SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 29, 2002 For the transition period from _____ to ______
Commission File No. 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
incorporation or organization) Identification No.)
6001 WEST MARKET STREET
GREENSBORO, NORTH CAROLINA 27409
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (336) 316-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
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 twelve (12) months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [ ] No [X]
Aggregate market value of the voting and non-voting common equity (which
consists solely of shares of Old Common Stock) held by non-affiliates of the
registrant at March 28, 2002 (a total of 16,953,379 shares of Old Common
Stock), computed by reference to the average of the last reported bid and ask
price ($0.26) of the Registrant's Old Common Stock on the Over the Counter
Bulletin Board on such date: $4,407,878. (Solely for purposes of the foregoing
calculation, affiliates are considered to be Directors, Officers and greater
than 10% beneficial owners of the Registrant's common equity.) Old Common Stock
refers to the common stock, par value $.02 per share, of the Registrant prior to
the Registrant's emergence from bankruptcy protection, which Old Common has been
cancelled and replaced as of the date of the Registrant's emergence from
bankruptcy protection by New Common Stock, par value $.01 per share, of the
Registrant, as described in further detail in this Annual Report.
Number of shares of the Registrant's New Common Stock, par value $.01 per share,
outstanding as of December 15, 2002: 5,501,053.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 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 [ ]
IMPORTANT INFORMATION REGARDING THIS FORM 10-K
Readers should consider the following information as they review this Form 10-K:
FRESH START ACCOUNTING
The Company has applied Fresh Start Reporting (as defined herein) 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. As a result of the application of Fresh Start Reporting,
the financial statements of the Successor Company are not comparable to the
Company's financial statements of prior periods.
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. Those forward-looking statements appear: in
Item 1 "Business," Item 2 "Properties" and Item 3 "Legal Proceedings" in Part I
of this report; in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Item 7A "Quantitative and Qualitative
Disclosures About Market Risk" and in the Notes to the Company's Consolidated
Financial Statements incorporated into Item 8 of Part II of this report; and
elsewhere in this report. 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, trade policies and tariff
structures
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
FISCAL YEAR END
The Company's fiscal year ends on the Sunday nearest to September 30. Fiscal
year 2002 ended September 29, 2002, fiscal year 2001 ended September 30, 2001
and fiscal year 2000 ended October 1, 2000. Each year includes the results of
operations for 52 weeks.
2
PART I
ITEM 1. BUSINESS
GENERAL
Guilford Mills, Inc. was incorporated under the laws of Delaware in August 1971,
and is the successor by merger to businesses previously conducted since 1946.
Guilford Mills, Inc. and its subsidiaries are referred to as the "Company" or
"Guilford", unless the context indicates otherwise.
Historically, Guilford 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.
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. 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. Following these restructuring actions, the Company
expects that revenues in its Apparel segment will be approximately 10% of total
revenue in fiscal 2003.
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 and
distributes products in this line of business.
Reference is made to Notes 22 and 23 to the Consolidated Financial Statements
under Item 8 "Financial Statements and Supplementary Data" of this Report, for
certain financial information regarding the Company's segments and the
geographic areas in which the Company conducts business.
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 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 business 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
has estimated that the aggregate amount of the liability that may result from
the filing of claims for certain contracts that were rejected is approximately
$934,000, which the Company has reflected in its consolidated financial
statements.
The Company's amended joint plan of reorganization (the "Plan"), dated August
15, 2002, was confirmed by the Bankruptcy Court on September 20, 2002, and on
October 4, 2002, the Debtors emerged from their bankruptcy proceedings.
3
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) 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
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"
("Fresh Start Reporting" or "SOP 90-7") 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.
PRODUCT DEVELOPMENT
Working closely with its customers, the Company conducts research and
development in the U.S., U.K., and Mexico. Such activities involve approximately
90 associates, who are primarily responsible for the creation of new fabrics and
styles. Sample machinery and equipment are used to develop new fabrics which can
be placed into production after customer acceptance. Total expenditures for
research and development for fiscal years 2002, 2001 and 2000 were approximately
$7.8 million, $11.5 million and $18.3 million, or 1.5%, 1.8% and 2.2% of sales,
respectively.
The Company has numerous trademarks, trade names, patents and certain licensing
agreements that it uses in connection with the advertising and promotion of its
products across segments. Management believes that the loss or expiration of
such trademarks, trade names and licensing agreements would not have a material
adverse effect on the Company's operations.
WORKING CAPITAL PRACTICES
The Company generally knits, dyes and finishes fabric based on customer orders
and, therefore, significant amounts of inventory are not needed to meet rapid
delivery to the Company's customers or to assure a continuous allotment of goods
from suppliers. Customers are permitted to return or request allowances for
goods that are off-quality. To minimize the credit risk on such accounts and to
obtain larger credit lines for many customers, the Company maintains credit
insurance covering $18.1 million of certain outstanding accounts receivable as
of September 29, 2002. In addition, as of that date, approximately 20% of
accounts receivable were factored without recourse. The Company has the ability
to borrow against such factored receivables (subject to certain limitations),
and did borrow against them during fiscal 2002 and fiscal 2001. The Company
generally takes advantage of discounts offered by vendors.
The Company has a large number of customers. During fiscal 2002, two of the
Company's customers, Johnson Controls, Inc. and Lear Corporation, each of which
are suppliers to OEMs, accounted for 14.1% and 10.3% of the Company's sales,
respectively. No customer accounted for 10% or more of total net sales during
fiscal 2001 or 2000. The Company's net sales reflect substantial indirect sales
to certain OEMs. In the Automotive segment, the Company's direct and indirect
customers generally provide regular release information which the Company uses
to purchase raw materials and plan its manufacturing process.
4
The following data summarizes the Company's 2002 net direct and indirect sales
to OEMs (amounts in thousands of dollars):
--------------------------------------------- ------------------------
Manufacturer Sales
--------------------------------------------- ------------------------
Ford $ 108,797
General Motors 65,724
Honda 32,207
Toyota 29,980
Nissan 26,760
Daimler Chrysler 14,065
All Other 60,552
--------------------------------------------- ------------------------
Total $ 338,085
--------------------------------------------- ------------------------
The backlog of orders believed to be firm as of the end of the current and
preceding fiscal years is not considered by management to be material for an
understanding of the Company's business as most orders are deliverable within a
few weeks.
EXPORT SALES
U.S. export sales, as a percentage of total worldwide sales of the Company, were
approximately 1.9% in fiscal 2002, 4.4% in fiscal 2001 and 7.0% in fiscal 2000.
RAW MATERIALS
Fabrics in all of the Company's segments are constructed primarily of synthetic
yarns: nylon and polyester, the prices of which are generally sensitive to
changes in petroleum prices. In fiscal 2002, the Company internally produced
approximately 15% to 20% of all yarns used. The Company purchases its remaining
yarns from several fiber producers. In fiscal 2002 all yarns were readily
available throughout the year and either were or could be purchased from
numerous sources. Management believes that an adequate supply of yarns is
available to meet the Company's requirements.
The chemicals and dyes used in the dyeing and finishing processes in all
segments are available in large quantities from various suppliers. The foam
backing used in the automotive fabric lamination process is purchased from three
suppliers in the United States and three suppliers in Europe. During fiscal
2002, there was an adequate supply of foam.
ENVIRONMENTAL MATTERS
The production processes, particularly dyeing and finishing operations, involve
the use and discharge of certain chemicals and dyes into the air and sewage
disposal systems. The Company installs pollution control devices as necessary to
meet existing and anticipated national, state and local pollution control
regulations. The Company, including its non-U.S. subsidiaries, does not
anticipate that compliance with national, state, local and other provisions
which have been enacted or adopted regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment,
will have a material adverse effect upon its capital expenditures, earnings or
competitive position.
Reference is made to Note 16 to the Consolidated Financial Statements under Item
8 "Financial Statements and Supplementary Data" of this document, for
information regarding certain other environmental matters.
COMPETITION
In all of the Company's segments, the principal methods of competition are
pricing, styling and design, customer service and quality. In Direct-to-Retail
Home Fashions, distribution channels were an additional principal method of
competition. The weight of each competitive factor varies by product line. In
the past few years, the Apparel and Direct-to-Retail Home Fashions segments have
been significantly impacted by imports of garments, window curtains and
sheeting.
In the Automotive segment, the Company has two major domestic competitors and
other smaller competitors. Guilford's automotive subsidiary in Europe competes
with seven warp knitters in Europe. It also competes with many producers of
circular knit and flat woven fabrics. The Industrial fabrics market is highly
fragmented, with many textile manufacturers selling products to meet individual
customer specifications. The Company's operations in Mexico compete primarily
with four warp knitters in the Apparel segment and one warp knitter in the
Automotive segment. None of the Company's competitors is deemed to be dominant
with respect to its markets.
5
EMPLOYEES
As of December 15, 2002, the Company employed 3,523 full-time employees
worldwide. Approximately 1,140 employees (including 210 in the U.S., 468 in
Europe and 462 in Mexico) are represented by collective bargaining agreements.
ITEM 2. PROPERTIES
Set forth below is a listing of facilities owned and leased by the Company as of
December 15, 2002:
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
FACILITY LOCATION SEGMENT(S) LEASED/OWNED (A)
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Sales and Administrative Offices Michigan (1) Automotive Leased
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
North Carolina (2) Apparel, Automotive, Industrial Owned (1), Leased (1)
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Germany (1) Automotive Leased
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Spain (1) Automotive Leased
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Manufacturing North Carolina (5) Automotive, Industrial Owned (3), Leased (2)
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Pennsylvania (2) Apparel, Automotive, Industrial Owned
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Mexico (2) Apparel, Automotive, Industrial Owned
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
United Kingdom (3) Automotive Owned
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Warehouses North Carolina (1) Industrial Leased
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
Mexico (6) Apparel, Automotive, Industrial Leased
- ------------------------------------ ----------------------- ----------------------------------- ------------------------
(A) Substantially all of these properties have been mortgaged to secure the
Company's obligations under its new senior loan agreements. See Note 12 to
the Consolidated Financial Statements under Item 8 "Financial Statements
and Supplementary Data" of this document. Properties listed do not include
assets in the Altamira Trust.
Management believes the facilities and manufacturing equipment are in generally
good condition, well maintained, suitable and adequate for present production,
based on the Company's previously announced restructuring actions. Reference is
made to Note 5 to the Consolidated Financial Statements under Item 8 "Financial
Statements and Supplementary Data" of this document for information regarding
the restructuring actions. Some of the Company's manufacturing facilities are
utilized by more than one segment. Utilization of the facilities fluctuates from
time to time due to the seasonal nature of operations and market conditions. The
Company defines full utilization primarily as five-day, three-shift production.
On that basis, the manufacturing facilities are generally utilized approximately
80%. Fibers spinning generally operates on a continuous seven days per week.
ITEM 3. LEGAL PROCEEDINGS
From time to time and currently, the Company is involved in litigation relating
to claims arising out of its operations in the normal course of business. The
Company maintains insurance coverage against certain potential third-party
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, and therefore no assurances can be given, 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. Reference is made to Note 16
to the Consolidated Financial Statements under Item 8 "Financial Statements and
Supplementary Data" of this document for information regarding contingencies.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company solicited from creditors and stockholders acceptances or rejections
of the Plan. Pursuant to the Plan, votes were solicited from beneficial owners
of the Old Common Stock, as defined in Item 5 (Class 8), and holders of the
Company's senior secured notes due 2008 (Class 1(b)). Set forth below is a
tabulation of the votes:
- ------------------- ------------------------ ----------------------- ------------------------ --------------------------
Amount Accepting Amount Rejecting Number Accepting Number Rejecting
(% of Amount Voted) (% of Amount Voted) (% of Amount Voted) (% of Amount Voted)
- ------------------- ------------------------ ----------------------- ------------------------ --------------------------
Class 8 (shares) 6,839,492.90 71,885.69 915 73
(99.0%) (1.0%) (92.6%) (7.4%)
Class 1 (A) $264,537,069.91 $ 0 7 0
(100.0%) (0.0%) (100.0%) (0.0%)
- ------------------- ------------------------ ----------------------- ------------------------ --------------------------
(A) Class 1 included both secured bank claims (Class 1(a)) and secured
noteholder claims (Class 1(b)).
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
RECENT SALES OF UNREGISTERED SECURITIES
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. See Note 3 to the Consolidated Financial Statements under Item 8
"Financial Statements and Supplementary Data" of this document for a complete
description of the distributions made to the secured lenders in connection with
the Plan. 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.
MARKET FOR THE REGISTRANT'S COMMON EQUITY
On December 21, 2001, the Company announced that the New York Stock Exchange
(the "NYSE"), which was the principal market for the Old Common Stock, had
informed the Company that the Company was not in compliance with certain NYSE
continued listing standards. Specifically, the average closing price of the
Company's Old Common Stock, which was traded under the ticker symbol "GFD", had
fallen below $1.00 per share, and the Company's market capitalization had fallen
below $15 million, over a consecutive 30-trading day period.
On February 11, 2002, as a result of the continuation of such non-compliance,
the NYSE suspended trading of the Company's Old Common Stock. Prices for the
Company's Old Common Stock commenced quotation on February 14, 2002 on the
Over-the-Counter Bulletin Board ("OTCBB"), under the ticker symbol "GFDM". Such
over the counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
On September 20, 2002, the Bankruptcy Court confirmed the Plan. On September 24,
2002 the Company's ticker symbol was temporarily changed to "GFDMQ". On October
4, 2002, the Company emerged from bankruptcy and issued New Common Stock as
described above. The ticker symbol for the New Common Stock is "GMIL".
7
The following table contains information about the high and low sales price
(during the period that the stock was listed on the NYSE) or bid price (during
the time the Company stock was listed on the OTCBB) per share of the Old Common
Stock before the Plan became effective on October 4, 2002. As the Old Common
Stock was cancelled on October 4, 2002, the prices set forth on the following
table are not relevant to or indicative of the present or future value of the
New Common Stock. On September 29, 2002 there were 626 stockholders of record.
FISCAL 2002
------------------------- ----------------------------------------
QUARTER HIGH LOW
------------------------- ----------------- --- ------------------
First $0.80 $0.32
Second 0.68 0.10
Third 0.28 0.16
Fourth 0.35 0.14
Year $0.80 $0.10
FISCAL 2001
------------------------- ----------------------------------------
QUARTER HIGH LOW
------------------------- ----------------- --- ------------------
First $2.00 $1.00
Second 2.25 1.45
Third 2.44 1.51
Fourth 2.25 0.60
Year $2.44 $0.60
DIVIDEND POLICY
The Company currently does not anticipate paying dividends on its New Common
Stock. The covenants in its senior debt prohibit, without the consent of the
lenders, the payment of dividends on the Company's New Common Stock. Unless the
Company prepays borrowings under its senior debt, it will have borrowings
outstanding under such debt instruments until October 4, 2005. Any determination
to declare or pay dividends out of funds legally available for that purpose
after termination, expiration or modification of the senior secured debt will be
at the discretion of the board of directors and will depend on future earnings,
results of operations, financial condition, capital requirements, future
contractual restrictions and other factors the board of directors deems
relevant. No cash dividends have been declared or paid during the two most
recent fiscal years.
8
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information is derived from the
Company's Consolidated Financial Statements for periods both before and after
emerging from bankruptcy protection on October 4, 2002. For accounting purposes,
the financial statements reflect the reorganization as if it was consummated on
September 29, 2002. Therefore, the consolidated balance sheet data at September
29, 2002 is labeled "Successor Company," and reflects the effects of the
reorganization and the principles of Fresh Start Reporting. Periods presented
prior to September 29, 2002 have been designated "Predecessor Company." Note 3
to the Consolidated Financial Statements under Item 8 "Financial Statements and
Supplementary Data" of this document, provides a reconciliation of the
Predecessor Company's consolidated balance sheet as of September 29, 2002 to
that of the Successor Company which presents the adjustments that give effect to
the reorganization and Fresh Start Reporting. The data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Company's Consolidated Financial Statements and
Notes thereto. Certain amounts have been reclassified in prior years to conform
to the current year presentation.
The consolidated balance sheet information at September 29, 2002 reflects the
financial position after the effect of the Plan and the application of the
principles of Fresh Start Reporting in accordance with the provisions of SOP
90-7. Accordingly, such financial information is not comparable to the
historical financial information before September 29, 2002.
Predecessor Company
----------------------------------------------------------------------------------------
FISCAL Fiscal Fiscal Fiscal Fiscal
(In thousands except per share data) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Results of Operations
Net sales $ 513,173 $ 643,519 $ 814,226 $ 856,838 $ 894,534
Net (loss) income (123,313) (160,757) (20,974) 10,230 30,206
Per Share Data
Net (loss) income
Basic (6.66) (8.48) (1.11) 0.47 1.32
Diluted (6.66) (8.48) (1.11) 0.47 1.20
Cash dividends 0.00 0.00 0.33 0.44 0.44
SUCCESSOR
COMPANY Predecessor Company
---------------- -----------------------------------------------------------------------
Balance Sheet Data
Working capital $ 112,805 $ (150,451)(1) $ 213,110 $ 127,660 $ 211,278
Total assets 339,497 541,849 724,212 753,431 794,500
Long-term debt 136,939 262,845 146,137 176,872
1,542(1)
Stockholders' investment 55,000 141,509 309,772 340,945 385,177
(1) Long-term debt of $239,842 was classified as current liabilities in fiscal
2001. See Note 12 to the Consolidated Financial Statements under Item 8
"Financial Statements and Supplementary Data" of this document for further
information regarding classification of the Company's debt.
9
ITEM 7. 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 years ended September 29, 2002,
September 30, 2001 and October 1, 2000 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 business 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
has estimated that the aggregate amount of the liability that may result from
the filing of claims for certain contracts that were rejected is approximately
$934,000, which the Company has reflected in its consolidated financial
statements.
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) 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
The Company has applied Fresh Start Reporting to its consolidated balance sheet
as of September 29, 2002 in accordance with SOP 90-7. 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 it occurred
on that date.
The effect of the reorganization and the implementation of Fresh Start Reporting
on the Company's consolidated balance sheet as of September 29, 2002 are
discussed in detail in "Item 8 - Financial Statements and Supplementary Data".
As a result of the implementation of Fresh Start Reporting, the financial
statements of the Successor Company are not comparable to the Company's
financial statements of prior periods.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the appropriate
application of certain accounting policies, many of which require the Company to
make estimates and assumptions about future events and their impact on amounts
reported in the financial statements and related notes. Since future events and
10
their impact cannot be determined with certainty, the actual results will
inevitably differ from the estimates. Such differences could be material to the
financial statements. A critical accounting policy is one which is both
important to the portrayal of the Company's financial condition and results and
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. The Company believes that the following accounting
policies fit this definition:
Fresh Start Reporting - Upon emerging from Chapter 11 proceedings, the Company
adopted Fresh Start Reporting in accordance with SOP 90-7. For financial
reporting purposes, the Company was required to value assets and liabilities at
fair value. With the assistance of financial advisors and use of various
valuation methods, including discounted projected cash flow analysis and other
applicable methods, the Company determined a reorganization value of its new
equity of $55 million. The reorganization value was allocated to the assets and
liabilities based upon fair value.
The Company's reorganization value of its new equity of $55 million was
approximately $16 million less than the fair value of the net assets. In
accordance with the purchase method of accounting, the excess of the revalued
net assets over the reorganization value was allocated to reduce proportionately
the value assigned to applicable noncurrent assets. The calculated
reorganization value of the company was based on a variety of estimates and
assumptions about future circumstances and events. Such estimates and
assumptions are inherently subject to significant economic and competitive
uncertainties beyond the Company's control.
The determination of fair value of assets and liabilities required significant
estimates and judgments made by management, particularly as it related to the
fair market value of inventory and property. The fair value of inventory was
estimated based on selling price less costs to complete, cost of disposal and a
reasonable profit margin. The fair value of property was determined based on
current market rates and building values with the assistance of outside
valuation experts. Results may differ under different assumptions or conditions.
Revenue Recognition - Revenue is recognized at the time goods are shipped.
Allowance for sales returns, a component of net sales, is recorded in the period
in which the related sales are recorded. An allowance of $2.5 million has been
recorded as of September 29, 2002 for such returns.
Benefit Plans - The Company has pension costs and obligations which are
dependent on assumptions used by actuaries in calculating such amounts. These
assumptions include discount rates, inflation, salary growth, long-term return
on plan assets, retirement rates, mortality rates and other factors. While the
Company believes that the assumptions used are appropriate, significant
differences in actual experience or significant changes in assumptions would
affect its pension costs and obligations.
Income Taxes - The Company is subject to the tax laws of many jurisdictions. The
Company is subject to tax audits in each of these jurisdictions, which could
result in changes in income taxes. For financial statement purposes, the income
tax benefit of net operating loss and credit carryforwards is recognized as a
deferred tax asset, subject to appropriate valuation allowances when it is
determined that recovery of the deferred tax asset does not meet a "more likely
than not" criteria. The Company evaluates the tax benefits of net operating loss
and credit carryforwards on an ongoing basis. These assumptions could be
affected by changes in future taxable income and its sources and changes in U.S.
and non-U.S. tax laws and rates. The effective tax rate of the Company could be
impacted by changes in these assumptions.
The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. See the audited
Consolidated Financial Statements and notes thereto, which contain accounting
policies and other disclosures required by generally accepted accounting
principles.
GENERAL
Historically, Guilford 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 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
11
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 a 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 and
distributes products in this line of business.
Guilford's business has undergone significant changes over the last decade and
especially in 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 1970's, sales of apparel fabrics
remained dominant through most of the 1990's. Guilford, along with substantially
all other domestic textile manufacturers, was dramatically impacted by
staggering increases in imported fabrics and garments during the late 1990's.
The Company announced in July 2000 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 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 these factors accumulated, it became clear
that the Company needed to undergo a significant financial restructuring, and on
March 13, 2002, the Company and its domestic subsidiaries filed voluntary
petitions under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy
proceedings are discussed in greater detail elsewhere herein.
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.
The Successor Company expects to continue to allocate its resources primarily to
its Automotive business. This business, because of its highly technical
specifications, research and development requirements and critical logistics, is
believed by management to be less susceptible to competition from foreign
imports than apparel and home fashions fabrics, although there can be no
assurance that such business segment will not be negatively impacted from such
imports in the future.
RESULTS OF OPERATIONS
2002 Compared to 2001 - Consolidated net sales for fiscal 2002 were $513.2
million, a decrease of 20.2% from net sales in fiscal 2001 of $643.5 million.
Sales declines in the Apparel and Direct-to-Retail Home Fashions segments
accounted for the largest amount of the decrease.
The Automotive segment represented 69.1% of consolidated net sales in fiscal
2002, an increase from 51.8% in fiscal 2001. Automotive segment sales were
$354.7 million in fiscal 2002 and increased 6.4% from $333.5 million in fiscal
2001. This primarily resulted from a 10.0% increase in sales by the Company's
U.S. automotive operation. North American car build increased approximately 4.4%
during fiscal 2002 to approximately 16.4 million units compared to car build
during fiscal 2001 of approximately 15.7 million units. The Company also
improved its market share of both headliner and bodycloth fabric. Sales by the
Company's U.K. automotive group grew 7.0% in fiscal 2002 compared to fiscal 2001
12
due to new program rollouts at two major auto manufacturers. Automotive fabric
sales in Mexico decreased by approximately $3.6 million primarily due to the
loss of certain programs during fiscal 2002. Sales in Brazil comprised only 1.3%
of Guilford's Automotive segment sales in fiscal 2002 and declined over 40%
compared to 2001, as a result of the Company's decision to cease production in
Brazil.
Sales in the Apparel segment decreased 61.8% to $72.8 million in fiscal 2002
from $190.6 million in fiscal 2001 and accounted for 14.2% of consolidated net
sales in fiscal 2002. As a result of the continued declines in this segment and
the Predecessor Company's financial difficulties, the Company has substantially
exited the production of apparel fabrics in the United States. The Company has
closed all but one of its apparel facilities in the U.S., and has also closed
its dyeing and finishing plant in Altamira, Mexico. The Company expects apparel
sales to account for approximately 10% of its consolidated sales in fiscal 2003.
Sales in the Industrial segment fell 13.1% to $52.4 million in fiscal 2002 from
$60.3 million in fiscal 2001. The Industrial segment represented 10.2% of
consolidated net sales in fiscal 2002. Growing sales of the Company's industrial
fabrics used in air and water filtration processes have been more than offset by
declines in other industrial products sales, which have been negatively impacted
by the slowing economy.
The Direct-to-Retail Home Fashions segment accounted for 6.5% of consolidated
net sales in fiscal 2002 and sales decreased 43.7% from fiscal 2001. Sales for
fiscal 2002 were $33.3 million versus $59.1 million in fiscal 2001. During
fiscal 2002, the Company decided to exit this business and sold all of its
direct-to-retail operations. As a result, the Company will not operate in this
segment during fiscal 2003.
Gross margin decreased by $4.7 million to $26.1 million or 5.1% of net sales in
fiscal 2002, from $30.8 million, or 4.8% of net sales in fiscal 2001. The
Company has exited the Direct-to-Retail Home Fashions segment and significantly
decreased its participation in the Apparel segment, incurring approximately
$21.2 million for inventory impairment and other charges related to plant
closings. These declines were partially offset by improved margins in both the
U.S. and U.K. automotive businesses, primarily as a result of increased sales.
The industrial fabrics business also improved its margin in fiscal 2002 with
increased capacity utilization.
Selling and administrative expenses decreased 20.5% to $65.4 million, or 12.7%
of sales, in fiscal 2002 from $82.3 million, or 12.8% of sales, in fiscal 2001.
The decrease from fiscal 2001 was due primarily to headcount reductions in
apparel and at corporate. The Company further reduced the number of selling and
administrative employees by more than 70 during fiscal 2002.
As described in greater detail in Note 5 to the Consolidated Financial
Statements, the Company closed its manufacturing facilities in Altamira, Mexico
and in Brazil, and sold its operations in Herkimer, New York and Portugal. The
Company recorded $71.0 million in restructuring costs, consisting primarily of
asset impairments. In addition, the Company recorded $15.5 million of inventory
impairments related to these actions in fiscal 2002. The Company filed for and
subsequently emerged from Chapter 11 bankruptcy protection during fiscal 2002,
as described in greater detail elsewhere herein. The Company retained the
services of attorneys, financial advisers and other professionals to assist with
the bankruptcy process. The Company incurred $14.4 million, primarily related to
fees for those professionals, as reorganization costs during fiscal 2002.
The Company's operating loss was $124.7 million in fiscal 2002 compared to
$122.8 million in fiscal 2001. The change of $1.9 million consisted of selling
and administrative expense decreases of $16.9 million, partially offset by lower
gross margin of $4.7 million in fiscal 2002 and the inclusion in fiscal 2002 of
$14.4 million of reorganization costs. Operating income in the Automotive
segment declined to $6.1 million in fiscal 2002 from $13.2 million in fiscal
2001 as a result of a $4.8 million increase in restructuring expenses in fiscal
2002. Included in such restructuring expenses in fiscal 2002 were losses and
asset impairments associated with the closure and sale of the Company's
automotive operations in Brazil and Portugal, respectively. Operating profit
before such restructuring expenses declined by $2.3 million as a result of price
reductions granted to automotive customers and excess freight costs, offset by
margin on the increased level of sales. The Apparel segment experienced a
significant operating loss of $66.3 million in fiscal 2002 compared to $119.6
million in fiscal 2001. The majority of this loss was the result of the
Company's restructuring actions, as well as decreased sales and soft pricing.
Operating loss in the Direct-to-Retail Home Fashions segment rose to a loss of
$48.2 million in fiscal 2002, compared with a fiscal 2001 loss of $7.9 million
due primarily to $18.8 million of restructuring charges in fiscal 2002. This
decline was due to the lower fabric sales volume, weak pricing, and the effect
of the decision to exit this business. The Industrial segment's operating loss
was $2.0 million in fiscal 2002, compared to the $8.5 million loss in the
previous year. This improvement is the result of the reorganization and
downsizing of the Pine Grove facility, and improved efficiencies in the
Company's fiber operations.
Interest expense decreased $11.2 million to $14.1 million in fiscal 2002 from
$25.3 million in fiscal 2001. In connection with the Company's bankruptcy
reorganization, the Company was not required to pay the interest on the senior
13
debt during the period that the Company was under Chapter 11 protection. The
average per annum short-term interest rate was approximately 8% in fiscal 2002
and 9% in fiscal 2001. In addition, the average debt outstanding decreased to
$281.3 million in fiscal 2002 from $283.3 million in fiscal 2001.
Other income was $3.0 million in fiscal 2002 compared to $0.9 million of expense
in fiscal 2001. Fiscal 2002 included $3.8 million of income related to death
benefits from life insurance policies that the Company received covering
associates who died during the year, partially offset by other losses of $0.8
million. Fiscal 2001 included $2.8 million in equity investee losses, partially
offset by a $1.2 million gain from shares returned to the Company related to a
1996 acquisition of a business and $0.7 million of casualty insurance proceeds.
The effective income tax rate for fiscal 2002 was 11.7% compared to 2.7% for
fiscal 2001. These low effective rates are the result of valuation allowances
recorded in fiscal 2001 and fiscal 2002. These valuation allowances were
necessary because the Company has net operating loss and tax credit
carryforwards that, due to restructuring actions and other factors, could expire
unused. Management's assessment is that the character and nature of future
taxable income may not allow the Company to realize certain tax benefits of net
operating losses and tax credits within the prescribed carryforward period. In
addition, as a result of a change in the tax laws during 2002, the Company
carried back net operating losses to prior years, generating refunds of
approximately $15.8 million in fiscal 2002.
Net loss in fiscal 2002 was $123.3 million or 24.0% of sales, compared to fiscal
2001's net loss of $160.8 million or 25.0% of sales. Loss per share was $6.66
and $8.48 per basic and diluted share for fiscal years 2002 and 2001,
respectively. Average shares outstanding remained essentially unchanged from
fiscal 2001 to fiscal 2002.
2001 Compared to 2000 - Consolidated sales for fiscal 2001 were $643.5 million,
a decrease of 21.0% from fiscal 2000's $814.2 million. Sales declined in all
business segments during fiscal 2001, with the Apparel segment accounting for
the largest amount of the decrease.
The Automotive segment accounted for 51.8% of consolidated net sales in fiscal
2001, an increase from 46.7% in fiscal 2000. Sales were $333.5 million in fiscal
2001 and decreased 12.4% from $380.6 million in fiscal 2000. This primarily
resulted from the decrease in the North American car build in fiscal 2001 to
15.7 million units compared to the car build in fiscal 2000 of a record 17.4
million units. Although Guilford increased its U.S. market share of the
headliner business in fiscal 2001 and continued to penetrate the New Domestics
OEMs bodycloth market, the significantly lower car build resulted in decreased
U.S. automotive segment sales in fiscal 2001 compared to fiscal 2000. Sales by
the Company's U.K. automotive group fell 22.3% in fiscal 2001 compared to fiscal
2000 due to the loss of market share of one of the Company's major customers and
lower build levels of another major customer. Automotive fabric sales in Mexico
increased by more than 11% in fiscal 2001 due to the strength of the car build
during the first half of fiscal 2001. Sales in Brazil more than doubled in
fiscal 2001 but comprised only 2% of Guilford's Automotive segment sales.
Apparel segment sales decreased 34.3% to $190.6 million in fiscal 2001 from
$290.3 million in fiscal 2000 and accounted for 29.6% of consolidated net sales
in fiscal 2001. Sales declined in all major product lines during fiscal 2001, as
U.S. apparel manufacturers were significantly impacted by the slowing economy,
worldwide apparel overcapacity and low-priced imports. Intimate apparel fabric
sales were impacted by the decline of mass-market programs by a major customer
and vertical customers opting to utilize their own manufacturing facilities.
Swimwear fabric sales were also impacted during fiscal 2001 when one of the
Company's largest swimwear customers filed for bankruptcy protection. Fierce
price competition from foreign suppliers caused most of the decline in
ready-to-wear fabric sales.
The Direct-to-Retail Home Fashions segment accounted for 9.2% of consolidated
net sales in fiscal 2001. Sales for fiscal 2001 were $59.1 million versus $63.3
million in fiscal 2000. Sales declined by 6.6% from fiscal 2000 as department
stores and discounters alike saw their sales impacted by the weakened economy.
Sales in the Industrial segment fell 24.6% to $60.3 million in fiscal 2001 from
$80.0 million in fiscal 2000. The Industrial segment represented 9.4% of
consolidated net sales in fiscal 2001. Sales growth in fabrics used in reverse
osmosis filtration, as well as increases in fibers sales, were more than offset
by declines in hook and loop closure sales, which have been negatively impacted
by the slowing economy.
Gross margin decreased by $74.6 million to $30.8 million or 4.8% of net sales in
fiscal 2001, from $105.4 million, or 12.9% of net sales in fiscal 2000. The
single most significant impact to gross margin in fiscal 2001 was the sales
volume decline and corresponding capacity underutilization in all segments which
caused nearly $60 million of the margin decrease. Gross margin was also
negatively impacted in fiscal 2001 by the apparel strategic realignment related
actions which resulted in an aggregate $28.0 million of expenses in fiscal 2001
- - plant closing/run-out inefficiencies of $3.4 million, start-up of the
Company's new facility in Altamira, Mexico of $15.6 million and exited product
line inventory write-downs of $9.0 million. The Company was forced to lower its
sales prices in the Apparel, Direct-to-Retail Home Fashions and fibers
14
businesses during fiscal 2001 as a result of fierce foreign and domestic
competition, customer financial difficulties and a slowing economy. Currency
devaluation in Brazil during fiscal 2001 offset margin improvements from
increased sales volume in Brazil. Manufacturing inefficiencies in the UK
automotive operations during fiscal 2001 were more than offset by improvements
in the U.S. operating facilities. The Company reduced fixed manufacturing
overhead costs by exiting underutilized capacity throughout fiscal 2001, the
fiscal year impact of which was approximately $35 million.
Selling and administrative expenses decreased 15.3% to $82.3 million, or 12.8%
of sales, in fiscal 2001 from $97.2 million, or 11.9% of sales, in fiscal 2000.
The decrease from fiscal 2000 was due primarily to headcount reductions in
apparel and at corporate. The Company reduced the number of selling and
administrative employees by more than 100 during fiscal 2001. The Company also
reduced discretionary expenses such as advertising and travel.
In conjunction with Guilford's strategic realignment of its apparel operations,
the Company closed 4.5 domestic facilities, relocated certain equipment and
severed approximately 1,725 associates during fiscal 2001. The Company closed
two knitting and dyeing and finishing plants in Greensboro, NC and two knitting,
dyeing and finishing plants in Cobleskill, NY. The Company also downsized its
operations in Pine Grove, PA. With these actions, Guilford substantially ceased
apparel and home fashions warp knit fabric production in the U.S. and exited
stretch knit intimate apparel and swimwear fabrics and lace, home fashions lace
fabrics, certain apparel ready-to-wear products and certain home fashion and
other fabric products. The Company transferred production of its circular knit
fabrics from facilities in the U.S. to Altamira, Mexico where it services the
women's ready-to-wear sector. The Pine Grove facility is expected to continue to
produce industrial fabrics. Guilford's facility in Mexico City, which produces
many of the same apparel and home fashions fabrics as previously produced in
Pine Grove, has capacity to service existing customers which cut and sew in
Mexico. The Company has recorded restructuring and impaired asset charges of
$71.4 million in fiscal 2001 and $28.6 million in fiscal 2000 to affect this
strategic realignment.
The Company's operating loss increased to $122.8 million in fiscal 2001 from
$20.4 million in fiscal 2000. The decline of $102.4 million consisted of the
gross margin decrease of $74.6 million and incremental restructuring charges of
$42.8 million offset by selling and administrative expense decreases of $14.9
million. Operating income in the Automotive segment declined to $13.2 million in
fiscal 2001 from $23.2 million in fiscal 2000 as a result of sales decreases in
both the U.S. and the U.K. The Apparel segment experienced a significant
increase in operating loss, to $119.6 million in fiscal 2001 from $38.2 in
fiscal 2000. The majority of this decline was the result of the Company's
restructuring actions, as well as decreased sales and soft pricing. Operating
loss in the Direct-to-Retail Home Fashions segment rose to a loss of $7.9
million in fiscal 2001, compared with a fiscal 2000 loss of $3.1 million. This
decline was due to lower sales volume, impacted by a weak economy. The
Industrial segment's operating loss was $8.5 million, compared to $2.4 million
in the previous year, as a result of lower hook and loop closure sales and weak
internal demand and soft pricing for fiber.
Interest expense increased $6.4 million to $25.3 million in fiscal 2001 million
from $18.9 million in fiscal 2000, as the Company was required to pay
significantly higher interest rates on its amended debt. The average short-term
interest rate was approximately 9% in fiscal 2001 and 8% in fiscal 2000. In
addition, the average debt outstanding increased to $283.3 million in fiscal
2001 from $265.5 million in fiscal 2000.
Other expense was $0.9 million in fiscal 2001 compared to other income of $6.3
million in fiscal 2000. Fiscal 2001 included $2.8 million in equity investee
losses, partially offset by a $1.2 million gain from shares returned to the
Company related to a 1996 acquisition of a business and $0.7 million of
insurance proceeds. Fiscal 2000 other income consisted primarily of $7.1 million
in gains which occurred when two insurance mutuals, of which the Company was a
member as a policyholder, underwent demutualizations and converted to stock
enterprises, and $2.9 million in gains on foreign currency hedging, partially
offset by a $3.7 million loss from an equity investee.
The effective income tax rate for fiscal 2001 was 2.7% versus 36.4% for fiscal
2000. This reduction in the effective rate relates primarily to valuation
allowances recorded during fiscal 2001. These valuation allowances were
necessary because the Company has net operating loss and tax credit
carryforwards that, due to restructuring actions taken during the current year
and other factors, could expire unused. Management's assessment is that the
character and nature of future taxable income may not allow the Company to
realize certain tax benefits of net operating losses and tax credits within the
prescribed carryforward period.
Net loss in fiscal 2001 was $160.8 million or 25.0% of sales. Loss per share was
$8.48 per basic and diluted share, compared to fiscal 2000's net loss of $21.0
million or 2.6% of sales and $1.11 per basic and diluted share. Average shares
outstanding remained essentially unchanged from fiscal 2000 to fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings under its Revolving Credit Facility,
as defined herein. In connection with the 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
15
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) (collectively, the
"Collateral"). 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 restrictions and covenants of
its new Revolving Credit Facility. All loans outstanding under the Revolving
Credit Facility bear interest at the Base Rate plus applicable interest margin
or the LIBOR rate plus an applicable interest margin based upon the Company's
debt to EBITDA ratio. As of October 4, 2002, the Company had no outstanding
borrowings 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.
Cash provided by operations totaled $41.7 million in fiscal 2002, compared to
$7.2 million in fiscal 2001. Although the Company sustained significant losses
in fiscal 2002, cash was generated through reductions of receivables and
inventory.
Working capital was $112.8 million at September 29, 2002 compared to negative
working capital of $150.5 million at September 30, 2001. Negative working
capital in fiscal 2001 was the result of the classification of $239.8 million of
long-term debt as current. The increase in fiscal 2002 is due to the effect of
the bankruptcy reorganization, combined with effects of significant reductions
in receivables and inventory, which were the result of lower levels of business
and the restructuring actions described elsewhere herein. In addition, the
Company repaid $27.3 million in short-term borrowings and increased cash and
cash equivalents by $19.4 million during fiscal 2002.
Cash provided by investing activities totaled $36.0 million in fiscal 2002,
compared to cash used in investing activities of $43.7 million in fiscal 2001.
Capital expenditures declined to $7.3 million in fiscal 2002 from $53.2 million
in fiscal 2001. The Company reduced such capital spending in fiscal 2002 in an
effort to preserve cash and capital resources during its financial
reorganization. Proceeds from dispositions of property totaled $29.0 million
during fiscal 2002, compared to $2.7 million in fiscal 2001. Such dispositions
were primarily the sale of idle plant and machinery from closed facilities.
Cash used in financing activities totaled $58.1 million in fiscal 2002, compared
to cash provided by financing activities of $18.4 million in fiscal 2001. The
Company repaid short-term borrowings of $27.3 million during fiscal 2002 and, in
connection with the bankruptcy reorganization, paid $32.3 million in cash to the
Company's senior lenders.
Based upon the ability to generate working capital through its operations, cash
on hand and its new Revolving Credit Facility, the Company believes that it has
the financial resources necessary to fund its capital expenditures, which are
primarily for process improvement, cost reduction and maintenance and are
expected to be approximately $12 million in fiscal 2003, and to implement its
business plan.
INFLATION
The Company believes that the relatively moderate inflation rate of the past
decade has not significantly impacted its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
which was effective for business combinations initiated after June 30, 2001. The
Company did not acquire any entity subsequent to June 2001, however the
principles of SFAS No. 141 were applied in accordance with Fresh Start
Reporting.
16
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 provides for cessation of amortization of goodwill and
other intangible's considered to have indefinite lives and includes requirements
for periodic tests of goodwill and indefinitely lived intangible assets for
impairment. The Company adopted SFAS 142 as part of its Fresh Start Reporting.
The impact of adopting this pronouncement was not material to the Company's
financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 requires that one accounting model
be used for impairments of long-lived assets to be either used in a business or
disposed of by sale, and broadens the presentation of discontinued operations to
encompass more discrete components of a business enterprise than were included
under previous standards. The Company adopted SFAS No.144 as part of its Fresh
Start Reporting. The impact of adopting this pronouncement was not material to
the Company's financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements 4, 44
and 64, Amendment to FASB Statement 13, and Technical Corrections. One of the
major changes of this statement is to change the accounting for the
classification of gains and losses from the extinguishment of debt. Upon
adoption, the Company will follow APB 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions in
determining whether such extinguishments of debt may be classified as
extraordinary. The provisions of this statement related to the rescission of
FASB Statement 4 shall be applied in fiscal years beginning after May 15, 2002
with early application encouraged. The Company adopted SFAS No. 145 as part of
its Fresh Start Reporting. As a result, the Company has classified gains and
losses from debt restructuring as a component of other expense in the
accompanying consolidated statements of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. The impact of adopting this pronouncement was not material to
the Company's financial statements.
CONTINGENCIES
The Company is involved in various litigation and environmental matters arising
in the ordinary course of business. These are discussed in Note 16 to the
Consolidated Financial Statements which are included herein under Item 8
"Financial Statements and Supplementary Data" 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.
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 will 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 will 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
17
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, technically superior
and essential supplier to the automotive industry with substantial market share,
and expects to continue to grow and improve its profitability in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk for changes in interest rates and foreign
currency exchange rates. Guilford has limited exposure to commodity price risk.
The Company does not hold or issue any financial instruments for trading or
other speculative purposes.
Interest Rate Risk: The Company's obligations under the Revolving Credit
Facility bear interest at floating rates and therefore, the Company is impacted
by changes in prevailing interest rates. However, the senior notes bear fixed
interest coupons and therefore are not subject to the risk of interest rate
fluctuations. A 10% change in market interest rates that affect the Company's
financial instruments would impact earnings during fiscal 2003 by less than $0.1
million before taxes.
Foreign Currency Risk: The Company is subject to foreign currency risk primarily
related to sales and expenditures and other transactions denominated in foreign
currencies and investments in non-U.S. subsidiaries. The Company manages the
exposure related to capital expenditures and other firm commitments denominated
in foreign currencies primarily through forward exchange contracts with
durations of generally less than 12 months. The Company enters into these
contracts in the normal course of business. The changes in market value of such
contracts have a high correlation to the price changes in the currency of the
related hedged transactions. On September 29, 2002, the Company had no
outstanding foreign currency forward contracts.
Effective in fiscal 2000, the Company adopted a policy to manage the exposure
related to sales denominated in foreign currencies through the use of forward
exchange contracts. In fiscal 2000, these forward exchange contracts covered
approximately 75% of the Company's anticipated sales in the Euro, which
represented the majority of the Company's foreign currency sales. The duration
of these contracts was less than 12 months and matched the anticipated
receivable collections. The Company determined that its anticipated sales in the
Euro for fiscal 2001 and 2002 were naturally hedged by anticipated Euro
payables, and therefore did not enter into any forward exchange contracts.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GUILFORD MILLS, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
As of September 29, 2002 and September 30, 2001 and for the years ended
September 29, 2002, September 30, 2001 and October 1, 2000.
Page
Statement of Management's Responsibility............................ 20
Reports of Independent Public Accountants........................... 21
Consolidated Balance Sheets......................................... 24
Consolidated Statements of Operations............................... 25
Consolidated Statements of Stockholders' Investment................. 26
Consolidated Statements of Cash Flows............................... 27
Notes to the Consolidated Financial Statements...................... 28
Quarterly Information (Unaudited)................................... 53
Schedule II - Analysis of Valuation and Qualifying Accounts......... 54
19
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
----------------------------------------
The management of Guilford Mills, Inc. has the responsibility for the
preparation and integrity of all information contained in the Annual Report. The
accompanying financial statements, including footnotes, have been prepared in
accordance with accounting principles generally accepted in the United States of
America and include amounts that are based on management's best estimates and
judgments.
The Company maintains an internal accounting control system designed to provide
reasonable assurance of the safeguarding and accountability of Company assets,
and to ensure that its financial records provide a reliable basis for the
preparation of financial statements and other data. The system includes an
appropriate division of responsibility and is documented by written policies and
procedures that are communicated to employees with significant roles in the
financial reporting process and updated as necessary. In addition, the
achievement of effective operations is promoted by this system. There are limits
inherent in all systems of internal control based on the recognition that the
cost of such systems should not exceed the benefits derived and the likelihood
of achievement of objectives can be affected by human judgment, failure or
circumvention. Management believes the Company's system of internal controls
provides an appropriate balance.
The control environment is complemented by an internal auditing program,
comprised of internal and external business advisors who independently assess
the effectiveness of the internal controls and report findings to management
throughout the year. The group delivers increased value by aligning with the
business objectives to reduce risk and create cost efficiencies. The Company's
accompanying financial statements have been audited by independent public
accountants who have expressed their opinion with respect to the fairness of the
presentation of these statements in conformity with accounting principles
generally accepted in the United States of America. They objectively and
independently review the performance of management in carrying out its
responsibility for reporting operating results and financial condition. Their
opinion is based on procedures which they believe to be sufficient to provide
reasonable assurances that the financial statements contain no material errors.
Management has made available to the independent public accountants all of the
Company's financial records and related data, as well as the minutes of the
stockholders' and directors' meetings. Recommendations by both internal and
external auditors concerning internal control deficiencies are considered and
are implemented with an appropriate urgency by management.
The Audit Committee of the Board of Directors, which is formally chartered, is
comprised solely of non-employee directors who meet periodically with the
independent auditors, management and the Company's internal auditors to review
the work of each and to evaluate the accounting, auditing, internal controls and
financial reporting matters. The independent auditors and the Company's internal
auditors have free access to the Audit Committee, without the presence of
management.
/s/ David H. Taylor
- ---------------------------
David H. Taylor
Chief Financial Officer
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Stockholders and Board of Directors
Guilford Mills, Inc.:
We have audited the accompanying consolidated balance sheet of Guilford Mills,
Inc. (a Delaware corporation) and subsidiaries as of September 29, 2002
(Successor Company) and the related consolidated statements of operations,
stockholders' investment and cash flows for the year then ended (Predecessor
Company). These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit. The
consolidated financial statements of Guilford Mills, Inc. and subsidiaries as of
September 30, 2001 (Predecessor Company) and for each of the two years in the
period then ended (Predecessor Company) were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on those
Predecessor Company financial statements in their report dated January 14, 2002.
Their report also included an explanatory paragraph that the Predecessor
Company's substantial losses from operations in fiscal 2001 and debt covenant
violations raised substantial doubt about the Predecessor Company's ability to
continue as a going concern.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Notes 1 and 3 to the Consolidated Financial Statements, on March
13, 2002, Guilford Mills, Inc. and its domestic subsidiaries filed voluntary
petitions under Chapter 11 of the U.S. Bankruptcy Code in New York. On September
20, 2002, the Bankruptcy Court entered an order confirming the plan of
reorganization, which became effective on October 4, 2002. The plan was deemed
to be effective as of September 29, 2002 for financial reporting purposes.
Accordingly, the Company changed its basis of financial statement presentation
to reflect the adoption of fresh start reporting in accordance with American
Institute of Certified Public Accountants Statement of Position 90-7, "Financial
Reporting for Entities in Reorganization Under the Bankruptcy Code". As a
result, the consolidated financial statements for periods subsequent to the
reorganization (Successor Company financial statements) are not comparable to
the consolidated financial statements for the prior periods (Predecessor Company
financial statements).
In our opinion, the consolidated balance sheet presents fairly, in all material
respects, the financial position of Guilford Mills, Inc. and subsidiaries as of
September 29, 2002 (Successor Company) in conformity with accounting principles
generally accepted in the United States of America. Further, in our opinion, the
consolidated financial statements for the year ended September 29, 2002
(Predecessor Company) present fairly, in all material respects, the results of
the Predecessor Company's operations and its cash flows for the year ended
September 29, 2002, in conformity with accounting principles generally accepted
in the United States of America.
As discussed above, the consolidated financial statements of Guilford Mills,
Inc. and subsidiaries as of September 30, 2001 and for each of the two years in
the period then ended were audited by other auditors who have ceased operations.
As described in Note 2, the loss from debt restructuring originally presented as
an Extraordinary Item has been presented as a component of Other Expense in the
fiscal 2001 Predecessor Company consolidated financial statements in connection
with the Company's adoption of Statement of Financial Accounting Standards
("SFAS") No. 145, "Rescission of FASB Statements 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". As described in Note 2, the
fiscal 2001 Predecessor Company consolidated financial statements have been
revised to reclassify certain income tax balances within the consolidated
balance sheet as of September 30, 2001. Also, as described in Note 2, the
Company changed the composition of its reportable segments in fiscal 2002, and
the amounts in the fiscal 2001 and fiscal 2000 (Predecessor Company)
consolidated financial statements relating to reportable segments have been
restated to conform to the fiscal 2002 composition of reportable segments. We
audited the adjustments described in Note 2 that were applied to reclassify the
loss from debt restructuring and to reclassify certain deferred income tax
balances in the fiscal 2001 Predecessor Company consolidated financial
statements, and we audited the adjustments described in Note 2 that were applied
to restate the disclosures for reportable segments reflected in the fiscal 2001
and fiscal 2000 Predecessor Company consolidated financial statements. In our
opinion, such adjustments are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
fiscal 2001 and fiscal 2000 Predecessor Company consolidated financial
statements of the Company other than with respect to such adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
fiscal 2001 or fiscal 2000 Predecessor Company consolidated financial statements
taken as a whole.
21
Our audit was made for the purpose of forming an opinion on the fiscal 2002
consolidated financial statements taken as a whole. The schedule listed in Item
15(a)(2) of this form 10-K is the responsibility of the Company's management and
is presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
information included in this schedule for the year ended September 29, 2002 has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole. The financial statement schedules for the
years ended September 30, 2001 and October 1, 2000 were audited by other
auditors who have ceased operations. Those auditors expressed an unqualified
opinion on the financial statement schedules in their report dated January 14,
2002.
/s/ GRANT THORNTON LLP
----------------------
Greensboro, North Carolina
January 10, 2003
22
THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY
ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and Board of Directors of Guilford Mills, Inc.:
We have audited the accompanying consolidated balance sheets of Guilford Mills,
Inc. (a Delaware corporation) and subsidiaries as of September 30, 2001 and
October 1, 2000, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended September 30, 2001. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guilford Mills, Inc. and
subsidiaries as of September 30, 2001 and October 1, 2000 and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered substantial losses from
operations, its lenders have waived covenant violations only through January 18,
2002 and it is uncertain if they will continue to waive their right to
accelerate the due date of the debt or enter into a new long-term debt
agreement. These facts raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule titled "Schedule II - Analysis of
Valuation and Qualifying Accounts" in Item 8 is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Arthur Andersen LLP
Greensboro, North Carolina
January 14, 2002
23
GUILFORD MILLS, INC.
CONSOLIDATED BALANCE SHEETS
September 29, 2002 and September 30, 2001
(In thousands)
SUCCESSOR Predecessor
COMPANY Company
- ------------------------------------------------------------------- ----------------- ------------------
2002 2001
- ------------------------------------------------------------------- ----------------- ------------------
ASSETS
Cash and cash equivalents $ 25,074 $ 5,645
Receivables, net 91,614 103,484
Inventories 62,341 90,937
Prepaid income taxes -- 460
Other current assets 13,169 14,212
- ------------------------------------------------------------------- ----------------- ------------------
Total current assets 192,198 214,738
Property, net 114,981 267,833
Altamira trust assets 22,000 --
Other assets 10,318 59,278
- ------------------------------------------------------------------- ----------------- ------------------
Total assets $ 339,497 $ 541,849
- ------------------------------------------------------------------- ----------------- ------------------
LIABILITIES
Short-term borrowings $ 6,199 $ 33,724
Current maturities of long-term debt 417 21,501
Long-term debt classified current -- 239,842
Accounts payable 41,952 41,468
Accrued payroll and related benefits 14,701 12,362
Deferred income taxes 1,210 --
Other current liabilities 14,914 16,292
- ------------------------------------------------------------------- ----------------- ------------------
Total current liabilities 79,393 365,189
- ------------------------------------------------------------------- ----------------- ------------------
Long-term debt 136,939 1,542
Altamira trust notes 22,000 --
Deferred income taxes 1,247 2,617
Other liabilities 44,918 30,992
- ------------------------------------------------------------------- ----------------- ------------------
Total long-term liabilities 205,104 35,151
- ------------------------------------------------------------------- ----------------- ------------------
COMMITMENTS AND CONTINGENCIES (NOTES 16 & 18)
STOCKHOLDERS' INVESTMENT
Old common stock, including capital in excess of par
(32,750,094 shares issued; 18,627,076 outstanding) -- 120,639
New common stock, including capital in excess of par
(5,501,053 shares issued and outstanding) 55,000 --
Retained earnings -- 175,748
Accumulated other comprehensive loss -- (24,548)
Unamortized stock compensation -- (805)
Treasury stock (14,123,018 shares), at cost -- (129,525)
- ------------------------------------------------------------------- ----------------- ------------------
Total stockholders' investment 55,000 141,509
- ------------------------------------------------------------------- ----------------- ------------------
Total liabilities and stockholders' investment $ 339,497 $ 541,849
- ------------------------------------------------------------------- ----------------- ------------------
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
24
GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years ended September 29, 2002, September 30, 2001 and October 1,
2000 (In thousands except per share data)
- -------------------------------------------------------------- --------------------------------------------------------------
PREDECESSOR COMPANY
- -------------------------------------------------------------- --------------------- ------------------- --------------------
2002 2001 2000
- -------------------------------------------------------------- --------------------- ------------------- --------------------
NET SALES $ 513,173 $ 643,519 $ 814,226
- -------------------------------------------------------------- --------------------- ------------------- --------------------
COSTS AND EXPENSES:
Cost of goods sold 487,114 612,707 708,813
Selling and administrative 65,380 82,274 97,192
Reorganization costs 14,350 -- --
Restructuring and impaired asset charges 71,050 71,375 28,643
- -------------------------------------------------------------- --------------------- ------------------- --------------------
637,894 766,356 834,648
- -------------------------------------------------------------- --------------------- ------------------- --------------------
OPERATING LOSS (124,721) (122,837) (20,422)
- -------------------------------------------------------------- --------------------- ------------------- --------------------
OTHER EXPENSE:
Interest expense 14,080 25,292 18,882
Fresh start adjustments 16,393 -- --
(Gain) loss on debt restructuring (20,588) 4,725 --
Impaired investments 8,063 11,451 --
Other expense (income), net (2,963) 911 (6,322)
- -------------------------------------------------------------- --------------------- ------------------- --------------------
14,985 42,379 12,560
- -------------------------------------------------------------- --------------------- ------------------- --------------------
LOSS BEFORE INCOME TAX BENEFIT (139,706) (165,216) (32,982)
INCOME TAX BENEFIT (16,393) (4,459) (12,008)
- -------------------------------------------------------------- --------------------- ------------------- --------------------
NET LOSS $ (123,313) $ (160,757) $ (20,974)
- -------------------------------------------------------------- --------------------- ------------------- --------------------
NET LOSS PER SHARE:
Basic $ (6.66) $ (8.48) $ (1.11)
Diluted (6.66) (8.48) (1.11)
- -------------------------------------------------------------- --------------------- ------------------- --------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the Fiscal Years ended September 29, 2002, September 30, 2001 and October 1,
2000 (In thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Current Year Common Stock Capital in
Comprehensive -------------------- Excess of Retained
Income (Loss) Shares $ Amount Par Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY BALANCE, OCTOBER 3, 1999 32,750 $ 655 $ 120,532 $ 363,812
Comprehensive income:
Net Loss $ (20,974) (20,974)
Other comprehensive loss, net of tax:
Foreign currency translation loss (5,274)
Pension equity adjustment 389
--------------
--------------
Total comprehensive loss $ (25,859)
--------------
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan
U.S. income tax expense from restricted stock (161)
Cash dividends ($.33 per share) (6,333)
- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY BALANCE, OCTOBER 1, 2000 32,750 655 120,371 336,505
Comprehensive income:
Net Loss $ (160,757) (160,757)
Other comprehensive loss, net of tax:
Foreign currency translation loss (2,251)
Pension equity adjustment (5,133)
--------------
--------------
Total comprehensive loss $ (168,141)
--------------
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan
Cancellation of grants of shares under the
restricted stock plan (35)
U.S. income tax expense from restricted stock (123)
Return of shares by former owner
of Hofmann Laces
Issuance of treasury stock to retiring members of
the Board of Directors under phantom stock plan (229)
- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY BALANCE, SEPTEMBER 30, 2001 32,750 655 119,984 175,748
Comprehensive income:
Net Loss $ (123,313) (123,313)
Other comprehensive loss, net of tax:
Foreign currency translation gain 3,451
Pension equity adjustment (16,657)
--------------
--------------
Total comprehensive loss $ (136,519)
==============
Cancellation of grants of shares under the
restricted stock plan
Compensation under restricted stock plan
Effect of Reorganization:
Cancellation of old common stock (32,750) (655)
Fresh start adjustments (119,984) (52,435)
New common stock issued in reorganization 5,501 55 54,945
- -----------------------------------------------------------------------------------------------------------------------------------
SUCCESSOR COMPANY BALANCE, SEPTEMBER 29, 2002 5,501 $ 55 $ 54,945 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
** TABLE CONTINUED.... **
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Unamortized Treasury Stock
Comprehensive Stock ---------------------- Total
Loss Compensation Shares $ Amount Equity
- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY BALANCE, OCTOBER 3, 1999 $ (12,279) $ (3,310) 13,551 $ (128,465) $ 340,945
Comprehensive income:
Net Loss (20,974)
Other comprehensive loss, net of tax:
Foreign currency translation loss (5,274) (5,274)
Pension equity adjustment 389 389
Total comprehensive loss
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations 5 (46) (46)
Compensation under restricted stock plan 1,226 1,226
U.S. income tax expense from restricted stock (161)
Cash dividends ($.33 per share) (6,333)
- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY BALANCE, OCTOBER 1, 2000 (17,164) (2,084) 13,556 (128,511) 309,772
Comprehensive income:
Net Loss (160,757)
Other comprehensive loss, net of tax:
Foreign currency translation loss (2,251) (2,251)
Pension equity adjustment (5,133) (5,133)
Total comprehensive loss
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations 11 (25) (25)
Compensation under restricted stock plan 1,136 1,136
Cancellation of grants of shares under the
restricted stock plan 143 20 (108) 0
U.S. income tax expense from restricted stock (123)
Return of shares by former owner
of Hofmann Laces 573 (1,232) (1,232)
Issuance of treasury stock to retiring members of
the Board of Directors under phantom stock plan (37) 351 122
- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY BALANCE, SEPTEMBER 30, 2001 (24,548) (805) 14,123 (129,525) 141,509
Comprehensive income:
Net Loss (123,313)
Other comprehensive loss, net of tax:
Foreign currency translation gain 3,451 3,451
Pension equity adjustment (16,657) (16,657)
Total comprehensive loss
Cancellation of grants of shares under the
restricted stock plan 33 6 (125) (92)
Compensation under restricted stock plan 604 604
Effect of Reorganization:
Cancellation of old common stock (14,129) 129,650 128,995
Fresh start adjustments 37,754 168 (134,497)
New common stock issued in reorganization 55,000
- -----------------------------------------------------------------------------------------------------------------------------------
SUCCESSOR COMPANY BALANCE, SEPTEMBER 29, 2002 $ - $ - - $ - $ 55,000
- -----------------------------------------------------------------------------------------------------------------------------------
** TABLE COMPLETE **
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 29, 2002, September 30, 2001 and October 1, 2000
(In thousands)
PREDECESSOR COMPANY
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
------------ ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (123,313) $ (160,757) $ (20,974)
Adjustments required to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 38,129 56,636 64,692
Unexpended and non-cash restructuring costs 65,725 57,947 26,538
Fresh start adjustments 16,393 - -
Non-cash reorganization items 3,351 - -
Gain on forward contracts - - (2,856)
Gain on sale of investments (776) - (7,131)
Gain on return of shares - (1,232) -
(Gain) loss on extinguishment of debt (20,588) 4,725 -
Gain on disposition of property (9,027) (2,144) (70)
Loss on equity method investments 9,595 14,286 3,730
Provision for bad debts 5,848 1,299 1,404
Minority interest in net loss (income) 96 (172) 60
Deferred income taxes (1,209) (1,149) (14,050)
Increase in cash surrender value of life insurance, net of policy loans (1,602) (2,810) (2,705)
Compensation earned under restricted stock plan 637 1,279 1,226
Changes in assets and liabilities:
Receivables 17,028 38,246 6,434
Inventories 42,260 35,645 6,755
Other current assets 431 193 (3,425)
Accounts payable (345) (12,670) (3,273)
Accrued liabilities 9,052 (17,072) (5,303)
Other assets and liabilities (10,026) (5,010) 503
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 41,659 7,240 51,555
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (7,271) (53,163) (66,187)
Proceeds from dispositions of property 29,046 2,666 7
Liquidation of life insurance policies 11,957 11,652 2,094
Proceeds from settlement of forward contracts - - 2,856
Proceeds from sale of investments 2,680 - 7,131
Investment in equity investee (397) (4,874) (3,879)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 36,015 (43,719) (57,978)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayment), net (27,297) 22,134 (101,165)
Payments of long-term debt (36,576) (113,751) (22,389)
Proceeds from issuance of long-term debt, net of deferred financing costs paid 38,000 110,029 138,164
Payment to senior secured lenders in reorganization (32,273) - -
Cash dividends - - (6,333)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (58,146) 18,412 8,277
- -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (99) (162) (534)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,429 (18,229) 1,320
BEGINNING CASH AND CASH EQUIVALENTS 5,645 23,874 22,554
- -----------------------------------------------------------------------------------------------------------------------------------
ENDING CASH AND CASH EQUIVALENTS $ 25,074 $ 5,645 $ 23,874
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,100 $ 26,550 $ 20,449
Cash (received) paid for income taxes, net (14,799) (3,209) 696
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Description of Business - 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.
Basis of Presentation - On March 5, 2002, the Company reached an agreement in
principle with its senior lenders on a restructuring of the Company's
approximately $274,000 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 business 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
has estimated that the aggregate amount of the liability that may result from
the filing of claims for certain contracts that were rejected is approximately
$934, which the Company has reflected in its 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 $274,000 was
discharged, and was replaced with new senior notes, due October 4, 2005,
totaling $135,000.
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) 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 $70,000 in cash and property to
trusts and its senior lenders, as partial consideration for the debt
reduction described above.
4. The Company's $30,000 Debtor-In-Possession Credit Agreement, dated as of
March 13, 2002, with Wachovia Bank was cancelled and the Company entered
into a $25,000 revolving credit facility.
5. The Company began paying in cash approximately $15,600 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.
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 sheet and related information
at September 29, 2002 is referred to as Successor Company, and reflects 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 each of the three years in the period ended
September 29, 2002 reflect operations prior to the Company's emergence from
Chapter 11 proceedings, and are referred to as Predecessor Company. The
reorganization value of the Company's common equity of approximately $55,000 was
determined based on an independent valuation by financial specialists after
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
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.
The consolidated statements of operations reflect certain restructuring fees and
expenses including professional fees and expenses directly related to the
reorganization. Interest expense on the Company's senior secured debt has been
reported to the Filing Date. Such interest expense was not reported subsequent
to the Filing Date because it was not required to be paid. The difference
between reported interest expense and stated contractual interest expense of the
Predecessor Company was approximately $12,600 during the period March 13, 2002
to September 29, 2002.
As a result of the consummation of the Plan, the Company recognized a gain on
reorganization of $20,588. This gain reflects the forgiveness of debt and
interest of $273,870, in consideration of new senior secured notes of $135,000,
new common stock valued at $49,500, cash of $32,273 and other assets of $36,509
conveyed into two trusts as described below.
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 $22,000, 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 $22,000
(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.
On the Effective Date, the Company also transferred pursuant to the Plan certain
assets relating to certain domestic operations to a separate, newly created
trust, the sole beneficiaries of which are the secured lenders (the
"Discontinued Operations Trust"). Such assets include real and personal property
which have an estimated fair value of $16,300. The Discontinued Operations Trust
issued notes to the secured lenders in the aggregate principal amount of
approximately $16,300 (the "Discontinued Operations Trust Notes") in connection
with the implementation of the Plan and in partial satisfaction of such lenders'
prepetition claim against the Company. (The Company also distributed to the
secured lenders on the Effective Date cash in the aggregate amount of $32,207,
an amount representing proceeds from the sale of certain other discontinued
assets consummated prior to the Effective Date.) The Discontinued Operations
Trust Notes are secured by liens on all of the Discontinued Operations Trust
assets, bear interest at the annual rate of 10%, are payable on October 4, 2005,
and are payable only from the Discontinued Operations Trust assets. The trustee
of the Discontinued Operations Trust is required to pay all liabilities and
obligations of the Discontinued Operations Trust from Discontinued Operations
Trust assets. The Company is not a guarantor of, nor otherwise responsible for,
the payment of the Discontinued Operations Trust Notes or other liabilities of
the Discontinued Operations Trust. The Company retains no beneficial interest in
the Discontinued Operations Trust or in any assets held by the trust.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The Consolidated Financial Statements include the
accounts of Guilford Mills, Inc. and its majority-owned and controlled
subsidiaries and, as described in Note 1, the assets and liabilities of the
Altamira Trust. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year End - The Company's fiscal year ends on the Sunday nearest to
September 30. Fiscal year 2002 ended September 29, 2002, fiscal year 2001 ended
September 30, 2001 and fiscal year 2000 ended October 1, 2000. Each year
includes the results of operations for 52 weeks.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of revenues and
expenses. Actual results may differ from those estimates.
Reclassifications - For comparative purposes, certain amounts in the 2001 and
2000 financial statements have been reclassified to conform to the 2002
presentation. These reclassified amounts relate to loss from debt restructuring
in fiscal 2001 (see Note 12) and certain segment reporting information due to
changes in the composition of reportable segments (see Note 22). Additionally,
the consolidated balance sheet as of September 30, 2001 reflects the
reclassification of $5,051 of prepaid income taxes to deferred income tax
liabilities to more appropriately classify valuation allowances for deferred
taxes.
Cash Equivalents - All highly liquid investments with an original maturity of
three months or less are considered to be cash equivalents.
Accounts Receivable and Concentration of Credit Risk - The Company maintains
credit insurance and uses factors as a means to reduce credit risk. As of
September 29, 2002, credit insurance covering $18,100 of certain outstanding
accounts receivable was maintained. The Company factors a portion of its trade
accounts receivable to a factor, which provides credit approval on a
non-recourse basis. As of September 29, 2002 and September 30, 2001,
approximately 20% and 38%, respectively, of the Company's trade accounts
receivable were factored. The factoring agreement allows the Company to borrow
against the factored receivables using negotiated interest rates. The
Predecessor Company borrowed against the factored receivables during fiscal
2002, and the Successor Company had borrowing availability of $12,289 as of
September 29, 2002, but had no borrowings outstanding as of that date. The
Successor Company's new credit agreement restricts levels of factored
receivables to $10,000 at all times after the Effective Date. The Predecessor
Company borrowed against the factored receivables during fiscal 2001, and the
balance of those borrowings was $28,817, with no borrowing availability
remaining, at September 30, 2001. These borrowings are reflected in short-term
borrowings on the balance sheet. The Company performs on-going credit
evaluations of its non-factored customers' financial condition and generally
does not require collateral from those customers. The Company's fabrics have
historically been used primarily in the apparel, automotive, and home fashions
markets with a multitude of customers in numerous geographical locations
throughout the world. There is no disproportionate concentration of credit risk.
The Company has a large number of customers. During fiscal 2002, two of the
Company's customers accounted for 14.1% and 10.3% of the Company's net sales. No
customer accounted for 10% or more of total net sales during fiscal 2001 or
2000. The Company's net sales reflect substantial indirect sales to certain
large automotive original equipment manufacturers.
Receivables allowances were $7,842 and $10,967 at September 29, 2002 and
September 30, 2001, respectively. The Company maintains fully reserved
receivables for accounts which are either in bankruptcy or have been turned over
to a collection agency and also reserves for sales returns and allowances and
customer chargebacks. Net receivables at September 29, 2002 approximated fair
value for purposes of Fresh Start Reporting (See Note 3).
Minority Interest - Minority interest represents the minority stockholders'
proportionate share of the equity of Grupo Ambar, S.A. de C.V, the Company's
Mexico City operation. At September 29, 2002, the Company owned 95% of the
capital stock of Grupo Ambar, S.A. de C.V. Minority interest is included in
other long-term liabilities in the accompanying consolidated balance sheets.
Inventories - Inventories of the Company are carried at the lower of cost or
market. Cost is determined using the last-in, first-out (LIFO) method for
approximately 37% of inventories in fiscal 2001. Cost for all other inventories
has been determined primarily by the first-in, first-out (FIFO) method in fiscal
2001. Inventory at September 29, 2002 was revalued pursuant to Fresh Start
Reporting (See Note 3).
Property, Plant and Equipment - Property is carried at cost, and depreciation is
provided for financial reporting purposes primarily on the straight-line method.
Accelerated methods are used for income tax reporting purposes. Depreciation
rates are reviewed annually and revised, if necessary, to reflect estimated
remaining useful lives, which range from three to thirty-five years. Labor and
interest costs for the purchase and construction of qualifying fixed assets are
capitalized and are amortized over the related assets' estimated useful lives.
Certain property whose value has been determined to be impaired has been written
down to fair market value (See Note 5). Property, plant and equipment at
September 29, 2002 was revalued pursuant to Fresh Start Reporting (See Note 3).
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
Investment in Affiliated Companies - The equity method of accounting is used for
investments in which the Company has significant influence. Generally this
represents common stock ownership or partnership equity of at least 20% and not
more than 50%. For equity method investments that have been reduced to $0
through equity method losses, additional equity losses incurred have been used
to reduce loans to and investment in other securities or assets of the
investees. The cost method of accounting is used for investments in which the
Company does not have significant influence. Generally this represents common
stock ownership or partnership equity of less than 20%. These investments were
revalued at September 29, 2002 pursuant to Fresh Start Reporting (See Note 3).
Goodwill and Intangible Assets - Prior to the Company's emergence from
bankruptcy and application of Fresh Start Reporting, goodwill had been amortized
using the straight-line method over periods ranging from twenty to forty years.
Goodwill amortization was $584, $1,916 and $1,920 in fiscal 2002, 2001 and 2000,
respectively. Under the terms of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", the Company recognized goodwill
impairments totaling $9,012 and $28,989 in fiscal 2002 and 2001 respectively, as
a result of closures or exits from certain of the Company's acquired businesses.
Upon emergence from bankruptcy, the Company wrote off all remaining goodwill
pursuant to Fresh Start Reporting (See Note 3).
Restricted Cash - As a part of the Plan, the Company established a segregated
account with $3,000 in cash to be utilized only to make payments to certain
participants in certain non-qualified benefit plans. Restricted cash is included
in Other Assets.
Long-lived Assets - Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the asset
or its disposition. Measurement of an impairment loss for long-lived assets that
management expects to hold and use are based on the fair value of the asset.
Long-lived assets to be disposed of are reported at the lower of carrying amount
or net realizable value. See Note 5 for discussion of asset impairment charges
recorded in fiscal 2002 and fiscal 2001.
Income Taxes - Deferred or prepaid income taxes are provided for differences in
timing of expense and income recognition between income tax and financial
reporting in accordance with SFAS No. 109, "Accounting for Income Taxes". United
States income taxes are not provided on the earnings of non-U.S. operations as
those are intended to be permanently reinvested. In the event earnings are
repatriated, credits received in the United States for non-U.S. income taxes
previously paid will be available to substantially reduce the United States tax
liability. Undistributed earnings of non-U.S. operations were $0 at September
29, 2002 and $2,684 at September 30, 2001.
Foreign Currency Translation/Remeasurement - The financial statements of certain
majority-owned non-U.S. subsidiaries are translated into U.S. dollars at the
year-end rate of exchange for asset and liability accounts and the average rate
of exchange for income statement accounts. The effects of translating the
Company's non-U.S. subsidiaries' financial statements are recorded as a
component of other comprehensive income (loss) in shareholders' equity.
Revenue Recognition - The Company recognizes a sale when goods are shipped. The
Company estimates and records provisions for sales returns and allowances in the
period that the sale is reported based on its historical experience or
contractual agreements.
Shipping and Handling Costs - The Company includes any costs associated with
shipping and handling products within cost of goods sold.
Research and Development - The Company expenses research and development costs
as incurred. Such costs were $7,798, $11,499 and $18,269 in fiscal 2002, 2001
and 2000, respectively.
Per Share Information - Basic loss per share information has been determined by
dividing the respective net loss amounts by the weighted average number of
shares of common stock outstanding during the periods. Diluted loss per share
information also considers an additional dilutive effect of stock options and
shares issued under the restricted stock plan, when applicable. All of the
common stock of the Predecessor Company was cancelled upon emergence from
bankruptcy. Accordingly, per share amounts will not be comparable with future
results.
Financial Instruments and Derivatives - The Company periodically uses derivative
financial instruments for purposes other than trading and does so to reduce its
exposure to fluctuations in interest rates and foreign currency exchange rates.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
Gains and losses on hedges of existing assets and liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions are deferred and are recognized in
income or as adjustments to carrying amounts when the hedged transaction occurs.
The Company does not currently hold or issue any financial instruments for
trading or other speculative purposes. During fiscal 2000, the Company adopted a
policy to manage the exposure related to sales denominated in foreign currencies
through the use of forward foreign currency exchange contracts. In fiscal 2000,
the Company purchased forward contracts with durations of less than 12 months
that matched the anticipated receivable collections. For fiscal 2002 and fiscal
2001, the Company determined that its anticipated sales in the Euro were
naturally hedged by anticipated Euro payables and therefore, no forward foreign
currency exchange contracts were purchased.
Stock-Based Compensation - In accordance with SFAS No. 123, "Stock-Based
Compensation," the Predecessor Company has continued to measure compensation
expense for its stock-based employee compensation plans using the intrinsic
value method prescribed by Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees". Pro forma disclosures of net income
(loss) and earnings per share are presented as if the fair value-based method
prescribed by SFAS No. 123 had been applied in measuring compensation expense
for the periods required by the Statement.
Recent Accounting Pronouncements - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," which was effective for business
combinations initiated after June 30, 2001. The Company did not acquire any
entity subsequent to June 2001, however, the principles of SFAS No. 141 were
applied in accordance with Fresh Start Reporting (See Note 3).
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 provides for cessation of amortization of goodwill and
other intangibles considered to have indefinite lives and includes requirements
for periodic tests of goodwill and indefinitely lived intangible assets for
impairment. The Company adopted SFAS 142 as part of its Fresh Start Reporting
(See Note 3). The impact of adopting this pronouncement was not material to the
Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 requires that one accounting model
be used for impairments of long-lived assets to be either used in a business or
disposed of by sale, and broadens the presentation of discontinued operations to
encompass more discrete components of a business enterprise than were included
under previous standards. The Company adopted SFAS No.144 as part of its Fresh
Start Reporting (See Note 3). The impact of adopting this pronouncement was not
material to the Company's financial statements.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44 and
64, Amendment to FASB Statement 13, and Technical Corrections. One of the major
changes of this statement is to change the accounting for the classification of
gains and losses from the extinguishment of debt. Upon adoption, the Company
will follow APB 30, "Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" in determining whether such
extinguishment of debt may be classified as extraordinary. The provisions of
this statement related to the rescission of FASB Statement 4 shall be applied in
fiscal years beginning after May 15, 2002 with early application encouraged. The
Company adopted SFAS No. 145 as part of its Fresh Start Reporting (See Note 3).
As a result, the Company has classified gains and losses from debt restructuring
as a component of other expense in the accompanying consolidated statements of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. The impact of adopting this pronouncement was not material to
the Company's financial statements.
3. BANKRUPTCY REORGANIZATION AND FRESH START REPORTING:
As discussed above, the Company's Plan was confirmed on September 20, 2002 and
the Company emerged from Chapter 11 on October 4, 2002. Pursuant to SOP 90-7,
the Company adopted Fresh Start Reporting in the accompanying consolidated
balance sheet as of September 29, 2002 to give effect to the reorganization as
of such date. 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
similar to the procedures specified in
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
accordance with SFAS No. 141. Each liability existing on the emergence date,
other than deferred taxes, is stated at the present value of the amounts to be
paid. The Company's reorganization value of its new equity of $55,000 was less
than the fair value of net assets. In accordance with the terms of SOP 90-7, the
excess of the revalued net assets over the reorganization value of $16,461 was
allocated to reduce proportionately the value assigned to applicable noncurrent
assets. The calculated reorganization value was based on a variety of estimates
and assumptions about future circumstances and events. Such estimates and
assumptions are inherently subject to significant economic and competitive
uncertainties beyond the control of management. Net deferred tax assets are not
recorded in the accompanying financial statements due to the uncertainty
regarding future operating results. Finally, all accounting principle changes
required to be adopted in the financial statements within the twelve months
following the adoption of Fresh Start Reporting were adopted at the time Fresh
Start Reporting was adopted. Adjustments to the Predecessor Company's
consolidated balance sheet as of September 29, 2002 to reflect the forgiveness
of debt, change in equity structure and Fresh Start Reporting adjustments are
presented in the following table:
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Predecessor Reorganization Fresh Start Successor
Company Adjustments A Adjustments Company
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
ASSETS
Cash and cash equivalents $ 11,826 $ -- $ 13,248 F $ 25,074
Restricted cash 48,821 (35,573) viii (13,248) F --
Accounts receivable, net 94,180 (2,816) iv 250 C 91,614
Inventories 48,156 -- 14,185 E 62,341
Assets held for sale 33,693 (33,693) v -- --
Other current assets 13,169 -- -- 13,169
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Total current assets 249,845 (72,082) 14,435 192,198
Property, net 133,351 -- (18,370) B 114,981
Goodwill 7,943 -- (7,943) C --
Altamira trust assets -- 22,000 ix -- 22,000
Other assets 7,290 3,300 vii (272) C 10,318
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Total assets $ 398,429 $ (46,782) $ (12,150) $ 339,497
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
LIABILITIES
Short-term borrowings $ 246,041 $ (239,842) $ -- $ 6,199
Current maturities of long-term debt 23,579 (23,162) -- 417
Accounts payable 41,952 -- -- 41,952
Other current liabilities 41,441 (10,866) 250 C 30,825
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Total current liabilities 353,013 (273,870) i 250 79,393
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Long-term debt 1,939 135,000 ii -- 136,939
Altamira trust notes -- 22,000 ix -- 22,000
Deferred income taxes 1,247 -- -- 1,247
Other liabilities 40,925 -- 3,993 C 44,918
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Total long-term liabilities 44,111 157,000 3,993 205,104
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
STOCKHOLDERS' INVESTMENT
Common stock, old 655 -- (655) D --
Common stock, new -- 55 iii -- 55
Capital in excess of par 119,984 49,445 iii (114,484) D 54,945
Retained earnings 48,238 20,588 vi (68,826) D --
Accumulated other D
comprehensive loss (37,754) -- 37,754 --
Unamortized stock compensation (168) -- 168 D --
Treasury stock, at cost (129,650) -- 129,650 D --
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Total stockholders' investment 1,305 70,088 (16,393) 55,000
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
Total liabilities and
stockholders' investment $ 398,429 $ (46,782) $(12,150) $ 339,497
- -------------------------------------- ----------------- ------------------- ------ ----------------- ----- -----------------
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
A. As a result of the consummation of the Plan, the Company recognized a gain
on the reorganization as follows:
- ------------------------------------------------------------------------ ---------------- ------
Amount
- ------------------------------------------------------------------------ ---------------- ------
Senior lenders' debt discharged in bankruptcy:
Senior secured notes $144,842
Revolving line of credit 118,162
Accrued interest 10,866
- ------------------------------------------------------------------------ ---------------- ------
Total 273,870 i
Less distributions to senior lenders:
New senior secured notes 135,000 ii
Successor company common stock 49,500 iii
Cash 32,273
Accounts receivable 2,816 iv
Assets held for sale 33,693 v
- ------------------------------------------------------------------------ ---------------- ------
Gain on debt restructuring $ 20,588 vi
- ------------------------------------------------------------------------ ---------------- ------
- ------------------------------------------------------------------------ --------------- -------
Cash associated with the reorganization is as follows:
Cash distributed to senior lenders $ 32,273
Debt fees 300 vii
Restricted cash in segregated account 3,000 vii
- ------------------------------------------------------------------------ --------------- -------
$ 35,573 viii
- ------------------------------------------------------------------------ --------------- -------
Assets transferred to Altamira Trust and Altamira Trust Notes $ 22,000 ix
- ------------------------------------------------------------------------ --------------- -------
B. Reflects the revaluation of property to estimated fair value as of
September 29, 2002
C. Reflects fair value adjustment as of September 29, 2002 in accordance with
Fresh Start Reporting
D. Reflects the cancellation of the Old Common Stock and the elimination of
retained earnings
E. Finished goods and work in process inventories have been valued based on
their estimated net selling price less cost to complete, costs of disposal
and reasonable profit margin
F. Reclass restricted cash to cash
Reorganization Items - The Company incurred the following expense items during
the year ended September 29, 2002, directly associated with the Chapter 11
reorganization proceedings:
------------------------------------------------------ --------------
Amount
------------------------------------------------------ --------------
Professional Fees $ 9,542
Unamortized deferred loan costs expensed 2,417
Bonuses for retention of key employees 1,415
Lease termination costs 934
Other 42
------------------------------------------------------ --------------
Total $14,350
------------------------------------------------------ --------------
4. ACQUISITIONS:
In 1996, the Company acquired Hofmann Laces ("Hofmann"). As part of the original
1996 purchase agreement between the Company and the former owner of Hofmann, the
Company agreed to pay additional consideration based upon the Company's
price-earnings' multiple and Hofmann's performance through the end of calendar
year 2000. The purchase agreement was amended in fiscal year 1998 to fix the
amount of the additional payment. A $17,000 payment of the acquisition price was
made during fiscal 1998 and a final cash payment of $17,283 was made during
fiscal 1999 in lieu of the contingent payment formula originally agreed to.
During fiscal 2001, the former owner of Hofmann returned 573,150 shares of Old
Common Stock, valued at $1,232, to the Company. Of the 573,150 shares of Company
stock that were returned, 300,000 were originally acquired as part of the 1996
purchase agreement, while the remaining 273,150 had been acquired in open market
transactions. The return of shares was recorded as other income in the
accompanying fiscal 2001 consolidated statement of operations.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
5. 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 2000
During the fourth quarter of fiscal 2000, the Company committed to a
comprehensive restructuring plan in its Apparel segment, and recorded
restructuring and impaired asset charges of $28,643. The restructuring plan
provided for the closing of two knitting and dyeing and finishing facilities in
North Carolina, the relocation of certain knitting, dyeing and finishing
operations to plants in Mexico, New York and Pennsylvania and the severance of
approximately 950 associates. The closing of facilities and relocation of
operations resulted in impairment of certain assets, consisting primarily of
dyeing and finishing, warping and knitting equipment and buildings which were
written down to the lower of carrying value or fair market value.
The following summarizes the fiscal 2000 restructuring:
PREDECESSOR COMPANY
------------------------------------------------------------------------
Write-down of
Fourth property and
quarter equipment to net Reserves October 1, 2000
2000 charges realizable value utilized reserve balance
---------------- -------------------- ---------------- -----------------
Non-cash write-downs of property and equipment to net
realizable value $ 17,270 $ 17,270 $ --- $ ---
Severance and related employee benefit costs 9,105 --- 435 8,670
Equipment relocation and other costs 2,268 --- 1,670 598
-------------------------------------------------------- ---------------- -------------------- ---------------- -----------------
Total $ 28,643 $ 17,270 $2,105 $9,268
-------------------------------------------------------- ---------------- -------------------- ---------------- -----------------
Fiscal 2001
Throughout fiscal 2001, the Company recorded additional restructuring charges
related to the fiscal 2000-announced closings of the two apparel facilities in
North Carolina described above. These charges consisted primarily of equipment
relocation charges, severance costs, and additional impairment of fixed assets,
as business conditions further impacted the realizable value of certain assets.
The Company recorded total restructuring charges of $19,768 during fiscal 2001
relating to the prior year realignment activities.
On August 15, 2001, the Company announced that it would cease production of
apparel and home fashions fabrics in its Pine Grove, Pennsylvania operation. The
facility was downsized and was retained as an industrial fabrics operation. The
Company's facility in Mexico City, which produced many of the same apparel and
home fashions fabrics as Pine Grove did at the time, had capacity to service
existing customers that cut and sew in Mexico. These actions resulted in a
headcount reduction of approximately 275 associates from both manufacturing and
selling and administrative areas. Restructuring costs of $927, which relate to
the write-down of knitting equipment to the lower of carrying value or fair
value, were recorded in the fourth quarter of fiscal 2001. The Company currently
uses excess capacity in the Pine Grove plant for automotive and apparel
production.
On September 10, 2001, the Company announced its intention to exit the
production of stretch knit intimate apparel and swimwear fabrics and lace as
well as home fashions lace in the Cobleskill, New York operation. The Company
operated the facility through December 21, 2001 to service remaining orders and
assist in transitioning its customers to new suppliers. The Cobleskill facility
employed approximately 500 associates. The Company recorded a fiscal 2001 fourth
quarter pretax restructuring charge of $50,680 associated with the action, which
primarily relates to fixed asset and goodwill impairment charges.
During the fourth quarter of fiscal 2001, the Company determined that its
investment in certain equity method investees was impaired, as deteriorating
business conditions impacted these investees' operations and the overall
sustainability of these parties was uncertain. One of these businesses was based
in the U.S. (which investment was sold in fiscal 2002) and one was based in
Europe. As a result, the Company recorded related investment and receivable
impairment charges of $11,451 during the fourth quarter as other expense in the
accompanying consolidated statement of operations for fiscal 2001.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
The following summarizes the fiscal 2001 restructuring and asset and investment
impairment actions:
PREDECESSOR COMPANY
----------------------------------------------------------------------------
October 1, Write-down of September 30,
2000 reserve Fiscal assets to net Reserves 2001
balance 2001 charges realizable value utilized reserve balance
--------------- ------------- ---------------- ------------ ----------------
Non-cash write-downs of property and equipment to net
realizable value $ --- $27,883 $27,883 $ --- $ ---
Severance and related employee benefit costs 8,670 3,391 --- 10,353 1,708
Goodwill impairment --- 28,989 28,989 --- ---
Equipment relocation and other costs 598 11,112 --- 11,464 246
- ------------------------------------------------------ --------------- ------------- ---------------- ------------ ----------------
Total restructuring and asset impairment 9,268 71,375 56,872 21,817 1,954
Impaired investments --- 11,451 --- 11,451 ---
- ------------------------------------------------------ --------------- ------------- ---------------- ------------ ----------------
Total $ 9,268 $82,826 $56,872 $33,268 $ 1,954
- ------------------------------------------------------ --------------- ------------- ---------------- ------------ ----------------
As a result of the fiscal 2001 restructuring actions, the Company also incurred
run-out inefficiencies of $3,391 and impairments of obsolete inventory of
$8,960. These amounts are included in cost of goods sold.
Fiscal 2002
During fiscal 2002, the Company undertook additional restructuring actions and
substantially completed its previous restructuring actions. The Company recorded
additional restructuring charges and impaired asset charges of $71,050 and
impaired investment charges of $8,063 during fiscal 2002. On April 22, 2002, the
Company announced that it would close its apparel plant in Altamira, Mexico, and
its associated knitting plant in Lumberton, North Carolina. The Company operated
the facilities until the fourth fiscal quarter of 2002, and worked with its
customers to identify alternative supply sources. Approximately 180 associates
in Mexico and 100 in North Carolina were affected by the plant closures. As a
result of these closures, the Company recorded fixed asset impairments and other
expense of $35,549 and investment impairments of $9,327. Fixed assets,
consisting primarily of buildings and machinery and equipment used in knitting,
dyeing and finishing, were written down to the lower of carrying value or fair
market value, as determined by outside appraisers.
During the second quarter of fiscal 2002, the Company decided to exit the
production of Automotive fabrics in its plant in Pouso Alegre, Brazil. As a
result of this action the Company recorded fixed asset impairments, severance
costs, currency translation losses and other expenses totaling $3,900.
On May 10, 2002, the Company sold the business and certain assets of Twin Rivers
Textile Printing and Finishing (located in Schenectady, New York) to H.
Greenblatt and Co., Inc., which assumed operations at that printing facility. As
a result of the sale, the Company recorded fixed asset and goodwill impairments
of $3,732.
On February 18, 2002, the Company announced an agreement in principle to sell
certain assets of its Direct-to-Retail Home Fashions segment to Homestead
Fabrics, Ltd ("Homestead"). Until August 11, 2002, the Company continued to
accept and ship customer orders in the normal course on behalf of Homestead. As
a result of the sale, the Company recorded goodwill and fixed asset impairments
and severance costs totaling $18,748. Fixed assets, consisting primarily of
buildings and machinery and equipment used to cut and sew fabric, were written
down to the lower of carrying value or fair market value, as determined by
outside appraisers.
During the third quarter of fiscal 2002, the Company determined that further
impairment to the value of its closed facility in Cobleskill, New York had
occurred. As a result, the Company recorded a restructuring charge of $2,106 for
fixed asset impairments at this facility.
During the fourth quarter of fiscal 2002, the Automotive UK business sold its
operations and its facility located in Portugal. Fixed asset impairments and
other expenses totaling $3,596 were recorded as a result of this action.
In addition, the Company recorded further fixed asset impairment, severance and
impaired investment charges and other restructuring costs for plants which had
been closed in prior quarters, totaling $2,155.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
In all of the impaired fixed asset charges discussed above, determination of
fair market value was based upon: (1) external appraisals, (2) in-house
engineering estimates utilizing prices for currently available new and used
equipment, (3) real property tax values,(4) contract selling price, and/or (5)
zero where intent was to scrap.
The following summarizes the fiscal 2002 restructuring and asset and investment
impairment actions:
SUCCESSOR
PREDECESSOR COMPANY COMPANY
------------------------------------------------------------------ ------------------
September 30, Write-down of September 29,
2001 Fiscal assets to net Reserves 2002
reserve balance 2002 charges realizable value utilized reserve balance
---------------- --------------- ------------------- ------------- ------------------
Non-cash write-downs of property and
equipment to net realizable value $ --- $ 53,906 $ 53,906 $ --- $ ---
Severance and related employee benefit costs 1,708 4,123 --- 4,488 1,343
Goodwill impairment --- 9,012 9,012 --- ---
Equipment relocation and other costs 246 4,009 --- 4,255 ---
- --------------------------------------------- ---------------- --------------- ------------------- ------------- ------------------
Total restructuring and asset impairment 1,954 71,050 62,918 8,743 1,343
Impaired investments --- 8,063 --- 8,063 ---
- --------------------------------------------- ---------------- --------------- ------------------- ------------- ------------------
Total $ 1,954 $ 79,113 $ 62,918 $16,806 $ 1,343
- --------------------------------------------- ---------------- --------------- ------------------- ------------- ------------------
6. RECEIVABLES:
Receivables at September 29, 2002 and September 30, 2001 consisted of the
following:
SUCCESSOR COMPANY Predecessor Company
- --------------------------------- ------------------------------- -------------------------------
2002 2001
- --------------------------------- ------------------------------- -------------------------------
Trade accounts receivable $ 80,744 $ 112,837
Insurance receivables 17,887 --
Other 825 1,614
- --------------------------------- ------------------------------- -------------------------------
99,456 114,451
Less - Allowances 7,842 10,967
- --------------------------------- ------------------------------- -------------------------------
Receivables, net $ 91,614 $ 103,484
- --------------------------------- ------------------------------- -------------------------------
Insurance receivables at September 29, 2002 consist of death benefits from life
insurance policies and cash surrender value proceeds. Receivables, net at
September 29, 2002 approximated fair value for purposes of Fresh Start
Reporting.
7. INVENTORIES:
Inventories at September 29, 2002 and September 30, 2001 consisted of the
following :
SUCCESSOR COMPANY Predecessor Company
- --------------------------------------------- ------------------------------- -------------------------------
2002 2001
- --------------------------------------------- ------------------------------- -------------------------------
Finished goods $ 24,080 $ 29,440
Raw materials and work in process 32,933 64,131
Manufacturing supplies 5,328 9,572
- --------------------------------------------- ------------------------------- -------------------------------
Total inventories valued at fair value in
fiscal 2002 and the lower of FIFO cost
or market value in fiscal 2001 62,341 103,143
Adjustments to reduce FIFO cost to
LIFO cost, net -- (12,206)
- --------------------------------------------- ------------------------------- -------------------------------
Total inventories $ 62,341 $ 90,937
- --------------------------------------------- ------------------------------- -------------------------------
During fiscal 2002, 2001 and 2000, the Company liquidated certain LIFO
inventories that were carried at costs lower than the applicable then current
costs. The effect of these inventory decreases was to lower cost of goods sold
from current costs by approximately $1,526, $2,664 and $322 in fiscal 2002, 2001
and 2000, respectively.
In connection with the application of Fresh Start Reporting, the Company
revalued its inventories as of September 29, 2002 to their fair values
(estimated selling prices less costs to complete, cost of disposal and a
reasonable profit margin), resulting in an increase in carrying value of
$14,185.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
8. PROPERTY:
As of September 29, 2002 and September 30, 2001, property and equipment, stated
at cost for the Predecessor Company and at fair value for the Successor Company,
consisted of the following:
SUCCESSOR COMPANY Predecessor Company
- --------------------------------------- -------------------------- --------------------------
2002 2001
- --------------------------------------- -------------------------- --------------------------
Land $ 10,248 $ 13,658
Buildings 37,379 150,855
Machinery and equipment 63,520 633,241
Construction in progress 3,834 30,261
- --------------------------------------- -------------------------- --------------------------
$ 114,981 828,015
Less - Accumulated depreciation -- 560,182
- --------------------------------------- -------------------------- --------------------------
Property, net $ 114,981 $ 267,833
- --------------------------------------- -------------------------- --------------------------
As of the Effective Date, the Successor Company adjusted its property, plant and
equipment to estimated fair value in conjunction with the implementation of
Fresh Start Reporting. Depreciation expense was $35,732, $52,620 and $61,636 in
fiscal 2002, 2001 and 2000, respectively.
9. OTHER ASSETS:
Other assets at September 29, 2002 and September 30, 2001 consisted of the
following:
SUCCESSOR COMPANY Predecessor Company
- -------------------------------------------------------- ------------------------------ ----------------------------
2002 2001
- -------------------------------------------------------- ------------------------------ ----------------------------
Goodwill (See Note 5) $ -- $ 17,539
Cash surrender value of life insurance 3,400 28,248
Restricted cash 3,000 --
Other 3,918 13,491
- -------------------------------------------------------- ------------------------------ ----------------------------
Total other assets $ 10,318 $ 59,278
- -------------------------------------------------------- ------------------------------ ----------------------------
During fiscal 2002 and 2001, the Company surrendered certain life insurance
policies. Proceeds from the policies surrendered totaled $29,844 and $11,652
during fiscal 2002 and 2001, respectively.
10. OTHER CURRENT LIABILITIES:
Other current liabilities at September 29, 2002 and September 30, 2001 consisted
of the following:
SUCCESSOR COMPANY Predecessor Company
- ------------------------------------------------------------ ----------------------------- -----------------------------
2002 2001
- ------------------------------------------------------------ ----------------------------- -----------------------------
Accrued restructuring costs $ 1,343 $ 1,954
Accrued reorganization costs 3,782 --
Accrued interest -- 2,178
Accrued property taxes 1,288 2,207
Accrued legal and professional fees 2,286 --
Other 6,215 9,953
- ------------------------------------------------------------ ----------------------------- -----------------------------
Total other current liabilities $ 14,914 $ 16,292
- ------------------------------------------------------------ ----------------------------- -----------------------------
11. SHORT-TERM BORROWINGS:
The Company has used short-term bank borrowings with terms of six months or less
to meet seasonal working capital needs. The maximum short-term borrowings during
fiscal 2002, 2001 and 2000 were $153,649, $163,285 and $137,057 respectively;
the average borrowings were $136,444, $138,476 and $120,478 respectively; and
the weighted average interest rates were 8%, 9% and 8% (8%, 9% and 7% for U.S.
borrowings), respectively.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
12. LONG-TERM DEBT:
Long-term debt at September 29, 2002 and September 30, 2001 consisted of the
following:
- --------------------------------------------------------------------------- --------------------------- ---------------------------
SUCCESSOR COMPANY Predecessor Company
- --------------------------------------------------------------------------- --------------------------- ---------------------------
2002 2001
- --------------------------------------------------------------------------- --------------------------- ---------------------------
Senior, secured notes, due in October 2005, interest at 9.89% $ 135,000 $ --
Senior, secured notes, due in 2008, interest at 11.0% -- 144,842
Revolving line of credit, due in 2003 -- 116,501
Revolving line of credit, due in October 2005 -- --
Foreign subsidiary term loan with a Portuguese bank
With various due dates and a variable interest rate
(Repaid October 2002) 2,084 1,542
Other 272 --
- --------------------------------------------------------------------------- --------------------------- ---------------------------
137,356 262,885
Less - Current maturities 417 21,501
Less - Debt classified as current -- 239,842
- --------------------------------------------------------------------------- --------------------------- ---------------------------
Total long-term debt $ 136,939 $ 1,542
- --------------------------------------------------------------------------- --------------------------- ---------------------------
SUCCESSOR COMPANY
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) $25,000 or (b) a specified borrowing base, which is based upon eligible
receivables and eligible inventory. The Revolving Credit Facility restricts
investments, 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. 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) (collectively,
the "Collateral"). 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 October 4,
2002, the Company had no outstanding loans and had approximately $18,800
available for borrowing under the Revolving Credit Facility.
Pursuant to the Plan, the Company issued to the secured lenders on the Effective
Date term notes in the aggregate principal amount of $135,000 (the "Notes") in
partial satisfaction of the lenders' prepetition claim against the Company. The
Notes bear interest at the annual rate of 9.89% and mature on October 4, 2005.
The Notes are secured by a second lien on the Collateral. The Company has the
option of prepaying the Notes in whole or in part prior to their maturity date,
subject to the additional payment to the Note holders of a yield-maintenance
amount and subject otherwise to the terms and provisions of the Note agreement.
Upon the Company's receipt of proceeds from certain transactions, such as
certain asset sales, the Company is required to prepay the Notes with such
proceeds (to the extent not used to make prepayments under the Revolving Credit
Facility) and to make a yield-maintenance payment to the Note holders. Upon the
occurrence of a change in control and certain other conditions, all as defined
in the Note agreement, the Company is required to make an offer to the Note
holders to prepay the Notes, with any such prepayment to include payment of a
yield-maintenance amount. Like the Revolving Credit Facility, the Note agreement
contains customary financial covenants relating to minimum EBITDA, minimum net
worth, minimum fixed charge coverage ratios and maximum leverage ratios. The
Note agreement also restricts investments, capital expenditures, acquisitions,
dividends and the incurrence of additional debt. The Company is currently in
compliance with all of the financial covenants set forth in the Note agreement.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
Annual scheduled maturities of long-term debt for the next five fiscal years are
as follows:
---------------------------- ------------------
Fiscal year Amount
---------------------------- ------------------
---------------------------- ------------------
2003 $ 417
2004 688
2005 417
2006 135,417
2007 417
---------------------------- ------------------
Total $ 137,356
---------------------------- ------------------
PREDECESSOR COMPANY
On May 26, 2000, the Company entered into a new $130,000 revolving credit
facility, replacing a $150,000 revolving credit facility. The new revolving
credit facility was secured by substantially all of the Company's assets and was
scheduled to mature on May 26, 2003. The interest rate on the revolving credit
facility was variable, based on prime plus 1.25%, or based on LIBOR plus 1.25%
to 4.25%, depending on the Company's leverage ratio, plus as of May 16, 2001, an
additional 1.75% payment in kind if the Company failed to meet certain financial
ratios. At the same time the Company entered into the new revolving credit
facility, its Senior Notes due 2008 became ratably secured with the bank
facility. Proceeds from this revolving credit facility were used to repay
borrowings on uncommitted lines of credit and the previous revolving credit
facility.
In the first quarter of fiscal 1999, the Company issued $145,000 of unsecured,
ten-year notes with a fixed coupon rate of 7.06%. During the fourth quarter of
fiscal 1998, the Company entered into two treasury lock agreements with two
financial institutions to provide interest rate protection related to these
notes. These treasury lock agreements effectively fixed the U.S. Treasury
portion of the interest rate at 5.437% on a notional amount of $57,500 and at
5.435% on a notional amount of $30,000. During the first quarter of fiscal 1999,
the treasury lock agreements were terminated and a payment of $4,366 was made
and was being amortized as additional interest expense over the period of the
related debt.
The revolving credit facility and the notes were amended several times beginning
in November 2000 due to covenant non-compliance. The amendments, among other
things, increased the interest rates on the notes to 11.0%, added the 1.75%
payment in kind provision to the revolving credit facility as noted above,
established mandatory reductions to the amounts available under the revolving
credit facility and revised restrictive covenants. The May 16, 2001 amendment
represented a "significant modification" as defined in Emerging Issues Task
Force Issue No. 96-19, and as a result, the modification was treated as an
extinguishment of the existing notes and issuance of new notes for financial
reporting purposes. This extinguishment resulted in no change to the outstanding
principal amount of the notes, but required the write-off of previously
unamortized deferred loan costs. Accordingly, a loss from the debt restructuring
of $4,725 has been recorded in the accompanying 2001 consolidated statement of
operations. In previously filed reports, this loss from debt restructuring was
classified as an Extraordinary Item in accordance with FASB Statement 4. As part
of Fresh Start Reporting, the Company adopted SFAS No. 145 and in connection
therewith has reclassified this loss from debt restructuring to Other Expense in
the fiscal 2001 financial statement presented herein.
From the second quarter of fiscal 2001 through the Company's bankruptcy filing
on March 13, 2002, the Company was not in compliance with certain terms of its
senior debt agreements on several occasions. In each instance, the Company's
senior lenders issued waivers for such non-compliance. As a result of
uncertainty regarding future compliance, borrowings outstanding under domestic
debt agreements were classified as current liabilities in the Company's
consolidated balance sheet as of September 30, 2001.
Interest costs of $697, $2,773 and $2,000, for fiscal 2002, 2001 and 2000,
respectively, were capitalized to property, plant and equipment.
13. FINANCIAL INSTRUMENTS:
The Company's financial instruments include cash, accounts receivable, accounts
payable, short-term borrowings, long-term debt and foreign currency exchange
contracts. Because of their short maturity, the carrying amount of cash,
accounts receivable 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, the carrying amount of
short-term borrowings and long-term debt, including the current portion,
approximates fair value. The Company had no foreign currency forward agreements
at September 29, 2002 and September 30, 2001.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
14. INCOME TAXES:
The net deferred income tax liability at September 29, 2002 and September 30,
2001 was comprised of the following:
- ---------------------------------------------------------- -------------------------- ---------------------------
SUCCESSOR COMPANY Predecessor Company
- ---------------------------------------------------------- -------------------------- ---------------------------
2002 2001
- ---------------------------------------------------------- -------------------------- ---------------------------
Assets $ 89,100 $ 25,717
Liabilities (91,557) (27,874)
- ---------------------------------------------------------- -------------------------- ---------------------------
Total $ (2,457) $ (2,157)
- ---------------------------------------------------------- -------------------------- ---------------------------
Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of September 29, 2002 and September 30, 2001
were as follows:
- ----------------------------------------------------------- -------------------------- ----------------------------
SUCCESSOR COMPANY Predecessor Company
- ----------------------------------------------------------- -------------------------- ----------------------------
2002 2001
- ----------------------------------------------------------- -------------------------- ----------------------------
Current prepaid (deferred) income taxes:
Inventory valuation differences $ (3,835) $ (3,142)
Allowances for doubtful accounts 1,661 1,741
Accrued expenses and reserves
not currently deductible for tax 6,991 5,409
Restructuring reserves 170 598
Other, net 277 905
- ----------------------------------------------------------- -------------------------- ----------------------------
Subtotal 5,264 5,511
Valuation allowance (6,474) (5,051)
- ----------------------------------------------------------- -------------------------- ----------------------------
Total current prepaid income taxes (liabilities) $ (1,210) $ 460
- ----------------------------------------------------------- -------------------------- ----------------------------
Long-term prepaid (deferred) income taxes:
Property $ (13,121) $ (27,890)
Income tax credit carryforwards (expire
2004-2021) 22,628 24,655
Federal net operating loss carryforward
(expires 2022) 3,261 10,192
Accrued pension and other employee
benefits 7,353 12,637
Alternative minimum and other tax credit
carryforwards (no expiration) 11,783 7,693
State and non-U.S. net operating loss
carryforwards (expire 2005-2017) 28,016 17,418
Investments in limited partnerships (4,580) (2,891)
Goodwill amortization 6,271 7,287
Financing costs -- 631
Other, net (1,064) 35
- ----------------------------------------------------------- -------------------------- ----------------------------
Subtotal 60,547 49,767
Valuation allowance (61,794) (52,384)
- ----------------------------------------------------------- -------------------------- ----------------------------
Total long-term deferred income taxes $ (1,247) $ (2,617)
- ----------------------------------------------------------- -------------------------- ----------------------------
The domestic and non-U.S. components of loss before income taxes were as
follows:
- ------------------------ ------------------------------------------------------
PREDECESSOR COMPANY
- ------------------------ ------------------------------------------------------
2002 2001 2000
- ------------------------ ------------------ ----------------- -----------------
Domestic $ (75,560) $(122,746) $(32,864)
Non-U.S. (64,146) (42,470) (118)
- ------------------------ ------------------ ----------------- -----------------
Total $(139,706) $(165,216) $(32,982)
- ------------------------ ------------------ ----------------- -----------------
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
The income tax (benefit) provision consisted of the following elements:
- ---------------------------------------------- -------------------------------------------------------
PREDECESSOR COMPANY
- ---------------------------------------------- -------------------------------------------------------
2002 2001 2000
- ---------------------------------------------- ------------------- ----------------- -----------------
Current (benefit) provision:
U.S. Federal $ (15,295) $ (5,163) $ --
State 111 (16) 500
Non-U.S. -- -- 1,542
Deferred (benefit) provision:
U.S. Federal (577) (240) (11,663)
State (75) (30) (1,516)
Non-U.S. (557) 990 (871)
- ---------------------------------------------- ------------------- ----------------- -----------------
Total $ (16,393) $ (4,459) $ (12,008)
- ---------------------------------------------- ------------------- ----------------- -----------------
The income tax benefit as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:
- ---------------------------------------------- -------------------------------------------------------
PREDECESSOR COMPANY
- ---------------------------------------------- -------------------------------------------------------
2002 2001 2000
- ---------------------------------------------- ------------------- ----------------- -----------------
Statutory U.S. Federal income
Tax rate (35.0%) (35.0%) (35.0%)
State income taxes, net of federal income
tax reduction 0.1 (2.2) (3.1)
Non-U.S. taxes (1.1) 0.5 1.5
Tax credits -- (0.3) (1.4)
Nondeductible goodwill 0.3 (0.1) 1.0
Change in valuation allowance 23.8 35.2 (0.5)
Other 0.2 (0.8) 1.1
- ---------------------------------------------- ------------------- ----------------- -----------------
Effective income tax rate (11.7%) (2.7%) (36.4%)
- ---------------------------------------------- ------------------- ----------------- -----------------
Realization of the tax loss and credit carryforwards is contingent on future
taxable earnings in the appropriate jurisdictions. Valuation allowances have
been recorded for items which may not be realized. Each carryforward item is
reviewed for expected utilization, using a "more likely than not" approach,
based on the character of the carryforward item (credit, loss, etc.), the
associated taxing jurisdiction (U.S., state and local, non-U.S.), the relevant
history for the particular item, the applicable expiration dates, operating
projects that would impact utilization, and identified actions under the control
of the Company in realizing the associated carryforward benefits. Additionally,
the Company's utilization of U.S. and non-U.S. tax credit and state investment
credit carryforwards is critically dependent on related statutory limitations
that involve numerous factors beyond overall positive earnings, all of which
must be taken into account by the Company in its evaluation. The Company
assesses the available positive and negative evidence surrounding the
recoverability of the deferred tax assets and applies its judgement in
estimating the amount of valuation allowance necessary under the circumstances.
The Company continues to assess and evaluate strategies that may enable the
carryforwards, or portions thereof, to be utilized, and will reduce the
valuation allowance appropriately for each item at such time when it is
determined the "more likely than not" approach is satisfied.
The change in valuation allowance in 2002 primarily relates to net operating
loss and tax credit carryforwards that, due to restructuring actions taken
during the current and prior years, and other factors, could expire unused.
Management's assessment is that the character and nature of future taxable
income as well as potential limitations on their use due to the change in
ownership that occurred in connection with the bankruptcy reorganization, may
not allow the Company to realize certain tax benefits of net operating losses
and tax credits within the prescribed carryforward period. Accordingly, an
appropriate valuation allowance has been made. Pursuant to SOP 90-7, the income
tax benefit, if any, of any future realization of the remaining net operating
loss carryforwards, tax credit carryforwards and other deductible temporary
differences existing as of the Effective Date will be applied as a reduction to
capital in excess of par.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
15. BENEFIT PLANS:
Guilford Mills, Inc. has a non-contributory defined benefit plan for the
majority of its hourly employees (the "Guilford Plan"). Gold Mills, Inc., a
wholly-owned subsidiary, also has a non-contributory defined benefit plan (the
"Gold Plan") and a multi-employer pension plan, which plans together cover the
majority of its employees. Guilford Europe Limited, a wholly-owned subsidiary,
has a defined benefit pension plan covering the majority of its salaried
employees (the "Guilford Europe Plan"). The funded status of defined benefit
plans at the measurement dates for fiscal 2002 and fiscal 2001 were:
- -------------------------------------------- ------------------- ---------------
2002 2001
- -------------------------------------------- ------------------- ---------------
PROJECTED BENEFIT OBLIGATION:
Beginning of year $ 53,424 $ 50,127
Service cost 1,770 1,973
Interest cost 3,574 3,415
Plan participants contributions 227 236
Assumption changes 4,421 --
Plan amendments 172 --
Actuarial loss 2,360 28
Benefit payments (3,769) (3,138)
Foreign currency adjustment 1,628 783
- -------------------------------------------- ------------------- ---------------
End of year $ 63,807 $ 53,424
- -------------------------------------------- ------------------- ---------------
FAIR VALUE OF PLAN ASSETS:
Beginning of year $ 43,342 $ 51,136
Actual return on plan assets (2,625) (6,164)
Employer contributions 3,076 1,811
Plan participant contributions 227 236
Benefit payments (3,769) (3,138)
Foreign currency adjustment 1,474 (539)
- -------------------------------------------- ------------------- ---------------
End of year $ 41,725 $ 43,342
- -------------------------------------------- ------------------- ---------------
RECONCILIATION OF FUNDED STATUS TO NET
AMOUNT RECOGNIZED:
Funded status $ (22,082) $ (10,082)
Unrecognized transition asset (1,249) (1,435)
Unrecognized prior service cost (43) (48)
Unrecognized loss 26,235 13,449
------------------- ---------------
Net amount recognized (Predecessor Company) 2,861 $ 1,884
===============
FRESH START REPORTING ADJUSTMENT (24,943)
-------------------
NET AMOUNT RECOGNIZED (SUCCESSOR COMPANY) $ (22,082)
- -------------------------------------------- -------------------
SUCCESSOR Predecessor
COMPANY Company
- -------------------------------------------- ------------------- ---------------
2002 2001
- -------------------------------------------- ------------------- ---------------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS:
Other current assets $ -- $ 852
Other current liabilities (2,703) (7,693)
Other non-current liabilities (19,379) --
Intangible asset -- 10
Long-term deferred taxes -- 3,316
Accumulated other comprehensive income -- 5,399
- -------------------------------------------- ------------------- ---------------
Net amount recognized $ (22,082) $ 1,884
- -------------------------------------------- ------------------- ---------------
The effect of assumption changes is primarily comprised of changes in the
discount rate used to calculate the projected benefit obligation.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
The Guilford and Guilford Europe Plans were under-funded as of September 29,
2002 and September 30, 2001. The Gold Plan was under-funded as of September 29,
2002. The following relates to those plans as of September 29, 2002 and
September 30, 2001:
- -------------------------------------- -------------------- --------------------
2002 2001
- -------------------------------------- -------------------- --------------------
GUILFORD PLAN
Projected benefit obligation $ 36,587 $ 29,848
Accumulated benefit obligation 36,051 29,066
Fair value of net assets 22,427 22,124
- -------------------------------------- -------------------- --------------------
GOLD PLAN
Projected benefit obligation 3,209 3,480
Accumulated benefit obligation 2,274 2,457
Fair value of net assets 1,567 3,058
- -------------------------------------- -------------------- --------------------
GUILFORD EUROPE PLAN
Projected benefit obligation 24,011 20,096
Accumulated benefit obligation 22,616 18,912
Fair value of net assets 17,731 18,160
- -------------------------------------- -------------------- --------------------
Funded status is determined using assumptions as of the end of each year. Net
pension expense is determined using assumptions as of the beginning of each
year. The weighted average assumptions at the respective measurement dates were:
- ----------------------------------------- ------------------- ------------------
2002 2001
- ----------------------------------------- ------------------- ------------------
Discount rate 6.03% 6.69%
Long-term rate of return on plan assets 8.06% 8.25%
Long-term rate of salary progression 3.72% 3.81%
- ----------------------------------------- ------------------- ------------------
The components of the defined benefit plan expenses were:
- ---------------------------- ---------------------------------------------------
PREDECESSOR COMPANY
- ---------------------------- ---------------------------------------------------
2002 2001 2000
- ---------------------------- ------------------ ---------------- ---------------
Defined benefit plans:
Service cost $1,770 $1,973 $1,869
Interest cost 3,574 3,415 3,142
Expected return on
plan assets (3,660) (4,181) (3,712)
Amortization of:
Transition asset (187) (187) (187)
Prior service cost (6) (5) (5)
Loss 663 42 101
- ---------------------------- ------------------ ---------------- ---------------
Net periodic pension cost 2,154 1,057 1,208
Domestic multi-
Employer plan 139 285 281
- ---------------------------- ------------------ ---------------- ---------------
Total $ 2,293 $1,342 $1,489
- ---------------------------- ------------------ ---------------- ---------------
The Company maintains defined contribution plans for certain officers and
salaried employees. The Board of Directors determines contributions under these
plans. The Company also maintains a 401(k) plan for its salaried associates. For
fiscal 2002, 2001 and 2000, the provisions under these plans were $(48), $2,356
and $3,080 respectively. Fiscal 2002 expense was reduced by changes in estimated
contributions from the prior fiscal year.
The Company also maintains deferred compensation plans for certain officers and
salaried employees which provide post-retirement cash payments for various
specified periods and amounts. These plans are being provided for currently.
During fiscal 2002, 2001 and 2000, the provisions under these plans were $1,083,
$1,773 and $2,136, respectively. The liability for deferred compensation was
$16,500 at September 29, 2002 and $14,592 at September 30, 2001 and is included
in other long-term liabilities in the accompanying balance sheets. The Company
adjusted its liability as of September 29, 2002 to estimated fair value in
conjunction with the implementation of Fresh Start Reporting.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
16. COMMITMENTS AND CONTINGENCIES:
The Company leases certain of its manufacturing and office facilities and
equipment under non-cancelable operating leases with remaining terms of up to 17
years. Rent expense under these leases was $5,027 in 2002, $5,358 in 2001 and,
$7,135 in 2000. At September 29, 2002, future minimum rental payments applicable
to these leases are $2,867 in 2003, $1,915 in 2004, $1,796 in 2005, $1,651 in
2006, $1,645 in 2007 and $10,873 thereafter.
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. As of September 29, 2002, the amount of such debt subject
to the Company's guarantee is $2,287 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.
The Company consented to the entry of a cease and desist order, issued by the
Securities and Exchange Commission ("SEC") on July 24, 2000, relating to the
previously announced SEC investigation into accounting irregularities at the
Company's Hofmann Laces unit, an operation which has been closed and sold during
fiscal 2002. Without admitting or denying any findings in the order, the Company
agreed to cease and desist from committing or causing any violation of certain
provisions of the federal securities laws. No monetary fines or penalties were
imposed against the Company. No current officer, director or employee of the
Company or Hofmann Laces was charged by the SEC with any wrongdoing nor were any
fines or penalties imposed against any such person.
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.
In 2002, the Company sold two idle manufacturing facilities in Greensboro, NC,
where manufacturing operations have ceased. These were the former Greenberg
Plant at 4201 West Wendover Avenue and the former Fishman Plant at 4925 West
Market Street.
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 Site (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 NC 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 September 29, 2002, environmental accruals amounted to $1,800 of which $1,470
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.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
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 in additional
marking duties, which amount has been reflected in the consolidated statement of
operations for 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 is advising its affected customers of this matter and is
offering to reimburse them 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 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
The Company is also involved in various litigation, including the matters
described above, arising out of 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.
17. CAPITAL STOCK:
The Company's authorized capital stock at September 30, 2001 consisted of
1,000,000 shares of preferred stock, par value $1 per share, and 65,000,000
shares of common stock, par value $.02 per share ("Old Common Stock"). No
preferred stock was issued or outstanding, while 32,750,094 shares of Old Common
Stock were issued and 18,627,076 shares were outstanding. The Company held
14,123,018 shares of treasury stock at September 30, 2001. The Old Common Stock
was cancelled as part of the Plan and replaced with common stock, par value $.01
("New Common Stock"). After the Plan, the Successor Company's authorized New
Common Stock is 11,000,000 shares. 5,501,053 shares of New Common Stock were
issued and outstanding at September 29, 2002. The Successor Company has no
authorized preferred stock.
18. STOCK COMPENSATION:
The Predecessor Company had a stock option plan for key employees and directors.
Options granted were either incentive stock options or non-qualified options
with only non-qualified options granted to the outside directors. Under the
terms of the plan, the purchase price of shares subject to each incentive option
granted would not be less than the fair market value at the date of grant. The
Compensation Committee of the Predecessor's Board of Directors determined the
purchase price of shares subject to each non-qualified option. Options granted
to directors under the formula provision of the plan vested one-third on the
date of grant and one-third each year for the next two years. Options granted to
participants (pursuant to individual agreements) vested according to various
schedules. The options had a life of either five or ten years from the grant
date. The plan and all outstanding options were cancelled on the Effective Date,
in conjunction with the Company's emergence from bankruptcy and cancellation of
all previously outstanding Old Common Stock. The Successor Company had no
outstanding options at September 29, 2002.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
Option activity under the plan was as follows:
- ----------------------------------------------------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price Exercise Price
Under Option Per Share Per Share
- ----------------------------------------------------------------------------------------------------------------------
Balance, October 3, 1999 1,898,869 $ 8.63 to $ 27.59 17.15
Granted 80,000 2.03 to 9.38 6.87
Exercised - - to - -
Forfeited (302,561) 9.22 to 19.75 14.21
- ----------------------------------------------------------------------------------------------------------------------
Balance, October 1, 2000 1,676,308 2.03 to 27.59 17.19
Granted 681,000 1.72 to 1.80 1.73
Exercised - - to - -
Forfeited (693,166) 1.72 to 23.70 14.40
- ----------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 1,664,142 1.72 to 27.59 11.90
GRANTED - - TO - -
EXERCISED - - TO - -
FORFEITED (351,279) 1.72 TO 27.59 7.40
CANCELLED PURSUANT TO PLAN OF REORGANIZATION (1,312,863) 1.72 TO 27.59 13.10
- ----------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 29, 2002 - - TO - -
- ----------------------------------------------------------------------------------------------------------------------
Options exercisable at September 30, 2001 and October 1, 2000 were 933,237 and
875,525, respectively. The weighted average exercise price of the options
exercisable was $17.67 and $19.06 on September 30, 2001 and October 1, 2000,
respectively. The weighted average fair market value of the Company's common
stock at the date of grant was $1.73 and $6.87 for grants made in fiscal 2001
and 2000, respectively.
The Company accounted for stock option grants under APB Opinion No. 25 and is
required to provide pro forma disclosures of what net income (loss) and earnings
per share ("EPS") would have been had the Company adopted the fair value method
for recognition purposes under SFAS No. 123. The following information is
presented as if the Company had adopted SFAS No. 123 and restated its results:
- ------------------------------ -----------------------------------------------------------
PREDECESSOR COMPANY
- ------------------------------ -----------------------------------------------------------
2002 2001 2000
- ------------------------------ -------------------- -------------------- -----------------
Net Loss:
As reported $(123,313) $ (160,757) $(20,974)
Pro forma $(123,313) $ (161,291) $(21,820)
- ------------------------------ -------------------- -------------------- -----------------
Basic EPS:
As reported $(6.66) $ (8.48) $(1.11)
Pro forma $(6.66) $ (8.51) $(1.15)
- ------------------------------ -------------------- -------------------- -----------------
Diluted EPS:
As reported $(6.66) $ (8.48) $(1.11)
Pro forma $(6.66) $ (8.51) $(1.15)
- ------------------------------ -------------------- -------------------- -----------------
For the above information, the fair value of each option grant was estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants in fiscal 2001 and 2000: (i) expected
volatility ranging from 20% to 48%, (ii) expected lives ranging from 4 to 7
years, (iii) risk free interest rates ranging from 4.3% to 6.6% and (iv) an
expected dividend yield of 0.0% to 5.0%. The weighted average calculated value
in excess of the grant value of an option granted during fiscal 2001 and 2000
under the Black-Scholes model was $0.72 and $2.56 respectively. There were no
options granted during fiscal 2002.
The Predecessor Company authorized 2,250,000 shares of common stock for the 1989
Restricted Stock Plan, which covered certain key salaried associates. This plan
expired in June 1999, but allowed the vesting of shares that were outstanding
(held in trust) under the plan at the time the plan expired by its terms. As of
September 30, 2001, there were 142,800 shares outstanding. These shares carried
voting and dividend rights; however, sale of the shares was restricted prior to
vesting. Of these shares, 6,300 were forfeited during fiscal 2002, the remainder
vested either during fiscal 2002 or were accelerated to vest on or about October
4, 2002, in connection with the Company's emergence from bankruptcy. The accrual
for shares issued under the plan was recorded at fair market value on the date
of grant with a corresponding charge
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
to stockholders' investment representing the unearned portion of the award. The
unearned portion was amortized as compensation expense on a straight-line basis
over the related vesting period. Compensation expense in fiscal 2002, 2001 and
2000 was $637, $1,279 and $1,226, respectively.
The Predecessor Company had an employee stock ownership plan, which covered the
majority of U.S. full-time associates who had completed one year of service.
There was no compensation expense for the plan for fiscal 2002, 2001 and 2000.
The Company merged this plan with and into a 401(k) defined contribution plan in
fiscal 2001. The shares held by the employee stock ownership plan as of the
termination date of the plan became part of the 401(k) plan. As of September 29,
2002, the 401(k) plan held 597,674 shares of Old Common Stock. Following the
reorganization, the plan held 17,186 shares of New Common Stock. These shares
are considered outstanding and are included in the basic and diluted earnings
per share calculations. The 401(k) plan does not allow new contributions to be
invested in Company stock.
In June and September 1998, the Predecessor Company's Board of Directors
authorized the repurchase of up to an aggregate of 3,500,000 shares of Old
Common Stock. As of September 29, 2002, the Company had repurchased 3,496,793
shares on the open market at an average price of $15.57. The Company made no
such purchases in fiscal 2001 or fiscal 2002. The Company's repurchases of
shares were recorded as treasury stock and resulted in a reduction of
stockholders' equity.
On July 26, 2000, the Board of Directors adopted a new stockholders' rights plan
to replace the then existing rights plan scheduled to expire in accordance with
its terms on August 23, 2000. In connection with the Plan such stockholders
rights plan and all rights outstanding thereunder were cancelled.
19. OTHER EXPENSE (INCOME), NET:
Other expense (income), net, for each of the fiscal years indicated was
comprised of the following:
- -------------------------------------------------------- -------------------------------------------------------------------
PREDECESSOR COMPANY
- -------------------------------------------------------- -------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------- ---------------------- --------------------- ----------------------
Insurance demutualization $ (776) $ -- $ (7,131)
Loss on equity method investments 268 2,835 3,730
Currency hedging -- -- (2,856)
Insurance claim received -- (700) --
Foreign currency transaction loss 826 573 159
Gain on life insurance policies (3,755) -- --
Return of shares from Hofmann acquisition -- (1,232) --
Other 474 (565) (224)
- -------------------------------------------------------- ---------------------- --------------------- ----------------------
Total other (income) expense, net $ (2,963) $ 911 $ (6,322)
- -------------------------------------------------------- ---------------------- --------------------- ----------------------
20. ACCUMULATED OTHER COMPREHENSIVE LOSS:
The accumulated balances and activity for each component of Accumulated Other
Comprehensive Loss are as follows:
Foreign Currency
Translation Pension Equity Accumulated Other
Adjustment Adjustment Comprehensive Loss
- ---------------------------------------------------------- ---------------------- --------------------- ----------------------
Balance at October 3, 1999 $ (11,613) $ (666) $ (12,279)
Change in balance (5,274) 389 (4,885)
- ---------------------------------------------------------- ---------------------- --------------------- ----------------------
Balance at October 1, 2000 (16,887) (277) (17,164)
Change in balance (2,251) (5,133) (7,384)
- ---------------------------------------------------------- ---------------------- --------------------- ----------------------
Balance at September 30, 2001 (Predecessor) (19,138) (5,410) (24,548)
CHANGE IN BALANCE 3,451 (16,657) (13,206)
FRESH START ADJUSTMENTS 15,687 22,067 37,754
- ---------------------------------------------------------- ---------------------- --------------------- ----------------------
BALANCE AT SEPTEMBER 29, 2002 (SUCCESSOR) $ -- $ -- $ --
- ---------------------------------------------------------- ---------------------- --------------------- ----------------------
The income tax (benefit) provision for the pension equity adjustments in fiscal
2001 and 2000 were $(3,066) and $186, respectively. No income taxes have been
provided for the foreign currency translation adjustments.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
21. EARNINGS PER SHARE:
The following table reconciles basic and diluted earnings per share of the
Predecessor Company:
- ---------------------------------- ---------------------- --------------------- ----------------------
Shares Net Loss Net Loss per share
- ---------------------------------- ---------------------- --------------------- ----------------------
2002:
BASIC EPS 18,512,000 $ (123,313) $ (6.66)
--------
DILUTIVE SECURITIES:
OPTIONS AND RESTRICTED STOCK -- --
- ---------------------------------- ---------------------- --------------------- ----------------------
DILUTED EPS 18,512,000 $ (123,313) $ (6.66)
- ---------------------------------- ---------------------- --------------------- ----------------------
2001:
Basic EPS 18,961,000 $ (160,757) $ (8.48)
--------
Dilutive Securities:
Options and Restricted Stock -- --
- ---------------------------------- ---------------------- --------------------- ----------------------
Diluted EPS 18,961,000 $ (160,757) $ (8.48)
- ---------------------------------- ---------------------- --------------------- ----------------------
2000:
Basic EPS 18,899,000 $ (20,974) $ (1.11)
--------
Dilutive Securities:
Options and Restricted Stock -- --
- ---------------------------------- ---------------------- --------------------- ----------------------
Diluted EPS 18,899,000 $ (20,974) $ (1.11)
- ---------------------------------- ---------------------- --------------------- ----------------------
The number of outstanding stock options considered antidilutive for either part
or all of the fiscal year and not included in the calculation of diluted net
income per share for the fiscal years ended 2002, 2001 and 2000 were 1,312,863,
1,664,142 and 1,676,308 respectively. These antidilutive stock options were
outstanding at the end of fiscal years 2000 and 2001, but were cancelled as part
of the Company's emergence from bankruptcy on the Effective Date.
22. SEGMENT INFORMATION:
The Company has identified four reportable segments based on market sectors:
Automotive, Apparel, Direct-to-Retail Home Fashions and Industrial. The Company
changed its segment definition in fiscal 2002, to more appropriately reflect the
distribution of its business. As a result, the Company has reclassified the
segment data in fiscal 2001 and fiscal 2000 to reflect this segment change.
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.
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 and
distributes products in this market segment. The Direct-to-Retail Home Fashions
segment was previously reported as a component of the Home Fashions segment in
previously filed financial statements.
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
Industrial segment was previously reported as a component of the Other segment
in previously filed financial statements.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
neither allocates to the segments nor bases segment decisions on the following:
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
o Interest expense
o Other income and expense
o Income tax expense or benefit
o Reorganization costs
o Fresh start adjustments
Some of the Company's assets are used by multiple segments. While certain assets
are identifiable by segment, an allocation of the substantial remaining assets
is not meaningful.
- ----------------------------------- ------------- ------------- ------------------ --------------- --------------- ---------------
Direct-to-Retail Unallocated
Automotive Apparel Home Fashions Industrial Items Total
- ----------------------------------- ------------- ------------- ------------------ --------------- --------------- ---------------
2002
External Sales $ 354,701 $ 72,827 $ 33,272 $ 52,373 $ -- 513,173
Intersegment Sales -- -- -- -- 60,357 60,357
Restructuring Expense (7,698) (44,207) (18,747) (398) -- (71,050)
Reorganization Costs -- -- -- -- (14,350) (14,350)
Operating (Loss) Profit (including
Restructuring) 6,108 (66,268) (48,245) (1,966) (14,350) (124,721)
Interest Expense -- -- -- -- 14,080 14,080
Other Income, net -- -- -- -- (2,963) (2,963)
Loss Before Income Taxes -- -- -- -- -- (139,706)
Depreciation Expense 15,080 6,568 2,257 11,827 -- 35,732
- ----------------------------------- ------------- ------------- ------------------ --------------- --------------- ---------------
2001
External Sales $ 333,481 $ 190,636 $ 59,071 $ 60,331 $ -- $ 643,519
Intersegment Sales -- -- -- -- 69,196 69,196
Restructuring Expense (2,946) (68,286) -- (143) -- (71,375)
Operating (Loss) Profit (including (122,837)
Restructuring) 13,158 (119,639) (7,863) (8,493) --
Interest Expense -- -- -- -- 25,292 25,292
Other Expense, net -- -- -- -- 911 911
Loss Before Income Taxes -- -- -- -- -- (165,216)
Depreciation Expense 16,056 18,954 3,882 13,728 -- 52,620
- ----------------------------------- ------------- ------------- ------------------ --------------- --------------- ---------------
2000
External Sales $ 380,620 $ 290,303 $ 63,318 $ 79,985 $ -- $ 814,226
Intersegment Sales -- -- -- -- 109,183 109,183
Restructuring Expense -- (28,643) -- -- -- (28,643)
Operating (Loss) Profit (including
Restructuring) 23,225 (38,182) (3,061) (2,404) -- (20,422)
Interest Expense -- -- -- -- 18,882 18,882
Other Income, net -- -- -- -- (6,322) (6,322)
Loss Before Income Taxes -- -- -- -- -- (32,982)
Depreciation Expense 18,170 24,809 3,571 15,086 -- 61,636
- ----------------------------------- ------------- ------------- ------------------ --------------- --------------- ---------------
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
23. GEOGRAPHIC INFORMATION:
The accompanying financial statements include the following amounts related to
the operations of the Company's subsidiaries in United Kingdom, Mexico and
Brazil:
- --------------------------------------------------------- ------------------- -------------------- -------------------
2002 2001 2000
- --------------------------------------------------------- ------------------- -------------------- -------------------
Net sales to unaffiliated customers:
United Kingdom $ 78,214 $ 74,729 $ 96,095
Mexico 70,430 60,303 60,272
Brazil 4,603 8,085 3,569
- --------------------------------------------------------- ------------------- -------------------- -------------------
Total sales of non-U.S. operations 153,247 143,117 159,936
United States 359,926 500,402 654,290
- --------------------------------------------------------- ------------------- -------------------- -------------------
Total net sales $ 513,173 $ 643,519 $ 814,226
- --------------------------------------------------------- ------------------- -------------------- -------------------
Long-lived assets:
United Kingdom $ 19,690 $ 22,863
Mexico 14,415 68,836
Brazil -- 2,022
- --------------------------------------------------------- ------------------- -------------------- -------------------
Total long-lived assets of non-U.S. operations 34,105 91,721
United States 84,794 201,141
- --------------------------------------------------------- ------------------- -------------------- -------------------
Total long-lived assets $ 118,899 $ 294,862
- --------------------------------------------------------- ------------------- -------------------- -------------------
24. CONDENSED COMBINED FINANCIAL STATEMENTS OF ENTITIES IN BANKRUPTCY
The following condensed combined financial statements are presented in
accordance with SOP 90-7:
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 29, 2002
- -------------------------------------------- -------------------- ----------------------- ------------------ ---------------------
Entities in Entities not in
Reorganization Reorganization
proceedings Proceedings Eliminations CONSOLIDATED TOTAL
-------------------- ----------------------- ------------------ ---------------------
Net Sales $ 359,929 $ 155,621 $(2,377) $ 513,173
Costs and Expenses 430,541 209,559 (2,206) 637,894
- -------------------------------------------- -------------------- ----------------------- ------------------ ---------------------
Operating Loss (70,612) (53.938) (171) (124,721)
Other expenses 4,777 10,208 -- 14,985
- -------------------------------------------- -------------------- ----------------------- ------------------ ---------------------
Loss before income tax (75,389) (64,146) (171) (139,706)
Income tax benefit (15,838) (555) -- (16,393)
- -------------------------------------------- -------------------- ----------------------- ------------------ ---------------------
Net Loss $ (59,551) $ (63,591) $ (171) $ (123,313)
- -------------------------------------------- -------------------- ----------------------- ------------------ ---------------------
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share data)
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 29, 2002
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Entities in Entities not in
Reorganization Reorganization
proceedings Proceedings CONSOLIDATED TOTAL
------------------- ------------------------ ---------------------
Net cash provided by operations $ 40,059 $ 1,600 $ 41,659
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Cash flows from investing activities:
Additions to property (4,689) (2,582) (7,271)
Proceeds from dispositions of property 27,544 1,502 29,046
Liquidation of life insurance policies 11,957 -- 11,957
Other 2,680 (397) 2,283
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Net cash provided by (used in) investing activities 37,492 (1,477) 36,015
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Cash flows from financing activities:
Short-term borrowings (repayments), net (28,851) 1,554 (27,297)
Payments of long-term debt (36,576) -- (36,576)
Proceeds from issuance of long-term debt 37,331 669 38,000
Payments to senior secured lenders in
reorganization (32,273) -- (32,273)
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Net cash provided by (used in) financing activities (60,369) 2,223 (58,146)
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Effect of exchange rate changes on cash and cash
equivalents -- (99) (99)
Net increase in cash and cash equivalents 17,182 2,247 19,429
Beginning cash and cash equivalents 3,821 1,824 5,645
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
Ending cash and cash equivalents $21,003 $ 4,071 $ 25,074
- ------------------------------------------------------------ ------------------- ------------------------ ---------------------
52
QUARTERLY INFORMATION (UNAUDITED)
(in thousands except per share amounts)
The following summarizes the unaudited quarterly results of operations for the
fiscal years ended September 29, 2002 and September 30, 2001:
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
FISCAL 2002 QUARTER: FIRST SECOND THIRD FOURTH
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
NET SALES $137,568 $129,674 $133,555 $112,376
GROSS PROFIT (LOSS) 10,838 (14,544) 13,887 15,878
NET (LOSS) INCOME (15,081) (99,344) (15,361) 6,473
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
NET (LOSS) INCOME PER SHARE:
BASIC (.82) (5.37) (.83) .35
DILUTED (.82) (5.37) (.83) .35
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
Fiscal 2001 Quarter: First Second Third Fourth
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
Net sales $173,558 $166,343 $158,098 $145,520
Gross profit (loss) 19,586 8,635 6,088 (3,497)
Net loss (7,652) (16,901) (23,209) (112,995)
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
Net loss per share:
Basic (.40) (.89) (1.21) (6.07)
Diluted (.40) (.89) (1.21) (6.07)
- ---------------------------------------- -------------------- -------------------- ------------------- --------------------
53
GUILFORD MILLS, INC.
SCHEDULE II
ANALYSIS OF VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 29, 2002, September 30, 2001 and October 1, 2000
(In Thousands)
Additions
Balance Charged to
Beginning of Cost and Balance End
Period Expenses Deductions Other of Period
---------------- ---------------- ---------------- ---------- -------------
(1) (2)
For the Year Ended October 1, 2000:
Reserve deducted from assets to
which it applies -
Receivables allowances $ 17,393 $ 18,136 $ (24,396) $ (53) $ 11,080
============== =============== ================ =========== =============
Restructuring reserve $ -- $ 11,373 $ (2,105) $ -- $ 9,268
============== =============== ================ =========== =============
For the Year Ended September 30, 2001:
Reserve deducted from assets to
which it applies -
Receivables allowances $ 11,080 $ 18,261 $ (18,336) $ (38) $ 10,967
============== =============== ================ =========== =============
Restructuring reserve $ 9,268 $ 14,503 $ (21,817) $ -- $ 1,954
============== =============== ================ =========== =============
For the Year Ended September 29, 2002:
Reserve deducted from assets to
which it applies -
Receivables allowances $ 10,967 $ 23,998 $ (27,104) $ (17) $ 7,842
============== =============== ================ =========== =============
Restructuring reserve $ 1,954 $ 8,132 $ (8,743) $ -- $ 1,343
============== =============== ================ =========== =============
(1) Deductions are for the purpose for which the reserve was created.
(2) Other amounts represent the effect of exchange rate fluctuations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 5, 2002, Guilford Mills, Inc. (the "Company") terminated the
engagement of its independent certified public accountants, Arthur Andersen LLP
("Andersen"), and engaged the services of Grant Thornton LLP ("Grant Thornton")
as its new independent auditors for 2002, effective immediately. The decision to
terminate Andersen and retain Grant Thornton was approved by the Company's Board
of Directors upon the recommendation of its Audit Committee.
54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT (AS OF DECEMBER 14, 2002)
The Company's Board of Directors (the "Board") is currently comprised of seven
persons. The Company's By-Laws provide that the directors are elected at the
annual meeting of stockholders and hold office until their respective successors
are elected and qualified or until their earlier resignation or removal. The
By-Laws also generally provide that any vacancy on the Board may be filled by
the affirmative vote of a majority of the directors then in office. Pursuant to
the Plan, the term of all directors in office on October 4, 2002 expired as of
such date. Under the Plan, the initial Board after the Effective Date consists
of seven persons - John A. Emrich, the Company's President and Chief Executive
Officer and a director prior to the Effective Date, and six persons designated
by the Company's senior secured lenders. The following table sets forth certain
information with respect to each director. Except as otherwise indicated, each
such person has held his present principal occupation for the past five years
and references to executive offices held are with the Company:
Name Age (1) Principal Occupation and Business Experience Director Since
- ----- ------- --------------------------------------------- --------------
David G. Elkins (2) 60 President and Co-Chief Executive Officer of Sterling 2002
Chemicals, Inc., a manufacturer of petrochemicals (from 2001
to 2003), and as its Executive Vice President and General
Counsel (from 1998 to 2001); senior partner at Andrews &
Kurth L.L.P., a law firm (from 1974 until 1998); Director of
The Houston Exploration Company, a natural gas E&P company
(since 1999); Director of Sterling Chemicals, Inc. (since
2001)
John A. Emrich 58 President and Chief Executive Officer (since 2000); 1995
President and Chief Operating Officer (from 1995 to 1999);
Senior Vice President and President/Automotive Business Unit
(from 1993 to1995); Vice President/Planning and Vice
President/Operations for the Apparel and Home Fashions
Business Unit (from 1991 to 1993)
Kevin M. McShea 48 President and Chief Executive Officer of Xpectra, Inc., a 2002
plastic injection molding manufacturer (since 2000);
President and Chief Executive Officer of E-M Solutions,
Inc., a contract manufacturer (from 1996 to 1999); Chief
Financial Officer of Budget Rent a Car, Inc. a travel and
transportation company (1990-1995)
Michael T. Monahan 63 President of Monahan Enterprises, LLC, a consulting firm 2002
(since 1999);Chairman of Munder Capital Management, an
investment Management firm (from 1999 to 2001), and as its
Chief Executive Officer (from 1999 to 2000); President of
Comerica Bank, a commercial banking firm (from 1992 to
1999), and Comerica Incorporated, a financial services
holding firm (from 1993 to 1999); Director of Munder Funds,
Inc. a mutual fund firm (since 1999), Director of CMS
Energy, Inc., an integrated energy company (since 2002)
55
Name Age (1) Principal Occupation and Business Experience Director Since
- ----- ------- --------------------------------------------- --------------
Charles M. Price 57 President and Chief Executive Officer of Horizon Management, 2002
Inc., an interim management turnaround firm (since May
2002); President and Chief Executive Officer of ELM
Packaging LLP (from 2001 to 2002); President and Chief
Executive Officer of Southland Technologies, Inc., an OEM
automotive parts supplier (from 1999 to 2000); President of
Brazos Sportswear (from 1998 to 1999); President and Chief
Executive Officer of Wembley Neckwear (from 1997 to 1998);
Director of Breed Technologies and Unique Fabricating, both
automotive parts suppliers (since January 2001)
Todd A. Robinson 55 President and Chief Executive Officer of Southwood Group, 2002
LLC, a holding company of companies that manufacture
commercial construction products (since 1984); Director of
McKenzie Forest Products LLC, (since 1998); Director of
Wilkinson Hi-Rise, LLC (since 2002); Director of Steelox
Building Systems, LLC (since 2002); all manufacturers of
construction products
Ronald M. Ruzic 63 Various domestic and international management positions with 2002
Borg Warner Corporation, an OEM automotive supplier of
engine and transmission components and systems (since 1968);
President and General Manager of Morse Chain (since 1989);
Executive Vice President of Borg-Warner Corporation, (since
1991); Group President and General Manager of Morse TEC and
Turbosystems, (since 1997)
- -------------------------------
(1) Age as of December 14, 2002
(2) Sterling Chemicals, Inc. filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code on July 16, 2001 and emerged from
bankruptcy proceedings on December 19, 2002.
56
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF DECEMBER 14, 2002)
The following table sets forth certain information with regard to the executive
officers of the Company (other than John A. Emrich, who also serves as a
director of the Company and whose information is set forth above).
Name Age (1) Office or Business Experience
Robert A. Emken, Jr. 39 General Counsel and Secretary (since 1999);
Associate Counsel (from 1991 to 1999);
Associate, Womble Carlyle Sandridge & Rice,
PLLC (from 1988 to 1991)
Alan R. MacKinnon 61 Vice President, Sales/Automotive (since
2002); Automotive Business Unit Vice
President of European Sales and Marketing
(from 2001 to 2002); Automotive Business
Unit Vice President of Global Sales to Ford
(from 1999 to 2001); Automotive Business
Unit Vice President of European Sales and
Marketing (from 1994 to 1999)
Robert W. Nolan 64 Executive Vice President/Automotive (since
2002); Automotive Business Unit Executive
Vice President (from 1996 to 2002);
Automotive Business Unit Vice President of
Worldwide Marketing (from 1993 to 1996)
Richard E. Novak 59 Vice President/Human Resources (since 1996);
Principal of Nova Consulting Group (from
1994 to 1996); Senior Vice President/Human
Resources of Joseph Horne Company, Inc.
(from 1987 to 1994)
David B. Schweibold 52 Vice President/Information Systems (since
2000); Vice President and Chief Information
Officer, Celotex Corp. (from 1997 to 2000);
Director of Information Systems, Raytheon
Corp. (from 1995 to 1997)
David H. Taylor 47 Chief Financial Officer (since 2002); Senior
Vice President-Finance, Heafner Tire Group
(now known as American Tire Distributors)
(from 1999 to 2001); Chief Operating
Officer, C'Board USA (from 1998 to 1999);
Executive Vice President-Finance, Secretary
and Director, JPS Textile Group, Inc. (now
known as JPS Industries) (from 1988 to 1998)
- ---------------------------------
(1) Age as of December 14, 2002
No family relationships exist between any executive officers of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and any persons holding more than
10% of the Company's equity securities, to file with the Securities and Exchange
Commission (the "SEC") reports disclosing their initial ownership of the
Company's equity securities, as well as subsequent reports disclosing changes in
such ownership. To the Company's knowledge, based solely on a review of such
reports furnished to it and written representations by certain reporting persons
that no other reports were required, during the 2002 fiscal year, the Company's
directors, executive officers and greater than 10% beneficial owners complied
with all Section 16(a) filing requirements.
57
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows for the fiscal years ended September 29, 2002,
September 30, 2001 and October 1, 2000 the cash compensation paid by the Company
(and its subsidiaries), as well as certain other compensation paid or accrued
for those periods, to the Company's Chief Executive Officer, and to the
Company's five most highly compensated executive officers (other than the Chief
Executive Officer) (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards (1)
------------------- ----------
Other Annual Securities All Other
Fiscal Compen- Underlying Compen-
Name and Principal Position Year Salary ($) Bonus ($) (2) sation ($) Options (#) (3) sation($)(4)
- --------------------------- ---- ---------- ------------- ----------- --------------- ------------
John A. Emrich, President and 2002 675,000 604,693 -- 0 41,367
Chief Executive Officer 2001 675,000 0 -- 0 17,688
2000 662,500 0 -- 0 63,525
Charles A. Hayes, Former 2002 562,502 0 -- 0 2,812
Chairman of the Board (5) 2001 675,000 0 53,391 (6) 0 44,027
2000 675,000 0 -- 0 109,228
David H. Taylor, Chief 2002 262,500 205,000 -- 0 0
Financial Officer (7)
Richard E. Novak, 2002 195,000 99,983 -- 0 21,492
Vice President/Human Resources 2001 185,250 0 -- 30,000 13,536
2000 177,333 0 -- 0 22,266
David B. Schweibold, 2002 170,000 87,165 -- 0 14,355
Vice President/Information 2001 154,089 28,000 30,064 (9) 0 9,451
Systems (8)
Robert A. Emken, Jr., 2002 168,000 86,140 -- 0 13,855
General Counsel and Secretary 2001 154,500 0 -- 50,000 5,567
2000 150,000 0 -- 0 12,307
- -----------------------------
(1) As noted elsewhere herein, on the Effective Date, all shares of Old
Common Stock were cancelled and the Company issued shares of New Common Stock.
As of the end of the 2002 fiscal year, Mr. Emrich and Mr. Hayes's estate owned
36,000 and 42,932 shares of restricted Old Common Stock, respectively, awarded
in prior fiscal years pursuant to the Company's 1989 Restricted Stock Plan.
Based on the per share closing price of the Old Common Stock at the end of the
2002 fiscal year of $.24, the value of such shares of restricted Old Common
Stock (without consideration of the restrictions) was $8,640 and $10,303,
respectively. Pursuant to the Plan, such shares of restricted Old Common Stock
were converted into shares of unrestricted New Common Stock at a ratio of one
share of New Common Stock for every 34.776338 shares of Old Common Stock,
subject to rounding, the same ratio that applied to the conversion of all other
Old Common Stock into New Common Stock.
(2) The bonuses shown for fiscal 2002 include amounts paid and payable
pursuant to a retention program adopted in connection with the Plan. The Company
adopted such retention program primarily in order to reward key managers for
their efforts during the Company's bankruptcy proceeding and to provide an
incentive to such persons to work diligently toward the Company's swift
emergence from bankruptcy. Under the retention program, each participant was
entitled to receive a cash bonus in an amount equal to a fixed percentage of his
base salary (a percentage ranging from 10% to 25%, depending upon the
participant). The amount of the bonus payable was subject to reduction on a
sliding scale (down to zero) depending upon when the Plan was confirmed by the
bankruptcy court. Given that the Plan was confirmed by the bankruptcy court on
September 20, 2002 (slightly more than six months after the Company filed its
58
bankruptcy petition), participants in the retention program are entitled to
receive the full amount of their potential retention bonus payments. The Company
paid one-half of each participant's bonus in October, 2002 and, subject
generally to the participant's continued employment, the Company paid the second
half of the bonus award in January 2003. The amounts shown in this column
include the full amount of the retention bonus award, including that portion
which was paid in January 2003. The retention bonus payments for the Named
Executive Officers are as follows: Mr. Emrich: $250,000; Mr. Taylor: $105,000;
Mr. Novak: $48,750; Mr. Schweibold: $42,500; and Mr. Emken: $42,000. The
remaining amounts shown in this column for fiscal 2002 for each Named Executive
Officer represent cash bonuses paid pursuant to the Company's short-term
incentive plan (the "STIP"). Payments under the STIP were based upon the
Company's actual earnings before interest, taxes, depreciation and amortization
("EBITDA") relative to budgeted EBITDA, as well as upon an individual
participant's performance.
(3) Pursuant to the Plan, all options outstanding on the Effective Date to
acquire shares of Old Common Stock were cancelled.
(4) The components of the amounts shown in this column for the 2002 fiscal
year consist of the following:
(i) Contributions of $8,500, $8,500, $5,312 and $8,500 to the accounts
of Messrs. Emrich, Novak, Schweibold and Emken, respectively, pursuant to the
Company's qualified profit-sharing plan.
(ii) Contributions of $2,812, $1,868, $991 and $1,890 to the accounts of
Messrs. Hayes, Novak, Schweibold and Emken, respectively, pursuant to the
Company's 401(k) plan.
(iii) Contributions of $31,500, $2,468 and $950 to the accounts of
Messrs. Emrich, Novak and Emken, respectively, pursuant to the Company's excess
benefit plan which is designed to supplement the Company's qualified
profit-sharing plan.
(iv) With respect to Messrs. Emrich, Novak, Schweibold and Emken, the
value of benefits under the Company's Senior Managers' Life Insurance Plan, a
split dollar plan. During the 2002 fiscal year, each of Messrs. Emrich, Novak,
Schweibold and Emken paid the amount of the premium associated with the term
life component of his split dollar life insurance coverage. For each Named
Executive Officer, the Company expects to recover the premiums it pays. The
following amounts reflect the benefits related to the non-term portion of the
premiums to be paid by the Company under the insurance policies purchased on the
lives of the Named Executive Officers, in each case with the non-term portion of
the premium being treated as the present value of an interest-free loan to age
65: Mr. Emrich - $1,367; Mr. Novak - $8,656; Mr. Schweibold - $8,052; and Mr.
Emken - $2,515.
(5) Mr. Hayes served as Chairman of the Board until his death on July 21,
2002.
(6) Of this amount, $50,000 represents reimbursement for personal tax and
financial planning expenses.
(7) Mr. Taylor joined the Company as of February 14, 2002. See "Other
Benefit Plans and Agreements -Consulting Agreement" below.
(8) Mr. Schweibold joined the Company as of November 6, 2000.
(9) This amount represents a payment for certain closing costs, and an
associated tax reimbursement, for the sale of a former residence in connection
with Mr. Schweibold's relocation from Florida to the Company's Greensboro, North
Carolina office.
STOCK OPTION EXERCISES AND FISCAL YEAR-END STOCK OPTION VALUES
At the end of the 2002 fiscal year, each Named Executive Officer (other than Mr.
Taylor) held certain options to acquire shares of Old Common Stock with none of
such options being "in-the-money" as of such date. Pursuant to the terms of the
Plan, all outstanding options (including, without limitation, the options held
by the Named Executive Officers) were cancelled as of the Effective Date. None
of the Named Executive Officers exercised any options during the 2002 fiscal
year.
OTHER BENEFIT PLANS AND AGREEMENTS
Supplemental Retirement Plan. In 1992, the Company adopted the Senior Managers'
Supplemental Retirement Plan ("SERP") which provides for retirement and death
benefits to a select group of senior managers. The SERP provides that upon
59
retirement from the Company after attaining age 65, and after at least 60 months
of service with the Company, participants will be entitled to receive a
specified dollar amount for a period of ten years following retirement ("Ten
Year Payments"). If the participant dies prior to the termination of his or her
employment or during the period while the Ten Year Payments are being made, the
full amount of the Ten Year Payments or the unpaid portion thereof, as the case
may be, will be paid according to the installment schedule to the participant's
designated beneficiary.
The SERP also provides that if the participant's employment with the Company is
terminated for any reason other than his or her death or disability (prior to
the participant attaining age 65) and the participant has been employed by the
Company for at least 60 months, the participant will be entitled to a reduced
retirement benefit commencing at age 65. Such reduced benefit will be based upon
the participant's total months of employment with the Company as compared with
the total months of employment the participant would have had with the Company
if he or she had remained in the employ of the Company until age 65. If, at the
time of his or her termination of employment with the Company for any reason
other than death or disability, the participant has been employed by the Company
for less than 60 months following the effective date of the agreement, he or she
will not be entitled to any retirement benefits and his or her beneficiaries
will not be entitled to any death benefits. If a participant becomes disabled
prior to attaining age 65 and such disability continues until age 65, the
participant will be entitled to receive the full amount of the Ten Year Payments
commencing at age 65, regardless of whether he or she has completed 60 months of
service with the Company.
The following table sets forth the Ten Year Payments for each of the Named
Executive Officers.
Name of Individual Ten Year Payments (Per Annum) (1)
------------------- -----------------------------
John A. Emrich $ 300,000
Charles A. Hayes 345,000
David H. Taylor -0-
Richard E. Novak 100,000
David B. Schweibold 100,000
Robert A. Emken, Jr. 100,000
- --------------------------
(1) The amount reflected in the above table for Mr. Hayes represents his
actual vested benefit under the SERP and the amounts reflected for the
other Named Executive Officers represent the full annual amount of their
respective Ten Year Payments if they become fully vested in their SERP
benefits.
Salary Continuation Agreements. Prior to the Effective Date, the Company had
entered into change in control agreements with certain key managers, including
each of the Named Executive Officers (other than Mr. Taylor). These agreements
provided for the payment of specified compensation and benefits to such
employees upon certain terminations of their employment within two years after a
change in control of the Company. Pursuant to the Plan, the Company cancelled
all such agreements and entered into salary continuation agreements with certain
key managers, including Messrs. Emrich, Novak, Schweibold and Emken. Each salary
continuation agreement provides that after certain terminations of a
participant's employment, the Company will pay, among other benefits, a
participant's base salary ("Base Salary Payments") for a period of either one
year or two years (depending upon the participant and, with respect to certain
participants, when the termination of employment occurs). Any Base Salary
Payments for Messrs. Emrich, Novak and Emken are payable for two years after an
eligible termination of employment and any Base Salary Payments for Mr.
Schweibold are payable for one year after an eligible termination of employment.
The Base Salary Payments are payable in monthly installments and, after the
payment of the first half of such amounts, are subject to reduction to the
extent the employee finds new employment elsewhere. The term of each salary
continuation agreement continues until the Company provides at least six months'
notice of termination, which notice cannot be furnished prior to November 12,
2004.
Consulting Agreement. The Company and Mr. Taylor entered into a Consulting
Agreement in the second quarter of the 2002 fiscal year, pursuant to which Mr.
Taylor agreed to serve as the Company's Chief Financial Officer on an interim
basis. Pursuant to such agreement, Mr. Taylor is paid a monthly fee in the
amount of $35,000, but does not participate in any of the Company's employee
benefit plans (other than the STIP and the retention bonus program, each of
which is described in Footnote 2 to the "Summary Compensation Table" above).
Under the amended terms of the consulting agreement, the period of Mr. Taylor's
consultancy will end on January 31, 2003 if the agreement is not further
amended.
60
DIRECTOR COMPENSATION
Former Outside Directors - Each person who served as a non-employee director
during the last fiscal year (a "Former Outside Director") received a quarterly
retainer of $6,250 and $1,000 for each Board meeting attended (other than
routine telephonic Board meetings). No Former Outside Director continued to
serve on the Board after the Effective Date. A Former Outside Director who
served as a committee chairman and each other Former Outside Director who served
as a committee member were paid $3,000 and $2,000, respectively, for each
committee meeting attended. During the last fiscal year, the Board had a total
of 16 meetings, ten of which were compensable. Also during the 2002 fiscal year,
the Company paid consulting fees to a company in which Tomokazu Adachi, a Former
Outside Director, is the President and controlling stockholder (see Item 13
"Certain Relationships and Related Transactions" below).
The Company afforded each Former Outside Director the opportunity to defer his
or her quarterly retainer. Pursuant to such arrangement, the quarterly retainer
a director would otherwise receive was credited to a separate account which
accrued interest. Upon his or her termination of service on the Board, the
Former Outside Director was entitled to receive the amounts credited to his or
her deferred compensation account, together with interest accrued thereon.
No stock options were granted during the last fiscal year to any director
pursuant to the Company's stock option plan then in effect. All options which
were previously granted under such plan and which were outstanding on the
Effective Date (including, without limitation, options previously granted to
directors) were cancelled as of such date.
Pursuant to the terms of the Guilford Mills, Inc. Non-Employee Director Stock
Plan, as amended (the "Outside Director Plan"), all but one Former Outside
Director received during the last fiscal year a grant of restricted stock units
("RSUs") worth $20,000. Pursuant to the Plan, each Former Outside Director
received in settlement of all RSUs previously awarded under the Outside Director
Plan (including the RSUs granted last fiscal year) shares of New Common Stock
based upon a ratio of one share of New Common Stock for every 34.776338 RSUs,
subject to rounding (the same ratio that applied to the conversion of all Old
Common Stock into New Common Stock).
Current Outside Directors - Since the Effective Date, the Board adopted a
compensation program for non-employee directors (each, a "Current Outside
Director") which is different than and in lieu of the compensation program
applicable to Former Outside Directors described above. Pursuant to such
program, a Current Outside Director serving as Chairman of the Board receives an
annual retainer of $45,000, and other Current Outside Directors receive an
annual retainer of $25,000. A Current Outside Director serving as Chairman of a
Board committee receives a supplemental annual retainer as follows: $10,000 for
service as Audit Committee Chairman, $7,500 for service as Compensation
Committee Chairman and $5,000 for service as Nominating and Corporate Governance
Committee Chairman. All annual retainers are payable in equal, quarterly
installments. Each Current Outside Director receives $1,500 for each in-person
Board meeting attended and $750 for each telephonic Board meeting attended. Each
Current Outside Director receives $1,000 for each in-person Board committee
meeting attended and $500 for each telephonic Board committee meeting attended.
The Board also adopted, following the Effective Date, a stock option plan for
Current Outside Directors (the "Option Plan"). Pursuant to the Option Plan, each
Current Outside Director has been granted an option, having a ten year term, to
acquire 6,000 shares of New Common Stock. In addition, on October 4, 2003, each
then Current Outside Director automatically will be granted a ten year option to
acquire 4,000 shares of New Common Stock, provided he attends at least 75% of
the meetings of the Board and of the Board committees on which he serves. The
purchase price of the shares of New Common Stock covered by the options granted
under the Option Plan is the fair market value of the shares as of the date of
grant. The options vest, or become exercisable, in equal, annual one-third
increments commencing on the first anniversary of the grant date. Any
exercisable portion of an option that is not exercised will be carried forward
through the term of the grant. Notwithstanding the foregoing, in the event of a
"change in control" of the Company, as such term is defined in the Option Plan,
all then outstanding options will immediately become exercisable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Under rules issued by the SEC, a beneficial owner of a security includes any
person who directly or indirectly has or shares voting power and/or investment
power with respect to such security or has the right to obtain such voting power
and/or investment power within 60 days. Except as otherwise noted, each
beneficial owner identified in the tables below has sole voting power and
investment power with respect to the shares beneficially owned by such person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to each person who is
known by the management of the Company to be the beneficial owner of more than
5% of the New Common Stock:
61
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------------------ -------------------- ----------------
Prudential Financial, Inc. 2,067,031(1) 37.6
751 Broad Street
Newark, New Jersey 07102-3777
Wachovia Bank, National Association 868,466 (2) 15.8
301 S. College Street
Charlotte, NC 28288
Carl Marks Management Company, L.P. 575,613 (3) 10.5
135 East 57th Street
New York, NY 10022
516,682 (4) 9.4
Bank One, NA
1717 Main Street, 4th Floor
Dallas, TX 75201
PW Willow Fund LLC 516,501 (5) 9.4
c/o Bond Street Capital
700 Palisade Avenue
Englewood Cliffs, New Jersey 07632
GE Capital CFE, Inc. 406,736 (6) 7.4
201 High Ridge Road
Stamford, CT 06927
(1) Based upon a Schedule 13G filed by Prudential Financial, Inc. ("Prudential")
with the SEC reflecting share ownership as of October 31, 2002. Of such number
of shares shown, Prudential has sole voting and investment power over 2,066,002
shares of New Common Stock and shared voting and investment power over 1,029
shares of New Common Stock.
(2) Based upon a Schedule 13G filed by the beneficial owner with the SEC
reflecting share ownership as of October 31, 2002.
(3) Based upon a Schedule 13G jointly filed by Carl Marks Strategic Investments,
L.P. ("CMSI"), Carl Marks Management Company, L.P. , the sole general partner of
CMSI ("CMMC"), and the three individual general partners of CMMC- Andrew M.
Boas, Robert C. Ruocco and James F. Wilson, and reflecting share ownership of
the same shares of New Common Stock as of November 21, 2002. CMMC has sole
voting and investment power over all of the shares shown above, CMSI has sole
voting and investment power over 518,052 shares shown above, and each of the
three individual general partners of CMMC has shared voting and investment power
over all of the shares shown above.
(4) Based upon information furnished to the Company by the beneficial owner on
December 24, 2002.
(5) Based upon information furnished to the Company by the beneficial owner on
January 3, 2003.
(6) Based upon information furnished to the Company by the beneficial owner on
December 17, 2002.
62
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of December 31, 2002,
with respect to New Common Stock beneficially owned by each director of the
Company, each of the Named Executive Officers and all directors and executive
officers as a group:
Name of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class
------------------------ ----------------------------------------- ----------------
Directors
- ---------
David G. Elkins 0 *
John A. Emrich 4,272 *
Kevin M. McShea 0 *
Michael T. Monahan 0 *
Charles M. Price 0 *
Todd A. Robinson 0 *
Ronald M. Ruzic 0 *
Non-Director Executive Officers
- -------------------------------
Charles A. Hayes (1) 43,825 *
David H. Taylor 0 *
Richard E. Novak 2 *
David B. Schweibold 0 *
Robert A. Emken, Jr. 66 *
All directors and executive officers as a group
(consisting of 14 persons)
48,532 *
- --------------------------
* Less than one percent
(1) Mr. Hayes served as the Company's Chairman of the Board until his death on
July 21, 2002. The amount of shares owned by Mr. Hayes's estate as reflected
above (which ownership information was provided by a representative of the
estate) includes: (i) 4,981 shares of New Common Stock held by a grantor
retained annuity trust and (ii) 20,129 shares of New Common Stock held by a
family limited partnership (the "FLP"). Mr. Hayes's estate has a membership
interest in a limited liability company, whose members are all relatives of the
late Mr. Hayes, which serves as the sole general partner of the FLP. Mr. Hayes's
estate has shared voting and investment power with respect to the shares of New
Common Stock held by the FLP.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the 2002 fiscal year, the Company paid $62,500 in consulting fees to
Japan Tech, Inc., of which Mr. Adachi, a Former Outside Director, is the
President and controlling stockholder. In addition, in the ordinary course of
its business and through a series of arm's-length transactions, the Company
purchased machinery, equipment and supplies from Japan Tech, Inc. during the
2002 fiscal year totaling $394,204.
In the ordinary course of business and through a series of arm's-length
transactions, during the 2002 fiscal year, the Company paid $463,361 for
forklifts and forklift repairs to Western Carolina Forklift, Inc., which is
controlled by David Hayes, the son of the late Charles A. Hayes, the former
Chairman of the Company. Charles A. Hayes served on the Board of Directors of
Western Carolina Forklift, Inc.
Dr. Zaidenweber (a Former Outside Director) serves as the Chairman of the Board
of Grupo Ambar, S.A. de C.V., a subsidiary of the Company ("Grupo Ambar"). Dr.
Zaidenweber, who is a 5% stockholder of Grupo Ambar, receives an annual salary
of approximately $300,000 for his service as Chairman of the Board of Grupo
Ambar. Dr. Zaidenweber is a party to a stockholders' agreement with the Company
relating to his stock ownership in Grupo Ambar. Pursuant to such agreement, Dr.
Zaidenweber has the right to sell his shares of Grupo Ambar capital stock to the
Company at a price equal to the net worth of such shares. The Company has the
right, under the stockholders' agreement with Dr. Zaidenweber, to purchase his
shares of Grupo Ambar capital stock at a price equal to the net worth of such
shares multiplied by two (the "Call Price"). Under certain circumstances,
including upon the death or disability of Dr. Zaidenweber, the Company is
required to purchase Dr. Zaidenweber's stock at the Call Price. Pursuant to the
63
terms of the stockholders' agreement, the Company is required to pay the
purchase price for Dr. Zaidenweber's Grupo Ambar shares in cash. Under the terms
of its senior loan agreements however, the Company is prohibited from paying
cash or cash equivalents as part of the purchase price for Dr. Zaidenweber's
shares of Grupo Ambar, except pursuant to a loan arrangement subordinated to the
Company's obligations under its senior loan agreements. The Company and Dr.
Zaidenweber have not yet agreed on an appropriate modification to the
stockholders' agreement to take into account the foregoing prohibition under the
Company's senior loan agreements.
An indirect wholly owned subsidiary of the Company (the "Optionee") is a party
to an option agreement with Tucci Associates, Inc. (the "Optionor"), pursuant to
which the Optionor granted the Optionee the exclusive right to acquire certain
proprietary technology. Nathan M. Dry, who resigned as a Vice President of the
Company effective January, 2002, owns 24.5% of the capital stock, and is the
President, of the Optionor. If it elects to exercise the option, then the
Optionee will be required to make an additional payment to the Optionor of
approximately $4,900,000.
In connection with the implementation of the Plan, the Company entered into
several transactions with the institutions which are listed in the table in
"Security Ownership of Certain Beneficial Owners" above. Pursuant to the Plan,
each such institution or its affiliate acquired shares of New Common Stock,
Notes (as described in note 12 to the Consolidated Financial Statements included
elsewhere in this Report), Altamira Trust Notes and Discontinued Operations
Trust Notes (as described in note 1 to the Consolidated Financial Statements),
and distributions of cash (as described in note 3 to the Consolidated Financial
Statements). In addition, Guilford's Revolving Credit Facility (described in
note 12 to the Consolidated Financial Statements) is provided by certain of the
institutions listed in "Security Ownership of Certain Beneficial Owners" (or
affiliates of such institutions) as follows: Wachovia Bank, National
Association; Bank One, NA; General Electric Capital Corporation (an affiliate of
GE Capital CFE, Inc.); and The Prudential Insurance Company of America (an
affiliate of Prudential Financial, Inc.).
64
PART IV
ITEM 14. 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 annual report on Form 10-K, 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 annual report on Form 10-K.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. Financial Statements
See Item 8 of Part II
2. Financial Statement Schedules
See Item 8 of Part II
3. Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
(2) (a) Amended Joint Plan of Reorganization under Chapter 11 of the
U.S. Bankruptcy Code, dated August 15, 2002, as filed with
the U.S. Bankruptcy Court for the Southern District of New
York (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC on
October 4, 2002 (the "10/4/02 8-K")).
(2) (b) Amended Disclosure Statement to Amended Joint Plan of
Reorganization dated August 15, 2002 (incorporated by
reference to Exhibit 2.2 to the 10/4/02 8-K).
(2) (c) Bankruptcy Court Order, dated September 20, 2002, confirming
the Amended Joint Plan of Reorganization under Chapter 11 of
the U.S. Bankruptcy Code (incorporated by reference to
Exhibit 2.3 to the 10/4/02 8-K).
(3) (a) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
10/4/02 8-K).
(3) (b) Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's 10/4//02 8-K).
(4) (a) Note Agreement, dated October 1, 2002, entered into by and
between the Company and each of the purchasers named in the
purchasers' schedule thereto.
65
(4) (b) Registration Rights Agreement, dated October 1, 2002, by and
among the Company and the Investors named therein.
(10) (a)* Guilford Mills, Inc. Non-Qualified Profit Sharing Plan for
Certain of its Executive Officers and Key Employees,
effective July 1, 1989 (incorporated by reference to Exhibit
(10) (a) (7) to the Company's Annual Report on Form 10-K for
the fiscal year ended July 1, 1990 (the "1990 Annual
Report")).
(10) (b)* First Amendment, dated September 1, 1993, to the Guilford
Mills, Inc. Non-Qualified Profit-Sharing Plan (incorporated
by reference to Exhibit (10)(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 28,
1997 (the "1997 Annual Report")).
(10) (c)* Second Amendment, dated November 1, 1996, to the Guilford
Mills, Inc. Non-Qualified Profit-Sharing Plan (incorporated
by reference to Exhibit (10)(c) to the 1997 Annual Report).
(10) (d)* Amended and Restated Phantom Stock Agreement between the
Company and Charles A. Hayes dated September 21, 1994
(incorporated by reference to Exhibit (10) (m) to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 2, 1994).
(10) (e)* Guilford Mills, Inc. Excess Benefit Plan (incorporated by
reference to Exhibit (10) (a) to the Quarterly Report on
Form 10-Q for the fiscal quarter ended December 29, 1996).
(10) (f)* First Amendment to the Guilford Mills, Inc. Excess Benefit
Plan (incorporated by reference to Exhibit (10) (w) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001 (the "2001 Annual Report")).
(10) (g)* Guilford Mills, Inc. Amended and Restated Trust for
Non-Qualified Plans, dated as of February 16, 2001
(incorporated by reference to Exhibit (10) (x) to the 2001
Annual Report).
(10) (h)* Guilford Mills, Inc. Executive Deferred Compensation Plan,
dated as of February 12, 2001 (incorporated by reference to
Exhibit (10) (y) to the 2001 Annual Report).
(10) (i)* Guilford Mills, Inc. Senior Managers' Life Insurance Plan
and related Plan Agreement (incorporated by reference to
Exhibit (10) (r) to the Annual Report on Form 10-K for the
fiscal year ended June 28, 1992 ("1992 Annual Report")).
(10) (j)* Guilford Mills, Inc. Senior Managers' Pre-Retirement Life
Insurance Agreement (incorporated by reference to Exhibit
(10) (s) to the 1992 Annual Report).
(10) (k)* Guilford Mills, Inc. Senior Managers' Supplemental
Retirement Plan and related Plan Agreement (incorporated by
reference to Exhibit (10) (t) to the 1992 Annual Report).
(10) (l)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and John A. Emrich.
(10) (m)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and Richard E. Novak.
(10) (n)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and David B. Schweibold.
(10) (o)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and Robert A. Emken, Jr.
(10) (p)* Consulting Agreement, dated March 12, 2002, by and between
the Company and David H. Taylor (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2002).
(10) (q)* First Amendment to Consulting Agreement, dated August 30,
2002, by and between the Company and David H. Taylor.
(10) (r)* Second Amendment to Consulting Agreement, dated October 31,
2002, by and between the Company and David H. Taylor.
66
(10) (s)* Management Compensation Trust Agreement between the Company
and North Carolina Trust Company dated July 1, 1991
(incorporated by reference to Exhibit (10) (y) to the 1992
Annual Report).
(10) (t)* Amendment to the Management Compensation Trust Agreement
between the Company and North Carolina Trust Company dated
April 1, 1992 (incorporated by reference to Exhibit (10) (z)
to the 1992 Annual Report).
(10) (u)* Form of Retention Emergence Bonus Agreement.
(10) (v) Steam Purchase Contract, dated November 30, 1984, by and
between the Company and Cogentrix Eastern Carolina, LLC.
(successor to Cogentrix Leasing Corporation).
(10) (w) First Amendment to Steam Purchase Agreement, dated August 1,
1991, by and between the Company and Cogentrix Eastern
Carolina, LLC.
(10) (x) Altamira Trust Agreement and Declaration of Trust, dated
October 1, 2002, by and between the Company and Wilmington
Trust Company.
(10) (y) Credit, Security, Guaranty and Pledge Agreement, dated
October 1, 2002, among the Company, the Guarantors and
Lenders referred to therein, and Wachovia Bank, National
Association, as Administrative Agent, Collateral Agent and
Issuing Bank.
(10) (z) Amended and Restated Factoring Agreement, dated October 1,
2002, by and between the Company and The CIT
Group/Commercial Services, Inc.
(21) Subsidiaries of the Registrant.
(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 July 17, 2002 regarding the Plan
and the related disclosure statement.
The Company filed a Form 8-K with the SEC on July 24, 2002 regarding the
Company's June 2002 monthly operating report filed with the bankruptcy court.
The Company filed a Form 8-K with the SEC on August 6, 2002 regarding the change
in the Company's independent public accountants.
The Company filed a Form 8-K with the SEC on August 14, 2002 regarding
certifications made by the Company's chief executive officer and chief financial
officer with respect to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002.
The Company filed a Form 8-K with the SEC on August 21, 2002 regarding the
Company's July 2002 monthly operating report filed with the bankruptcy court.
The Company filed a Form 8-K with the SEC on August 29, 2002 regarding the Plan
and related disclosure statement.
The Company filed a Form 8-K with the SEC on September 23, 2002 regarding the
Company's August 2002 monthly operating report filed with the bankruptcy court.
The Company filed a Form 8-K with the SEC on September 27, 2002 regarding the
distribution of New Common Stock in connection with the Company's emergence from
bankruptcy.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GUILFORD MILLS, INC.
By: /s/ David H. Taylor
-------------------------------
David H. Taylor
Chief Financial Officer
Dated: January 14, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael T. Monahan Chairman of the Board of Directors January 14, 2003
- -----------------------------------------
Michael T. Monahan
Director; President and Chief Executive Officer
/s/ John A. Emrich (Principal Executive Officer) January 14, 2003
- -----------------------------------------
John A. Emrich
Chief Financial Officer (Principal Financial and
/s/ David H. Taylor Accounting Officer) January 14, 2003
- -----------------------------------------
David H. Taylor
/s/ David G. Elkins Director January 14, 2003
- -----------------------------------------
David G. Elkins
/s/ Kevin M. McShea Director January 14, 2003
- -----------------------------------------
Kevin M. McShea
/s/ Charles M. Price Director January 14, 2003
- -----------------------------------------
Charles M. Price
/s/ Todd A. Robinson Director January 14, 2003
- -----------------------------------------
Todd A. Robinson
/s/ Ronald M. Ruzic Director January 14, 2003
- -----------------------------------------
Ronald M. Ruzic
68
CERTIFICATIONS
I, John A. Emrich, certify that:
1. I have reviewed this annual report on Form 10-K of Guilford Mills, Inc.
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual
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: January 14, 2003
/s/ John A. Emrich
- ------------------------------------------
John A. Emrich
President and Chief Executive Officer
69
I, David H. Taylor, certify that:
1. I have reviewed this annual report on Form 10-K of Guilford Mills, Inc.
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual
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: January 14, 2003
/s/ David H. Taylor
- --------------------------------
David H. Taylor
Chief Financial Officer
70
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
(2) (a) Amended Joint Plan of Reorganization under Chapter 11 of the
U.S. Bankruptcy Code, dated August 15, 2002, as filed with
the U.S. Bankruptcy Court for the Southern District of New
York (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC on
October 4, 2002 (the "10/4/02 8-K")).
(2) (b) Amended Disclosure Statement to Amended Joint Plan of
Reorganization dated August 15, 2002 (incorporated by
reference to Exhibit 2.2 to the 10/4/02 8-K).
(2) (c) Bankruptcy Court Order, dated September 20, 2002, confirming
the Amended Joint Plan of Reorganization under Chapter 11 of
the U.S. Bankruptcy Code (incorporated by reference to
Exhibit 2.3 to the 10/4/02 8-K).
(3) (a) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
10/4/02 8-K).
(3) (b) Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's 10/4//02 8-K).
(4) (a) Note Agreement, dated October 1, 2002, entered into by and
between the Company and each of the purchasers named in the
purchasers' schedule thereto.
(4) (b) Registration Rights Agreement, dated October 1, 2002, by and
among the Company and the Investors named therein.
(10) (a)* Guilford Mills, Inc. Non-Qualified Profit Sharing Plan for
Certain of its Executive Officers and Key Employees,
effective July 1, 1989 (incorporated by reference to Exhibit
(10) (a) (7) to the Company's Annual Report on Form 10-K for
the fiscal year ended July 1, 1990 (the "1990 Annual
Report")).
(10) (b)* First Amendment, dated September 1, 1993, to the Guilford
Mills, Inc. Non-Qualified Profit-Sharing Plan (incorporated
by reference to Exhibit (10)(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 28,
1997 (the "1997 Annual Report")).
(10) (c)* Second Amendment, dated November 1, 1996, to the Guilford
Mills, Inc. Non-Qualified Profit-Sharing Plan (incorporated
by reference to Exhibit (10)(c) to the 1997 Annual Report).
(10) (d)* Amended and Restated Phantom Stock Agreement between the
Company and Charles A. Hayes dated September 21, 1994
(incorporated by reference to Exhibit (10) (m) to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 2, 1994).
(10) (e)* Guilford Mills, Inc. Excess Benefit Plan (incorporated by
reference to Exhibit (10) (a) to the Quarterly Report on
Form 10-Q for the fiscal quarter ended December 29, 1996).
(10) (f)* First Amendment to the Guilford Mills, Inc. Excess Benefit
Plan (incorporated by reference to Exhibit (10) (w) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001 (the "2001 Annual Report")).
(10) (g)* Guilford Mills, Inc. Amended and Restated Trust for
Non-Qualified Plans, dated as of February 16, 2001
(incorporated by reference to Exhibit (10) (x) to the 2001
Annual Report).
(10) (h)* Guilford Mills, Inc. Executive Deferred Compensation Plan,
dated as of February 12, 2001 (incorporated by reference to
Exhibit (10) (y) to the 2001 Annual Report).
(10) (i)* Guilford Mills, Inc. Senior Managers' Life Insurance Plan
and related Plan Agreement (incorporated by reference to
Exhibit (10) (r) to the Annual Report on Form 10-K for the
fiscal year ended June 28, 1992 ("1992 Annual Report")).
(10) (j)* Guilford Mills, Inc. Senior Managers' Pre-Retirement Life
Insurance Agreement (incorporated by reference to Exhibit
(10) (s) to the 1992 Annual Report).
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(10) (k)* Guilford Mills, Inc. Senior Managers' Supplemental
Retirement Plan and related Plan Agreement (incorporated by
reference to Exhibit (10) (t) to the 1992 Annual Report).
(10) (l)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and John A. Emrich.
(10) (m)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and Richard E. Novak.
(10) (n)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and David B. Schweibold.
(10) (o)* Salary Continuation Agreement, dated November 12, 2002, by
and between the Company and Robert A. Emken, Jr.
(10) (p)* Consulting Agreement, dated March 12, 2002, by and between
the Company and David H. Taylor (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2002).
(10) (q)* First Amendment to Consulting Agreement, dated August 30,
2002, by and between the Company and David H. Taylor.
(10) (r)* Second Amendment to Consulting Agreement, dated October 31,
2002, by and between the Company and David H. Taylor.
(10) (s)* Management Compensation Trust Agreement between the Company
and North Carolina Trust Company dated July 1, 1991
(incorporated by reference to Exhibit (10) (y) to the 1992
Annual Report).
(10) (t)* Amendment to the Management Compensation Trust Agreement
between the Company and North Carolina Trust Company dated
April 1, 1992 (incorporated by reference to Exhibit (10) (z)
to the 1992 Annual Report).
(10) (u)* Form of Retention Emergence Bonus Agreement.
(10) (v) Steam Purchase Contract, dated November 30, 1984, by and
between the Company and Cogentrix Eastern Carolina, LLC.
(successor to Cogentrix Leasing Corporation).
(10) (w) First Amendment to Steam Purchase Agreement, dated August 1,
1991, by and between the Company and Cogentrix Eastern
Carolina, LLC.
(10) (x) Altamira Trust Agreement and Declaration of Trust, dated
October 1, 2002, by and between the Company and Wilmington
Trust Company.
(10) (y) Credit, Security, Guaranty and Pledge Agreement, dated
October 1, 2002, among the Company, the Guarantors and
Lenders referred to therein, and Wachovia Bank, National
Association, as Administrative Agent, Collateral Agent and
Issuing Bank.
(10) (z) Amended and Restated Factoring Agreement, dated October 1,
2002, by and between the Company and The CIT
Group/Commercial Services, Inc.
(21) Subsidiaries of the Registrant.
(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.
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