlets throughout the United States and in Canada, some 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.
INVENTORY MANAGEMENT, ELECTRONIC COMMUNICATION AND DELIVERY
The Company uses EDI, Quick Response and Vendor Managed Inventory replenishment
programs, point-of-sale data and the latest available technology in retail
warehouse and shelf space management to minimize inventory and maximize floor
stock turnover for its customers. The Company's EDI system allows customers to
place orders, and allows the Company to fill, track and bill orders, all by
computer. This system enables the Company to ship products on a Quick Response
basis so that customers can maintain lower inventories and react rapidly to
changes in product demand. In addition, the Company is using Vendor Managed
Inventory and dedicating certain manufacturing facilities to servicing key
strategic customers. The Company anticipates that these programs will result in
lower transportation expense and reduced distribution complexities for its
customers. Through the use of the Nielsen Spaceman III category management
program, the Company supports its customers' efforts to improve operating
results through efficient inventory and shelf space management. The Company's
objective is to provide its customers with 100% delivery reliability in terms of
order quantities and delivery schedules. The Company believes that the use of
in-house transportation has enabled the Company to maintain a high level of
on-time delivery. The Company recently formed a supply chain and logistics group
encompassing customer service, replenishment systems planning, sourcing,
distribution and transportation, which it believes will further increase its
capabilities 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.
The Company's Home Fashions products are sold to chain stores, including, among
others, J.C. Penney Company, Inc. ("J.C. Penney"), and Sears Roebuck & Co., Inc.
("Sears"); mass merchants such as Wal-Mart Stores, Inc. ("Wal-Mart"), Kmart
Corporation ("Kmart") and Target Stores (a division of Dayton Hudson
Corporation); and department and specialty stores, including Federated
Department Stores and Mervyn's (also a division of Dayton Hudson Corporation).
The above named customers, which are the Company's six largest customers,
accounted for approximately 53% of the net sales of the Company during the
fiscal year ended December 31, 1998. In 1998 sales to Dayton Hudson Corporation
were 13% of the net sales of the Company and sales to Kmart were 11% 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.
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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 $588 million to modernize
its manufacturing and distribution systems and has spent approximately $147.5
million of that amount during 1998. In October 1998 the Company also purchased
bed pillow and related bedding product manufacturing facilities from Liebhardt
Mills, Inc. 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 $125 million in capital improvements in
the aggregate in 1999 which includes the purchase of additional electronic
jacquard head weaving equipment and blanket manufacturing facilities and
equipment, construction of new and expanded distribution centers and
installation of dyeing and finishing equipment, and automated fabricating and
material handling equipment and distribution management systems which will
further eliminate labor-intensive and costly manufacturing steps and improve
distribution efficiency. 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 24 manufacturing facilities
located primarily in the Southeastern United States and leases 4 manufacturing
facilities, including one in England. See "Item 2 - Properties."
RAW MATERIALS
The principal raw materials used in the manufacture of Home Fashions products
are cotton of various grades and staple lengths, nylon and polyester in staple
and filament form. Cotton, nylon and polyester 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 nylon and
polyester 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
seasons in the summer and 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 summer and fall peak
seasons. 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 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 $104.5 million at February 27, 1999, as compared with
approximately $111.5 million at January 31, 1998. The Company does not believe
that its backlogs are a meaningful indicator of its future business.
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COMPETITION
The home fashions industry is highly competitive. The Company competes on the
basis of price, quality and customer service, among other factors. In the sheet
and towel markets, the Company competes primarily with Fieldcrest Cannon, Inc.,
a wholly-owned subsidiary of Pillowtex Corporation (collectively
"Pillowtex/Fieldcrest"), and Springs Industries, Inc. ("Springs"). 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 Fashions in the domestic
market and is actively pursuing its own foreign sourcing opportunities to meet
the demand for such products. The Company does not believe that there is any
significant foreign competition with its current domestic operations. There can
be no assurance that foreign will not grow to a level that could have an adverse
effect upon the Company's ability to compete effectively.
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 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 did not make any material expenditures for
Company sponsored research and development activities during the last three
fiscal years.
ENVIRONMENTAL MATTERS
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 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 (known as "CERCLA"), as amended.
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 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 16,900 active
employees as of February 25, 1999. 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 15 years.
The Company has developed an efficient 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 employee relations practices, good working
conditions, progressive personnel policies and expansive safety programs.
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RECENT DEVELOPMENTS
During 1998 the Company purchased approximately 3.8 million shares under the
various stock repurchase programs at an average price of $28.43 per share. On
February 11, 1999 the Board of Directors approved the purchase of up to three
million additional shares of the Company's common stock, subject to the
Company's debt limitations, which brings the total shares that have been
approved for purchase to nineteen million shares. At December 31, 1998,
approximately 4.9 million shares, including the three million share increase
announced in February 1999, remained to be purchased under these programs. The
repurchased shares include open market purchases and private transactions. The
repurchased shares are held in the Company's treasury for general corporate
purposes.
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; efforts to avoid adverse effects due to computer
systems failing to function properly with respect to dates in the year 2000 and
beyond could meet with varying degrees of success in operations and in
transactions with customers, suppliers and financial institutions; and the
ability to project risk factors may vary. 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. For a discussion of the
Company's year 2000 compliance program see "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operation."
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
288,000 square feet in New York City, of which approximately 180,000 square feet
is subleased to other tenants. The Company also owns or leases various
administrative, storage and office 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 44,000 square feet in which Graphics prints
product packaging and labeling.
The Company and its subsidiaries own 24 manufacturing facilities located in
Alabama, Florida, Georgia, Indiana, Maine, North Carolina, South Carolina and
Virginia which contain in the aggregate approximately 9,569,000 square feet of
floor space and lease 4 manufacturing facilities in Georgia, Nevada, South
Carolina and England.
The Company and its subsidiaries also own 9 distribution centers and warehouses
for their operations which contain approximately 2,973,000 square feet of floor
space. In addition, the Company and its subsidiaries lease 9 distribution
outlets and warehouses containing approximately 658,000 square feet of floor
space.
WestPoint Stores owns 2 retail stores and leases its 42 other retail stores, all
of which are dispersed throughout the United States and Canada.
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ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and non-hazardous 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 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 their
business.
It is the opinion of management that the aforementioned actions and claims, if
determined adversely to the Company, will not have a material adverse effect on
the financial condition or operations of the Company taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1998, no matters were submitted by the
Company to a vote of its stockholders.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is listed on the National Association of
Securities Dealers Automated Quotation System National Market System ("NASDAQ")
under the symbol WPSN. Such listing became effective on August 2, 1993. Prior
thereto, the Company's Common Stock was not listed or admitted to unlisted
trading privileges on a national securities exchange or included for quotation
through an inter-dealer quotation system of a registered national securities
association, and there was a limited trading market for the Common Stock.
High (ask) and low (bid) quotations, as reported (on a split basis), each
quarterly period within the two most recent fiscal years were:
Quarter Ended Quotations
------------- ----------------------------------------------
1998 1997
-------------------- -------------------
High/Ask Low/Bid High/Ask Low/Bid
-------- ------- -------- -------
March 31 29 1/4 21 3/4 20 14 1/2
June 30 34 3/4 28 1/4 20 1/4 17 9/16
September 30 37 7/8 25 15/16 21 1/2 18 5/16
December 31 32 1/2 24 5/8 24 1/16 19
The Company has not declared any cash dividends on its Common Stock during the
past two fiscal years. Under its existing credit facility the Company is
permitted to pay dividends from excess cash flow as defined in the credit
facility.
As of March 15, 1999, there were approximately 14,655 holders of the Company's
Common Stock. Of that total, approximately 278 were stockholders of record and
approximately 14,377 held their stock in nominee name.
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ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data presented below for 1998, 1997 and 1996
were derived from the Audited Consolidated Financial Statements of the Company
and its subsidiaries for the years ended December 31, 1998, 1997 and 1996 (the
"Consolidated Financial Statements"), and should be read in conjunction
therewith, including the notes thereto and the other financial information
included elsewhere herein. 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,
---------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales $1,779.0 $1,657.5 $1,501.8 $1,418.2 $1,346.9
Gross earnings 474.7 419.8 372.4 359.1 331.9
Operating earnings (loss)(1) 248.3 214.9 188.5 26.3 (46.5)
Interest expense 105.7 102.2 94.5 93.5 94.2
Income (loss) from continuing operations
before income tax expense
(benefit) and extraordinary item 141.7 110.2 91.0 (70.4) (153.7)
Income (loss) from continuing operations
before extraordinary item 90.6 69.3 58.0 (102.3) (173.7)
Net income (loss) 40.0 78.0 57.7 (129.8) (203.4)
Diluted net income (loss) per common share:
Continuing operations 1.51 1.11 0.91 (1.57) (2.57)
Discontinued operations -- .14 -- (.42) (.44)
Extraordinary item - loss on extinguishment of debt(2) (.84) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) per common share .67 1.25 0.91 (1.99) (3.01)
Diluted average common shares outstanding 59.9 62.7 63.7 65.4 67.6
DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- --------
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets $1,391.2 $1,291.1 $1,157.0 $1,143.0 $1,270.2
Working capital (3) 178.2 212.2 140.9 115.7 122.7
Total debt 1,335.4 1,187.7 1,099.0 1,148.0 1,083.0
Stockholders' equity (deficit) (487.5) (425.0) (451.9) (507.5) (339.0)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
(IN MILLIONS, EXCEPT RATIOS) 1998 1997 1996 1995 1994
------ ------ ------ ------ ------
OTHER DATA:
Depreciation and amortization:(4)
Continuing operations $ 80.6 $ 71.7 $ 68.9 $ 69.3 $ 74.2
Discontinued operations -- 5.5 8.1 11.1 12.0
Amortization of excess reorganization value:
Continuing operations -- -- -- 152.4 203.3
Discontinued operations -- -- -- 25.3 33.6
Capital expenditures:
Continuing operations 147.5 148.9 94.9 92.4 84.5
Discontinued operations -- 3.2 5.0 9.8 24.5
Operating earnings from continuing
operations before amortization
of excess reorganization value(5) 248.3 214.9 188.5 178.7 156.8
Continuing operations adjusted
net income (6) 90.6 69.3 58.0 50.1 35.0
Operating margin from continuing
operations before amortization
of excess reorganization value(7) 14.0% 13.0% 12.6% 12.6% 11.6%
See footnotes on following page.
10
11
(1) Operating earnings (loss) for the years ended December 31, 1995 and 1994
includes amortization of excess reorganization value of $152.4 million and
$203.3 million, respectively.
(2) 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.
(3) Working capital at December 31, 1998, 1997, 1996, 1995 and 1994 includes the
current portion of bank indebtedness and other long-term debt of $60.4 million,
$41.4 million, $24.0 million, $73.0 million, and $48.0 million, respectively.
(4) Excludes amortization of excess reorganization value.
(5) Such amounts are presented to facilitate comparisons between periods since
there were no charges for the years ended December 31, 1998, 1997 and 1996
for amortization of excess reorganization value.
(6) Continuing operations adjusted net income represents net income from
continuing operations, adjusted to remove the impact of the amortization of
excess reorganization costs and before extraordinary item and discontinued
operations. Adjusted continuing operations EPS for the years ended December 31,
1998, 1997, 1996, 1995 and 1994 was $1.51, $1.11, $.91, $.77 and $.52,
respectively.
(7) Operating margin before amortization of excess reorganization value
represents operating earnings before amortization of excess reorganization value
as a percentage of net sales for the periods presented.
11
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
During the second quarter of 1998, the Company entered into a series of
financing transactions pursuant to which the Company reduced interest expense,
extended debt maturities and improved financial flexibility. The components of
the financing transactions included (i) the sale of $525 million of 7 7/8%
Senior Notes due 2005 and $475 million of 7 7/8% Senior Notes due 2008, (ii) the
tender offers and consent solicitations for all outstanding 8 3/4% Senior Notes
due 2001 and 9 3/8% Senior Subordinated Debentures due 2005, (iii) the
redemption of the 9% Sinking Fund Debentures due 2017 and (iv) the amendment and
restatement of the existing bank revolving credit agreement to provide for a
term of 6 1/2 years and an increased commitment to $550 million. During the
third quarter of 1998, the Company amended the bank revolving credit agreement
to provide for an increased commitment to $575 million. See Note 2 -
Indebtedness and Financial Arrangements in the Notes to Consolidated Financial
Statements for additional information concerning the Company's financing
transactions.
YEAR 2000
General Description of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
In 1994, the Company began a company-wide project to replace all existing
information systems with improved systems launched from a newer technology
infrastructure and, as a by-product, make the new systems Year 2000 compliant.
The Company presently believes that with replacements and modifications of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed on a timely basis, the Year 2000 Issue could have a material impact on
the operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing and implementation. To date, the
Company has completed its assessment of all systems that could be significantly
affected by the Year 2000. The completed assessment indicated that most of the
Company's significant information technology systems could be affected. That
assessment also indicated that in some cases software and hardware (embedded
chips) used in production and manufacturing systems (hereafter also referred to
as operating equipment) were also at risk. Affected systems included automated
assembly lines and related robotics technologies used in various aspects of the
manufacturing process. However, based on a review of its product line, the
Company determined that none of the products it has sold and will continue to
sell required remediation to be Year 2000 compliant. Accordingly, the Company
does not believe that the Year 2000 Issue presents a material exposure as it
relates to the Company's products. In addition, the Company has gathered
information about the Year 2000 compliance status of its significant customers,
suppliers and subcontractors and continues to monitor their compliance.
Status of Progress in Becoming Year 2000 Compliant
The Company is on schedule with its plan for addressing the Year 2000 Issue. By
March 1, 1999, the Company had determined that 90% of its systems were Year 2000
compliant and has completed an assessment, remediation and testing of its most
critical systems. All implementation is expected to be completed by June 1,
1999. The Company will include the Year 2000 Issue as part of its disaster
recovery testing throughout the remainder of 1999.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000 Issue
The Company has surveyed key production, non-production, service, utility and
communication suppliers to determine their state of readiness. Responses
indicate most key vendors plan to be compliant in a timely manner. EDI
interfaces with suppliers
12
13
GENERAL--CONTINUED
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000 Issue (continued)
are being tested, and early results indicate the Company's supplier interfaces
and procurement systems are compliant. However, there can be no assurance that
suppliers' systems, or their suppliers' systems, upon which the Company relies,
will be ready in a timely manner and will not have a material effect on the
Company.
The Company has surveyed key customers who electronically interface with the
Company via EDI to determine their state of readiness and plan for testing
compliant interfaces. Responses received from a majority of key customers
indicate that they expect to be compliant and able to test compliant interfaces.
However, there can be no assurance that all customers' systems, upon which the
Company relies, will be ready in a timely manner and will not have a material
effect on the Company.
To date, the Company is not aware of any third party with a Year 2000 Issue that
will materially impact the Company's results of operations, liquidity or capital
resources. However, the Company has no means of ensuring that third parties will
be Year 2000 ready. The inability of third parties to complete their Year 2000
resolution process in a timely fashion could materially impact the Company.
Costs, Risks and Contingency Plans for the Year 2000 Issue
The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, test and implement the software and
operating equipment for Year 2000 modifications. The total cost of the Year 2000
project is estimated at $650,000 and is being funded through operating cash
flows. Of that amount, the Company estimates it has incurred approximately
$550,000 to date, related to all phases of the Year 2000 project and not related
to the systems improvement project started in 1994.
The Company has a high dependence on computer processes such as electronic order
and shipment information that automatically drive business processes, bar codes
that cannot be reproduced manually, and machinery containing advanced technology
requiring computerized controls. The Company's business transaction volume is
concentrated among a few customers who also have a high dependence upon
computers.
Management of the Company believes it has an effective program in place to
address the Year 2000 Issue in a timely manner, however, in the event that the
Company does not complete all necessary remaining phases of the Year 2000
program, the Company may experience some difficulties in operating its
equipment. In addition, disruptions in the economy generally resulting from Year
2000 Issues could have a material effect upon the Company.
The Company is updating its contingency plans based on the current status of its
progress toward becoming Year 2000 compliant. Contingency plans will continue to
address potential needs during the actual transition of operations on January 1,
2000. In addition, the Company is planning the development of a Year 2000
business continuity plan for its critical business functions that will include
potential failure by critical third parties to address the Year 2000 Issue.
The costs of the Year 2000 project and the date on which management of the
Company believes it will complete Year 2000 modifications are based on
management's best estimates, which are derived utilizing numerous assumptions of
future events, including the continued availability of certain resources and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
13
14
RESULTS OF OPERATIONS
The table below is a summary of the Company's operating results for the years
ended December 31, 1998, 1997 and 1996. See Note 10 in the Notes to Consolidated
Financial Statements for information concerning the Company's discontinued
operations. 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,
---------------------------------------
1998 1997 1996
-------- -------- --------
Net sales ............................................... $1,779.0 $1,657.5 $1,501.8
Gross earnings .......................................... $ 474.7 $ 419.8 $ 372.4
Operating earnings ...................................... $ 248.3 $ 214.9 $ 188.5
Interest expense ........................................ $ 105.7 $ 102.2 $ 94.5
Income from continuing operations ....................... $ 90.6 $ 69.3 $ 58.0
Income (loss) from discontinued operations .............. -- 2.6 (0.3)
Gain on sale of discontinued operations ................. -- 6.1 --
Extraordinary item - loss on early extinguishment of debt (50.6) -- --
-------- -------- --------
Net income .............................................. $ 40.0 $ 78.0 $ 57.7
Gross margins ........................................... 26.7% 25.3% 24.8%
Operating margins ....................................... 14.0% 13.0% 12.6%
1998 COMPARED WITH 1997
NET SALES. Net sales for the year ended December 31, 1998 increased $121.5
million, or 7.3%, to $1,779 million compared with net sales of $1,657.5 million
for the year ended December 31, 1997. The increase in net sales resulted
primarily from higher unit volume in 1998 compared with 1997.
GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1998 of
$474.7 million increased $54.9 million, or 13.1%, compared with $419.8 million
for 1997, and reflect gross margins of 26.7% in 1998 compared with 25.3% in
1997. Gross earnings and margins increased in 1998, primarily as a result of the
increase in unit volume, a better mix of products sold and lower raw material
costs offsetting cost increases related to depreciation expense and wages.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $21.5 million, or 10.5%, for the year ended December 31, 1998,
compared with the same period of 1997, and as a percentage of net sales
represent 12.7% in 1998 and 12.4% in 1997. The increase in selling, general and
administrative expenses for 1998 was due primarily to higher selling,
administrative and warehousing/shipping expenses related to increased unit
volume.
Operating earnings for the year ended December 31, 1998 were $248.3 million, or
14.0% of sales, and increased $33.4 million, or 15.6%, compared with operating
earnings of $214.9 million, or 13.0% of sales, for the year ended December 31,
1997. The increase resulted from the increase in gross earnings offset somewhat
by the increase in selling, general and administrative expenses discussed above.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1998 of
$105.7 million increased $3.5 million compared with interest expense for the
year ended December 31, 1997. The increase was due primarily to higher average
debt levels in the 1998 period compared with the corresponding 1997 average debt
levels offset somewhat by lower interest rates as a result of the refinancing
transactions in the second quarter of 1998.
14
15
RESULTS OF OPERATIONS--CONTINUED
1998 COMPARED WITH 1997--CONTINUED
OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1998
decreased $1.5 million compared with 1997 and consists primarily of the
amortization of deferred financing fees of $3.3 million in 1998 compared with
$3.9 million in 1997 less certain miscellaneous income items in both years.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and nondeductible items.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for the
year ended December 31, 1998 was $90.6 million, or $1.51 per share diluted,
compared with income from continuing operations of $69.3 million, or $1.11 per
share diluted, for the year ended December 31, 1997.
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT. As a result of the
refinancing transactions discussed above, the Company recorded an extraordinary
charge of $50.6 million, net of income taxes of $28.5 million, in the second
quarter of 1998 related to the early extinguishment of debt. The extraordinary
charge consisted primarily of tender premiums and the write-off of deferred debt
fees.
NET INCOME. Net income for the year ended December 31, 1998 was $40 million, or
$.67 per share diluted, compared with net income of $78 million, or $1.25 per
share diluted, for the year ended December 31, 1997.
Diluted per share amounts are based on 59.9 million and 62.7 million average
shares outstanding for the 1998 and 1997 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.
1997 COMPARED WITH 1996
NET SALES. Net sales for the year ended December 31, 1997 increased $155.7
million, or 10.4%, to $1,657.5 million compared with net sales of $1,501.8
million for the year ended December 31, 1996. The increase in net sales resulted
primarily from higher unit volume (including acquisitions) in 1997 compared with
1996.
GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1997 of
$419.8 million increased $47.4 million, or 12.7%, compared with $372.4 million
for 1996, and reflect gross margins of 25.3% in 1997 compared with 24.8% in
1996. Gross earnings and margins increased in 1997, primarily as a result of the
increase in unit volume and lower raw material costs.
OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $21.1 million, or 11.5%, for the year ended December 31, 1997,
compared with the same period of 1996, and as a percentage of net sales
represent 12.4% in 1997 and 12.2% in 1996. The increase in selling, general and
administrative expenses for 1997 was due primarily to acquisitions along with
higher warehousing/shipping and advertising expenses.
Operating earnings for the year ended December 31, 1997 were $214.9 million, or
13.0% of sales, and increased $26.4 million, or 14.0%, compared with operating
earnings of $188.5 million, or 12.6% of sales, for the year ended December 31,
1996. The increase resulted from the increase in gross earnings offset somewhat
by the increase in selling, general and administrative expenses discussed above.
15
16
RESULTS OF OPERATIONS--CONTINUED
1997 COMPARED WITH 1996--CONTINUED
INTEREST EXPENSE. Interest expense for the year ended December 31, 1997 of
$102.2 million increased $7.7 million compared with interest expense for the
year ended December 31, 1996. The increase was due primarily to higher average
debt levels in 1997 compared with the corresponding 1996 average debt levels.
OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1997
decreased $0.5 million compared with 1996. Included in other expense-net for the
years ended December 31, 1997 and 1996 are the amortization of deferred
financing fees of $3.9 million in each year less certain miscellaneous income
items.
INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and nondeductible items.
INCOME FROM CONTINUING/DISCONTINUED OPERATIONS. Income from continuing
operations for the year ended December 31, 1997 was $69.3 million, or $1.11 per
share diluted, compared with income from continuing operations of $58 million,
or $.91 per share diluted, for the year ended December 31, 1996.
Income from discontinued operations for the year ended December 31, 1997 was
$2.6 million, or $.04 per share diluted, compared with a loss from discontinued
operations of $0.3 million for the year ended December 31, 1996.
GAIN ON SALE OF DISCONTINUED OPERATIONS. During the third quarter of 1997 the
Company recorded a gain on the sale of its Alamac Knit Fabrics subsidiary of
$6.1 million, or $.10 per share diluted.
NET INCOME. Net income for the year ended December 31, 1997 was $78 million, or
$1.25 per share diluted, compared with net income of $57.7 million, or $.91 per
share diluted, for the year ended December 31, 1996.
Diluted per share amounts are based on 62.7 million and 63.7 million average
shares outstanding for 1997 and 1996, 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company expects to adopt the new
Statement effective January 1, 2000. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or
financial position.
RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS
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 to manage certain of
its commodities exposures. Such contracts are used principally to manage the
Company's exposure to cotton commodity price risk. The Company does not hold or
issue derivative instruments for trading purposes.
16
17
RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS--CONTINUED
At December 31, 1998, the Company, in its normal course of business, had entered
into various commodity future contracts and forward purchase commodity
contracts. At the end of 1998, a sharp decline in demand for cotton as a result
of conditions in Asia as well as the termination of the U. S. government's
subsidy program caused a steep decline in long-term cotton prices. Thus, based
on year-end forward cotton prices, the Company's futures contracts and forward
purchase contracts at December 31, 1998 (which covered a portion of its 1999
needs) had a net deferred loss of approximately $16.8 million. However,
management believes that the Company's cost of cotton for 1999 will be at least
as favorable as the cost of cotton in 1998.
The hypothetical incremental loss in earnings for the combined commodity
positions at December 31, 1998 is estimated to be approximately $35.6 million,
assuming a decrease of 10% in commodity prices. The sensitivity analysis for
commodities reflects the impact of a hypothetical 10% adverse change in the
market price for such commodities. 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. Based on the Company's floating rate debt outstanding at
December 31, 1998, a 100 basis point increase in market rates would increase
interest expense and decrease income before income taxes by approximately $3.4
million. The amount was determined by calculating the effect of the hypothetical
interest rate on the Company's floating rate debt.
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 value of the Company's total long-term fixed-rate debt at
December 31, 1998 was approximately $1,349.2 million, which exceeded its
carrying value by approximately $13.8 million. A hypothetical 100 basis point
decrease in the prevailing interest rates at December 31, 1998 would result in
an increase in fair value of total long-term debt by approximately $60.6
million. Fair market values are determined from quoted market prices where
available or based on estimates made by investment bankers.
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 February 25,
1999, the maximum commitment under the Senior Credit Facility was $575 million
and the Company had unused borrowing availability under the Senior Credit
Facility totaling $161.5 million. The Senior Credit Facility contains covenants
which, among other things, limit indebtedness and require the maintenance of
certain financial ratios and minimum net worth (as defined).
The Company's principal uses of cash for the next several years will be
operating expenses, capital expenditures and debt service requirements related
primarily to interest payments. The Company spent approximately $147.5 million
in 1998 on capital expenditures and intends to invest approximately $125 million
in 1999.
During 1998, the Company purchased approximately 3.8 million shares under its
various stock repurchase programs, at an average price of $28.43 per share. As
of February 11, 1999, the Board of Directors has approved the purchase of up to
19.0 million shares of the Company's common stock, subject to the Company's debt
limitations. At December 31, 1998, approximately 4.9 million shares, including
the 3.0 million share increase announced in February 1999, remained to be
purchased under these programs.
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. At December 31, 1998 and December 31, 1997, $145 million and
$111.8 million, respectively, had been sold under this program and the sale is
reflected as a reduction of accounts receivable in the Company's Consolidated
Balance Sheets. The cost of the Trade Receivables Program in 1999 is estimated
to total approximately $7 million, compared with $6.5 million in 1998, and will
be charged to selling, general and administrative expenses.
17
18
LIQUIDITY AND CAPITAL RESOURCES--CONTINUED
Debt service requirements for interest payments in 1999 are estimated to total
approximately $101.8 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $103.6 million in 1998. The
Company's long-term indebtedness has no scheduled principal requirements during
1999.
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 and operating expenses and to
enable it to meet its anticipated debt service requirements.
18
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for the years ended December 31, 1998, 1997
and 1996
Report of Ernst & Young LLP, Independent Auditors ....... 20
Consolidated Balance Sheets ............................. 21 - 22
Consolidated Statements of Income ....................... 23
Consolidated Statements of Stockholders' Equity (Deficit) 24
Consolidated Statements of Cash Flows ................... 25
Notes to Consolidated Financial Statements .............. 26 - 39
19
20
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. as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
WestPoint Stevens Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles. 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.
/s/Ernst & Young LLP
Columbus, Georgia
February 9, 1999
20
21
WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------------
1998 1997
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents ..................... $ 527 $ 17,433
Accounts receivable (less allowances of $19,251
and $18,213, respectively) ............... 70,086 92,990
Inventories ................................... 381,022 345,818
Prepaid expenses and other current assets ..... 18,051 22,227
---------- ----------
Total current assets ................ 469,686 478,468
Property, Plant and Equipment
Land .......................................... 6,593 6,463
Buildings and improvements .................... 305,959 270,360
Machinery and equipment ....................... 888,540 779,867
Leasehold improvements ........................ 9,939 11,257
---------- ----------
1,211,031 1,067,947
Less accumulated depreciation and amortization (434,092) (360,796)
---------- ----------
Net property, plant and equipment ... 776,939 707,151
Other Assets
Deferred financing fees ....................... 21,102 19,231
Prepaid pension and other assets .............. 52,257 49,033
Goodwill ...................................... 71,227 37,223
---------- ----------
Total other assets .................. 144,586 105,487
---------- ----------
$1,391,211 $1,291,106
========== ==========
See accompanying notes.
21
22
WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
----------------------------
1998 1997
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Senior Credit Facility ............................. $ 60,400 $ 37,683
Accrued interest payable ........................... 4,777 6,820
Accounts payable ................................... 85,908 75,655
Other accrued liabilities .......................... 140,423 142,382
Current portion of long-term debt .................. -- 3,750
---------- ----------
Total current liabilities .......... 291,508 266,290
Long-Term Debt .............................................. 1,275,000 1,146,250
Noncurrent Liabilities
Deferred income taxes .............................. 236,328 217,178
Other liabilities .................................. 75,827 86,381
---------- ----------
Total noncurrent liabilities ....... 312,155 303,559
Stockholders' Equity (Deficit)
Common Stock and capital in excess of par value:
Common Stock, $.01 par value;
200,000,000 and 75,000,000 shares
authorized, respectively; 70,862,029 and
70,296,310 shares issued, respectively ... 341,489 337,069
Accumulated deficit ................................ (585,115) (625,047)
Treasury stock; 14,576,744 and 10,895,242 shares
at cost, respectively .................... (240,896) (134,223)
Accumulated other comprehensive income (loss) ...... (2,930) (2,792)
---------- ----------
Total stockholders' equity (deficit) (487,452) (424,993)
---------- ----------
$1,391,211 $1,291,106
========== ==========
See accompanying notes.
22
23
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
---------- ---------- ----------
Net sales ..................................................... $1,778,991 $1,657,511 $1,501,795
Cost of goods sold ............................................ 1,304,231 1,237,657 1,129,386
---------- ---------- ----------
Gross earnings .......................................... 474,760 419,854 372,409
Selling, general and administrative expenses .................. 226,437 204,981 183,891
---------- ---------- ----------
Operating earnings ...................................... 248,323 214,873 188,518
Interest expense .............................................. 105,677 102,172 94,505
Other expense-net ............................................. 968 2,461 2,976
---------- ---------- ----------
Income from continuing operations before income tax
expense and extraordinary item ....................... 141,678 110,240 91,037
Income tax expense ............................................ 51,125 40,982 33,085
---------- ---------- ----------
Income from continuing operations before extraordinary item ... 90,553 69,258 57,952
Income (loss) from discontinued operations .................... -- 2,625 (287)
Gain on sale of discontinued operations ....................... -- 6,138 --
Extraordinary item - loss on early extinguishment of debt
(net of income tax benefit of $28,474) ................... (50,621) -- --
---------- ---------- ----------
Net income .............................................. $ 39,932 $ 78,021 $ 57,665
========== ========== ==========
Basic net income (loss) per common share:
Continuing operations ................................... $ 1.57 $ 1.14 $ .92
Discontinued operations ................................. -- .04 --
Gain on sale of discontinued operations ................. -- .10 --
Extraordinary item - loss on early extinguishment of debt (.88) -- --
---------- ---------- ----------
Net income per common share ............................. $ .69 $ 1.28 $ .92
========== ========== ==========
Diluted net income (loss) per common share:
Continuing operations ................................... $ 1.51 $ 1.11 $ .91
Discontinued operations ................................. -- .04 --
Gain on sale of discontinued operations ................. -- .10 --
Extraordinary item - loss on early extinguishment of debt (.84) -- --
---------- ---------- ----------
Net income per common share ............................. $ .67 $ 1.25 $ .91
========== ========== ==========
Basic average common shares outstanding ....................... 57,791 61,078 62,656
Dilutive effect of stock options and stock bonus plan ... 2,158 1,576 1,018
---------- ---------- ----------
Diluted average common shares outstanding ..................... 59,949 62,654 63,674
========== ========== ==========
See accompanying notes.
23
24
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
COMMON
STOCK ACCUMULATED
AND CAPITAL OTHER
IN COMPRE-
EXCESS OF TREASURY STOCK HENSIVE
COMMON PAR ------------------ ACCUMULATED INCOME
SHARES VALUE SHARES AMOUNT DEFICIT (LOSS) TOTAL
------ ----------- ------ ------ ----------- ----------- ---------
Balance, January 1, 1996 ........................ 69,194 $327,850 (5,242) $ (41,051) $(760,733) $(33,526) $(507,460)
Comprehensive income:
Net income ............................ -- -- -- -- 57,665 -- 57,665
Minimum pension liability adjustment .. -- -- -- -- -- 25,595 25,595
Foreign currency translation
adjustment......................... -- -- -- -- -- (22) (22)
---------
Comprehensive income ....................... 83,238
---------
Exercise of management stock options
including tax benefit ................. 220 1,532 -- -- -- -- 1,532
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit ............ -- 12 116 1,226 -- -- 1,238
Purchase of treasury shares ................ -- -- (2,585) (30,491) -- -- (30,491)
------ -------- ------- --------- --------- -------- ---------
Balance, December 31, 1996 ...................... 69,414 329,394 (7,711) (70,316) (703,068) (7,953) (451,943)
Comprehensive income:
Net income ............................ -- -- -- -- 78,021 -- 78,021
Minimum pension liability adjustment .. -- -- -- -- -- 5,595 5,595
Foreign currency translation
adjustment......................... -- -- -- -- -- (434) (434)
---------
Comprehensive income ....................... 83,182
---------
Exercise of management stock options
including tax benefit ................. 882 7,649 (13) (282) -- -- 7,367
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit ............ -- 308 198 2,240 -- -- 2,548
Purchase of treasury shares ................ -- -- (3,369) (66,147) -- -- (66,147)
------ -------- ------- --------- --------- -------- ---------
Balance, December 31, 1997 ...................... 70,296 337,351 (10,895) (134,505) (625,047) (2,792) (424,993)
Comprehensive income:
Net income ............................ -- -- -- -- 39,932 -- 39,932
Minimum pension liability adjustment .. -- -- -- -- -- 813 813
Foreign currency translation
adjustment......................... -- -- -- -- -- (951) (951)
---------
Comprehensive income ....................... 39,794
---------
Exercise of management stock options
including tax benefit ................. 566 5,235 (57) (1,666) -- -- 3,569
Issuance of stock pursuant to Stock Bonus
Plan including tax benefit ............ -- 851 212 2,421 -- -- 3,272
Purchase of treasury shares ................ -- -- (3,837) (109,094) -- -- (109,094)
------ -------- ------- --------- --------- -------- ---------
Balance, December 31, 1998 ...................... 70,862 $343,437 (14,577) $(242,844) $(585,115) $ (2,930) $(487,452)
====== ======== ======= ========= ========= ======== =========
See accompanying notes.
24
25
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 39,932 $ 78,021 $ 57,665
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and other amortization .............................. 80,567 77,225 76,988
Gain on sale of discontinued operations .......................... -- (6,138) --
Deferred income taxes ............................................ 19,588 34,508 26,153
Extraordinary item - loss on early extinguishment of debt ........ 79,095 -- --
Changes in assets and liabilities excluding the effect of
acquisitions, dispositions and the Trade Receivables Program:
Accounts receivable ........................................ (3,319) 1,566 3,939
Inventories ................................................ (31,677) (54,024) 20,817
Prepaid expenses and other current assets .................. 4,211 (6,760) 4,567
Accrued interest payable ................................... (2,043) 283 (118)
Accounts payable and other accrued liabilities ............. 5,320 (18,113) (10,046)
Other-net .................................................. (10,367) (22,976) (8,964)
----------- ----------- ---------
Total adjustments ...................................................... 141,375 5,571 113,336
----------- ----------- ---------
Net cash provided by operating activities .................................. 181,307 83,592 171,001
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................... (147,463) (152,137) (99,943)
Net proceeds from sale of business ..................................... -- 120,840 --
Net proceeds from sale of assets ....................................... 825 1,081 1,098
Purchase of businesses ................................................. (42,169) (57,170) --
----------- ----------- ---------
Net cash used for investing activities ..................................... (188,807) (87,386) (98,845)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior Credit Facility:
Borrowings .......................................................... 1,533,419 1,177,299 645,500
Repayments .......................................................... (1,360,702) (1,088,616) (694,500)
Principal payments on long-term debt ................................... (1,025,000) -- --
Net proceeds from Trade Receivables Program ............................ 33,233 (21,233) 12,045
Purchase of Common Stock for treasury .................................. (110,760) (66,429) (30,491)
Proceeds from sale of notes ............................................ 1,000,000 -- --
Proceeds from issuance of Common Stock ................................. 4,679 6,177 1,332
Fees associated with refinancing ....................................... (84,275) -- --
----------- ----------- ---------
Net cash provided by (used for) financing activities ....................... (9,406) 7,198 (66,114)
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents ....................... (16,906) 3,404 6,042
Cash and cash equivalents at beginning of period ........................... 17,433 14,029 7,987
----------- ----------- ---------
Cash and cash equivalents at end of period ................................. $ 527 $ 17,433 $ 14,029
=========== =========== =========
See accompanying notes.
25
26
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
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
generally accepted accounting principles 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.
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, 1998, substantially all of the Company's
receivables were from companies in the retail industry.
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 $0.5 million and $17.4 million
are included in cash and cash equivalents at December 31, 1998 and 1997,
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, 1998 and 1997, approximately 83% and 84%, respectively, 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 remainder of the
inventories (approximately $65.7 million and $53.4 million at December 31, 1998
and 1997, respectively) are valued at the lower of cost (substantially first-in,
first-out method) or market.
Inventories consist of the following (in thousands of dollars):
DECEMBER 31,
----------------------
1998 1997
--------- ---------
Finished goods ........... $ 170,896 $ 159,539
Work in progress ......... 160,995 139,410
Raw materials and supplies 59,466 58,876
LIFO reserve ............. (10,335) (12,007)
--------- ---------
$ 381,022 $ 345,818
========= =========
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 $79.5 million, $76.5 million,
and $77.0 million in the years ended December 31, 1998, 1997 and 1996,
respectively.
26
27
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED
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
HEDGING TRANSACTIONS. The Company engages in hedging activities within the
normal course of its business. Management has been authorized to manage exposure
to price fluctuations relevant to the purchase of cotton through the use of a
variety of derivative nonfinancial instruments. Derivative nonfinancial
instruments require or permit settlement by the delivery of commodities and
include exchange traded commodity futures contracts and options. Gains and
losses on these hedges, which were not material at December 31, 1998 and 1997,
are deferred and subsequently recognized in income as cost of goods sold in the
same period as the hedged item. The Company does not hold or issue derivative
instruments for trading purposes.
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.
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 which are required by
the Employee Retirement Income Security Act of 1974. During 1998, the Company
adopted Statement No. 132, Employers' Disclosures about Pensions and Other
Post-retirement Benefits. Statement 132 standardizes employer disclosures about
pension and other post-retirement plans; it does not change the measurement or
recognition of such plans. Data from periods prior to 1998 have been restated
for comparative purposes. 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.
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.
FAIR VALUE DISCLOSURES. Cash and cash equivalents: The carrying amounts reported
in the balance sheets for cash and cash equivalents approximates its fair value.
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 or on the
current rates offered to the Company for debt of similar issues. The fair value
of the $1,335 million and $1,188 million of outstanding debt at December 31,
1998 and 1997 was approximately $1,349.2 million and $1,235 million,
respectively.
27
28
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED
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. The assets and liabilities of acquired businesses are
included based on an allocation of the purchase price. 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.
During the year ended December 31, 1997, the Company acquired certain
manufacturing facilities and other operations for approximately $57 million. The
assets acquired consisted of property and equipment, inventories and other
related assets. The excess of the purchase price over the assets acquired was
approximately $38 million.
In October 1998, the Company acquired the operations of a manufacturer of
bedding products for approximately $42.2 million. The assets acquired consisted
of property and equipment, inventories and other related assets. The excess of
the purchase price over the assets acquired was approximately $35.1 million.
Pro forma results have not been presented as they are not significantly
different than reported amounts.
IMPAIRMENT OF LONG-LIVED ASSETS. Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of.
COMMON STOCK. On February 2, 1998, the Board of Directors declared a two-for-one
split of the Company's common stock, effected in the form of a stock dividend
payable on March 2, 1998 to stockholders of record on February 16, 1998. All
agreements concerning stock options and other commitments payable in shares of
the Company's common stock provide for the issuance of additional shares due to
the declaration of the stock split. This stock split has been reflected in the
Consolidated Statements of Stockholders' Equity (Deficit) at January 1, 1996.
All references to number of shares, except shares authorized, and to per share
information in the accompanying consolidated financial statements have been
adjusted to reflect the stock split on a retroactive basis.
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 excludes any dilutive effects of options, warrants and convertible
securities. All earnings per share amounts for all periods have been presented,
and where appropriate, restated to conform to the Statement 128 requirements.
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 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities. The statement will require the Company to recognize all
derivatives on the balance sheet at fair value.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. Statement of Position 98-1 provides
guidance that requires the capitalization of certain costs incurred during an
internal-use software development project.
The Company plans to adopt Statement 133 at January 1, 2000 and Statement of
Position 98-1 in 1999, but has not yet completed its analysis of the impact that
these pronouncements may have on its financial statements.
RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform with the 1998 presentation.
28
29
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS
Indebtedness is as follows (in thousands of dollars):
DECEMBER 31,
------------------
1998 1997
------- -------
Short-term indebtedness
Senior Credit Facility ............ $60,400 $37,683
9% Sinking Fund Debentures
due 2017....................... -- 3,750
------- -------
$60,400 $41,433
======= =======
Long-term indebtedness
Senior Credit Facility ....................... $ 275,000 $ 125,000
7 7/8% Senior Notes due 2005 ................. 525,000 --
7 7/8% Senior Notes due 2008 ................. 475,000 --
8 3/4% Senior Notes due 2001 ................. -- 400,000
9 3/8% Senior Subordinated Debentures
due 2005.................................. -- 550,000
9% Sinking Fund Debentures due 2017 .......... -- 71,250
---------- ----------
$1,275,000 $1,146,250
========== ==========
On April 29, 1998, the Company announced cash tender offers and consent
solicitations for all of its then outstanding 8 3/4% Senior Notes due 2001 and
its 9 3/8% Senior Subordinated Debentures due 2005. The tender offers were
consummated on June 9, 1998. The Company purchased the tendered notes with the
proceeds from the issuance of $525 million of its 7 7/8% Senior Notes due 2005
and $475 million of its 7 7/8% Senior Notes due 2008 and with the proceeds from
the refinancing of its existing Senior Credit Facility with an amended and
restated Senior Credit Facility that provided for a term of 6 1/2 years and an
increased commitment to $550 million. The issuance of the new notes and the
amendment and restatement of the Senior Credit Facility were also consummated on
June 9, 1998. On June 10, 1998, the Company announced the redemption of its 9%
Sinking Fund Debentures due 2017 and the redemption was consummated on July 9,
1998 with available borrowings under the Senior Credit Facility. During the
third quarter of 1998, the Company amended the Senior Credit Facility to provide
for an increased commitment to $575 million. As a result of the refinancing
transactions discussed above, the Company recorded an extraordinary charge of
$50.6 million, net of income taxes of $28.5 million, related to the early
extinguishment of debt. The extraordinary charge consisted primarily of tender
premiums and the write-off of deferred debt fees.
The Company's Senior Credit Facility with certain lenders (collectively, the
"Banks") consists of a $575 million revolving credit facility ("Revolver") due
November 30, 2004. The Company has included $275 million of Revolver in
long-term debt at December 31, 1998 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 $26.7
million of outstanding letters of credit at December 31, 1998.
At the option of the Company, interest under the Senior Credit Facility will be
payable monthly, either at the prime rate or at LIBOR plus 0.75%. Upon the
Company achieving certain ratios of EBITDA (as defined) to cash interest
expense, interest rates can be reduced up to 0.5%. At December 31, 1998, the
interest rates under this facility were LIBOR plus 0.5%. The Company pays a
facility fee in an amount equal to 0.25% 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.
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.
29
30
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED
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, commencing December 15,
1998. 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. Certain provisions
require the Company to maintain certain financial ratios, a minimum interest
coverage ratio and a minimum consolidated net worth (as defined). At December
31, 1998, the Company could have made restricted payments aggregating
approximately $55.1 million.
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 December 1998, the Company replaced its existing Trade
Receivables Program with a new one-year agreement with an independent issuer of
receivables backed commercial paper. This new agreement replaced an agreement
that would have expired in May 1999. Under the terms of the new 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 new agreement permits the sale of up to $155
million of accounts receivable. The cost of the Trade Receivables Program is
charged to selling and administrative expense in the accompanying Consolidated
Statements of Income. At December 31, 1998 and 1997, $145.0 million and $111.8
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.
Excluding amounts related to the Revolver, there are no maturities of long-term
debt for the next five years.
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, 1998
and 1997 (in thousands of dollars):
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
--------- ---------
Change in benefit obligation:
Projected benefit obligation at beginning of year $ 311,001 $ 312,981
Service cost .................................... 7,838 7,138
Interest cost ................................... 23,080 24,410
Actuarial gains ................................. 15,040 9,829
Benefit payments ................................ (25,113) (26,210)
Divestiture ..................................... -- (17,147)
--------- ---------
Projected benefit obligation at end of year ......... $ 331,846 $ 311,001
========= =========
Change in plan assets:
Fair value of plan assets at beginning of year .. $ 331,396 $ 299,892
Actual return on plan assets .................... 26,039 52,843
Employer contributions .......................... 8,417 17,622
Benefit payments ................................ (25,113) (26,210)
Divestiture ..................................... -- (12,751)
--------- ---------
Fair value of plan assets at end of year ............ $ 340,739 $ 331,396
========= =========
30
31
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EMPLOYEE BENEFIT PLANS--CONTINUED
PENSION PLANS--CONTINUED
DECEMBER 31,
-----------------------
1998 1997
--------- ---------
Funded status:
Projected benefit obligation .............. $(331,846) $(311,001)
Fair value of assets ...................... 340,739 331,396
--------- ---------
Funded status ............................. 8,893 20,395
--------- ---------
Unrecognized amounts:
Prior service cost ..................... (38) (56)
Net actuarial losses ................... 42,729 21,796
Accumulated comprehensive income (loss) -- (1,291)
--------- ---------
Total unrecognized ..................... 42,691 20,449
--------- ---------
Prepaid pension cost at year-end .............. $ 51,584 $ 40,844
========= =========
Weighted average assumptions as of December 31:
Discount rate ............................. 7.25% 7.75%
Expected return on plan assets ............ 10.0% 10.0%
Rate of compensation increase ............. 3.5% 3.5%
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
-------- --------
Components of net periodic pension cost (benefit):
Service cost ................................. $ 7,838 $ 7,138
Interest cost ................................ 23,080 24,410
Expected return on plan assets ............... (32,177) (29,460)
Net amortization ............................. 227 557
-------- --------
Net periodic pension cost (benefit) .............. $( 1,032) $ 2,645
======== ========
Plan assets are primarily invested in United States Government and corporate
debt securities and equity securities. At December 31, 1998, the Company's
pension plans held 705,558 shares of the Company's common stock with an
aggregate cost of $20 million and a market value of $22.3 million. At December
31, 1997, the Company's pension plans held investments in securities issued by
the Company with a market value of $14.2 million.
RETIREMENT SAVINGS PLAN
The Company matches 50 percent of each employee's before-tax contributions up to
two percent of the employee's compensation. Company contributions may be made
either in cash or in shares of Common Stock of the Company. During 1998, 1997
and 1996, the Company charged $2.3 million, $2.2 million and $2.4 million,
respectively, to expense in connection with the 401K Plan.
31
32
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EMPLOYEE BENEFIT PLANS--CONTINUED
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,
-------------------
1998 1997
------- -------
Accumulated post-retirement benefit obligation at beginning of year $17,517 $18,111
Service cost .................................................. 1 3
Interest cost ................................................. 1,194 1,369
Actuarial gains ............................................... (729) (144)
Benefit payments .............................................. (1,810) (1,822)
------- -------
Accumulated post-retirement benefit obligation at end of year ..... $16,173 $17,517
======= =======
Net periodic post-retirement benefit plans expense is not material during the
three year period ended December 31, 1998.
As of December 31, 1998, the actuarial assumptions include a discount rate of
7.25% and a medical care trend rate of 7.0% for 1999, grading down to 6% by
2002. 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, 1998 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, 1998 by an immaterial amount.
4. OTHER EXPENSE--NET
Included in "Other expense-net" in the accompanying Consolidated Statements of
Income for each of the years in the three year period ended December 31, 1998,
1997 and 1996, are the amortization and write-off of deferred financing fees of
$3.3 million, $3.9 million and $3.9 million, respectively, less certain
miscellaneous income items.
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 related to continuing operations
before extraordinary item consisted of the following (in thousands of dollars):
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
------- ------- -------
Current
Federal $ 966 $ 2,945 $ 957
State . 792 2,302 630
Foreign (50) 461 621
Deferred ...... 49,417 40,247 30,492
------- ------- -------
$51,125 $45,955 $32,700
======= ======= =======
32
33
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES--CONTINUED
Income tax expense (benefit) is included in the financial statements as follows
(in thousands of dollars):
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
Continuing operations ................. $ 51,125 $ 40,982 $ 33,085
Discontinued operations ............... -- 1,368 (385)
Gain on sale of discontinued
operations......................... -- 3,605 --
-------- -------- --------
$ 51,125 $ 45,955 $ 32,700
======== ======== ========
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,
------------------------------
1998 1997 1996
-------- -------- --------
Income tax expense (benefit) at federal statutory income
tax rate ........................................... $ 49,587 $ 43,391 $ 31,628
State income taxes (net of effect of federal
income tax) ........................................ 1,232 2,264 1,183
Other-net .............................................. 306 300 (111)
-------- -------- --------
Income tax expense ..................................... $ 51,125 $ 45,955 $ 32,700
======== ======== ========
Components of the net deferred income tax liability are as follows (in thousands
of dollars):
DECEMBER 31,
----------------------
1998 1997
--------- ---------
Deferred tax liabilities:
Basis differences resulting from reorganization ................... $(148,501) $(137,783)
Accelerated depreciation .......................................... (77,398) (69,620)
Income taxes related to prior years, including interest ........... (17,264) (16,989)
Nondeductible expenses ............................................ (37,948) (44,774)
Other ............................................................. (1,424) (1,716)
Deferred tax assets:
Reserves for litigation, environmental, employee benefits
and other...................................................... 37,543 45,244
Other ............................................................. 8,664 8,460
--------- ---------
$(236,328) $(217,178)
========= =========
At December 31, 1998, the Company has estimated operating net loss carryforwards
("NOLs") expiring in 2004-2009 of approximately $271 million available to reduce
future federal taxable income. 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.
33
34
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT)
COMPREHENSIVE INCOME
In 1998 the Company adopted Statement No. 130, Reporting Comprehensive Income.
Statement 130 requires presentation of comprehensive income (net income plus
changes in currency translation adjustments and minimum pension liability). The
Company has changed the format of the Consolidated Statements of Stockholders'
Equity (Deficit) to present comprehensive income for all periods.
Components of accumulated other comprehensive income (loss) consist of the
following (in thousands of dollars):
DECEMBER 31,
--------------------------------
1998 1997 1996
------- ------- -------
Foreign currency translation adjustment ..... $(2,930) $(1,979) $(1,545)
Minimum pension liability ................... -- (1,291) (10,171)
Income tax benefit .......................... -- 478 3,763
------- ------- -------
Accumulated other comprehensive
income (loss).............................. $(2,930) $(2,792) $(7,953)
======= ======= =======
STOCK OPTIONS
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 which 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 5.4 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 approximately equal to fair market value on
the date of grant. 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 the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
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 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 1998, 1997 and 1996, respectively:
risk-free interest rates of 5.6%, 6.1% and 6.2%; no dividend yield; volatility
factors of the expected market price of the Company's common stock of .265, .25
and .29; and a weighted-average expected life of the option of 8 years.
34
35
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT)--CONTINUED
STOCK OPTIONS--CONTINUED
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which 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 1998 pro forma net income of $35.5 million (or
pro forma diluted net income per share of $.59), 1997 pro forma net income of
$75.5 million (or pro forma diluted net income per share of $1.20) and 1996 pro
forma net income of $57.2 million (or pro forma diluted net income per share of
$.90).
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 December 31, 1995 1,738 520 2,258 $ 6.57
Granted ............................ 1,776 -- 1,776 $13.34
Exercised and terminated ........... (134) (110) (244) $ 6.07
------ ------ ------ ------
Options outstanding at December 31, 1996 3,380 410 3,790 $ 9.78
Granted ............................ 1,176 20 1,196 $20.07
Exercised and terminated ........... (514) (390) (904) $ 7.15
------ ------ ------ ------
Options outstanding at December 31, 1997 4,042 40 4,082 $13.37
Granted ............................ 754 -- 754 $34.08
Exercised and terminated ........... (605) -- (605) $ 8.79
------ ------ ------ ------
Options outstanding at December 31, 1998 4,191 40 4,231 $17.71
====== ====== ====== ======
At December 31, 1998, options for 2,362,316 shares were exercisable.
STOCK BONUS PLAN
The Company sponsors an employee benefit plan, the WestPoint Stevens Inc. 1995
Key Employee Stock Bonus Plan (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 1998, 1997 and 1996, respectively, bonus awards were deemed earned by
forty-nine, forty-seven and fifty-three employees covering an aggregate of
266,121 shares, 398,456 shares and 643,464 shares of Common Stock. For
performance year 1998 and earlier the Amended Stock Bonus Plan provided for
vesting of the bonus awards of 20 percent on January 1 of the year following the
year of award and 20 percent in each of the next four years if the employee
continues employment with the Company. The Company charged $6.6 million, $4.4
million and $3.4 million to expense in 1998, 1997 and 1996, respectively, in
connection with the Stock Bonus Plan.
35
36
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS
The Company's operating leases, including sublease arrangements with divested
operations, consist of land, sales offices, manufacturing equipment, warehouses
and data processing equipment with expiration dates at various times during the
next sixteen 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. Some of the Company's leases,
principally sales office space and manufacturing equipment, are sublet to others
under leases expiring over the next two years.
The following is a schedule, by year, of future minimum lease payments as of
December 31, 1998 under operating leases, including sublease arrangements, that
have initial or remaining noncancellable lease terms in excess of one year (in
thousands of dollars):
YEAR ENDING DECEMBER 31,
1999 ................................................... $ 24,112
2000 ................................................... 19,132
2001 ................................................... 13,634
2002 ................................................... 10,339
2003 ................................................... 8,579
Years subsequent to 2003 ............................... 11,970
--------
Total minimum lease payments ........................... 87,766
Minimum sublease rentals ............................... (3,206)
--------
Net minimum lease payments required for operating leases $ 84,560
========
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,
-------------------------------
1998 1997 1996
------- ------- -------
Minimum lease payments $34,295 $30,662 $40,217
Less sublease rentals (3,738) (3,986) (4,761)
------- ------- -------
Rent expense ......... $30,557 $26,676 $35,456
======= ======= =======
8. LITIGATION AND CONTINGENT LIABILITIES
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 non-hazardous 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
36
37
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LITIGATION AND CONTINGENT LIABILITIES--CONTINUED
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. CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest .......................................... $107,720 $107,410 $102,565
======== ======== ========
Income taxes ...................................... $ 2,326 $ 9,444 $ 5,733
======== ======== ========
10. DISCONTINUED OPERATIONS
On August 27, 1997, the Company closed a transaction pursuant to which WestPoint
Stevens sold its subsidiaries AIH Inc., Alamac Knit Fabrics, Inc. and Alamac
Enterprises Inc. (collectively, "Alamac Knit Fabrics subsidiary"), other than
cash, accounts receivable of approximately $42.5 million and a yarn mill located
in Whitmire, S.C., to Dyersburg Corporation for approximately $126 million. The
Whitmire facility was transferred by the Company to Home Fashions to support the
Company's expansion of its sheeting production capacity. As a result of the
transaction, the Company accounted for the Alamac Knit Fabrics subsidiary as a
discontinued operation and the accompanying financial statements have been
adjusted and restated accordingly.
Data relative to Alamac Knit Fabrics subsidiary is as follows (in thousands of
dollars):
YEAR ENDED
PERIOD ENDED DECEMBER 31,
AUGUST 27, 1997 1996
---------------- -------------
Net sales .................................... $162,428 $222,019
======== ========
Operating earnings ........................... $ 9,189 $ 7,051
======== ========
Net income (loss) ............................ $ 2,625 $ (287)
======== ========
Gain on sale, net of income taxes of $3,605 .. $ 6,138
========
Capital expenditures, including
capital leases............................ $ 3,237 $ 4,998
======== ========
Depreciation and other amortization .......... $ 5,501 $ 8,059
======== ========
37
38
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. MAJOR CUSTOMER INFORMATION
The Company's consumer home fashions products are sold primarily to domestic
chain stores, mass merchants, department and specialty stores. Sales to two
customers, as a percent of net sales, amounted to approximately 13% and 11% for
the year ended December 31, 1998. Sales to two customers, as a percent of net
sales, amounted to approximately 13% and 10% for the year ended December 31,
1997. Sales to three customers, as a percent of net sales, amounted to
approximately 13%, 12% and 10% for the year ended December 31, 1996. During
1998, 1997 and 1996, the Company's six largest customers accounted for
approximately 53%, 52% and 55%, respectively, of the Company's net sales.
38
39
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
QUARTER
---------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1998
Net sales ................................................... $398.7 $437.0 $473.2 $470.1
Gross earnings .............................................. 99.5 113.3 134.4 127.6
Operating earnings .......................................... 44.4 52.6 79.3 72.0
Income from continuing operations ........................... 11.7 15.8 34.1 29.0
Extraordinary item - loss on early extinguishment of debt ... -- (50.6) -- --
------ ------ ------ ------
Net income (loss) ........................................... 11.7 (34.8) 34.1 29.0
Basic net income (loss) per common share (1):
Continuing operations ................................... .20 .27 .59 .51
Extraordinary item - loss on early extinguishment of debt -- (.87) -- --
------ ------ ------ ------
Net income (loss) per common share ...................... .20 (.60) .59 .51
Diluted net income (loss) per common share (1):
Continuing operations ................................... .19 .26 .57 .49
Extraordinary item - loss on early extinguishment of debt -- (.83) -- --
------ ------ ------ ------
Net income (loss) per common share ...................... .19 (.57) .57 .49
YEAR ENDED DECEMBER 31, 1997
Net sales ................................................... $357.1 $395.8 $459.0 $445.6
Gross earnings .............................................. 89.2 96.2 122.1 112.3
Operating earnings .......................................... 38.5 43.1 69.2 64.1
Income from continuing operations ........................... 9.0 10.7 26.5 23.1
Income from discontinued operations ......................... 1.1 1.1 0.4 --
Gain on sale of discontinued operations ..................... -- -- 6.1 --
------ ------ ------ ------
Net income .................................................. 10.1 11.8 33.0 23.1
Basic net income per common share (1):
Continuing operations ................................... .14 .18 .43 .39
Discontinued operations ................................. .02 .01 .01 --
Gain on sale of discontinued operations ................. -- -- .10 --
------ ------ ------ ------
Net income per common share ............................. .16 .19 .54 .39
Diluted net income per common share (1):
Continuing operations ................................... .14 .17 .42 .38
Discontinued operations ................................. .02 .01 .01 --
Gain on sale of discontinued operations ................. -- -- .10 --
------ ------ ------ ------
Net income per common share ............................. .16 .18 .53 .38
- -----------
(1)Net income (loss) per common share calculations for each of the quarters is
based on the average common shares outstanding for each period.
39
40
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 1999 definitive proxy statement (under the caption "Board of
Directors") to be filed with the Securities and Exchange Commission by April 9,
1999 (the "1999 Proxy Statement").
IDENTIFICATION OF EXECUTIVE OFFICERS
The information called for in this item is incorporated by reference from the
Company's 1999 Proxy Statement (under the caption "Management").
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference from the
Company's 1999 Proxy Statement (under the caption "Executive Compensation").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated by reference from the
Company's 1999 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 1999 Proxy Statement (under the captions "Security Ownership of
Certain Beneficial Owners and Management" and "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,
1998.
PAGE
-------
Report of Ernst & Young LLP, Independent Auditors ...... 20
Consolidated Balance Sheets ............................. 21 - 22
Consolidated Statements of Income ....................... 23
Consolidated Statements of Stockholders' Equity (Deficit) 24
Consolidated Statements of Cash Flows ................... 25
Notes to Consolidated Financial Statements .............. 26 - 39
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."
40
41
FINANCIAL STATEMENT SCHEDULES
PAGE
----
Schedule II -- Valuation and Qualifying Accounts.......... 46
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, 1998.
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(b) 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.
4 Form 15 (Commission File No. 0-21496) filed by the Company
with the Commission on May 25, 1995, incorporated by reference
herein.
10.1 Rights Agreement, dated as of September 16, 1992, between the
Company, The Bank of New York, as rights agent, as amended by
Amendment No. 1 to Rights Agreement, dated as of March 12,
1993, and Amendment No. 2 to Rights Agreement, dated as of
December 10, 1993, incorporated by reference to the
Registration Statement on Form 10/A (Commission File No.
0-21496) filed by the Company on January 6, 1994.
10.2 Form of Restated Plan Registration Rights Agreement dated as
of May 7, 1993, among the Company and the Existing Holders (as
defined therein), incorporated by reference to the
Registration Statement on Form 10 (Commission File No.
0-21496) filed by the Company on July 1, 1993.
10.3 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.
10.4 Amended and Restated Credit Agreement, dated as of May 7,
1993, by and among West Point-Pepperell, Inc., the banks
listed on the signature pages thereof, Bankers Trust Company,
as administrative agent, and The Chase Manhattan Bank, N.A.,
Citicorp USA, Inc., NationsBank of North Carolina, Inc., The
Bank of New York and The Bank of Nova Scotia, as co-agents,
incorporated by reference to the Registration Statement on
Form 10 (Commission File No. 0-21496) filed by Valley Fashions
Corp. with the Commission on July 1, 1993.
10.5 Employment Agreement, dated as of March 8, 1993, between West
Point-Pepperell, Inc. and Holcombe T. Green, Jr., together
with Letter, dated as of March 8, 1993, from the Company to
Holcombe T. Green, Jr., incorporated by reference to the
Registration Statement on Form 10 (Commission File No.
0-21496) filed by Valley Fashions Corp. (since renamed
WestPoint Stevens Inc.) with the Commission on July 1, 1993.
41
42
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.6 Employment Agreement, dated as of April 1, 1993, between West
Point-Pepperell, Inc. and Morgan M. Schuessler, together with
Letter, dated as of April 1, 1993, from the Company to Morgan
M. Schuessler, incorporated by reference to the Registration
Statement on Form 10 (Commission File No. 0-21496) filed by
Valley Fashions Corp. (since renamed WestPoint Stevens Inc.)
with the Commission on July 1, 1993.
10.7 Employment Agreement, dated as of February 1, 1993, between
West Point-Pepperell, Inc. and Joseph L. Jennings, Jr.,
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.
10.8 Employment Agreement, dated as of March 8, 1993, between West
Point-Pepperell, Inc. and Thomas J. Ward, 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.
10.9 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.
10.10 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.
10.11 Description of 1993 Senior Management Incentive Plan,
incorporated by reference to the Company's 1994 Proxy
Statement (Commission File No. 0-21496) filed by the Company
with the Commission.
10.12 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.
10.13 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.
10.14 Credit Agreement, dated as of December 1, 1993, among Valley
Fashions Corp., Bankers Trust Company as Administrative Agent,
the Co-Agents parties thereto and the other financial
institutions parties thereto as amended on December 10, 1993,
incorporated by reference to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (Commission File
No. 0-21496) filed by the Company with the Commission.
10.15 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.
10.16 Amended and Restated Credit Agreement dated November 23, 1994,
among the Company, NationsBank of North Carolina, N.A. as
Administrative Agent, the Co-Agents parties thereto and the
other financial institutions parties thereto, 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.
10.17 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.
10.18 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.
42
43
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.19 Description of Senior Management Incentive Plan, incorporated
by reference to the Company's 1995 Proxy Statement (Commission
File No. 0-21496) filed by the Company with the Commission on
April 7, 1995.
10.20 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.
10.21 Amendment Agreement dated December 4, 1995 among the Company,
NationsBank, N.A., The Bank of New York, The First National
Bank of Boston, The First National Bank of Chicago, The Nippon
Credit Bank, Ltd., Wachovia Bank of Georgia, N.A., Trust
Company Bank, AmSouth Bank of Alabama and ABN AMRO Bank, N.V.,
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.
10.22 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.
10.23 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.
10.24 Second Amendment and Waiver Agreement dated as of January 23,
1997, among the Company, NationsBank, N.A. (formerly known as
NationsBank of North Carolina, N.A., the Bank of New York, The
First National Bank of Boston, The First National Bank of
Chicago, The Nippon Credit Bank, Ltd., Wachovia Bank of
Georgia, N.A., SunTrust Bank, Atlanta (formerly known as Trust
Company Bank), AmSouth Bank of Alabama, and ABN AMRO Bank,
N.V., 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.
10.25 Credit Agreement dated as of January 23, 1997, among WestPoint
Stevens (UK) Limited, P.J. Flower & Co. Limited, as the
Borrowers, the Company as Guarantor, the several lenders
identified on the signature pages thereto and such other
lenders as may from time to time become a party thereto and
NationsBank, N.A., as agent for the Lenders, 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.
10.26 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.
10.27 Employment Agreement effective January 1, 1997 between the
Company and Joseph L. Jennings superseding the Employment
Agreement of February 1, 1993, 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.
10.28 WestPoint Stevens Inc. Omnibus Stock Incentive Plan,
incorporated by reference to the Company's 1997 Proxy
Statement for the fiscal year ended December 31, 1996
(Commission File No. 0-21496) filed by the Company with the
Commission.
10.29 Third Amendment Agreement, dated as of May 22, 1997, among the
Company, as Borrower, NationsBank, N.A. (formerly known as
NationsBank of North Carolina, N.A.), The Bank of New York,
The First National Bank of Boston, The First National Bank of
Chicago, Scotiabank Inc., Wachovia Bank of Georgia, N.A.,
SunTrust Bank, Atlanta, AmSouth Bank of Alabama, and ABN AMRO
Bank, N.V., incorporated by reference to the Form 10-Q for the
quarterly period ended June 30, 1997 (Commission File No.
0-21496) filed by the Company with the Commission.
43
44
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.30 Stock Purchase Agreement by and among Dyersburg Corporation,
as Purchaser, Alamac Sub Holdings Inc., as Seller, AIH Inc.
and Company dated as of July 15, 1997, incorporated by
reference to the Current Report on Form 8-K (Commission File
No. 0-21496) filed by the Company with the Commission on
September 11, 1997.
10.31 Supplemental Agreement relating to Phase II Environmental
Investigation among Alamac Sub Holdings Inc., AIH Inc.,
Company and Dyersburg Corporation dated as of July 15, 1997,
incorporated by reference to the Current Report on Form 8-K
(Commission File No. 0-21496) filed by the Company with the
Commission on September 11, 1997.
10.32 Amendment to Stock Purchase Agreement among Alamac Sub
Holdings Inc., AIH Inc., Company and Dyersburg Corporation
dated as of August 15, 1997, incorporated by reference to the
Current Report on Form 8-K (Commission File No. 0-21496) filed
by the Company with the Commission on September 11, 1997.
10.33 Supplemental Environmental Indemnity among Alamac Sub Holdings
Inc., AIH Inc., Company and Dyersburg Corporation dated as of
August 20, 1997, incorporated by reference to the Current
Report on Form 8-K (Commission File No. 0-21496) filed by the
Company with the Commission on September 11, 1997.
10.34 Second Supplemental Environmental Indemnity among Alamac Sub
Holdings Inc., AIH Inc., Company and Dyersburg Corporation
dated as of August 27, 1997, incorporated by reference to the
Current Report on Form 8-K (Commission File No. 0-21496) filed
by the Company with the Commission on September 11, 1997.
10.35 Assignment and Assumption Agreement among Company (the
"Assignor"), Alamac Knit Fabrics, Inc. (the "Assignee") and
Dyersburg Corporation dated as of August 27, 1997,
incorporated by reference to the Current Report on Form 8-K
(Commission File No. 0-21496) filed by the Company with the
Commission on September 11, 1997.
10.36 Letter Amendment Agreement, dated as of July 22, 1997, among
the Company, as Borrower, NationsBank, N.A. (formerly known as
NationsBank of North Carolina, N.A.), The Bank of New York,
BankBoston, N.A. (formerly known as The First National Bank of
Boston), The First National Bank of Chicago, Scotiabank Inc.,
Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta,
AmSouth Bank of Alabama and ABN AMRO Bank, N.A., incorporated
by reference to the Form 10-Q for the quarterly period ended
September 30, 1997 (Commission File No. 0-21496) filed by the
Company with the Commission.
10.37 Letter Amendment Agreement, dated as of August 5, 1997, among
the Company, as Borrower, NationsBank, N.A. (formerly known as
NationsBank of North Carolina, N.A.), The Bank of New York,
BankBoston, N.A. (formerly known as The First National Bank of
Boston), The First National Bank of Chicago, Scotiabank Inc.,
Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta,
AmSouth Bank of Alabama, and ABN AMRO Bank, N.V., incorporated
by reference to the Form 10-Q for the quarterly period ended
September 30, 1997 (Commission File No. 0-21496) filed by the
Company with the Commission.
10.38 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.
10.39 Form of Old 7-7/8% Senior Notes due 2005 (included in the
Indenture incorporated by reference as Exhibit 10.38),
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.
10.40 Form of Exchange 7-7/8% Senior Notes due 2005 (included in the
Indenture incorporated by reference as Exhibit 10.38),
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.
44
45
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.41 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.
10.42 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.
10.43 Form of Old 7-7/8% Senior Notes due 2008 (included in the
Indenture incorporated by reference as Exhibit 10.42),
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.
10.44 Form of Exchange 7-7/8% Senior Notes due 2008 (included in the
Indenture incorporated by reference as Exhibit 10.42),
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.
10.45 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.
10.46 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.
10.47 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.
10.48 Amendment dated October 29, 1998 to the WestPoint Stevens Inc.
1995 Key Employee Stock Bonus Plan (As Amended).
10.49 Receivables Purchase Agreement dated as of December 18, 1998,
by and between the Company and WPS Receivables Corporation.
10.50 Non-Negotiable Promissory Note, dated as of December 18, 1998,
by WPS Receivables Corporation in favor of the Company.
10.51 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.
21 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
27.1 Financial Data Schedule for the period ended December 31, 1998
(for SEC use only)
45
46
WESTPOINT STEVENS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
PERIOD EXPENSES DEDUCTIONS ADJUSTMENTS(3) PERIOD (4)
------ -------- ---------- -------------- ----------
Year Ended December 31, 1998
Accounts receivable allowances:
Doubtful accounts ............ $13,137 $ 1,627 $1,506(1) $ 90 $13,348
Cash and/or trade discounts
and returns and allowances 5,076 334(2) -- 493 5,903
------- ------- ------ ------ -------
$18,213 $ 1,961 $1,506 $ 583 $19,251
======= ======= ====== ====== =======
Inventory reserves:
Market and obsolescence ...... $21,050 $ 4,176(2) $ -- $1,900 $27,126
======= ======= ====== ====== =======
Year Ended December 31, 1997
Accounts receivable allowances:
Doubtful accounts ............ $12,536 $ 1,555 $1,001(1) $ 47 $13,137
Cash and/or trade discounts
and returns and allowances 4,429 428(2) -- 219 5,076
------- ------- ------ ------ -------
$16,965 $ 1,983 $1,001 $ 266 $18,213
======= ======= ====== ====== =======
Inventory reserves:
Market and obsolescence ...... $15,599 $ 2,252(2) $ -- $3,199 $21,050
======= ======= ====== ====== =======
Year Ended December 31, 1996
Accounts receivable allowances:
Doubtful accounts ............ $12,107 $ 615 $ 186(1) $ -- $12,536
Cash and/or trade discounts
and returns and allowances 5,360 (931)(2) -- -- 4,429
------- ------- ------ ------ -------
$17,467 $ (316) $ 186 $ -- $16,965
======= ======= ====== ====== =======
Inventory reserves:
Market and obsolescence ...... $16,810 $(1,211)(2) $ -- $ -- $15,599
======= ======= ====== ====== =======
(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.
46
47
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 31, 1999
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/ Morgan M. Schuessler
------------------------------------------ -----------------------------------------------
Holcombe T. Green, Jr. Morgan M. Schuessler
Chairman of the Board and Chief Executive Executive Vice President/Finance
Officer (principal executive officer) and Chief Financial Officer
(principal financial officer)
March 31, 1999 March 31, 1999
By /s/ Thomas J. Ward By /s/ J. Nelson Griffith
------------------------------------------ -----------------------------------------------
Thomas J. Ward J. Nelson Griffith
President and Chief Operating Officer Controller
(principal accounting officer)
March 31, 1999 March 31, 1999
By /s/ Hugh M. Chapman By /s/ M. Katherine Dwyer
------------------------------------------ -----------------------------------------------
Hugh M. Chapman M. Katherine Dwyer
Director Director
March 31, 1999 March 31, 1999
47
48
By /s/ John G. Hudson By /s/ Charles W. McCall
------------------------------------------ -----------------------------------------------
John G. Hudson Charles W. McCall
Director Director
March 31, 1999 March 31, 1999
By /s/ Gerald B. Mitchell . By /s/ Phillip Siegel
------------------------------------------ -----------------------------------------------
Gerald B. Mitchell Phillip Siegel
Director Director
March 31, 1999 March 31, 1999
By /s/ John F. Sorte
------------------------------------------
John F. Sorte
Director
March 31, 1999
48