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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission File Number 1-06922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
4925 West Market Street, Greensboro, N.C. 27407
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (336) 316-4000
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 ( )
Number of shares of common stock outstanding
at August 6, 2002 - 18,620,776
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by Guilford Mills, Inc. (the "Company" or "Guilford"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Condensed Consolidated Balance Sheet as of September 30, 2001 has been taken
from the audited financial statements as of that date. Certain information and
note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest annual report on Form 10-K for
the year ended September 30, 2001.
The condensed consolidated financial statements included herein reflect all
adjustments (none of which are other than normal recurring accruals) which are,
in the opinion of management, necessary for a fair presentation of the
information included. For comparative purposes, certain amounts have been
reclassified to conform with fiscal 2002 presentation. The following condensed
consolidated financial statements are included:
Consolidated Statements of Operations for the thirteen weeks ended June
30, 2002 and July 1, 2001
Consolidated Statements of Operations for the thirty-nine weeks ended
June 30, 2002 and July 1, 2001
Condensed Consolidated Balance Sheets as of June 30, 2002 and
September 30, 2001
Condensed Consolidated Statements of Cash Flows for the thirty-nine
weeks ended June 30, 2002 and July 1, 2001
Condensed Notes to Consolidated Financial Statements
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Debtors-In-Possession)
For the Thirteen Weeks Ended June 30, 2002 and July 1, 2001
(In thousands except per share data)
(Unaudited)
-------------------------------------------------------------------------- --------------------- ---------------------
June 30, July 1,
2002 2001
-------------------------------------------------------------------------- --------------------- ---------------------
Net Sales $ 133,555 $ 158,098
Costs and Expenses:
Cost of goods sold 119,668 152,010
Selling and administrative 15,911 21,992
Reorganization costs 4,723 --
Restructuring and impaired asset charges 6,532 4,576
-------------------------------------------------------------------------- --------------------- ---------------------
-------------------------------------------------------------------------- --------------------- ---------------------
146,834 178,578
-------------------------------------------------------------------------- --------------------- ---------------------
Operating Loss (13,279) (20,480)
Interest Expense 714 6,422
Impaired Investments 638 --
Other Expense, Net 730 18
-------------------------------------------------------------------------- --------------------- ---------------------
Loss Before Income Tax Benefit and Extraordinary Item (15,361) (26,920)
Income Tax Benefit -- (6,567)
-------------------------------------------------------------------------- --------------------- ---------------------
Loss Before Extraordinary Item (15,361) (20,353)
Extraordinary Item, Net of Tax -- (2,856)
-------------------------------------------------------------------------- --------------------- ---------------------
Net Loss $ (15,361) $ (23,209)
-------------------------------------------------------------------------- --------------------- ---------------------
Loss Per Share Before Extraordinary Item:
Basic $ (0.83) $ (1.06)
Diluted (0.83) (1.06)
Net Loss Per Share:
Basic $ (0.83) $ (1.21)
Diluted (0.83) (1.21)
-------------------------------------------------------------------------- --------------------- ---------------------
See accompanying condensed notes to consolidated financial statements.
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Debtors-In-Possession)
For the Thirty-Nine Weeks Ended June 30, 2002 and July 1, 2001
(In thousands except per share data)
(Unaudited)
-------------------------------------------------------------------------- --------------------- ---------------------
June 30, July 1,
2002 2001
-------------------------------------------------------------------------- --------------------- ---------------------
Net Sales $ 400,797 $ 497,999
Costs and Expenses:
Cost of goods sold 390,616 463,690
Selling and administrative 57,736 64,534
Reorganization costs 9,891 --
Restructuring and impaired asset charges 60,095 12,716
-------------------------------------------------------------------------- --------------------- ---------------------
518,338 540,940
-------------------------------------------------------------------------- --------------------- ---------------------
Operating Loss (117,541) (42,941)
Interest Expense 14,062 18,419
Impaired Investments 9,327 --
Other Expense (Income), Net 939 (429)
-------------------------------------------------------------------------- --------------------- ---------------------
Loss Before Income Tax Benefit and Extraordinary Item (141,869) (60,931)
Income Tax Benefit (12,083) (16,025)
-------------------------------------------------------------------------- --------------------- ---------------------
Loss Before Extraordinary Item (129,786) (44,906)
Extraordinary Item, Net of Tax -- (2,856)
-------------------------------------------------------------------------- --------------------- ---------------------
Net Loss $ (129,786) $ (47,762)
-------------------------------------------------------------------------- --------------------- ---------------------
Loss Per Share Before Extraordinary Item:
Basic $ (7.02) $ (2.35)
Diluted (7.02) (2.35)
Net Loss Per Share:
Basic $ (7.02) $ (2.50)
Diluted (7.02) (2.50)
-------------------------------------------------------------------------- --------------------- ---------------------
See accompanying condensed notes to consolidated financial statements.
Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Debtors-In-Possession)
June 30, 2002 and September 30, 2001
(In thousands)
-------------------------------------------------------------------------- --------------------- ---------------------
June 30, September 30,
2002 2001
(Unaudited)
-------------------------------------------------------------------------- --------------------- ---------------------
Assets
Cash and cash equivalents $ 9,508 $ 9,809
Cash held in restricted account 12,020 --
Accounts receivable, net 78,202 103,484
Inventories 52,177 90,937
Assets held for sale 11,771 567
Refundable income taxes 15,377 3,294
Other current assets 21,613 15,862
-------------------------------------------------------------------------- --------------------- ---------------------
Total current assets 200,668 223,953
-------------------------------------------------------------------------- --------------------- ---------------------
Property, net 173,878 267,833
Other assets 39,344 59,278
-------------------------------------------------------------------------- --------------------- ---------------------
Total assets $ 413,890 $ 551,064
-------------------------------------------------------------------------- --------------------- ---------------------
Liabilities
Short-term borrowings $ 6,812 $ 33,724
Current maturities of long-term debt 373 21,501
Long-term debt classified current -- 239,842
Other current liabilities 43,626 74,286
-------------------------------------------------------------------------- --------------------- ---------------------
Total current liabilities 50,811 369,353
-------------------------------------------------------------------------- --------------------- ---------------------
Long-term debt 1,710 1,542
Other liabilities 5,799 38,660
-------------------------------------------------------------------------- --------------------- ---------------------
Total long-term liabilities 7,509 40,202
-------------------------------------------------------------------------- --------------------- ---------------------
Liabilities subject to compromise 343,055 --
-------------------------------------------------------------------------- --------------------- ---------------------
Stockholders' Investment
Common stock 655 655
Capital in excess of par 119,984 119,984
Retained earnings 45,962 175,748
Accumulated other comprehensive loss (24,075) (24,548)
Other stockholders' investment (130,011) (130,330)
-------------------------------------------------------------------------- --------------------- ---------------------
Total stockholders' investment 12,515 141,509
-------------------------------------------------------------------------- --------------------- ---------------------
Total liabilities and stockholders' investment $ 413,890 $ 551,064
-------------------------------------------------------------------------- --------------------- ---------------------
See accompanying condensed notes to consolidated financial statements.
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Debtors-In-Possession)
For the Thirty-Nine Weeks Ended June 30, 2002 and July 1, 2001
(In thousands)
(Unaudited)
---------------------------------------------------------------------------------- ----------------- ------------------
June 30, July 1,
2002 2001
---------------------------------------------------------------------------------- ----------------- ------------------
Cash Flows From Operating Activities:
Net loss $ (129,786) $ (47,762)
Depreciation and amortization 30,739 41,231
Non-cash / unexpended restructuring, impaired assets and impaired investment 66,668 1,578
costs
Non-cash reorganization items 3,972 --
Other adjustments to net loss, net (9,527) 6,656
Net changes in operating assets and liabilities 63,109 7,954
---------------------------------------------------------------------------------- ----------------- ------------------
Net cash provided by operating activities 25,175 9,657
---------------------------------------------------------------------------------- ----------------- ------------------
---------------------------------------------------------------------------------- ----------------- ------------------
Cash Flows From Investing Activities:
Additions to property (5,301) (44,029)
Proceeds from sale of property and sale of other assets 17,753 4,344
Investment in equity investee (397) (6,077)
---------------------------------------------------------------------------------- ----------------- ------------------
Net cash provided by (used in) investing activities 12,055 (45,762)
---------------------------------------------------------------------------------- ----------------- ------------------
Cash Flows From Financing Activities:
Short-term borrowings, net (26,834) 18,093
Payments of long-term debt (36,576) (84,489)
Proceeds from issuance of long-term debt, net of deferred financing costs paid 37,928 94,371
---------------------------------------------------------------------------------- ----------------- ------------------
Net cash (used in) provided by financing activities (25,482) 27,975
---------------------------------------------------------------------------------- ----------------- ------------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (29) (55)
---------------------------------------------------------------------------------- ----------------- ------------------
Net Increase (Decrease) In Cash and Cash Equivalents 11,719 (8,185)
Beginning Cash and Cash Equivalents 9,809 23,874
---------------------------------------------------------------------------------- ----------------- ------------------
Ending Cash and Cash Equivalents $ 21,528 $ 15,689
---------------------------------------------------------------------------------- ----------------- ------------------
See accompanying condensed notes to consolidated financial statements.
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Debtors-In-Possession)
June 30, 2002
(In thousands except share data)
(Unaudited)
1. Basis of Presentation -- The accompanying unaudited consolidated condensed
financial statements, are presented in accordance with American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code"("SOP 90-7"). These
statements have been prepared on a going concern basis, which contemplates
continuity of operations, realization of assets and liquidation of liabilities
and commitments in the normal course of business and do not reflect any
adjustments that might result if the Company is unable to continue as a going
concern. The filing of the voluntary Chapter 11 petitions referred to below and
losses from operations raise doubt about the Company's ability to continue as a
going concern. The appropriateness of using a going concern basis is dependent
upon, among other things, confirmation of a plan or plans of reorganization,
future profitable operations and the ability to generate cash from operations
and financing sources sufficient to meet obligations. As a result of the filing
of the Chapter 11 cases and related circumstances, realization of assets and
liquidation of liabilities is subject to significant uncertainty. While under
the protection of Chapter 11, the Debtors (as defined below in Note 2) may sell
or otherwise dispose of assets, and liquidate or settle liabilities for amounts
other than those reflected in the consolidated condensed financial statements.
Further, the proposed plan of reorganization could materially change the amounts
reported in the accompanying consolidated condensed financial statements. The
consolidated condensed financial statements do not include any adjustments
relating to recoverability of the value of recorded asset amounts or the amount
and classification of liabilities that might be necessary as a consequence of
the proposed plan of reorganization. At this time, it is not possible to predict
the outcome of the Chapter 11 cases or their effect on the Company's business,
its financial position, results of operations or cash flows. The Company
believes the DIP Facility (as defined below in Note 2), should provide the
Company with adequate liquidity to conduct its business while it consummates its
reorganization plan. However, the Company's liquidity, capital resources,
results of operations and ability to continue as a going concern are subject to
known and unknown risks and uncertainties, including those set forth in Item 2
below under "Safe Harbor Forward-Looking Statements."
2. Bankruptcy Proceedings - On March 5, 2002, the Company reached an agreement
in principle with its senior lenders on a restructuring of the Company's
approximately $270 million senior indebtedness. Under the restructuring, the
Company expects that, in accordance with the agreement in principle and subject
to confirmation of the plan of reorganization, the Company's outstanding senior
debt will be reduced to approximately $145 million, and the Company's unsecured
trade creditors will be paid in full.
To conclude the restructuring as quickly as possible, the Company and its
domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions
under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") with the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") on March 13, 2002. The Chapter 11 cases have been
consolidated for procedural purposes only and are being jointly administered
under case no. 02-40667 (BRL). As of the date this report is being filed, the
Debtors are continuing to operate their business as debtors-in-possession under
Chapter 11 of the Bankruptcy Code and are subject to the jurisdiction of the
Bankruptcy Court. The Company's foreign subsidiaries have not filed voluntary
petitions and are therefore not debtors.
As a result of these filings, actions to collect pre-petition indebtedness are
stayed and certain other pre-petition contractual obligations against the
Debtors may not be enforceable. In addition, under the Bankruptcy Code, the
Debtors may assume or reject executory contracts, including real estate leases,
employment contracts, personal property leases, service contracts and other
unexpired, executory pre-petition contracts, subject to Bankruptcy Court
approval. Parties affected by these rejections may file claims with the
Bankruptcy Court in accordance with the Bankruptcy Code. The Debtors have
estimated that the ultimate liability that may result from the filing of claims
for all contracts that may be rejected is approximately $1,555, which the
Company has reflected in its financial statements. The majority of all
pre-petition liabilities are subject to settlement under a plan of
reorganization to be voted on by the creditors and equity holders and approved
by the Bankruptcy Court.
At a hearing held on March 14, 2002, the Bankruptcy Court entered orders
granting authority to the Debtors to, among other things, pay certain
pre-petition employee wages, salaries, benefits and other employee obligations,
and pay certain administrative fees and insurance related obligations.
On July 11, 2002, the Debtors filed a reorganization plan that provides for
emergence from bankruptcy during the fourth quarter of fiscal year 2002. There
can be no assurance that the reorganization plan proposed by the Debtors will be
confirmed by the Bankruptcy Court or that the plan will be consummated. It is
contemplated that upon emergence, all of the Company's currently outstanding
common stock will be cancelled, and the Company will then immediately issue to
its current senior lenders and to its existing stockholders shares of Company
common stock representing 90% and 10%, respectively, of the reorganized
Company's total outstanding common stock.
If the plan is not accepted by the required number of creditors and equity
holders within the required period, any party in interest may subsequently file
its own plan of reorganization for the Debtors. A plan of reorganization must be
confirmed by the Bankruptcy Court, upon certain findings being made by the
Bankruptcy Court which are required by the Bankruptcy Code. The Bankruptcy Court
may confirm a plan of reorganization notwithstanding the non-acceptance of the
plan by an impaired class of creditors or equity holders if certain requirements
of the Bankruptcy Code are met. A hearing to consider approval of the disclosure
statement, filed by the Company with the Bankruptcy Court on July 11, 2002, is
currently scheduled for August 15, 2002. Once the disclosure statement is
approved, then the Company will solicit acceptances of the plan of
reorganization from creditors and stockholders. On August 12, 2002, the
plaintiffs in a lawsuit in which the Company is a defendant, filed objections to
the approval of the Company's disclosure statement. In their objections to the
disclosure statement, the plaintiffs allege, among other things, that the
Company's plan of reorganization improperly classifies claims of litigation
claimants such as the plaintiffs and is unconfirmable. The Company believes that
the plaintiffs' objections to the disclosure statement will be overruled by the
Bankruptcy Court. If the Bankruptcy Court, however, were to agree with the
plaintiffs' objections or any other objection that has been filed, then the
reorganization plan would require modification in order to be confirmed. In such
event, confirmation of the reorganization plan might occur after the end of the
Company's 2002 fiscal year. The Chapter 11 filing, the uncertainty regarding the
eventual outcome of the reorganization case and the effect of other unknown
adverse factors could threaten the Company's existence as a going concern.
The Company entered into a $30 million Debtor-In-Possession Credit Agreement,
dated as of March 13, 2002, (the "DIP facility") with Wachovia Bank. Borrowings
against the DIP facility have an interest rate equal to Wachovia's Base Rate
plus 2.5% or, at Guilford's option, LIBOR plus 3.5%, for interest periods of 1
or 3 months. The actual borrowing availability is calculated using a "borrowing
base", as defined therein, based upon levels of accounts receivable and
inventory, and may be less than $30 million. The Company may use this facility
during the period of the bankruptcy proceeding to continue its ordinary course
day-to-day operations, service its customers and complete its strategic business
restructuring. As of the date hereof, the Company has no borrowings under this
facility.
3. Foreign Currency Translation -- Translation gains or losses are reflected in
the stockholders' investment section of the condensed consolidated balance sheet
in accumulated other comprehensive loss.
4. Per Share Information -- Basic loss per share information has been computed
by dividing net loss by the weighted average number of shares of common stock,
par value $.02 per share, outstanding during the periods presented. Diluted loss
per share information also considers the dilutive effect of stock options and
restricted stock grants. There were no dilutive stock options or shares of
restricted stock during any of the periods reported. During the quarterly and
nine-month periods ended June 30, 2002 and July 1, 2001, outstanding stock
options and shares of restricted stock of 1,465,000 and 1,597,000, respectively,
were antidilutive for either part or all of the period and not included in the
calculation of diluted net loss per share. The weighted average shares used in
computing basic and diluted net loss for the quarterly periods ended June 30,
2002 and July 1, 2001 were 18,507,000 and 19,134,000 respectively. The weighted
average shares used in computing basic and diluted net loss for the nine-month
periods ended June 30, 2002 and July 1, 2001 were 18,492,000 and 19,075,000,
respectively.
The Company has authorized 1,000,000 shares of $1 par preferred stock. As of
June 30, 2002 and September 30, 2001, no such shares were issued.
5. Cash Held in Restricted Account - Cash held in restricted account represents
proceeds from the sale of assets constituting the senior lenders' collateral and
is held pursuant to the DIP order and by agreement with the senior lenders for
confirmation-related expenditures under the plan of reorganization.
6. Inventories -- Inventories are carried at the lower of cost or market. Cost
is determined by using the LIFO (last-in, first-out) method for the majority of
inventories. Cost for all other inventories has been determined principally by
the FIFO (first-in, first-out) method.
Inventories at June 30, 2002 and September 30, 2001 consisted of the
following:
June 30, September 30,
2002 2001
------------------ -----------------
Finished Goods $ 21,767 $ 29,440
Raw Materials and work in process 36,669 64,131
Manufacturing supplies 5,928 9,572
------------------ -----------------
Total inventories valued at FIFO cost 64,364 103,143
Less - Adjustments to reduce FIFO cost to LIFO cost, net (12,187) (12,206)
------------------ -----------------
Total inventories $ 52,177 $ 90,937
================== =================
7. Accumulated Depreciation -- Accumulated depreciation at June 30, 2002 and
September 30, 2001 was $477,415 and $560,182, respectively.
8. Comprehensive Loss -- For the quarter ended June 30, 2002 and July 1, 2001,
total comprehensive loss was ($15,006) and ($22,297), respectively. Included in
total comprehensive loss for the quarters were net losses of ($15,361) and
($23,209), respectively, and foreign currency translation gains of $355 and
$912, respectively. Comprehensive loss was ($129,313) and ($49,643), consisting
of net losses of ($129,786) and ($47,762) and foreign currency translation gains
(losses) of $473 and ($1,881) for the nine-month periods ended June 30, 2002 and
July 1, 2001, respectively.
9. Financial Instruments -- The Company has a policy to manage the exposure
related to sales denominated in foreign currencies through the use of forward
foreign currency exchange contracts. For fiscal 2002 and fiscal 2001, the
Company has determined that its anticipated sales in the Euro are naturally
hedged by anticipated Euro payables and therefore, no forward foreign currency
exchange contracts have been purchased.
10. Segment Information -- Segment information for the quarterly periods ended
June 30, 2002 and July 1, 2001 was as follows:
Automotive Apparel and Other Direct-to-Retail Industrial Total
June 30, 2002 Fabrics Home Fashions Products
--------------- ------------------ ------------------- -------------- ----------
External sales $ 95,780 $ 17,184 $ 6,322 $ 14,269 $ 133,555
Restructuring and impaired (379) (6,153) (6,532)
asset charges
Reorganization costs (2,202) (1,857) (181) (483) (4,723)
Operating profit (loss) 3,752 (11,982) (4,366) (683) (13,279)
Interest expense 714
Impaired investment charge 638 638
Other expense, net 730
Loss before income taxes (15,361)
=============== ================== =================== ============== ============
July 1, 2001
External sales $ 88,011 $ 39,055 $ 15,075 $ 15,957 $ 158,098
Restructuring and impaired (991) (3,585) (4,576)
asset charges
Operating profit (loss) 2,421 (20,458) (910) (1,533) (20,480)
Interest expense 6,422
Other expense, net 18
Loss before income taxes and
extraordinary item (26,920)
=============== ================== =================== ============== ============
Segment information for the nine-month periods ended June 30, 2002 and July 1,
2001 was as follows:
Automotive Apparel and Other Direct-to-Retail Industrial Total
June 30, 2002 Fabrics Home Fashions Products
-------------- ----------------- ------------------ ------------- -------------
External sales $ 266,913 $ 63,971 $ 30,455 $ 39,458 $ 400,797
Restructuring and impaired (1,025) (40,914) (18,156) (60,095)
asset charges
Reorganization costs (5,466) (2,304) (1,093) (1,028) (9,891)
Operating profit (loss) 900 (68,064) (45,472) (4,905) (117,541)
Interest expense 14,062
Impaired investment charge 9,327 9,327
Other expense, net 939
Loss before income taxes (141,869)
============== ================= ================== ============= =============
July 1, 2001
External sales $ 256,299 $ 151,002 $ 43,816 $ 46,882 $ 497,999
Restructuring and impaired (3,305) (9,411) (12,716)
asset charges
Operating profit (loss) 7,699 (40,648) (3,026) (6,966) (42,941)
Interest expense 18,419
Other income, net (429)
Loss before income taxes and
extraordinary item (60,931)
============== ================= ================== ============= =============
11. Restructuring and Impaired Asset Charges, Impaired Investment and
Reorganization Costs - During the third quarter of fiscal 2002, the Company
determined that further impairment to the value of its closed facility in
Cobleskill, New York had occurred. As a result, the Company recorded a
restructuring charge of $4,031 for fixed asset impairments at this facility.
The Company also recorded additional charges for fixed asset impairments and
severance costs at its apparel plant in Altamira, Mexico, and its associated
knitting plant in Lumberton, North Carolina totaling $1,684, as well as an
additional investment impairment of $638. The Company had announced the closing
of these plants during April 2002. In addition, the Company recorded further
fixed asset impairment, severance and other restructuring costs for plants which
had been closed in prior quarters, totaling $692.
In all of the impaired fixed asset charges discussed above, determination of
fair market value was based upon: (1) external appraisals, (2) in-house
engineering estimates utilizing prices for currently available new and used
equipment, (3) real property tax values, and/or (4) zero where intent was to
scrap.
The Company has also classified $3,168 of professional fees relating to its
bankruptcy filing as reorganization costs, and $125 of professional fees as
restructuring costs during the third quarter. In addition, the Company recorded
$1,555 of reorganization costs in connection with its decision to terminate
certain lease agreements as described in Note 2.
Year to date, the Company has recorded $79,313 of restructuring and impaired
asset charges, impaired investments and reorganization costs. Of this amount,
$40,323 relates to the shutdown of the Company's plant in Altamira, Mexico and
the associated knitting plant in Lumberton, North Carolina. In addition, $18,156
relates to the exit of Direct-to-Retail home fashions in Herkimer, New York and
$8,808 in restructuring and impaired asset costs was recorded for the shutdown
of plants in Cobleskill, New York and Schenectady, New York. The Company also
recorded $8,461 for professional fees associated with the Company's
restructuring and bankruptcy proceedings, while the remaining $3,565 has been
expensed in connection with a number of small items.
As of September 30, 2001, the Company had an accrued liability of $1,954 for
severance costs and other obligations as a result of its prior apparel
restructuring activities. The following tables summarize the Company's
restructuring and asset and investment impairment actions for the fiscal year:
1st and 2nd quarter Balances as 1st and 2nd Write-down of March 31, 2002
activity of September quarter assets to net Reserves reserve balance
30, 2001 charges realizable value utilized
--------------- -------------- ----------------- ------------ ----------------
Non-cash write-downs of
property and equipment to
net realizable value $ --- $ 42,108 $ 42,108 $ --- $ ---
Severance and related
employee benefit costs 1,708 2,072 --- 2,756 1,024
Goodwill impairment --- 9,012 9,012 --- ---
Professional fees and
other costs 246 371 --- 371 246
----------------------------- --------------- -------------- ----------------- ------------ ----------------
Total restructuring and
asset impairment $1,954 $ 53,563 $ 51,120 $ 3,127 $ 1,270
Reorganization costs --- 5,168 --- 5,168 ---
Impaired investments --- 8,689 8,689 --- ---
----------------------------- --------------- -------------- ----------------- ------------ ----------------
TOTAL $1,954 $ 67,420 $ 59,809 $8,295 $ 1,270
----------------------------- --------------- -------------- ----------------- ------------ ----------------
3rd quarter Balances as Write-down of June 30, 2002
activity of March 31, 3rd quarter assets to net Reserves reserve balance
2002 charges realizable value utilized
--------------- -------------- ----------------- ------------ ----------------
Non-cash write-downs of
property and equipment to
net realizable value $ --- $ 5,134 $ 5,134 $ --- $ ---
Severance and related
employee benefit costs 1,024 1,031 --- 717 1,338
Goodwill impairment --- --- --- --- ---
Professional fees and
other costs 246 367 --- 367 246
----------------------------- --------------- -------------- ----------------- ------------ ----------------
Total restructuring and
asset impairment $ 1,270 $ 6,532 $ 5,134 $ 1,084 $ 1,584
Reorganization costs --- 4,723 --- 4,723 ---
Impaired investments --- 638 638 --- ---
----------------------------- --------------- -------------- ----------------- ------------ ----------------
TOTAL $ 1,270 $ 11,893 $ 5,772 $5,807 $ 1,584
----------------------------- --------------- -------------- ----------------- ------------ ----------------
12. Liabilities Subject to Compromise - As described in Note 2, the majority of
all pre-petition liabilities are subject to settlement under a plan of
reorganization to be voted on by the creditors and equity holders and approved
by the Bankruptcy Court. Such liabilities are classified as "liabilities subject
to compromise". The table below summarizes the Company's liabilities subject to
compromise:
Balance as of June
30, 2002
---------------------
Long-term debt classified current $239,842
Current maturities of long-term debt 23,162
Accounts payable 17,457
Long-term deferred compensation 15,029
Accrued interest payable 10,953
Accrued pension 6,942
Income taxes payable 6,274
Other pre-petition obligations 23,396
------
Total $343,055
=====================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the third quarter of fiscal 2002 decreased $24.5 million, or 15.5%
to $133.6 million, compared to net sales of $158.1 million in the third quarter
of the prior year. For the nine-month period ended June 30, 2002, net sales were
$400.8 million, a decrease of $97.2 million, or 19.5%, from net sales of $498.0
million for the nine months ended July 1, 2001.
Sales in the Automotive segment increased 8.9% in the third quarter of fiscal
2002 to $95.8 million as compared to $88.0 million for the same quarter in the
prior year. Automotive sales comprised 71.7% of the Company's total sales for
the quarter, compared to 55.7% in the prior year. North American automobile
production remains strong, due in part to continuing incentive programs. The
Company's automotive fabric sales in the U.K. increased 21.9% during the third
quarter, compared to the comparable quarter last year, as a result of new
program rollouts. For the nine months ended June 30, 2002, Automotive sales were
$266.9 million compared to $256.3 million in the first nine months of fiscal
2001, an increase of 4.1%.
Apparel segment sales for the third quarter ended June 30, 2002 declined 56.0%
to $17.2 million from $39.1 million in the comparable quarter of the prior year.
During the past 2 years, the Company has executed a significant reduction of its
apparel business, resulting in the closing or sale of 9 plants and the
downsizing of an additional plant, thereby substantially reducing domestic
Apparel production capacity. As previously announced, during the third quarter
the Company closed its apparel plant in Altamira, Mexico, and its associated
knitting plant in Lumberton, North Carolina. Apparel sales in the first nine
months of fiscal 2002 were $64.0 million and decreased 57.6% from sales in the
first nine months of fiscal 2001 of $151.0 million.
Sales in the Direct-to-retail Home Fashions segment for the third quarter of
fiscal 2002 decreased 58.3% to $6.3 million from $15.1 million in the prior
year. On February 18, 2002, the Company announced an agreement in principle to
sell certain assets of the Direct-to-retail Home Fashions segment to Homestead
Fabrics, Ltd ("Homestead"). As a result, the Company will substantially exit
this segment by the end of the fiscal year. Direct-to-retail Home Fashions sales
for the first nine months were $30.5 million, a decrease of 30.4% from sales of
$43.8 million in fiscal 2001.
Third quarter sales in the Industrial Products segment, which includes specialty
fabrics and fibers, decreased 10.6% to $14.3 million compared to $16.0 million
in the third quarter of the previous year. The largest component of this decline
was fabric used for hook-and-loop closure products. For the nine months ended
June 30, 2002, Industrial Products sales were $39.5 million or 15.8% lower than
sales of $46.9 million in fiscal 2001.
Gross margin for the third quarter of fiscal 2002 increased to $13.9 million or
10.4% of net sales, from $6.1 million or 3.9% of net sales, for the same quarter
a year ago. The increase was predominately the result of decreased losses on
Apparel segment sales, as the Company has exited the production of the majority
of its low-margin apparel products. In addition, the Company's U.K. automotive
business unit recorded a $3.4 million improvement in gross margin as a result of
increased sales and improved quality. For the first nine months, gross margin
was $10.2 million or 2.5% of net sales, a decrease from prior year's gross
margin of $34.3 million or 6.9% of net sales. The decrease in the year-to-date
margins was predominately the result of $19.9 million of inventory impairment
and other charges related to plant closings, as well as decreased sales in the
Apparel and Direct-to-Retail Home Fashions segments.
As a result of the Company's restructuring actions, management believes that the
most appropriate way to view the Company's results of operations is to separate
the results of its ongoing businesses ("core businesses") from the businesses
that it has exited or is exiting ("non-core businesses"), as only the core
businesses will remain once the restructuring actions are complete. The
Company's core businesses consist of its U.S., U.K. and Mexican automotive
segment business, its industrial products segment, and its limited remaining
apparel and other fabric operations in Mexico City and Pine Grove, Pennsylvania.
The Company's non-core businesses consist of its Brazilian automotive
operations, the majority of its apparel segment business (except for Mexico City
and Pine Grove) and its Direct-to-retail Home Fashions segment. The tables below
summarizes the results of operations for the quarter and nine months ended June
30, 2002, divided into core businesses and non-core businesses:
Quarter Ended June 30, 2002 Nine Months Ended June 30, 2002
------------------------------------------ ---- --------------------------------------------
Core Non-Core Core Businesses Non-Core
Businesses Businesses Total Businesses Total
------------- -------------- ------------- ---- -------------- --------------- -------------
External sales $117,682 $15,873 $ 133,555 $331,617 $69,180 $ 400,797
Restructuring/
Reorganization charges (2,772) (8,483) (11,255) (6,581) (63,405) (69,986)
Operating income (loss) 4,176 (17,455) (13,279) (2,750) (114,791) (117,541)
Interest expense 714 14,062
Impaired investment 638 638 9,327 9,327
Other expense, net 730 939
- ------------------------------ ------------- -------------- ------------- ---- -------------- --------------- -------------
Loss before
income taxes $ (15,361) $ (141,869)
============================== ============= ============== ============= ==== ============== =============== =============
The Company and its lenders use earnings before interest, taxes, depreciation
and amortization ("EBITDA") to measure the Company's performance and cash flow
generation. EBITDA also excludes restructuring, impaired asset and
reorganization costs and certain one-time costs. One time costs consist
primarily of inventory write-downs and bad debt write-offs. EBITDA is not
intended to represent cash flow from operations as defined by United States
Generally Accepted Accounting Principles ("GAAP") and should not be considered
as a substitute for net income as an indicator of operating performance or as an
alternative to cash flow (as measured by GAAP) as a measure of liquidity. The
method that the Company uses to calculate EBITDA may differ from similarly
titled measures reported by other companies. The table below summarizes the
Company's EBITDA calculations:
Quarter Ended June 30, 2002 Nine Months Ended June 30, 2002
------------------------------------------ ---- --------------------------------------------
Core Non-Core Core Businesses Non-Core
Businesses Businesses Total Businesses Total
------------- -------------- ------------- ---- -------------- --------------- -------------
Operating income (loss) 4,176 (17,455) (13,279) (2,750) (114,791) (117,541)
Other expense 33 697 730 260 679 939
Restructuring/
Reorganization charges 2,772 8,483 11,255 6,581 63,405 69,986
Depreciation and
Amortization 7,421 1,710 9,131 22,425 7,235 29,660
One-time costs -- 1,791 1,791 -- 21,088 21,088
- ------------------------------ ------------- -------------- ------------- ---- -------------- --------------- -------------
EBITDA $ 14,336 $ (6,168) $ 8,168 $ 25,996 $ (23,742) $ 2,254
============================== ============= ============== ============= ==== ============== =============== =============
Selling and administrative expenses for the third quarter of fiscal 2002 were
$15.9 million or 11.9% of net sales, compared to $22.0 million or 13.9% of net
sales, for the same quarter a year ago. The decrease resulted primarily from
lower salaries and travel expenses, as the Company has reduced staff and reduced
business travel, particularly in the Apparel and Direct-to-Retail Home Fashions
segment. These declines were partially offset by higher than normal professional
fees, as the Company required the services of several outside attorneys and
financial consultants to assist the Company with its restructuring actions.
Selling and administrative expenses for the first nine-month period of fiscal
2002 were $57.7 million or 14.4% of net sales, compared to $64.5 million or
13.0% of net sales, for the same period a year ago.
As described in Note 11 to the accompanying condensed consolidated financial
statements, the Company closed its apparel facilities located in Altamira,
Mexico and Lumberton, North Carolina, and has either closed or sold certain
businesses located in the state of New York. With these actions, the Company is
substantially exiting the direct-to-retail home fashions segment and is
significantly reducing its apparel fabric production capabilities. Certain
apparel and home fashions fabrics will continue to be produced at the Company's
plants in Mexico City and in Pine Grove, Pennsylvania. During the third quarter
of fiscal 2002, the Company recognized restructuring, reorganization and
impaired asset charges of $11.3 million related to these actions, as well as
impaired investment charges of $0.6 million. Year to date, the Company has
recognized restructuring, reorganization and impaired asset charges of $70.0
million, as well as impaired investment charges of $9.3 million. During the
third quarter of fiscal 2001, the Company recognized restructuring charges of
$4.6 million. This consisted primarily of costs to relocate certain equipment
and employee stay bonuses. For the first nine months of fiscal 2001, the Company
recognized restructuring charges of $12.7 million.
Interest expense for the third quarter of fiscal 2002 was $0.7 million compared
to $6.4 million for the third quarter last year. The decrease was the result of
the Company's Chapter 11 bankruptcy filing, which suspended any further interest
accruals on the revolving credit facility and senior notes. For the first nine
months of fiscal 2002, interest expense was $14.1 million versus $18.4 million
in fiscal 2001.
For the quarter ended June 30, 2002, other expense, net was $0.7 million
compared to zero for the prior year's comparable period. Other expense for
fiscal 2002 was primarily made up of foreign currency losses. For the nine
months ended June 30, 2002, other expense, net was $0.9 million, which was made
up of several small items, compared to $0.4 million of other income during the
first nine months of last year, which included a $0.2 million insurance
settlement.
The Company recognized no income tax benefit for the third quarter of fiscal
2002 and $12.1 million for the first nine months of fiscal 2002, compared to an
income tax benefit of $6.6 million for the third quarter of fiscal 2001 and
$16.0 million for the first nine months of fiscal 2001. The decreased benefit
during fiscal 2002 was the result of management's assessment that the character
and nature of future taxable income may not allow the Company to realize certain
tax benefits of net operating losses and tax credits within the prescribed
carryforward period.
During the third quarter of fiscal 2001, the Company recognized an extraordinary
loss of $2,856 (net of income tax benefit of $1,869), representing the write-off
of unamortized deferred loan costs on the Company's Senior Notes. The costs were
required to be written off in accordance with Emerging Issues Task Force Issue
No. 96-19, as a result of an amendment to the Company's senior notes that, among
other things, increased the interest rate on those notes from 7.91% to 11.0 %.
For the quarter ended June 30, 2002, net loss was $15.4 million, or $0.83 per
diluted share, compared to net loss of $23.2 million, or $1.21 per diluted
share, for the third quarter a year ago. Net loss for the nine months ended June
30, 2002, was $129.8 million, or $7.02 per diluted share, compared to net loss
of $47.8 million, or $2.50 per diluted share, for the comparable nine-month
period in the prior year.
Liquidity and Capital Requirements
As described in Note 2 to the accompanying condensed consolidated financial
statements, on March 13, 2002, the Company and its domestic subsidiaries filed
voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the Southern District of New York. As a result, the
Company has limited liquidity and its business decisions concerning matters
outside the ordinary course of business are subject to the jurisdiction of the
Bankruptcy Court. Also as described in Note 2 to the accompanying condensed
consolidated financial statements, the Company entered into the DIP facility
with Wachovia Bank. Borrowings against the DIP facility have an interest rate
equal to Wachovia's Base Rate plus 2.5% or, at Guilford's option, LIBOR plus
3.5%, for interest periods of 1 or 3 months. The Company may use this facility
to continue its ordinary course day-to-day operations, service its customers and
complete its strategic business restructuring. As of June 30, 2002, there were
no advances against the DIP facility.
The decrease in working capital prior to reclassification of liabilities subject
to compromise was primarily the result of large decreases in accounts receivable
and inventory, which were partially offset by an increase in assets held for
sale, refundable income taxes and certain other current assets. The Company
decreased inventory levels in response to sales declines and its focus on cash.
The Company has historically maintained annual capital expenditures near the
amount of depreciation expense. However, during the first nine months of fiscal
2002, capital expenditures of $5.3 million were far less than depreciation
expense of $28.6 million, as the Company has halted almost all capital
expenditures in an effort to preserve cash. In addition, the terms of the DIP
facility place limitations on the amount the Company can use for capital
expenditures.
Outlook
Since the end of fiscal 2000, the Company has executed a significant
restructuring of its operations, substantially exiting the apparel and
direct-to-retail home fashions segments. To that end, the Company has closed 9
plants and downsized a tenth plant during the past 18 months. These actions have
reduced manufacturing capacity by approximately 50% worldwide. Going forward,
the Company intends to focus its efforts on its "core businesses", predominantly
automotive and industrial products.
Automotive and Industrial Products are expected to make up more than 80% of
Guilford's sales for the remainder of fiscal 2002 and beyond. The Company's
Automotive segment is well-established, technically superior and is a key
supplier to the industry. Guilford is the dominant supplier of automobile
headliner fabric in the U.S., with a market share near 80%. A key component to
the profitability of the Automotive segment will be the number of vehicles
built, especially in the U.S. and U.K. Analysts project continued strong demand
for new automobiles for the remainder of the calendar year. As a result of the
highly specified, technical requirements of both Automotive and
Industrial/Specialty products, management believes these areas to be less
susceptible to low-priced imports into the U.S.
The Company's decision to file for Chapter 11 bankruptcy was designed to allow
the Company to complete its debt restructuring efforts successfully and quickly.
The Company filed its plan of reorganization with the Bankruptcy Court on July
11, 2002 and hopes to emerge from bankruptcy by October 1, 2002. Under the
restructuring, the Company expects that, subject to confirmation of the plan of
reorganization, the Company's outstanding senior debt will be reduced to
approximately $145 million, and the Company's unsecured trade creditors will be
paid in full. Management believes that the core businesses will be sufficiently
profitable to service that level of debt. It is also contemplated that upon
emergence, all of the Company's currently outstanding common stock will be
cancelled, and the Company will then immediately issue to its current senior
lenders and to its existing stockholders shares of Company common stock
representing 90% and 10%, respectively, of the Company's total outstanding
common stock.
Contingencies
Since January 1992, the Company has been involved in discussions with the United
States Environmental Protection Agency ("EPA") regarding remedial actions at its
Gold Mills, Inc. ("Gold") facility in Pine Grove, Pennsylvania which was
acquired in October 1986. Between 1988 and 1990, the Company implemented a
number of corrective measures at the facility in conjunction with the
Pennsylvania Department of Environmental Resources. Subsequently, through
negotiations with the EPA, Gold entered into a Final Administrative Consent
Order, effective October 14, 1992. Pursuant to such order, Gold has performed
(i) certain measures designed to prevent any potential threats to the
environment at the facility and (ii) an investigation to fully determine the
nature of any release of hazardous substances at the facility. In addition, upon
instruction by the EPA, Gold will conduct a study to evaluate alternatives for
any corrective action, which may be necessary at the facility. The failure of
Gold to comply with the terms of the Consent Order may result in the imposition
of monetary penalties against Gold.
During fiscal 1992, the Company received a Notice of Violation from the North
Carolina Division of Environmental Management concerning ground water
contamination on or near one of its facilities. The Company voluntarily agreed
to allow the installation of monitoring wells at the site, but denies that such
contaminants originated from the Company's operations or property. The Company
has removed underground storage tanks at all its U.S. facilities.
The Company is also involved in various litigation arising in the ordinary
course of business. Although the final outcome of these legal and environmental
matters cannot be determined, based on the facts presently known, it is
management's opinion that the final resolution of these matters will not have a
material adverse effect on the Company's financial position or future results of
operations.
Safe Harbor Forward-Looking Statements
From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements.
All statements other than statements of historical fact included in this
document, including, without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Important factors that could cause actual results to differ materially
from those discussed in such forward-looking statements include:
1. general economic factors including, but not limited to, changes in
interest rates, foreign currency translation rates, consumer confidence,
housing starts, trends in disposable income, changes in consumer demand
for goods produced, and cyclical or other downturns
2. the overall level of automotive production and the production of
specific car models
3. fashion trends
4. information and technological advances
5. cost and availability of raw materials, labor and natural and other
resources
6. domestic and foreign competition
7. domestic and foreign governmental regulations and trade policies
8. reliance on major customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation and
restructuring
11. inability to obtain financing on favorable terms or to obtain
amendments or waivers with respect to non-compliance with certain covenants
in loan agreements
12. the adverse impact of the Company's filing under Chapter 11 of the
Bankruptcy Code on the Company's customer and supplier relationships,
including less favorable trade credit terms
13. inability to maintain sufficient liquidity to finance the Company's
operations; and
14. inability to confirm and implement the plan of reorganization.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk for changes in interest rates and foreign
currency exchange rates and has limited exposure to commodity price risk. The
Company does not hold or issue any financial instruments for trading purposes.
During the quarter ended June 30, 2002, the Company did not experience any
material changes with respect to its sensitivity or management of interest rate
or commodity price risk. However, the Company is subject to foreign currency
risk primarily related to sales and expenditures and other transactions
denominated in foreign currencies and investments in foreign subsidiaries. The
Company manages the exposure related to this risk through forward foreign
currency exchange contracts with durations generally less than 12 months. The
changes in the market value of such contracts have a high correlation to the
price changes in the currency of the related hedged transactions. The Company
enters into forward foreign currency exchange contracts in the normal course of
business to manage exposure against fluctuations in the purchase price of
capital equipment and other transactions having firm commitments. On June 30,
2002, the Company had no outstanding foreign currency forward contracts.
The Company has a policy to manage the exposure related to sales denominated in
foreign currencies through the use of forward foreign currency exchange
contracts. The Company has determined that its anticipated sales in the Euro for
fiscal 2002 are naturally hedged by anticipated Euro payables.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Reference is made to Item 2 of Part I of this
Quarterly Report under the heading titled "Contingencies" for the information
required by this Item. As described in Note 2 to the accompanying condensed
consolidated financial statements, on March 13, 2002, the Company and its
domestic subsidiaries filed voluntary petitions under Chapter 11 of the U.S.
Bankruptcy Code with the United States Bankruptcy Court for the Southern
District of New York.
Item 2. Not Applicable
Item 3. Defaults Upon Senior Securities. The Company is in default of certain
covenants set forth in its pre-petition senior loan agreements. As a result of
its Chapter 11 filing, the Company has not made any principal or interest
payments on such senior indebtedness since March 13, 2002, the date the Company
and its domestic subsidiaries filed their voluntary Chapter 11 petitions. As
described in footnote 2, under the plan of reorganization that has been filed
with the Bankruptcy Court, such senior indebtedness would be restructured.
Items 4 - 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
Exhibit Number Exhibit Description
10 (a) Fifth Amendment to Revolving Credit and
Guaranty Agreement, dated as of April 29, 2002,
among the Company and Wachovia Bank, National
Association, formerly known as First Union
National Bank.
(b) Reports on Form 8-K.
The Company filed two (2) Current Reports on Form 8-K during the
quarter for which this Form 10-Q is filed. They are described below.
1) On June 18, 2002, the Company filed a Current Report on Form 8-K reporting
the debtor companies' results of operations for the period of March 3, 2002
through March 31, 2002, and for the period of April 1, 2002 through April 28,
2002 as filed with the United States Bankruptcy Court.
2) On June 24, 2002, the Company filed a Current Report on Form 8-K reporting
the debtor companies' results of operations for the period of April 29, 2002
through June 2, 2002 as filed with the United States Bankruptcy Court.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: August 14, 2002
By: /s/ David H. Taylor
David H. Taylor
Interim Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description
10 (a) Fifth Amendment to Revolving Credit and
Guaranty Agreement, dated as of May 8, 2002,
among the Company and Wachovia Bank,
National Association, formerly known as
First Union National Bank.
Exhibit 10 (a)
FIFTH AMENDMENT TO
REVOLVING CREDIT AND GUARANTY AGREEMENT
FIFTH AMENDMENT, dated as of May 8, 2002 (the "Amendment"), to the REVOLVING
CREDIT AND GUARANTY AGREEMENT, dated as of March 13, 2002, among GUILFORD MILLS,
INC., a Delaware corporation (the "Borrower"), a debtor and debtor-in-possession
under Chapter 11 of the Bankruptcy Code, the Guarantors named therein (the
"Guarantors"), WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First
Union National Bank, a national banking corporation ("Wachovia"), each of the
other financial institutions from time to time party thereto (together with
Wachovia, the "Lenders") and Wachovia, as Agent for the Lenders (in such
capacity, the "Agent"):
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent are parties to
that certain Revolving Credit and Guaranty Agreement, dated as of March 13, 2002
(as amended by that certain First Amendment, dated as of April 2, 2002, that
certain Second Amendment, dated as of April 23, 2002, that certain Third
Amendment, dated as of April 23, 2002, that certain Fourth Amendment, dated as
of April 29, 2002, and as the same may be amended, modified or supplemented from
time to time, the "Credit Agreement"); and WHEREAS, the Borrower and the
Guarantors have requested that from and after the Effective Date (as hereinafter
defined) of this Amendment, the Credit Agreement be amended subject to and upon
the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto
hereby agree as follows:
1. As used herein, all terms that are defined in the Credit Agreement
shall have the same meanings herein.
2. Section 5.01(q) of the Credit Agreement is hereby amended by replacing the
date "May 8, 2002" with the date "May 10, 2002" where such date appears therein.
3. Section 6.05 of the Credit Agreement is hereby amended in its entirety
by inserting the following:
SECTION 6.05. Adjusted EBITDA. Permit Adjusted EBITDA for Ongoing Operations
and EBITDA for Discontinued Operations (i) for each period beginning on March
4, 2002 and ending on the dates listed below to be less than the amount
specified under such columns opposite such date:
Period Ending Adjusted EBITDA for EBITDA for
------------- -------------------- -----------
Ongoing Operations Discontinued
------------------ ------------
Operations
March 31, 2002 $2,000,000 ($3,700,000)
April 28, 2002 $4,300,000 ($8,300,000)
June 2, 2002 $7,400,000 ($11,800,000)
June 30, 2002 $9,800,000 ($10,200,000)
July 28, 2002 $11,200,000 ($10,600,000)
September 1, 2002 $13,700,000 ($11,000,000)
September 29, 2002 $15,700,000 ($11,400,000)
October 27, 2002 $17,600,000 ($11,500,000)
December 1, 2002 $20,100,000 ($11,600,000)
December 29, 2002 $22,700,000 ($11,700,000)
January 26, 2003 $24,800,000 ($11,800,000)
March 2, 2003 $28,200,000 ($11,900,000)
4. This Amendment shall be effective as of the date first written above (the
"Effective Date") upon execution by the Borrower, the Guarantors and Required
Lenders, and the Agent having received evidence satisfactory to it of such
execution.
5. Except to the extent hereby amended, the Credit Agreement and each of the
Loan Documents remain in full force and effect and are hereby ratified and
affirmed.
6. The Borrower agrees that its obligations set forth in Section 10.05 of the
Credit Agreement shall extend to the preparation, execution and delivery of this
Amendment, including the reasonable fees and disbursements of counsel to the
Agent.
7. This Amendment shall be limited precisely as written and shall not be deemed
(a) to be a consent granted pursuant to, or a waiver or modification of, any
other term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or (b) to prejudice any right or rights which the
Agent or the Lenders may now have or have in the future under or in connection
with the Credit Agreement or any of the instruments or agreements referred to
therein. Whenever the Credit Agreement is referred to in the Credit Agreement or
any of the instruments, agreements or other documents or papers executed or
delivered in connection therewith, such reference shall be deemed to mean the
Credit Agreement as modified by this Amendment.
8. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument. A fax copy of a
counterpart signature page shall serve as the functional equivalent of a
manually executed copy for all purposes.
9. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and the year first written.
BORROWER:
GUILFORD MILLS, INC.
By: /s/ David H. Taylor
Title: Interim CFO
GUARANTORS:
CURTAINS AND FABRICS, INC.
GOLD MILLS, INC.
RASCHEL FASHION INTERKNITTING, LTD.
GFD FABRICS, INC.
GFD SERVICES, INC.
MEXICAN INDUSTRIES OF NORTH
CAROLINA, INC.
HOFMANN LACES, LTD.
ADVISORY RESEARCH SERVICES, INC.
GUILFORD MILLS (MICHIGAN), INC.
GUILFORD AIRMONT, INC.
GOLD MILL FARMS, INC.
GMI COMPUTER SALES, INC.
TWIN RIVERS TEXTILE PRINTING AND FINISHING
By: Advisory Research Services, Inc.
a General Partner
By: /s/ David H. Taylor
Title: Interim CFO
AGENT AND LENDERS:
WACHOVIA BANK, NATIONAL ASSOCIATION,
formerly known as First Union National Bank,
Individually and as Agent
By: /s/ Colleen McCullum
Title: Director
BANK ONE, N.A.,
as a Lender
By: /s/ C. Dianne Wooley
Title: First Vice President
BRANCH BANKING AND TRUST COMPANY,
as a Lender
By: /s/ Richard C.F. Spenser
Title: Senior Vice President