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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 December 29, 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 000-50025
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 number)
incorporation or organization)
6001 West Market Street, Greensboro, N.C. 27409
--------------------------------------------------
(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 ( )
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ( ) No (X)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes (X) No ( )
Number of shares of common stock outstanding
at December 31, 2002 - 5,501,053
GUILFORD MILLS, INC.
Form 10-Q
December 29, 2002
INDEX
Page
PART I --- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, September 29, 2002
(Successor Company) and December 29, 2002 (Successor Company) 3
Condensed Consolidated Statements of Operations for the Thirteen
Weeks Ended December 30, 2001 (Predecessor Company) and December
29, 2002 (Successor Company) 4
Condensed Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended December 30, 2001 (Predecessor Company) and December
29, 2002 (Successor Company) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II --- OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 19
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29, 2002 and December 29, 2002
(In thousands)
---------------------------------------------------------------- --------------------- ---------------------
Successor Company Successor Company
September 29, December 29,
2002 2002
---------------------------------------------------------------- --------------------- ---------------------
(unaudited)
Assets
Cash and cash equivalents $ 25,074 $ 31,658
Receivables, net 91,614 58,291
Inventories 62,341 66,748
Other current assets 13,169 11,941
---------------------------------------------------------------- --------------------- ---------------------
Total current assets 192,198 168,638
Property, net 114,981 113,060
Altamira trust assets 22,000 22,000
Other assets 10,318 10,264
---------------------------------------------------------------- --------------------- ---------------------
Total assets $ 339,497 $ 313,962
---------------------------------------------------------------- --------------------- ---------------------
Liabilities
Short-term borrowings $ 6,199 $ --
Current maturities of long-term debt 417 1,292
Accounts payable 41,952 27,127
Other current liabilities 30,825 22,566
---------------------------------------------------------------- --------------------- ---------------------
Total current liabilities 79,393 50,985
---------------------------------------------------------------- --------------------- ---------------------
Long-term debt 136,939 139,673
Altamira trust notes 22,000 22,000
Other liabilities 46,165 45,657
---------------------------------------------------------------- --------------------- ---------------------
Total long-term liabilities 205,104 207,330
---------------------------------------------------------------- --------------------- ---------------------
Commitments and Contingencies (Note 13)
Stockholders' Investment
Common stock, including capital in excess of par 55,000 55,000
Retained earnings -- 101
Accumulated other comprehensive income -- 546
---------------------------------------------------------------- --------------------- ---------------------
Total stockholders' investment 55,000 55,647
---------------------------------------------------------------- --------------------- ---------------------
Total liabilities and stockholders' investment $ 339,497 $ 313,962
---------------------------------------------------------------- --------------------- ---------------------
See accompanying notes to condensed consolidated financial statements.
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Thirteen Weeks Ended December 30, 2001 and December 29, 2002
(In thousands except per share data)
(Unaudited)
----------------------------------------------------------------- --------------------- ---------------------
Predecessor Successor
Company Company
December 30, December 29,
2001 2002
----------------------------------------------------------------- --------------------- ---------------------
Net Sales $ 137,568 $ 111,241
Cost of Goods Sold 126,730 94,008
----------------------------------------------------------------- --------------------- ---------------------
Gross Profit 10,838 17,233
Selling and Administrative Expenses 17,769 13,116
Restructuring Charges 886 --
Reorganization Costs -- 276
----------------------------------------------------------------- --------------------- ---------------------
Operating Income (Loss) (7,817) 3,841
Interest Expense 7,452 3,727
Other Income, Net (188) (38)
----------------------------------------------------------------- --------------------- ---------------------
Income (Loss) Before Income Taxes (15,081) 152
Income Taxes -- 51
----------------------------------------------------------------- --------------------- ---------------------
Net Income (Loss) $ (15,081) $ 101
----------------------------------------------------------------- --------------------- ---------------------
Net Income (Loss) Per Share:
Basic $ (0.82) $ 0.02
Diluted (0.82) 0.02
----------------------------------------------------------------- --------------------- ---------------------
See accompanying notes to condensed consolidated financial statements.
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended December 30, 2001 and December 29, 2002
(In thousands)
(Unaudited)
--------------------------------------------------------------------------------- ----------------- -----------------
Predecessor Successor
Company Company
December 30, December 29,
2001 2002
--------------------------------------------------------------------------------- ----------------- -----------------
Cash Flows From Operating Activities:
Net income (loss) $ (15,081) $ 101
Depreciation and amortization 11,334 3,661
Other adjustments to net income or loss, net (2,542) 74
Net changes in operating assets and liabilities 11,425 (11,116)
--------------------------------------------------------------------------------- ----------------- -----------------
Net cash provided by (used in) operating activities 5,136 (7,280)
--------------------------------------------------------------------------------- ----------------- -----------------
Cash Flows From Investing Activities:
Additions to property (2,067) (1,494)
Proceeds from sale of property and disposition of other assets 3,375 17,891
Other investing activities, net (151) --
--------------------------------------------------------------------------------- ----------------- -----------------
Net cash provided by investing activities 1,157 16,397
--------------------------------------------------------------------------------- ----------------- -----------------
Cash Flows From Financing Activities:
Short-term borrowings, net (7,587) (6,702)
Payments of long-term debt (35,217) (1,943)
Proceeds from issuance of long-term debt, net of deferred financing costs 38,578 6,176
paid
--------------------------------------------------------------------------------- ----------------- -----------------
Net cash used in financing activities (4,226) (2,469)
--------------------------------------------------------------------------------- ----------------- -----------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 32 (64)
--------------------------------------------------------------------------------- ----------------- -----------------
Net Increase In Cash and Cash Equivalents 2,099 6,584
Beginning Cash and Cash Equivalents 5,645 25,074
--------------------------------------------------------------------------------- ----------------- -----------------
Ending Cash and Cash Equivalents $ 7,744 $ 31,658
--------------------------------------------------------------------------------- ----------------- -----------------
See accompanying notes to condensed consolidated financial statements.
GUILFORD MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 29, 2002
(Unaudited)
1. The Company
Historically, Guilford Mills, Inc. ("Guilford" or the "Company") operated as a
diversified textile manufacturer and participated in a broad range of markets
and segments. During 2001 and 2002, the Company restructured and reorganized its
operations, exiting many markets and concentrating its resources and energies in
areas which it believes are stable and provide opportunities for profitable
growth. As a result, Guilford is now primarily a supplier of automotive textile
products. The Company currently participates in the following segments:
Automotive, Industrial and Apparel.
2. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. The Condensed Consolidated Balance Sheet
as of September 29, 2002 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 29, 2002.
The condensed consolidated financial statements included herein reflect all
adjustments (none of which is 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 for fiscal 2002
have been reclassified to conform to the fiscal 2003 presentation.
Results for any portion of a year are not necessarily indicative of the results
to be expected for a full fiscal year due to the seasonal aspects of the
automotive and textile industries.
3. Fiscal Period End
The Company's fiscal year ends on the Sunday nearest to September 30. The
Company's first quarter in fiscal 2003 and fiscal 2002 ended on December 29,
2002 and December 30, 2001, respectively. Each of the quarters is comprised of
13 weeks.
4. Reorganization and Fresh-Start Reporting
Reorganization - On March 5, 2002, the Company reached an agreement in principle
with its senior lenders on a restructuring of the Company's approximately $274
million senior indebtedness. 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
"Filing Date"). The Chapter 11 cases were jointly administered under case no.
02-40667 (BRL) and, pursuant to the Bankruptcy Court's approval of the Plan as
defined below, were substantively consolidated for the purpose of consummating
the Plan. During the period from the Filing Date until October 4, 2002 (the
"Effective Date"), the Debtors operated their businesses as
debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company's
non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not
Debtors.
As a result of these Chapter 11 filings, actions to collect pre-petition
indebtedness were stayed. In addition, under the Bankruptcy Code, the Debtors
had the right to 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 were permitted to file claims
with the Bankruptcy Court in accordance with the Bankruptcy Code. The Company
estimated the aggregate amount of the liability that may result from the filing
of claims for certain contracts that were rejected and reflected such amount in
its fiscal 2002 financial statements.
The Company's amended joint plan of reorganization dated August 15, 2002 (the
"Plan"), was confirmed by the Bankruptcy Court on September 20, 2002, and on
October 4, 2002, the Debtors emerged from their bankruptcy proceedings.
On or about the Effective Date, the following transactions or events occurred:
1. The Company's senior secured debt of approximately $274 million was
discharged, and was replaced with new senior notes, due October 4, 2005,
totaling $135 million.
2. All of the Company's old common stock was cancelled and replaced with
5,501,053 shares of new common stock. Of these new shares, approximately 90%
(4,950,000 shares) were issued to the Company's senior lenders as partial
consideration for the debt reduction described above. The remaining shares were
issued to the holders of the Company's old common stock in a ratio of one new
share for every 34.776338 old shares, subject to rounding.
3. The Company transferred approximately $70 million in cash and property to
trusts and its senior lenders, as partial consideration for the debt reduction
described above.
4. The Company's $30 million Debtor-In-Possession Credit Agreement, dated as of
March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a
$25 million revolving credit facility.
5. The Company began paying in cash approximately $15.6 million in pre-petition
liabilities to its vendors, payment of which had been stayed during the
bankruptcy proceedings.
6. The new members of the board of directors began serving as directors.
Fresh Start Reporting - Upon emergence from Chapter 11, the Company adopted the
provisions of Statement of Position No. 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("Fresh Start Reporting" or "SOP
90-7") as promulgated by the AICPA. Accordingly, all assets and liabilities have
been restated to reflect their reorganization value, which approximates their
fair value at the Effective Date. The Company has recorded the effects of the
Plan and Fresh Start Reporting as of September 29, 2002. The consolidated
balance sheets and related information at September 29, 2002 and December 29,
2002 is referred to as Successor Company, and reflect the effects of the
reorganization and the principles of Fresh Start Reporting. Financial statement
amounts prior to September 29, 2002, including the results of operations and
cash flows for the quarter ended December 30, 2001, reflect operations prior to
the Company's emergence from Chapter 11 proceedings, and are referred to as
Predecessor Company.
In adopting the requirements of Fresh Start Reporting as of September 29, 2002,
the Company was required to value its assets and liabilities at fair value as of
September 29, 2002. The reorganization value of the Company's new common equity
of approximately $55 million was determined based on an independent valuation by
financial specialists after consideration of several factors and by using
various valuation methods including appraisals, cash flow multiples,
price/earnings ratios and other relevant industry information. The
reorganization value of the Company has been allocated to various asset
categories pursuant to Fresh Start Reporting principles.
Altamira Trust - Pursuant to the Plan, on the Effective Date, the Company
transferred to a newly created trust certain assets relating to the Company's
discontinued operations located in Altamira, Mexico (the "Altamira Trust"). Such
assets, which have an estimated fair market value of $22 million, include (among
other items) the Company's 50% equity interest in a joint venture which owns
certain infrastructure assets in an Altamira industrial park as well as stock of
the Company's wholly-owned Mexican subsidiaries which (until the fourth quarter
of the Company's 2002 fiscal year) had operated in such park. The Altamira Trust
issued notes to the secured lenders in the aggregate principal amount of $22
million (the "Altamira Trust Notes") in connection with the implementation of
the Plan and in partial satisfaction of such lenders' prepetition claim against
the Company. The Altamira Trust Notes are secured by liens on all of the
Altamira Trust assets, bear interest at the annual rate of 10%, are payable on
October 4, 2005, and are payable only from the Altamira Trust assets. The
trustee of the Altamira Trust is required to pay all liabilities and obligations
of the Altamira Trust from the Altamira Trust assets. The Company is not a
guarantor of, nor otherwise responsible for, the payment of the Altamira Trust
Notes or other liabilities of the Altamira Trust. The Company is, however, the
sole beneficiary of the Altamira Trust and, therefore, is entitled to receive
the Altamira Trust assets remaining, if any, after the payment in full of the
Altamira Trust Notes and of all other liabilities and obligations of the
Altamira Trust. Under the provisions of SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - A
Restatement of FASB Statement No. 125" (SFAS No. 140), the Company has
recognized the assets and liabilities of the Altamira Trust in its consolidated
financial statements.
5. Factors Affecting Comparability of Financial Information
As a consequence of the implementation of Fresh Start Reporting effective
September 29, 2002, the financial information presented in the unaudited
consolidated statement of operations and the corresponding statement of cash
flows for the thirteen weeks ended December 29, 2002 is generally not comparable
to the financial results for the thirteen weeks ended December 30, 2001. Any
financial information herein labeled "Predecessor Company" refers to periods
prior to the adoption of Fresh Start Reporting, while those labeled "Successor
Company" refer to periods following the Company's reorganization.
The lack of comparability in the accompanying unaudited consolidated financial
statements relates primarily to the Company's capital structure (outstanding
shares used in earnings per share calculations) and capital costs (interest,
depreciation and amortization), as well as debt restructuring and reorganization
costs.
6. Per Share Information
Basic net income (loss) per share information has been computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the periods presented. The weighted average shares used in
computing basic net income (loss) per share for the thirteen weeks ended
December 29, 2002 and December 30, 2001 were 5,501,000 and 18,484,000,
respectively. As described in Note 4, on or about October 4, 2002 all of the
Company's old common stock was cancelled and replaced with 5,501,053 shares of
new common stock.
Diluted net income (loss) per share information also considers the dilutive
effect of stock options and restricted stock grants. The weighted average shares
used in computing diluted net income (loss) per share for the thirteen weeks
ended December 29, 2002 and December 30, 2001 were 5,501,000 and 18,484,000,
respectively, as there were no dilutive stock options or restricted stock grants
outstanding. During the periods ended December 29, 2002 and December 30, 2001,
outstanding stock options and shares of restricted stock of 36,000 and
1,807,000, respectively, were antidilutive and not included in the calculation
of diluted net income (loss) per share.
7. Receivables
Receivables at September 29, 2002 and December 29, 2002 consisted of the
following (dollars in thousands):
------------------------------------------------------------- -----------------------------------
Successor Company
------------------------------------------------------------- -----------------------------------
September 29, December 29,
2002 2002
------------------------------------------------------------- ----------------- -----------------
Trade accounts receivable $ 80,744 $ 65,624
Insurance receivables 17,887 --
Other 825 31
------------------------------------------------------------- ----------------- -----------------
99,456 65,655
Less - Allowances 7,842 7,364
------------------------------------------------------------- ----------------- -----------------
Receivables, net $ 91,614 $ 58,291
------------------------------------------------------------- ----------------- -----------------
8. Inventories
Inventories at September 29, 2002 and December 29, 2002 consisted of the
following (dollars in thousands):
------------------------------------------------------------- -----------------------------------
Successor Company
------------------------------------------------------------- ----------------- -----------------
September 29, December 29,
2002 2002
------------------------------------------------------------- ----------------- -----------------
Finished goods $ 24,080 $27,218
Raw materials and work in process 32,933 34,082
Manufacturing supplies 5,328 5,448
------------------------------------------------------------- ----------------- -----------------
Total inventories $ 62,341 $ 66,748
------------------------------------------------------------- ----------------- -----------------
9. Comprehensive Income (Loss)
For the thirteen weeks ended December 30, 2001 and December 29, 2002, total
comprehensive income (loss) was as follows (dollars in thousands):
------------------------------------------------------------- ----------------- -----------------
Predecessor Successor
Company Company
December 30, December 29,
2001 2002
------------------------------------------------------------- ----------------- -----------------
Net income (loss) $ (15,081) $ 101
Foreign currency translation gain 237 546
------------------------------------------------------------- ----------------- -----------------
Comprehensive income (loss) $ (14,844) $ 647
------------------------------------------------------------- ----------------- -----------------
10. Financial Instruments
The Company's financial instruments include cash and cash equivalents,
receivables, accounts payable, short-term borrowings and long-term debt. Because
of their short maturity, the carrying amount of cash, receivables and accounts
payable approximates fair value. Fair value of short-term borrowings and
long-term debt is estimated based on current rates offered for similar debt. At
September 29, 2002 and December 29, 2002, the carrying amount of short-term
borrowings and long-term debt, including the current portion, approximates fair
value.
11. Segment Information
For fiscal 2003, the Company has identified three reportable segments based on
market sectors: Automotive, Industrial and Apparel. During fiscal 2002, the
Company also participated in the Direct-to-Retail Home Fashions segment.
Fabrics produced in the Automotive segment are sold to original equipment
manufacturers ("OEMs") and their suppliers. These fabrics are then used in the
production of seats and headliners of passenger cars, sports utility vehicles,
conversion vans and light and heavy trucks. Guilford is a major producer of
bodycloth and headliner fabric in the United States and Europe and continues to
be the leading headliner fabric manufacturer in both markets. Guilford also has
an automotive fabric operation in Mexico.
Fabrics produced in the Industrial segment are sold for use in a broad range of
specialty applications, including geotextiles, medical and water filtration
devices. The Company's fibers operations are also included in this segment.
The Apparel segment fabrics have historically been used predominantly in women's
intimate apparel, ready-to-wear and swimwear garments, team sportswear and
linings. Since the fourth quarter of fiscal 2000, the Company has effected the
strategic realignment of its apparel operations resulting in the closing of
facilities and a substantial decrease in manufacturing capacity.
The Company previously participated in the Direct-to-Retail Home Fashions market
and produced window curtains, knit and/or lace comforters, sheets, shower
curtains, pillowcases and bedskirts sold directly to department stores, discount
retailers and catalog houses. The Company also produced upholstery fabrics for
use in office and residential furniture. The Company no longer manufactures or
distributes products in this market segment.
For comparative purposes, certain amounts have been reclassified to conform with
fiscal 2003 presentation. The Company neither allocates to the segments nor
bases segment decisions on the following:
o Interest expense
o Other income and expense
o Income tax expense or benefit
o Reorganization costs
(Dollars in thousands)
- ----------------------------------------- ------------- -------------- ------------- ------------------ ------------- ------------
Direct-to-Retail Unallocated
Automotive Industrial Apparel Home Fashions Items Total
- ----------------------------------------- ------------- -------------- ------------- ------------------ ------------- ------------
Quarter ended December 30, 2001 (Predecessor Company)
External Sales $ 81,270 $ 12,293 $ 29,321 $ 14,684 $ -- $ 137,568
Intersegment Sales -- -- -- -- 16,633 16,633
Restructuring Expense -- -- 886 -- -- 886
Operating Profit (Loss) 1,432 (960) (6,850) (1,439) -- (7,817)
Interest Expense -- -- -- -- 7,452 7,452
Other Income, net -- -- -- -- (188) (188)
Loss Before Income Taxes -- -- -- -- -- (15,081)
- ----------------------------------------- ------------- -------------- ------------- ------------------ ------------- ------------
Quarter ended December 29, 2002 (Successor Company)
External Sales $ 92,705 $ 11,821 $ 6,715 $ -- $ -- $ 111,241
Intersegment Sales -- -- -- -- 13,472 13,472
Reorganization Costs -- -- -- -- 276 276
Operating Profit (Loss) 5,447 415 (1,745) -- (276) 3,841
Interest Expense -- -- -- -- 3,727 3,727
Other Income, net -- -- -- -- (38) (38)
Income Before Income Taxes -- -- -- -- -- 152
- ----------------------------------------- ------------- -------------- ------------- ------------------ ------------- ------------
12. Restructuring and Impaired Asset Charges
During fiscal 2000, the Company determined that it was necessary to
strategically realign its apparel operations. The Company announced several
restructuring actions during fiscal 2000, 2001 and 2002.
Fiscal 2002 - Predecessor Company
As of September 30, 2001, the Company had an accrued liability of $1,954,000 for
severance costs and other obligations as a result of restructuring its apparel
segment operations. During the first fiscal quarter of 2002, charges against the
accrual totaled $1,053,000. The table below summarizes the restructuring accrual
(dollars in thousands):
September 30, 2001 Reserves December 30, 2001
reserve balance utilized reserve balance
-------------------------------- ------------------ --------------- -------------------
Severance and related
employee benefit costs $ 1,708 $ 1,053 $ 655
Other costs 246 - 246
-------------------------------- ------------------ --------------- -------------------
Total $ 1,954 $ 1,053 $ 901
-------------------------------- ------------------ --------------- -------------------
The Company also incurred additional restructuring costs of $886,000 during the
first quarter of fiscal 2002, primarily related to notice pay and stay bonuses.
Fiscal 2003 - Successor Company
As of September 29, 2002, the Company had an accrued liability of $1,343,000 for
severance costs as a result of restructuring its apparel segment operations.
During the first quarter of fiscal 2003, charges against the accrual totaled
$884,000. The table below summarizes the restructuring accrual (dollars in
thousands):
September 29, 2002 Reserves December 29, 2002
reserve balance utilized reserve balance
-------------------------------- ------------------ --------------- -------------------
Severance and related
employee benefit costs $ 1,343 $884 $459
-------------------------------- ------------------ --------------- -------------------
13. Commitments and Contingencies
The Company is a partial guarantor of certain third party debt owed by one of
the Company's equity method investees, which is payable in monthly installments
through October 2019, subject to certain call provisions. As of December 29,
2002, the amount of such debt subject to the Company's guarantee is $2,286,000,
plus accrued interest and expenses, and the investee is current in all of its
obligations thereunder. No liability has been recorded in the accompanying
consolidated financial statements related to this guarantee.
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 Resource. Subsequently, through
negotiations with the EPA, Gold entered into a Final Administrative Consent
Order with the EPA, 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. Gold is currently
finalizing a Corrective Measures Study (CMS) Report, and will implement the
proposed corrective action measures upon approval by EPA. This work will
effectively satisfy the requirements of the consent order. The failure of Gold
to comply with the terms of the consent order may result in the imposition of
monetary penalties against the Company.
The Company received a letter from the North Carolina Department of
Environmental Management ("NC DEM") on September 18, 2001, stating that its
facility in Fuquay-Varina, NC, had been placed on the state list of Inactive
Hazardous Waste Sites ("IHWS"). According to the state, the facility was placed
on the IHWS due to information the state has concerning waste handling practices
in the 1984 - 1988 time period. As a result of this listing, the Company has
completed a Remedial Investigation Report and, on October 16, 2002, agreed to
conduct additional assessment activities under the supervision of the NC DEM.
The Company is conducting studies and implementing operational and capital
improvements to the wastewater treatment plant at its facility in Kenansville,
NC, under a Special Order by Consent ("SOC") with the North Carolina Division of
Water Quality, that expires on June 1, 2003. The failure of the Company to
achieve compliance with National Pollution Discharge Elimination permit effluent
limitations as specified in the SOC may result in the imposition of monetary
penalties against the Company.
At December 29, 2002, environmental accruals amounted to $1,778 of which $1,448
is non-current and was included in other long-term liabilities in the
accompanying balance sheet.
In the ordinary course of its business, the Company imports into the United
States a variety of products in connection with its manufacturing operations.
During fiscal 2002, primarily in order to supplement its domestic production of
two automotive fabric styles, the Company imported into the United States from
its wholly-owned subsidiary in the United Kingdom, a limited amount of fabrics
which are identical to styles that are produced in the Company's U.S.
facilities. Upon importation of this merchandise, the Company paid all
applicable customs duties, taxes, and fees. After the end of the 2002 fiscal
year, however, Company management became aware that these U.K. imports had not
been properly marked and certified as to country of origin, as required by U.S.
customs laws. The Company has disclosed this matter to the U.S. Customs Service,
in accordance with applicable procedures, and expects to pay approximately
$150,000 in additional marking duties, which amount has been reflected in the
consolidated statement of operations for the fourth quarter of fiscal 2002. U.S.
Customs could also seek penalties from the Company as a result of the improper
markings and certifications; however, the Company believes that even if such
penalties were imposed, they would not have a material impact on the Company's
financial position or future results of operations. The Company may be required
to reimburse certain of its customers for the amount of customs duties that may
be assessed by non-U.S. customs authorities on the merchandise. An estimated
amount of reimbursements has been reflected in the consolidated statement of
operations for the fourth quarter of fiscal 2002, and the Company does not
believe that any such reimbursements will have a material impact on the
Company's financial position or future results of operations
In addition to the matters described above, the Company is also involved in
litigation arising in the ordinary course of business. As a result of the
bankruptcy proceedings described above, holders of litigation claims that arose
prior to March 13, 2002 retain all rights to proceed against the Company, but
only to the extent and limit of applicable insurance coverage. Such claim
holders have no direct claim against the Company post-confirmation of
bankruptcy, including any deductible under an insurance policy or any excess
over the policy coverage limits. 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Consolidated
Financial Statements of the Company for the periods ended December 29, 2002 and
December 30, 2001 and the related Notes to Consolidated Financial Statements
herein.
Bankruptcy Reorganization
On March 5, 2002, the Company reached an agreement in principle with its senior
lenders on a restructuring of the Company's approximately $274 million senior
indebtedness. To conclude the restructuring as quickly as possible, the Debtors
filed voluntary petitions under the Bankruptcy Code with the Bankruptcy Court on
the Filing Date. The Chapter 11 cases were jointly administered under case no.
02-40667 (BRL) and, pursuant to the Bankruptcy Court's approval of the Plan,
were substantively consolidated for the purpose of consummating the Plan. During
the period from the Filing Date until the Effective Date, the Debtors operated
their businesses as debtors-in-possession under Chapter 11 of the Bankruptcy
Code. The Company's non-U.S. subsidiaries did not file voluntary petitions and
were, therefore, not Debtors.
The Plan was confirmed by the Bankruptcy Court on September 20, 2002, and on
October 4, 2002, the Debtors emerged from their bankruptcy proceedings.
On or about the Effective Date, the following transactions or events occurred:
1. The Company's senior secured debt of approximately $274 million was
discharged, and was replaced with new senior notes, due October 4, 2005,
totaling $135 million.
2. All of the Company's old common stock was cancelled and replaced with
5,501,053 shares of new common stock. Of these new shares, approximately 90%
(4,950,000 shares) were issued to the Company's senior lenders as partial
consideration for the debt reduction described above. The remaining shares were
issued to the holders of the Company's old common stock in a ratio of one new
share for every 34.776338 old shares, subject to rounding.
3. The Company transferred approximately $70 million in cash and property to
trusts and its senior lenders, as partial consideration for the debt reduction
described above.
4. The Company's $30 million Debtor-In-Possession Credit Agreement, dated as of
March 13, 2002, with Wachovia Bank was cancelled and replaced by a $25 million
revolving credit facility.
5. The Company began paying in cash approximately $15.6 million in pre-petition
liabilities to its vendors, payment of which had been stayed during the
bankruptcy proceedings.
6. The new members of the board of directors began serving as directors.
Fresh Start Reporting
The Company has applied Fresh Start Reporting to its consolidated balance sheet
as of September 29, 2002 in accordance with Statement of Position No. 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" as
promulgated by the AICPA. Under Fresh Start Reporting, a new reporting entity is
considered to be created and the recorded amounts of assets and liabilities are
adjusted to reflect their estimated fair values at the date Fresh Start
Reporting is applied. On October 4, 2002, the Debtors emerged from bankruptcy.
For financial reporting purposes, September 29, 2002 was considered the
emergence date and the effects of the reorganization have been reflected in the
accompanying financial statements as if the emergence occurred on that date.
General
Historically, Guilford operated as a diversified textile manufacturer and
participated in a broad range of markets and segments. During fiscal 2001 and
2002, the Company restructured and reorganized its operations, exiting many
markets and concentrating its resources and energies in areas which it believes
are stable and provide opportunities for profitable growth. As a result,
Guilford is now primarily a supplier of automotive textile products. The Company
also participates in certain industrial and apparel markets.
Fabrics produced in the Automotive segment are sold to OEMs and their suppliers.
These fabrics are then used in the production of seats and headliners of
passenger cars, sports utility vehicles, conversion vans and light and heavy
trucks. Guilford is a major producer of bodycloth and headliner fabric in the
United States and Europe and continues to be the leading headliner fabric
manufacturer in both markets. Guilford also has an automotive fabric operation
in Mexico.
Fabrics produced in the Industrial segment are sold for use in a broad range of
specialty applications, including geotextiles, medical and water filtration
devices. The Company's fibers operations are also included in this segment.
The Apparel segment fabrics have historically been used predominantly in women's
intimate apparel, ready-to-wear and swimwear garments. Other end uses included
team sportswear and linings. Since the fourth quarter of fiscal 2000, the
Company has effected the strategic realignment of its apparel operations
resulting in the closing of facilities and a substantial decrease in
manufacturing capacity.
The Company previously participated in the Direct-to-Retail Home Fashions market
and produced window curtains, knit and/or lace comforters, sheets, shower
curtains, pillowcases and bedskirts sold directly to department stores, discount
retailers and catalog houses. The Company also produced upholstery fabrics for
use in office and residential furniture. The Company no longer manufactures or
distributes products in this line of business.
Guilford's business has undergone significant changes over the last decade and,
in particular, over the last four years. Guilford had for many years been known
primarily as a producer of fabrics for apparel applications. While Guilford had
diversified into automotive fabrics in the 1970s, sales of apparel fabrics
remained dominant through most of the 1990s. Guilford, along with substantially
all other domestic textile manufacturers, was dramatically impacted by
staggering increases in imported fabrics and garments during the late 1990s.
In July 2000, the Company announced a strategic realignment of its apparel
operations designed to improve the Company's cost structure and increase
profitability. As conditions worsened, the Company expanded and accelerated its
apparel realignment plan in fiscal 2001. By the end of fiscal 2001, the Company
had closed or committed to close all but one of its domestic apparel dyeing and
finishing facilities. The Company further de-emphasized its apparel business in
2002, closing one of its manufacturing facilities in Mexico and another in the
U.S. The Company has continued to participate in the apparel segment, but on a
much smaller scale. Following these restructuring actions, the Company expects
that revenues in its Apparel segment will be approximately 10% of total revenue
in fiscal 2003.
Early in fiscal 2002, it became necessary for the Company to exit the
Direct-to-Retail Home Fashions business as a result of continued weakness in
sales and declining margins and the Company announced its intent to sell certain
of its assets and its business. As the impact of all of these factors
accumulated, it became clear that the Company needed to undergo a significant
financial restructuring, and as previously discussed, the Company and its
domestic subsidiaries filed voluntary petitions under Chapter 11 of the
Bankruptcy Code in March 2002.
The Company currently produces goods in the United States, the United Kingdom
and Mexico. Historically, approximately 80% of the Company's net sales
originated from the United States. Guilford's non-U.S. operations are subject to
fluctuations in foreign exchange rates that affect the Company's operating
results and financial position due to translation gains and losses recognized in
converting such activity to local currency and to U.S. dollars.
Results of Operations
The following table sets forth, for the thirteen week periods presented,
expenses as a percentage of revenues:
- ----------------------------------------------------------- ------------------- ---------------------
Predecessor Successor
Company Company
December 30, December 29,
2001 2002
- ----------------------------------------------------------- ------------------- ---------------------
Net sales 100.0 % 100.0 %
Cost of goods sold 92.1 84.5
- ----------------------------------------------------------- ------------------- ---------------------
Gross Profit 7.9 15.5
Selling and administrative 12.9 11.8
Restructuring charges 0.7 --
Reorganization costs -- 0.2
- ----------------------------------------------------------- ------------------- ---------------------
Operating income (loss) (5.7) 3.5
Interest expense 5.4 3.4
Other income, net (0.1) --
- ----------------------------------------------------------- ------------------- ---------------------
Income (loss) before income taxes (11.0) 0.1
Income taxes -- --
- ----------------------------------------------------------- ------------------- ---------------------
Net income (loss) (11.0) % 0.1 %
- ----------------------------------------------------------- ------------------- ---------------------
The following table sets forth the results of operations for the thirteen weeks
ended December 29, 2002 compared to December 30, 2001 (dollars in thousands):
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Predecessor Successor
Company Company Percentage
December 30, December 29, Increase Increase
2001 2002 (Decrease) (Decrease)
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Net Sales $ 137,568 $ 111,241 $ (26,327) (19.1)%
Cost of goods sold 126,730 94,008 (32,722) (25.8)
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Gross Profit 10,838 17,233 6,395 59.0
Selling and administrative 17,769 13,116 (4,653) (26.2)
Restructuring charges 886 -- (886) N/A
Reorganization costs -- 276 276 N/A
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Operating Income (Loss) (7,817) 3,841 11,658 N/A
Interest Expense 7,452 3,727 (3,725) (50.0)
Other Income, Net (188) (38) (150) (79.8)
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Income (Loss) Before Income Taxes (15,081) 152 15,233 N/A
Income Taxes -- 51 51 N/A
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Net Income (Loss) $ (15,081) $ 101 $ 15,182 N/A
- ---------------------------------------------- ----------------------- -------------------- ------------------- -----------------
Fiscal 2003 compared to fiscal 2002
Net sales for the first quarter of fiscal 2003 were $111.2 million, a decrease
of $26.3 million, or 19.1% from net sales of $137.6 million for the first
quarter of fiscal 2002.
Automotive segment sales, which comprised 83.4% of consolidated sales, increased
14.0% in the first quarter of fiscal 2003 to $92.7 million as compared to $81.3
million for the first quarter of fiscal 2002. The Company's sales in this
segment increased as a result of an increase in the Company's share of the
bodycloth fabric market in the U.S., as well as increased market share in
Europe. This increase was partially offset by declines in Mexico, due to program
changes, and in Brazil, as the Company exited the production of automotive
fabric in Brazil during the fourth quarter of fiscal 2002.
First quarter fiscal 2003 sales in the Industrial segment declined 4.1% to $11.8
million as compared to $12.3 million in the first quarter of fiscal 2002. The
decline was primarily attributable to a decrease in the sales of certain fabrics
used in window covering applications, partially offset by increased sales in the
Company's fibers operation.
Sales in the Apparel segment for the first quarter of fiscal 2003 declined 77.1%
to $6.7 million from $29.3 million in the first quarter of fiscal 2002. During
the past two years, the Company has significantly reduced its participation in
this segment in connection with its apparel restructuring plan.
During the first quarter of fiscal 2002, the Company recorded $14.7 million of
sales in its Direct-to-Retail Home Fashions segment. As described elsewhere
herein, the Company exited this business during fiscal 2002, and the Company had
no sales in this business during fiscal 2003.
Gross profit for the first quarter of fiscal 2003 increased to $17.2 million or
15.5% of net sales, from $10.8 million or 7.9% of net sales, for the first
quarter of fiscal 2002. The increase was predominately the result of Automotive
segment sales increases in the U.S. and Europe, which resulted in improved
capacity utilization and manufacturing efficiencies. In addition, the Company
eliminated the sales of certain negative margin apparel products.
For the first quarter of fiscal 2003, selling and administrative expenses were
$13.1 million or 11.8% of net sales, compared to $18.8 million or 12.9% of net
sales, for the first quarter of fiscal 2002. The decrease from the prior year
was due primarily to reduced selling and administrative staffing levels, as a
result of the Company's exit from the Direct-to-Retail Home Fashions business
and its significant decrease in participation in the Apparel segment. In
addition, the Company reduced its professional fee expenses, as the fiscal 2002
amount included fees for financial advisors and other professionals retained to
assist the Company in restructuring its debt.
During the first quarter of fiscal 2003, the Company incurred reorganization
costs of $0.3 million, consisting primarily of professional fees related to the
Company's emergence from bankruptcy. During the first quarter of fiscal 2002,
the Company recognized restructuring charges of $0.9 million, consisting
primarily of notice pay and stay bonuses.
Interest expense for the first quarter of fiscal 2003 was $3.7 million compared
to $7.5 million for the first quarter of fiscal 2002. The decrease in interest
expense was attributable to significantly decreased debt levels, as the
Predecessor Company's senior secured debt of approximately $274 million was
replaced with $135 million of new debt upon the Company's emergence from
bankruptcy.
Income tax expense for the first quarter of fiscal 2003 was $0.1 million,
compared to zero for the first quarter of fiscal 2002. For fiscal 2002, the
Company did not record any income tax benefit, despite its operating losses, as
a result of management's assessment that the character and nature of future
taxable income might not allow the Company to realize certain tax benefits from
net operating losses.
For the first quarter of fiscal 2003, net income was $0.1 million, or $0.02 per
diluted share, compared to a net loss of $15.1 million, or $0.82 per diluted
share, for the first quarter of fiscal 2002.
Liquidity and Capital Requirements
At December 29, 2002, working capital was $117.7 million, an increase of $4.9
million, or 4.3%, from $112.8 million at September 29, 2002. The Company's
receivables declined significantly, due to the receipt of proceeds from a number
of life insurance policies the Company surrendered near the end of fiscal 2002,
as well as a decline in trade receivables. The Company's accounts payable also
declined as the Company began paying in cash approximately $15.6 million in
pre-petition liabilities to its vendors, payment of which had been stayed during
the bankruptcy proceedings.
Capital expenditures for the first quarter of fiscal 2003 were $1.5 million,
compared to $2.1 million in the first quarter of fiscal 2002. Depreciation
expense was $3.6 million in the first quarter of fiscal 2003, a decrease from
$10.4 million in the first quarter of fiscal 2002. As a result of the previously
described restructuring actions, the Company disposed of a significant amount of
fixed assets. In addition, as of the Effective Date, the Successor Company
reduced the carrying value of its property, plant and equipment to estimated
fair value in conjunction with the implementation of Fresh Start Reporting, and
began depreciating those assets over their estimated remaining useful lives.
In connection with the bankruptcy reorganization, on October 4, 2002, the
Company entered into a new Credit, Security, Guaranty and Pledge Agreement,
which expires October 4, 2005, with a group of lenders. The new facility
provides for a revolving credit loan facility and letters of credit (the
"Revolving Credit Facility") in a maximum principal amount equal to the lesser
of (a) $25 million or (b) a specified borrowing base, which is based upon
eligible receivables and eligible inventory. The Revolving Credit Facility
restricts investments (including investments in non-U.S.subsidiaries), capital
expenditures, acquisitions, dividends and the incurrence of additional debt. The
Revolving Credit Facility contains customary financial covenants relating to
minimum levels of EBITDA, minimum net worth, minimum fixed charge coverage
ratios and a maximum leverage ratio, all as defined therein. The Revolving
Credit Facility is secured by a first lien on substantially all of the assets of
the Company and its domestic subsidiaries, as well as on the stock of all of the
Company's subsidiaries (with the latter, in the case of the Company's non-U.S.
subsidiaries, being limited to 65% of the capital stock). Upon the Company's
receipt of proceeds from certain transactions, such as certain asset sales, the
Company is required to prepay with such proceeds any loans then outstanding
under the Revolving Credit Facility. The Company is currently in compliance with
all of the financial restrictions and financial covenants of its new Revolving
Credit Facility. All loans outstanding under the Revolving Credit Facility bear
interest at the Base Rate plus an applicable interest margin or the LIBOR rate
plus an applicable interest margin based upon the Company's debt to EBITDA
ratio, and the Company pays a commitment fee of 0.50% on unused amounts
thereunder. As of December 29, 2002, the Company had no outstanding loans and
had approximately $18.8 million available for borrowing under the Revolving
Credit Facility.
The Company's U.K. and Mexico City operations each have separate secured bank
and credit arrangements which are available to finance operations in those
locations. These credit facilities are considered by management to be adequate.
However, the Company's Mexico City operation has incurred operating losses over
the last several quarters. Operating management has taken a number of steps to
improve production and sales in this subsidiary. The current business plan
envisions that the Mexico City operations will return to positive earnings and
cash flow by the end of fiscal 2003. There can be no assurances that such a
turnaround will be achieved. In the event that these operations continue to
generate losses, or should these losses steepen, the Company would need to seek
additional sources of operating capital or financing, or seek other strategic
alternatives for its Mexican operations.
Outlook
The Company has undergone substantial changes over the last two years,
substantially exiting or downsizing its unprofitable lines of business,
including Direct-to-Retail Home Fashions and Apparel, culminating in the
financial reorganization in bankruptcy. Although this reorganization was
difficult, traumatic and expensive, it resulted in a more viable capital
structure for Guilford.
Guilford is and plans to continue to be a company focused on serving its primary
customer base, the automotive industry. While participation in the industrial
and apparel markets is important to balance manufacturing capacity and to
generate positive earnings, the Company plans to dedicate substantially all of
its efforts and resources towards its Automotive segment.
A key component in the continued profitability of the Automotive segment will be
the number of vehicles built by auto manufacturers in Guilford's markets (North
America and Europe). Many analysts project car build rates in both markets to be
relatively flat in 2003 compared with 2002. Many analysts, however, also
acknowledge that many negative factors exist in the economy and the auto markets
which may lead to softness in consumer demand for new vehicles and therefore a
decline in build rates later in 2003 or 2004.
The Company's Automotive segment has historically not seen significant
competitive threats from foreign textile manufacturers. Auto manufacturers and
their suppliers have typically desired their sources of supply locally situated
in order to have greater confidence in the supply chain and to avoid the
complexities and issues associated with importing fabrics or components from
foreign countries. The Company, however, has seen recent indications from one
major auto manufacturer that it will import fabric from Asia for one of its
programs that Guilford currently supplies and that it may be considering
expanding this sourcing channel in an effort to reduce its costs. The impact of
the actions to date is not expected to have a material impact on the financial
position or future results of operations. It is currently unclear whether the
significant logistical problems associated with sourcing fabric in Asia can be
economically resolved by the auto manufacturers. If, however, importation of
fabric or components were to become a trend among auto manufacturers, such a
trend could materially adversely impact the Company's business, and the Company
would need to determine how to respond to this new competitive threat.
Because the Company's reorganization in bankruptcy was completed relatively
quickly, Guilford believes it was generally able to preserve its strong customer
and supplier relationships. Guilford is a well-established, key supplier to the
automotive industry with substantial market share, and expects to continue to
grow and improve its profitability in the future.
Contingencies
The Company is involved in various litigation and environmental matters arising
in the ordinary course of business. These are discussed in Note 13 under Item 1
"Condensed Consolidated Financial Statements" of this document. The Company
maintains insurance coverage against certain potential claims in amounts that
the Company believes to be adequate. As a result of the bankruptcy proceedings
described above, holders of litigation claims that arose prior to March 13, 2002
retain all rights to proceed against the Company, but only to the extent and
limit of applicable insurance coverage. Such claim holders have no direct claim
against the Company post-confirmation of bankruptcy, including any deductible
under an insurance policy or any excess over the policy coverage limits.
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. Forward-looking
statements are generally accompanied by words such as "estimate," "project,"
"predict," "believe," "expect," "anticipate," "plan," "forecast," "budget,"
"goal" or other words that convey the uncertainty of future events or outcomes.
Various statements contained in this report, including those that express a
belief, expectation or intention, as well as those that are not statements of
historical fact, 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. These forward-looking statements speak only as
of the date of this report; the Company disclaims any obligation to update these
statements and cautions against any undue reliance on them. These
forward-looking statements are based on current expectations and assumptions
about future events. While management considers these expectations and
assumptions to be reasonable, they are inherently subject to significant
business, economic, competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many of which are
beyond the Company's control.
Important factors that could cause actual results to differ materially from
those discussed in such forward-looking statements include:
o general economic factors including, but not limited to, changes in interest
rates, foreign currency translation rates, consumer confidence, trends in
disposable income, changes in consumer demand for goods produced, and cyclical
or other downturns
o the overall level of automotive production and the production of specific car
models
o information and technological advances
o cost and availability of raw materials, labor and natural and other resources
o domestic and foreign competition
o changes in purchasing practices of automotive customers, including price
pressures and sourcing of products in Asia
o domestic and foreign governmental regulations and trade policies
o reliance on major customers
o success of marketing, advertising and promotional campaigns
o inability to achieve cost reductions through consolidation and restructuring
o inability to maintain sufficient liquidity to finance the Company's operations
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 exposure to commodity price risk, including
prices of primary raw materials, fiber and foam. The Company does not hold or
issue any financial instruments for trading purposes. During the quarter ended
December 29, 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 related to sales denominated in foreign currencies and against
fluctuations in the purchase price of capital equipment and other transactions
having firm commitments. On December 29, 2002, the Company had no outstanding
foreign currency forward contracts.
Item 4. Controls and Procedures
(a) The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's filings
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the Securities
and Exchange Commission. Such information is accumulated and communicated to the
Company's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company's management, including the principal executive officer
and the principal financial officer, recognizes that any set of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this quarterly report on Form 10-Q,
the Company has carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's principal
executive officer and the Company's principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on such evaluation, the Company's principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective.
(b) There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date of their evaluation in connection with the preparation of
this quarterly report on Form 10-Q.
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.
Item 2. Changes in Securities and Use of Proceeds
As described in more detail elsewhere herein, the Company issued on the
Effective Date an aggregate of 5,501,053 shares of common stock, par value $.01
per share (the "New Common Stock"), in connection with the implementation of the
Plan. In addition, upon the Effective Date, all outstanding shares of common
stock, par value $.02 per share (the "Old Common Stock"), were cancelled and
deemed null, void and of no further force or effect. Of the shares of New Common
Stock issued on the Effective Date, 90% was issued to the Company's secured
lenders in partial satisfaction of their prepetition debt of approximately $274
million. The remaining 10% of the shares of New Common Stock was issued to
persons holding shares of Old Common Stock as of October 3, 2002 (the record
date established for determining distributions of New Common Stock under the
Plan) at a ratio of one share of New Common Stock for every 34.776338 shares of
Old Common Stock, subject to rounding. The issuance of shares of New Common
Stock on the Effective Date was exempt from the registration requirements of the
Securities Act of 1933, as amended, and equivalent provisions of state
securities laws, in reliance upon Section 1145(a) of the Bankruptcy Code. Such
Section generally exempts from registration the issuance of securities if the
following conditions are satisfied: (i) the securities are issued by a debtor
under a plan of reorganization, (ii) the recipients of the securities hold a
claim against, an interest in, or a claim for an administrative expense against
the debtor and (iii) the securities are issued entirely in exchange for the
recipient's claim against or interest in the debtor, or are issued principally
in such exchange and partly for cash or property.
Items 3 - 5.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description
(10)(a)* Salary Continuation Agreement dated as of January 31,
2003 between the Company and David H. Taylor
(10)(b)* Stock Option Plan for Nonemployee Directors
(99)(a) Certification of Chief Executive Officer required by
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(99)(b) Certification of Chief Financial Officer required by
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
*Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K (a "Form 8-K") with the
Securities and Exchange Commission ("SEC") on October 1, 2002 regarding the
Company's anticipated emergence from bankruptcy.
The Company filed a Form 8-K with the SEC on October 4, 2002 regarding the
details of the Company's emergence from bankruptcy.
The Company filed a Form 8-K with the SEC on October 4, 2002 announcing that the
Company's new common stock would begin trading under a new ticker symbol.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Reistrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: February 12, 2003
/s/ David H. Taylor
-------------------
Name: David H. Taylor
Title: Chief Financial Officer
CERTIFICATIONS
I, John A. Emrich, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Guilford Mills, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ John A. Emrich
------------------
John A. Emrich
President and Chief Executive Officer
I, David H. Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Guilford Mills, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ David H. Taylor
-------------------
David H. Taylor
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description
(10)(a)* Salary Continuation Agreement dated as of January 31,
2003 between the Company and David H. Taylor
(10)(b)* Stock Option Plan for Nonemployee Directors
(99)(a) Certification of Chief Executive Officer required by
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(99)(b) Certification of Chief Financial Officer required by
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
*Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.
Exhibit (10)(a)
SALARY CONTINUATION AGREEMENT
This AGREEMENT is entered into this ____ day of January, 2003 by and between
GUILFORD MILLS, Inc. a Delaware corporation (the "Company") and David H. Taylor
(the "Associate").
STATEMENT OF PURPOSE.
The purpose of this Salary Continuation Agreement (the "Agreement") is to assist
a key employee in the event of such employee's involuntary termination in the
transition to finding other employment and also to retain such employee and to
motivate such employee to enhance the value of the Company.
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings set
forth below:
"Base Salary" shall mean the annual base salary paid to the Associate by the
Company and any Subsidiary immediately prior to his or her termination of
employment or, in the event of a termination for Good Reason within the meaning
of clause (b) of the definition of Good Reason, the annual base salary paid to
the Associate immediately prior to the existence of Good Reason.
"Base Salary Continuation Amount" shall mean the amount described in Section 2
hereof.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean:
(a) The willful and continued failure by the Associate to perform
substantially his or her duties with the Company (other than any such
failure resulting from the Associate's incapacity due to physical or mental
illness or any such failure resulting from termination by the Associate for
Good Reason) after a written demand for substantial performance is
delivered to the Associate by the Company's chief executive officer, which
demand specifically identifies the manner in which the chief executive
officer of the Company believes that the Associate has not substantially
performed his or her duties; or
(b) The willful engagement in conduct by the Associate which is
demonstrably and materially injurious to the Company, monetarily or
otherwise; or
(c) Conviction for a felony or other crime punishable by imprisonment, or
the entering of a plea of nolo contendere thereto. For purposes of this
definition, no act, or failure to act, on the Associate's part shall be
considered "willful" unless done, or omitted to be done, by him or her
knowing and with the intent that such action or inaction would not be in
the best interests of the Company or otherwise was done or omitted to be
done in bad faith.
Notwithstanding any of the foregoing, the Associate shall not be deemed to have
been terminated for Cause pursuant to clause (a) and (b) above unless and until
there shall have been delivered to the Associate a resolution duly adopted by
the Board at a meeting called and held for such purpose (after reasonable notice
to the Associate and an opportunity for the Associate, together with his or her
counsel, to be heard before the Board), finding that the Associate has engaged
in (or failed to engage in, as the case may be) the conduct set forth above and
specifying the particulars thereof in detail.
"Change in Control" shall be deemed to have occurred upon any of the following
events:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") but
excluding any employee benefit plan of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's
outstanding securities then entitled ordinarily to vote for the election of
directors; or
(b) During any period of two (2) consecutive years commencing on or after
the Emergence Date, the individuals who at the beginning of such period
constitute the Board or any individuals who would be Continuing Directors
cease for any reason to constitute at least a majority thereof; or
(c) The Board shall approve a sale of all or substantially all of the
assets of the Company; or
(d) The Board shall approve any merger, consolidation, or like business
combination or reorganization of the Company, the consummation of which
would result in the occurrence of any event described in clause (a) or (b),
above.
"Continuing Directors" shall mean the directors of the Company in office on the
Emergence Date and any successor to any such director and any additional
director who after the Emergence Date (i) was nominated or selected by a
majority of the Continuing Directors in office at the time of his or her
nomination or selection and (ii) who is not an "affiliate" or "associate" (as
defined in Regulation 12B under the Exchange Act) of any person who is the
beneficial owner, directly or indirectly, of securities representing ten percent
(10%) or more of the combined voting power of the Company's outstanding
securities then entitled ordinarily to vote for the election of directors.
"Disability" with respect to an Associate shall exist if such Associate is
eligible to receive benefits under the applicable Group Long Term Disability
Income Plan for Executives or any successor plan thereto; provided, however,
that in the event that no such plan is in effect as of the applicable date,
"Disability" shall have the meaning ascribed to such term in any long term
disability benefit plan of the Company in effect as of the Emergence Date.
"Eligible Termination" shall mean the termination of an Associate's employment
with the Company or a Subsidiary, other than on account of death, Disability or
Retirement, (i) by him or her for Good Reason or (ii) by the Company or a
Subsidiary other than for Cause (or other than at a time when Cause existed).
"Emergence Date" shall mean October 4, 2002.
"Good Reason" shall mean:
(a) The assignment by the Company or a Subsidiary to the Associate of duties
which result, without the Associate's express written consent, in a significant
reduction in the Associate's authority and responsibility when compared to the
level of authority and responsibility assigned to the Associate as of the date
of execution of this Agreement; or
(b) A reduction by the Company or a Subsidiary of the Associate's Base Salary as
the same may be increased from time to time hereinafter; or
(c) A change of the Associate's assigned site location as of the Emergence Date
("Original Site") to another site location which is at least 50 miles from the
Original Site without the Associate's consent, or in the event of any such
relocation of the Associate with his or her consent, the failure by the Company
to pay (or reimburse) the Associate for all reasonable moving expenses incurred
by the Associate and relating to a change of his or her principal residence, and
to indemnify the Associate against any loss realized by the Associate and/or the
Associate's spouse in the sale of the Associate's principal residence (with any
such loss measured as the difference between the amount realized on the sale and
the original cost of the home plus any improvements thereto) in connection with
any such change of residence, all to the effect that the Associate shall incur
no loss on any after-tax basis; or
(d) The failure by the Company to continue to provide the Associate with
substantially the same level of employee benefits under all employee benefit
plans, including, without limitation, (i) all pension plans, as such term is
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), including the Profit-Sharing Plan, the Company's 401(k)
Plan and the Company's Excess Benefits Plan, (ii) all other retirement plans,
whether or not tax-qualified, (iii) all incentive and cash bonus plans, (iv) all
welfare plans, as such term is defined in section 3(1) of ERISA, including,
group life insurance plans, medical, dental, accident, disability and other
insurance plans, and (v) all perquisites, in each case, as are provided to the
Associate on the date hereof, or with a package of employee benefits that,
though one or more such benefits may vary from those provided as of the date
hereof, is substantially comparable in all material respects when taken as a
whole to such employee benefits provided as of the date hereof; or
(e) The failure by the Company to provide continued participation in an annual
cash bonus plan pursuant to which, if applicable Company and/or individual
performance criteria are satisfied, the Associate would receive an annual bonus
in an amount equal to the product of (x) his or her annual base salary and (y) a
bonus percentage, provided, however, that such performance criteria used in
calculating the amount of an annual bonus shall be selected and determined in a
manner substantially consistent with the method of establishing such targets
immediately prior to the Emergence Date and the bonus percentage shall be no
less than that percentage used in determining the amount of the Associate's
targeted bonus immediately prior to the Emergence Date; provided, however, that
Good Reason shall not exist in the event the Company changes the criteria for
receiving such amounts for valid business purposes not related to the Associate;
or
(f) The failure by the Company to perform its obligations under any Company
employee benefit plans and agreements entered into between the Company and the
Associate; or
(g) The failure by the Company to obtain the express written assumption of and
agreement to perform this Agreement by any Successor; or
(h) Any purported termination of the Associate's employment by the Company which
is not effected pursuant to a Notice of Termination.
"Notice of Termination" shall mean a notice given by the Associate or by the
Company or a Subsidiary, as the case may be, which shall indicate the specific
basis for termination and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for determination of any payments under
this Agreement; provided, however, that an Associate shall not be entitled to
give a Notice of Termination that he or she is terminating his or her employment
with the Company or a Subsidiary for Good Reason after the expiration of six (6)
months following the last to occur of the events alleged by him or her to
constitute Good Reason.
"Profit Sharing Plan" shall mean the Company's Salaried Associate Retirement
Profit Sharing Plan or any successor plan thereto
"Retirement" shall mean that the Associate shall have retired after reaching the
normal retirement date provided in the Profit Sharing Plan as in effect on the
Emergence Date.
"Subsidiary" shall mean a subsidiary of the Company.
"Successor" shall mean any person, firm, corporation or other business entity
that, at any time, whether by merger, acquisition or otherwise, acquires all or
substantially all of the stock, assets or business of the Company or a
Subsidiary, as the case may be.
2. SALARY CONTINUATION AND OTHER POST-TERMINATION BENEFITS.
The Associate shall only be entitled to the Base Salary Continuation Amount and
the other payments and benefits described in this Section 2 in the event of an
Eligible Termination. Any purported termination by the Company or a Subsidiary
by reason of Disability or for Cause, or by the Associate for Good Reason, shall
be communicated by written Notice of Termination to the other party hereto.
The Base Salary Continuation Amount payable to the Associate under this
Agreement shall be equal to two (2) years of Base Salary. All Base Salary
Continuation Amounts shall be payable by the Company in substantially equal
monthly installments commencing with the first day of the month following the
month in which the Eligible Termination occurs. In the event of an Eligible
Termination, the Associate shall be entitled to (i) continue to participate in
all of the welfare plans, including medical, dental and disability plans,
maintained by the Company or its Subsidiaries in which he or she participated
immediately prior to his or her termination of employment (or, in the event of a
termination for Good Reason within the meaning of clause (d) of the definition
of Good Reason, the welfare plans in which he or she participated immediately
prior to the existence of Good Reason), on the same terms as he or she
participated immediately prior to his or her termination of employment (or the
existence of Good Reason, as the case may be), from the date of such Eligible
Termination to the expiration of a period of time equal to the period of time
used to compute his or her Base Salary Continuation Amount herein and (ii)
reimbursement from the Company for the cost of outplacement services not in
excess of $15,000. In the event of an Eligible Termination within one year after
the Emergence Date following a Change in Control, the Associate shall also be
entitled to receive a bonus equal to 50 percent (50%) of his or her Base Salary,
and such bonus shall be paid out in a single sum together with the first
installment of the Base Salary Continuation Amount payments. Payments and
benefits under this Agreement shall not be reduced or offset by any payments
made to the Associate under any other plan, program, agreement or arrangement of
the Company or its Subsidiaries. Notwithstanding the foregoing, however,
payments under this Agreement are subject to and conditioned upon the
cancellation of any agreements or arrangements existing on the Emergence Date
with the Company or a Subsidiary providing for payments to the Associate in the
event of a "change of control", whether or not such change in control is the
same as defined herein. Benefits under the Agreement payable to the Associate
shall be reduced by all applicable federal, state and local withholding.
3. RELEASE.
The Associate's agreement hereto shall constitute full settlement and release of
any claim or cause of action, of whatever nature, which the Associate might
otherwise assert or claim against the Company or any of its directors,
stockholders, officers or associates on account of such termination; provided,
however, this Agreement is in addition to and not in lieu of any other plan or
arrangement providing for payments to or benefits for the Associate or any
agreement now existing or which hereafter may be entered into between the
Company and the Associate other than any such agreement or arrangement existing
on the Emergence Date providing benefits in the event of a "change in control"
described in Section 2 hereof.
4. FINANCING.
All amounts due and benefits provided under the Agreement shall constitute
general obligations of the Company in accordance with the terms of the
Agreement. The Associate shall have only an unsecured right to payment thereof
out of the general assets of the Company
5. GENERAL.
(a) The Associate shall retain in confidence any proprietary or other
confidential information known to him concerning the Company and its
business (including any Subsidiary and its business) so long as such
information is not publicly disclosed and disclosure is not required by an
order of any governmental body or court. If requested, the Associate shall
return to the Company any memoranda, documents or other materials
proprietary to the Company or any Subsidiary.
(b) The Company shall use its best efforts to resolve disputes under this
Agreement expeditiously and without undue litigation expenses. If
litigation shall be brought to enforce or interpret any provision contained
herein, the Company shall indemnify the Associate for his attorneys' fees
and disbursements incurred in such litigation and pay prejudgment interest
on any money judgment obtained by the Associate calculated at the prime
rate of interest in effect from time to time at Wachovia Bank, National
Association, from the date that payment should have been made under this
Agreement; provided, however, that the Associate shall not have been found
by the court to have had no cause in bringing the action, or to have acted
in bad faith, which finding must be final with the time to appeal therefrom
having expired and no appeal having been taken.
(c) Subject to the terms hereof, the Company's obligation to pay the
Associate the compensation and to make the arrangements provided herein
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any set off, counterclaim,
recoupment, defense or other right which the Company may have against the
Associate or anyone else. All amounts payable by the Company hereunder
shall be paid without notice or demand. Each and every payment made
hereunder by the Company shall be final and the Company will not seek to
recover for any reason all or any part of such payment from the Associate
or any person entitled thereto.
(d) The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company, by written agreement to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, the term
"Company" shall mean the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid which executes and delivers the
agreement required by this Section 5(d), or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(e) This Agreement shall inure to the benefit of and be enforceable by the
Associate's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Associate
should die while any amounts would still be payable to the Associate
hereunder if he had continued to live, all such amounts shall be paid in
accordance with the terms of this Agreement to the Associate's devisee,
legatee or other designor or, if there be no such designee, to the
Associate's estate.
(f) For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered by (i) United States
registered mail, return receipt requested, postage prepaid, (ii) overnight
courier service or (iii) facsimile, addressed as follows:
If to the Associate, to the address stated in the Company's records
for such Associate.
If to the Company:
Guilford Mills, Inc.
6001 West Market Street
Greensboro, NC 27409
Attn: Law Department
Fax: (336)316-4057
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change
of address shall be effective only upon receipt.
6. TERMINATION AND AMENDMENT OF THE AGREEMENT
This Agreement shall continue to be in effect unless and until the Company
terminates it by providing written notice to the Associate at least six months
prior to the date of termination, with such notice specifying the termination
date; provided, however, that the Company may not terminate this Agreement and
may not give such a notice of termination prior to November 12, 2004.
Notwithstanding the foregoing, the Company shall have no right to amend, modify
or terminate this Agreement after the Associate becomes entitled to any payments
or benefits hereunder. The Company may amend or modify this Agreement solely
with the written consent of the Associate.
7. NON-ASSIGNABILITY
The Associate's rights under this Agreement shall be non-transferable except as
applicable law may otherwise require. Subject to the foregoing, no right,
benefit or interest hereunder shall be subject to anticipation, alienation,
sale, assignment, encumbrance, charge, pledge, hypothecation or set-off in
respect of any claim, debt or obligation, or to execution, attachment, levy or
similar process, or assignment by operation of law, and any attempt, voluntary
or involuntary, to effect any such action shall, to the full extent permitted by
law, be null, void and of no effect.
8. EFFECT OF OTHER PROGRAMS; DUTY TO MITIGATE
Except as otherwise expressly provided herein, (a) nothing in the Agreement
shall affect the level of benefits provided to or received by the Associate (or
the Associate's estate or beneficiaries) as part of any employee benefit plan or
program of the Company, its parent or any affiliate and (b) the Agreement shall
not be construed to affect in any way the Associate's rights and obligations
under any other plan or program maintained by the Company, its parent or any
affiliate on behalf of employees or any other contract between the Company or a
subsidiary and the Associate. With respect to the first half of Base Salary
Continuation Amount payments described in Section 2 hereof, the Associate shall
not be required to mitigate the amount of any such payment under the Agreement
by seeking employment or otherwise, and there shall be no right of setoff or
counterclaim, in respect of any claim, debt or obligation, against any payments
to the Associate, the Associate's dependents, beneficiaries or estate provided
for in the Agreement. With respect to the second half of such Base Salary
Continuation Amount payments, such payments shall be reduced, but not below
zero, by any amounts paid or payable by a successor employer and, with respect
to such payments, the Associate shall use reasonable efforts to seek comparable
employment to mitigate the amounts of such payments.
9. TERMINATION OF EMPLOYMENT
Nothing in the Agreement shall be deemed to entitle the Associate to continued
employment with the Company or a Subsidiary, and the rights of the Company or a
Subsidiary to terminate the employment of the Associate in any lawful manner
shall continue as fully as though this Agreement were not in effect.
10. SEVERABILITY
In the event that any provision or portion of the Agreement shall be determined
to be invalid or unenforceable for any reason, the remaining provisions and
portions of the Agreement shall be unaffected thereby and shall remain in full
force and effect to the fullest extent permitted by law.
11. GOVERNING LAW; ARBITRATION
All questions pertaining to the construction, regulation, validity and effect of
the provisions of the Agreement shall be determined in accordance with the laws
of the State of Delaware. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Unless otherwise agreed to by the Company, any such arbitration shall
take place in Guilford county, North Carolina. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Associate shall be entitled to seek specific performance of his or her right to
be paid as provided in this Agreement in the event of any dispute.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
first above written.
GUILFORD MILLS, INC. ASSOCIATE
By:______________________ ___________________________
Name: John A. Emrich David H. Taylor
Title: President and Chief Executive Officer
Exhibit (10)(b)
GUILFORD MILLS, INC.
STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
1. Purposes
Guilford Mills, Inc. (the "Company") desires to attract and retain the services
of outstanding nonemployee directors by affording them an opportunity to acquire
a proprietary interest in the Company through automatic, non-discretionary
awards of options ("Options") exercisable to purchase shares of Common Stock (as
defined below), and thus to create in such directors an increased interest in
and a greater concern for the welfare of the Company and its subsidiaries. The
Options offered pursuant to this Guilford Mills, Inc. Stock Option Plan for
Nonemployee Directors (the "Plan") are a matter of separate inducement and are
not in lieu of any other compensation for the services of any director. The
Options granted under the Plan are intended to be options that do not meet the
requirements for incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). As used in the Plan,
the term "parent corporation" and "subsidiary corporation" shall mean a
corporation coming within the definition of such terms contained in Sections
424(e) and 424(f) of the Code, respectively.
2. Amount of Stock Subject to the Plan
Options granted under the Plan shall be exercisable for shares of the Company's
common stock, par value $.01 per share ("Common Stock"). The total number of
shares of Common Stock authorized for issuance under the Plan upon the exercise
of Options (the "Shares") shall not exceed, in the aggregate, 60,000 of the
currently authorized shares of Common Stock of the Company, such number to be
subject to adjustment in accordance with Section 13 of the Plan. Shares which
may be acquired under the Plan may be either authorized but unissued Shares,
Shares of issued stock held in the Company's treasury, or both. If and to the
extent that Options granted under the Plan expire or terminate without having
been exercised, the Shares covered by such expired or terminated Options may
again be subject to a later-granted Option under the Plan.
3. Effective Date and Term of the Plan
The Plan shall become effective at 5:00 p.m., New York City time, on December
11, 2002 (the "Effective Date"). Except as otherwise provided herein, the Plan
shall terminate at the close of business on October 5, 2003.
4. Administration
The Plan shall be administered by the Nominating and Corporate Governance
Committee of the Board of Directors of the Company (the "Board of Directors"),
appointed by the Board of Directors from among its members (the "Committee").
The Committee shall exercise all power and authority of the Board of Directors
at any time and from time to time to administer the Plan. Subject to the express
provisions of the Plan, the Committee shall have authority to construe the Plan
and the Options granted hereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other ministerial
determinations necessary or advisable for administering the Plan. However, the
timing of grants of Options under the Plan and the determination of the amounts
and prices of such Options shall be effected automatically in accordance with
the terms and provisions of the Plan without further action by the Committee or
the Board of Directors. The determination of the Committee on matters referred
to in this Section 4 shall be conclusive.
5. Eligibility
Each member of the Board of Directors who is not an employee of the Company or
any subsidiary corporation or parent corporation of the Company shall be
eligible to be granted Options under the Plan ("Eligible Director").
6. Option Grants
On the Effective Date, each Eligible Director then in office shall automatically
be granted an Option to purchase 6,000 Shares (subject to adjustment as provided
in Section 13). On October 4, 2003, each then Eligible Director shall
automatically be granted an Option to purchase 4,000 Shares (subject to
adjustment as provided in Section 13 hereof); provided, however, such grant
shall be made only to an Eligible Director who during the last full fiscal year
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board of Directors (held during the period in which the Eligible Director
has been a director) and (ii) the total number of meetings held by all
committees of the Board of Directors on which such Eligible Director served
(during the periods that such Eligible Director served). Each Option granted to
an Eligible Director pursuant to the Plan shall be evidenced by a written
agreement, in a form acceptable to the Committee, between the Company and such
Eligible Director. Any Eligible Director entitled to receive an Option grant
pursuant to the Plan may elect to decline the Option.
7. Option Price and Payment
The price for each Share purchasable upon exercise of any Option granted
hereunder shall be an amount equal to the fair market value per Share on the
date of grant. For purposes of the Plan, fair market value per Share shall be
the closing price for a share of Common Stock on the date of determination if
the Common Stock is readily tradeable on a national securities exchange or other
market system; provided, however, if the Common Stock is not traded on such
date, the fair market value per Share shall be deemed to be the highest bid
quotation for such shares as quoted on such exchange or system on such date;
provided, further, however, if such exchange or system is not open for business
on such date or the Common Stock was not traded on such date and no bid
quotations were recorded, the fair market value per Share shall be determined as
of the closest preceding date on which such exchange or system shall have been
open for business and the Common Stock was traded. If the Common Stock is not
readily tradeable on a national securities exchange or other market system, fair
market value per Share shall be determined in good faith by the Committee. Upon
the exercise of an Option granted hereunder, the Company shall cause the
purchased Shares to be issued when it shall have received the full purchase
price for the Shares in cash or, in the discretion of the Committee, by the
delivery of shares of Common Stock (in proper form for transfer and accompanied
by all requisite stock transfer tax stamps or cash in lieu thereof) then owned
by the holder of the Option having a fair market value equal to the cash
exercise price applicable to that portion of the Option being exercised by the
delivery of such shares, by the withholding of Shares for which the Option is
exercisable having a fair market value equal to the cash exercise price
applicable to that portion of the Option being exercised, or by a combination of
these methods. The fair market value per Share of Common Stock so delivered or
withheld in payment of the purchase price shall be determined as of the date
immediately preceding the date on which the Option is exercised in accordance
with this Section 7, or as may be required in order to comply with or to conform
to the requirements of any applicable laws or regulations.
8. Limitations on the Right of Exercise
In no event shall an Option granted hereunder be exercised for a fraction of a
Share. A person entitled to receive Shares upon the exercise of an Option shall
not have the rights of a shareholder with respect to such Shares until the date
of issuance of a stock certificate to him or her for such Shares; provided,
however, that until such stock certificate is issued, any holder of an Option
using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a shareholder with respect
to such previously acquired shares of Common Stock.
9. Option Period and Exercise of Options
Subject to the express provisions of the Plan, an Option granted to an Eligible
Director hereunder shall automatically vest and become exercisable at the rate
of thirty-three and one-third percent (33 1/3%) of the aggregate number of
Shares initially subject to the Option, on each of the first, second and third
anniversary of the date of grant of such Option. The right of exercise shall be
cumulative, so that if the Option is not exercised to the maximum extent
permissible during any exercise period, it shall be exercisable, in whole or in
part, with respect to all Shares not so purchased at any time prior to the
termination of the Option. An Option granted to an Eligible Director shall
terminate and expire on the tenth anniversary of the date of grant of such
Option, unless sooner terminated pursuant to this Plan. Subject to the express
provisions of the Plan, Options granted under the Plan shall be exercised by the
optionee as to all or part of the Shares covered thereby by the giving of
written notice of the exercise thereof to the Corporate Secretary of the Company
at the principal business office of the Company, specifying the number of Shares
to be purchased, the proposed form of payment and specifying a business day not
more than ten (10) days from the date such notice is given for the payment of
the purchase price against delivery of the Shares being purchased. Subject to
the terms of Sections 15, 16 and 17 hereof, the Company shall cause certificates
for the Shares so purchased to be delivered at the principal business office of
the Company, against payment of the full purchase price, on the date specified
in the notice of exercise.
10. Termination of Directorship
If an Eligible Director's service as a director of the Company terminates, any
Option previously granted to such Eligible Director shall, to the extent not
theretofore exercised, terminate and become null and void; provided, however,
that:
(a) if the service of an Eligible Director holding an outstanding Option
terminates by reason of such Eligible Director's death or disability (as
described in Section 22(e)(3) of the Code), such Option shall immediately
vest and become exercisable, and to the extent not theretofore exercised,
remain exercisable at any time up to and including the earlier of (X) five
(5) years after the date of such termination of service and (Y) the tenth
anniversary of the date of grant of such Option; and
(b) if the service of an Eligible Director holding an outstanding Option
terminates by reason of (i) such Eligible Director's voluntary resignation
from service as a director of the Company, or (ii) failure of the Company
to nominate for re-election such Eligible Director who is otherwise
eligible to serve, except if such failure to nominate for re-election is
due to any act of (A) fraud or intentional misrepresentation or (B)
embezzlement, misappropriation or conversion of assets or opportunities of
the Company or any subsidiary corporation or parent corporation of the
Company (in which case, such Option shall terminate and no longer be
exercisable), such Option shall continue to vest (pursuant to its vesting
schedule) and, to the extent not theretofore exercised, remain exercisable
at any time up to and including the earlier of (X) five (5) years after the
date of such termination of service and (Y) the tenth anniversary of the
date of grant of such Option.
If an Option granted hereunder shall be exercised by the legal representative of
a deceased Eligible Director or former Eligible Director, or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason of
the death of any Eligible Director or former Eligible Director, written notice
of such exercise shall be accompanied by a certified copy of letters
testamentary or equivalent proof of the right of such legal representative or
other person to exercise such Option. Notwithstanding anything to the contrary
contained in this Section 10, in no event shall any person be entitled to
exercise any Option after the expiration of the period of exercisability of such
Option, as specified therein.
11. Use of Proceeds
The cash proceeds of the sale of Shares subject to the Options granted hereunder
are to be added to the general funds of the Company and used for its general
corporate purposes as the Board of Directors shall determine.
12. Non-Transferability of Options
An Option granted hereunder shall not be transferable, whether by operation of
law or otherwise, other than by will or the laws of descent and distribution.
Except to the extent provided above, Options also may not be assigned,
transferred, pledged, hypothecated or disposed of in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process.
13. Adjustment of Shares; Change in Control
(a) Notwithstanding any other provision contained herein, in the event of
any change in the Shares subject to the Plan or to any Option granted under
the Plan (through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares, or other like change in the capital structure
of the Company), an adjustment shall be made to each outstanding Option
such that each such Option shall thereafter be exercisable for such
securities, cash and/or other property as would have been received in
respect of the Shares subject to such Option had such Option been exercised
in full immediately prior to such change, and such an adjustment shall be
made successively each time any such change shall occur. The term "Shares"
after any such change shall refer to the securities, cash and/or property
then receivable upon exercise of an Option. In addition, in the event of
any such change, the Committee shall make any further adjustment to the
maximum number of Shares which may be acquired under the Plan pursuant to
the exercise of Options, the number of shares for which Options may be
granted to any one Eligible Director and the number of Shares and price per
Share subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Options, and the determination
of the Committee as to these matters shall be conclusive and binding on the
optionee.
(b) Notwithstanding any other provision of this Plan, if there is a Change
in Control of the Company, all then outstanding Options shall immediately
vest and become exercisable. For purposes of this Section 13(b), a "Change
in Control" of the Company shall be deemed to have occurred upon any of the
following events:
(i) Any "person" or "group"(as such terms are used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") but excluding any employee benefit plan of the Company) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's
outstanding securities then entitled ordinarily to vote for the election of
directors; or
(ii) During any period of two (2) consecutive years commencing on or after
the Effective Date, the individuals who at the beginning of such period
constitute the Board of Directors or any individuals who would be
Continuing Directors cease for any reason to constitute at least a majority
thereof; or
(iii) The Board of Directors shall approve a sale of all or substantially
all of the assets of the Company; or
(iv) The Board of Directors shall approve any merger, consolidation, or
like business combination or reorganization of the Company, the
consummation of which would result in the occurrence of any event described
in clause (i) or (ii), above.
For purposes of this Section 13(b), "Continuing Directors" shall mean the
directors of the Company in office on the Effective Date and any successor to
any such director and any additional director who after the Effective Date (i)
was nominated or selected by a majority of the Continuing Directors in office at
the time of his or her nomination or selection and (ii) who is not an
"affiliate" or "associate" (as defined in Regulation 12B under the Exchange Act)
of any person who is the beneficial owner, directly or indirectly, of securities
representing ten percent (10%) or more of the combined voting power of the
Company's outstanding securities then entitled ordinarily to vote for the
election of directors.
14. Right to Terminate Service
The Plan shall not impose any obligation on the Company or on any subsidiary
corporation or parent corporation thereof to continue the service of any
Eligible Director holding Options and shall not impose any obligation on the
part of any Eligible Director holding Options to remain in the service of the
Company or of any subsidiary corporation or parent corporation thereof.
15. Purchase for Investment
Except as hereinafter provided, the Committee may require the holder of an
Option granted hereunder, as a condition to exercise of such Option in the event
the Shares subject to such Option are not registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws, to execute and deliver
to the Company a written statement, in form satisfactory to the Committee, in
which such holder (a) represents and warrants that such holder is purchasing or
acquiring the Shares acquired thereunder for such holder's own account for
investment only and not with a view to the resale or distribution thereof in
violation of any federal or state securities laws and (b) agrees that any
subsequent resale or distribution of any of such Shares shall be made only
pursuant to either (i) an effective registration statement covering such Shares
under the Securities Act and applicable state securities laws or (ii) specific
exemptions from the registration requirements of the Securities Act and any
applicable state securities laws, based on a written opinion of counsel, in form
and substance satisfactory to counsel for the Company, as to the application
thereto of any such exemptions. Nothing herein shall be construed as requiring
the Company to register Shares subject to any Option under the Securities Act or
any state securities law and, to the extent deemed necessary by the Company,
Shares issued upon exercise of an Option may contain a legend to the effect that
registration rights have not been granted with respect to such Shares.
16. Issuance of Stock Certificates; Legends; Payment of Expenses
The Company may endorse such legend or legends upon the certificates for Shares
issued upon exercise of Options granted pursuant to the Plan and may issue such
"stop transfer" instructions to its transfer agent in respect of such Shares as
the Committee, in its discretion, determines to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or (b) implement the provisions of the Plan
and any agreement between the Company and the optionee or grantee with respect
to such Shares. The Company shall pay all issue or transfer taxes with respect
to the issuance or transfer of Shares, as well as all fees and expenses
necessarily incurred by the Company in connection with such issuance or
transfer, except fees and expenses that may be necessitated by the filing or
amending of a registration statement under the Securities Act, which fees and
expenses shall be borne by the recipient of the Shares unless such registration
statement has been filed by the Company for its own corporate purpose (and the
Company so states) in which event the recipient of the Shares shall bear only
such fees and expenses as are attributable solely to the inclusion of the Shares
an optionee receives in the registration statement. All Shares issued as
provided herein shall be fully paid and nonassessable to the extent permitted by
law.
17. Listing of Shares and Related Matters
If at any time the listing, registration or qualification of the Shares subject
to such Option on any securities exchange or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary as a
condition of, or in connection with, the granting of an Option, or the issuance
of Shares thereunder, such Option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained.
18. Amendment of the Plan
The Board of Directors may, from time to time, amend the Plan.
19. Termination or Suspension of the Plan
The Board of Directors may at any time suspend or terminate the Plan. Options
may not be granted while the Plan is suspended or after it is terminated. Rights
and obligations under any Option granted while the Plan is in effect shall not
be altered or impaired by suspension or termination of the Plan, except upon the
consent of the person to whom the Option was granted. The ministerial power of
the Committee to construe and administer any Options under Section 4 that are
granted prior to the termination or the suspension of the Plan shall continue
after such termination or during such suspension.
..
20. Governing Law
The Plan, such Options as may be granted hereunder and all related matters shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware from time to time in effect.
21. Partial Invalidity
The invalidity or illegality of any provision herein shall not be deemed to
affect the validity of any other provision.
Exhibit (99)(a)
Certification Required by 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, John A. Emrich, as Chief Executive Officer of Guilford Mills, Inc. (the
"Company"), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
(1) the accompanying Quarterly Report on Form 10-Q of the Company for the
quarterly period ended December 29, 2002 (the "Report"), filed with the U.S.
Securities and Exchange Commission, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: February 12, 2003
/s/ John A. Emrich
John A. Emrich
President and Chief Executive Officer
Exhibit (99)(b)
Certification Required by 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, David H. Taylor, as Chief Financial Officer of Guilford Mills, Inc. (the
"Company"), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
(1) the accompanying Quarterly Report on Form 10-Q of the Company for the
quarterly period ended December 29, 2002 (the "Report"), filed with the U.S.
Securities and Exchange Commission, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: February 12, 2003
/s/ David H. Taylor
David H. Taylor
Chief Financial Officer