GUILFORD MILLS INC - 10-Q Quarterly Report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 29, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number 000-50025

GUILFORD MILLS, INC.

(Exact name of Registrant as specified in its charter)


Delaware		13-1995928

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification number)

6001 West Market Street, Greensboro, N.C. 27409

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code — (336) 316-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

Number of shares of common stock outstanding
at August 5, 2003 – 5,501,053

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-10 FORM OF INDEMNIFICATION AGREEMENT
EX-99.(A) SECTION 906 CERTIFICATION OF THE CEO
EX-99.(B) SECTION 906 CERTIFICATION OF THE CFO

GUILFORD MILLS, INC.
Form 10-Q
June 29, 2003

INDEX


		Page

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
	Condensed Consolidated Balance Sheets, September 29, 2002 (Successor Company) and June 29, 2003 (Successor Company)		3
	Condensed Consolidated Statements of Operations for the Thirteen Weeks and Thirty-Nine Weeks Ended June 30, 2002 (Predecessor Company) and June 29, 2003 (Successor Company)		4
	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended June 30, 2002 (Predecessor Company) and June 29, 2003 (Successor Company)		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4. Controls and Procedures			26
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			27
Item 6. Exhibits and Reports on Form 8-K			27

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Guilford Mills, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 29, 2002 and June 29, 2003
(In thousands)


		Successor		Successor
		Company		Company
		September 29,		June 29,
		2002		2003

				(unaudited)
Assets
Cash and cash equivalents		$	25,074	$	29,176
Receivables, net			91,614		70,198
Inventories			62,341		61,017
Other current assets			13,169		8,683

	Total current assets		192,198		169,074
Property, net			114,981		109,432
Altamira trust assets			22,000		20,800
Other assets			10,318		11,159

	Total assets	$	339,497	$	310,465

Liabilities
Short-term borrowings		$	6,199	$	—
Current maturities of long-term debt			417		1,568
Accounts payable			41,952		22,879
Other current liabilities			30,825		22,435

	Total current liabilities		79,393		46,882

Long-term debt			136,939		139,119
Altamira trust notes			22,000		20,800
Other liabilities			46,165		45,400

	Total long-term liabilities		205,104		205,319

Commitments and Contingencies (Note 15)
Stockholders’ Investment
Common stock, including capital in excess of par			55,000		55,000
Retained earnings			—		2,352
Accumulated other comprehensive income			—		912

	Total stockholders’ investment		55,000		58,264

	Total liabilities and stockholders’ investment	$	339,497	$	310,465

See accompanying notes to condensed consolidated financial statements.

Guilford Mills, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Thirteen Weeks and Thirty-Nine Weeks Ended June 30, 2002 and June 29, 2003
(in thousands except per share data)
(Unaudited)


		Predecessor			Successor			Predecessor			Successor
		Company			Company			Company			Company
		June 30,			June 29,			June 30,			June 29,
		2002			2003			2002			2003
		(13 weeks)			(13 weeks)			(39 weeks)			(39 weeks)

Net Sales		$	133,555		$	113,494		$	400,797		$	339,406
Cost of Goods Sold			119,668			96,571			390,616			289,691

	Gross Profit		13,887			16,923			10,181			49,715
Selling and Administrative Expenses			15,911			10,595			57,736			32,995
Restructuring Charges			6,532			13			60,095			630
Reorganization Costs			4,723			398			9,891			1,253

Operating Income (Loss)			(13,279	)		5,917			(117,541	)		14,837
Interest Expense			714			3,921			14,062			11,676
Impaired Investments			638			—			9,327			--
Other Expense (Income), Net			730			(278	)		939			(433	)

Income (Loss) Before Income Taxes			(15,361	)		2,274			(141,869	)		3,594
Income Taxes			—			807			(12,083	)		1,242

Net Income (Loss)		$	(15,361	)	$	1,467		$	(129,786	)	$	2,352

Net Income (Loss) Per Share:
	Basic	$	(0.83	)	$	0.27		$	(7.02	)	$	0.43
	Diluted		(0.83	)		0.27			(7.02	)		0.43

See accompanying notes to condensed consolidated financial statements.

Guilford Mills, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirty-Nine Weeks Ended June 30, 2002 and June 29, 2003
(In thousands)
(Unaudited)


			Predecessor			Successor
			Company			Company
			June 30,			June 29,
			2002			2003

Cash Flows From Operating Activities:
	Net income (loss)		$	(129,786	)	$	2,352
	Depreciation and amortization			30,739			11,506
	Unexpended restructuring, impaired assets and impaired investment costs			66,668			329
	Non-cash reorganization items			3,972			—
	Other adjustments to net income (loss), net			(9,527	)		(109	)
Change in assets and liabilities:
		Receivables		18,187			5,210
		Inventories		38,322			883
		Other current assets		(5,593	)		5,250
		Accounts payable		872			(19,226	)
		Accrued liabilities		17,216			(8,693	)
		Other assets and liabilities		(1,731	)		(1,973	)

	Net cash provided by (used in) operating activities			29,339			(4,471	)

Cash Flows From Investing Activities:
	Additions to property			(5,301	)		(4,980	)
	Proceeds from life insurance policies			4,336			18,135
	Proceeds from sale of property			13,417			225
	Other investing activities, net			(397	)		(1,855	)

	Net cash provided by investing activities			12,055			11,525

Cash Flows From Financing Activities:
	Short-term borrowings, net			(26,834	)		(7,489	)
	Payments of long-term debt			(36,576	)		(2,243	)
	Proceeds from issuance of long-term debt, net of deferred financing costs paid			37,928			6,724

	Net cash used in financing activities			(25,482	)		(3,008	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents				(29	)		56

Net Increase In Cash and Cash Equivalents				15,883			4,102
Beginning Cash and Cash Equivalents				5,645			25,074

Ending Cash and Cash Equivalents			$	21,528		$	29,176

See accompanying notes to condensed consolidated financial statements.

GUILFORD MILLS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 29, 2003
(Unaudited)

1. The Company

Historically, Guilford Mills, Inc. (“Guilford” or the “Company”) operated as a diversified textile manufacturer and participated in a broad range of markets and segments. During 2001 and 2002, the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company currently participates in the following segments: Automotive, Industrial and Apparel.

2. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Condensed Consolidated Balance Sheet as of September 29, 2002 has been taken from the audited financial statements as of that date. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest annual report on Form 10-K for the year ended September 29, 2002.

The condensed consolidated financial statements included herein reflect all adjustments (none of which is other than normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the information included. For comparative purposes, certain amounts for fiscal 2002 have been reclassified to conform to the fiscal 2003 presentation.

Results for any portion of a year are not necessarily indicative of the results to be expected for a full fiscal year due to the seasonal aspects of the automotive and textile industries.

3. Fiscal Period End

The Company’s fiscal year ends on the Sunday nearest to September 30. The Company’s third quarter in fiscal 2003 and fiscal 2002 ended on June 29, 2003 and June 30, 2002, respectively. Each of the quarters is comprised of 13 weeks.

4. Reorganization and Fresh-Start Reporting

Reorganization — On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274,000,000 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 businesses as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

As a result of these Chapter 11 filings, actions to collect pre-petition indebtedness were stayed. In addition, under the Bankruptcy Code, the Debtors had the right to assume or reject executory contracts, including real estate leases, employment contracts, personal property leases, service contracts and other unexpired, executory pre-petition contracts, subject to Bankruptcy Court approval. Parties affected by these rejections were permitted to file claims with the Bankruptcy Court in accordance with the Bankruptcy Code. The Company estimated the aggregate amount of the liability that may result from the filing of claims for certain contracts that were rejected and reflected such amount in its fiscal 2002 financial statements.

The Company’s amended joint plan of reorganization dated August 15, 2002 (the “Plan”), was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002 the Debtors emerged from their bankruptcy proceedings.

On or about the Effective Date, the following transactions or events occurred:

1. The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

2. All of the Company’s old common stock was cancelled and replaced with 5,501,053 shares of new common stock. Of these new shares, approximately 90% (4,950,000 shares) were issued to the Company’s senior lenders as partial consideration for the debt reduction described above. The remaining shares were issued to the holders of the Company’s old common stock in a ratio of one new share for every 34.776338 old shares, subject to rounding.

3. The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

4. The Company’s $30 million Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a $25 million revolving credit facility.

5. The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

6. The new members of the board of directors began serving as directors.

Fresh Start Reporting — Upon emergence from Chapter 11, the Company adopted the provisions of Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“Fresh Start Reporting” or “SOP 90-7”) as promulgated by the AICPA. Accordingly, all assets and liabilities have been restated to reflect their reorganization value, which approximates their fair value at the Effective Date. The Company recorded the effects of the Plan and Fresh Start Reporting as of September 29, 2002. The consolidated balance sheets and related information at September 29, 2002 and financial statements as of June 29, 2003 and for the thirteen weeks and thirty-nine weeks then ended are referred to as Successor Company, and reflect the effects of the reorganization and the principles of Fresh Start Reporting. Financial statement amounts prior to September 29, 2002 reflect operations prior to the Company’s emergence from Chapter 11 proceedings, and are referred to as Predecessor Company.

In adopting the requirements of Fresh Start Reporting as of September 29, 2002, the Company was required to value its assets and liabilities at fair value as of September 29, 2002. The reorganization value of the Company’s new common equity of approximately $55,000,000 was determined based on an independent valuation by financial specialists after consideration of several factors and by using various valuation methods including appraisals, cash flow multiples, price/earnings ratios and other relevant industry information. The reorganization value of the Company has been allocated to various asset categories pursuant to Fresh Start Reporting principles.

Altamira Trust — Pursuant to the Plan, on the Effective Date, the Company transferred to a newly created trust certain assets relating to the Company’s discontinued operations located in Altamira, Mexico (the “Altamira Trust”). Such assets, which had an estimated fair market value of $22,000,000 at the time the trust was established, 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 $22,000,000 (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.

During the thirteen weeks ended June 29, 2003, the Altamira Trust paid $1,200,000 in partial satisfaction of the Altamira Notes. The trustee of the Altamira Trust continues to liquidate assets to satisfy the Altamira Trust Notes and other liabilities and obligations of the Altamira Trust. While the Company is sole beneficiary of the Altamira Trust, all Altamira Trust Notes and other liabilities and obligations of the Altamira Trust must be paid in full before the Company can receive any benefit. The Company has recorded no benefit as of June 29, 2003 related to the Altamira Trust. The Company’s receipt of net cash proceeds relating to the Company’s beneficial interest in the Altamira Trust will trigger prepayment obligations under the Company’s senior loan agreements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Requirements”.

5. Factors Affecting Comparability of Financial Information

As a consequence of the implementation of Fresh Start Reporting effective September 29, 2002, the financial information presented in the unaudited consolidated statements of operations and the corresponding statements of cash flows for periods prior to September 29, 2002 are not comparable to financial results for subsequent periods. Any financial information herein labeled “Predecessor Company” refers to periods prior to the adoption of Fresh Start Reporting, while those labeled “Successor Company” refer to periods from and after September 29, 2002.

The lack of comparability in the accompanying unaudited consolidated financial statements relates primarily to the Company’s capital structure (outstanding shares used in earnings per share calculations) and capital costs (interest, depreciation and amortization), as well as debt restructuring and reorganization costs.

6. Stock Compensation

At June 29, 2003, the Company had stock options outstanding covering 36,000 shares to non-employee directors of the Company. At June 30, 2002, the Predecessor Company had approximately 1,300,000 stock options outstanding under a stock option plan to key employees and directors. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Predecessor Company’s stock 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 following tables illustrate the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based compensation expense.

For the thirteen weeks ended June 30, 2002 and June 29, 2003, the effect on net income (loss) and net income (loss) per share would be as follows (dollars in thousands except per share data):


		Predecessor			Successor
		Company			Company
		June 30,			June 29,
		2002			2003

Net income (loss), as reported		$	(15,361	)	$	1,467
Deduct: Total stock-based compensation expense determined under fair value based method, net of tax effects			—			3

Pro forma net income (loss)		$	(15,361	)	$	1,464

Net income (loss) per share:
	Basic and Diluted – as reported	$	(0.83	)	$	0.27
	Basic and Diluted – pro forma		(0.83	)		0.27

For the thirty-nine weeks ended June 30, 2002 and June 29, 2003, the effect on net income (loss) and net income (loss) per share would be as follows (dollars in thousands except per share data):


		Predecessor			Successor
		Company			Company
		June 30,			June 29,
		2002			2003

Net income (loss), as reported		$	(129,786	)	$	2,352
Deduct: Total stock-based compensation expense determined under fair value based method, net of tax effects			—			8

Pro forma net income (loss)		$	(129,786	)	$	2,344

Net income (loss) per share:
	Basic and Diluted – as reported	$	(7.02	)	$	0.43
	Basic and Diluted – pro forma		(7.02	)		0.43

7. Per Share Information

Basic net income (loss) per share information has been computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods presented. The weighted average shares used in computing basic net income (loss) per share for the Predecessor Company for the thirteen weeks and thirty-nine weeks ended June 30, 2002 were 18,507,000 and 18,492,000, respectively. The weighted average shares used in computing basic net income (loss) per share for the Successor Company for the thirteen weeks and thirty-nine weeks ended June 29, 2003 were 5,501,000. As described in Note 4, on or about October 4, 2002 all of the Company’s old common stock was cancelled and replaced with 5,501,053 shares of new common stock.

Diluted net income (loss) per share information also considers the dilutive effect of stock options and restricted stock grants. The weighted average shares used in computing diluted net income (loss) per share for the thirteen weeks ended June 29, 2003 and June 30, 2002 were 5,507,000 and 18,507,000, respectively. The weighted average shares used in computing diluted net income (loss) per share for the thirty-nine weeks ended June 29, 2003 and June 30, 2002 were 5,503,000 and 18,492,000, respectively. During the period ended June 30, 2002, outstanding stock options and shares of restricted stock of 1,465,000 were antidilutive and not included in the calculation of diluted net income (loss) per share.

8. Receivables

Receivables at September 29, 2002 and June 29, 2003 consisted of the following (dollars in thousands):


		Successor Company

		September 29,		June 29,
		2002		2003

Trade accounts receivable		$	80,744	$	74,688
Life insurance receivables			17,887		—
Other			825		336

			99,456		75,024
Less – Allowances			7,842		4,826

	Receivables, net	$	91,614	$	70,198

During the thirty-nine weeks ended June 29, 2003, the Company reversed approximately $1,400,000 of accounts receivable reserves that were established in fiscal 2002. Such reversals were the result of collections and recoveries being better than anticipated and favorable settlements of certain claims, $500,000 of which related to one bankrupt customer.

9. Inventories

Inventories at September 29, 2002 and June 29, 2003 consisted of the following (dollars in thousands):


	Successor Company

	September 29,		June 29,
	2002		2003

Finished goods	$	24,080	$	25,418
Raw materials and work in process		32,933		29,929
Manufacturing supplies		5,328		5,670

Total inventories	$	62,341	$	61,017

10. Comprehensive Income (Loss)

For the thirteen weeks ended June 30, 2002 and June 29, 2003, total comprehensive income (loss) was as follows (dollars in thousands):


	Predecessor			Successor
	Company			Company
	June 30,			June 29,
	2002			2003

Net income (loss)	$	(15,361	)	$	1,467
Foreign currency translation gain		355			2,311
Derivative financial instruments		—			(876	)

Comprehensive income (loss)	$	(15,006	)	$	2,902

For the thirty-nine weeks ended June 30, 2002 and June 29, 2003, total comprehensive income (loss) was as follows (dollars in thousands):


	Predecessor			Successor
	Company			Company
	June 30,			June 29,
	2002			2003

Net income (loss)	$	(129,786	)	$	2,352
Foreign currency translation gain		473			1,264
Derivative financial instruments		—			(352	)

Comprehensive income (loss)	$	(129,313	)	$	3,264

11. Financial Instruments

The Company’s financial instruments include cash and cash equivalents, receivables, accounts payable, and long-term debt. Because of their short maturity, the carrying amount of cash, receivables and accounts payable approximates fair value. Fair value of short-term borrowings and long-term debt is estimated based on current rates offered for similar debt. At September 29, 2002 and June 29, 2003, the carrying amount of short-term borrowings and long-term debt, including the current portion, approximates fair value.

12. Derivative Financial Instruments

The Company accounts for derivative contracts and hedging activities under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes the accounting and reporting requirements for derivative instruments and hedge transactions. The Company does not enter into derivative financial instruments for trading purposes.

The Company’s use of derivatives relates to its use of currency forward contracts to hedge balance sheet and income statement currency exposures. In February 2003, the Company entered into foreign currency forward contracts with maturities of less than one year related to anticipated forecasted transactions. These foreign currency forward contracts qualify and have been designated as cash flow hedges under the guidelines of SFAS No. 133. The changes in fair value of the derivatives are recognized in other comprehensive income until the hedged item is recognized in earnings. Any

ineffective portion of the derivative’s change in fair value is immediately recognized in earnings. The fair value of the Company’s foreign currency forward contracts outstanding at June 29, 2003 was $11,600,000 with a notional value of $12,100,000. The fair value (a deferred loss of $500,000) is included in other current liabilities.

13. Segment Information

For fiscal 2003, the Company has identified three reportable segments based on market sectors: Automotive, Industrial and Apparel. During fiscal 2002, the Company also participated in the Direct-to-Retail Home Fashions segment.

Fabrics produced in the Automotive segment are sold to suppliers of original equipment manufacturers (“OEMs”). These fabrics are then used in the production of seats and headliners and other interior components 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 City.

Fabrics produced in the Industrial segment are sold for use in home furnishings and in a broad range of specialty applications, including geotextiles, medical and water filtration systems. 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, swimwear garments, team sportswear and linings. Since the fourth quarter of fiscal 2000, the Company has effected the strategic realignment of its apparel operations resulting in the closing of facilities and a substantial decrease in manufacturing capacity. The current focus of this segment is on women’s intimate apparel and team sportswear.

The Company previously participated in the Direct-to-Retail Home Fashions market and produced window curtains, knit and/or lace comforters, sheets, shower curtains, pillowcases and bedskirts sold directly to department stores, discount retailers and catalog houses. The Company also produced upholstery fabrics for use in office and residential furniture. The Company no longer manufactures or distributes products in this line of business.

For comparative purposes, certain amounts have been reclassified to conform with fiscal 2003 presentation. The Company neither allocates to the segments nor bases segment decisions on the following:

• Interest expense

• Other income and expense

• Income tax expense or benefit

• Reorganization costs

The tables below set forth segment data for the Company’s principal business segments for the thirteen weeks ended June 30, 2002 and June 29, 2003 and the thirty-nine weeks ended June 30, 2002 and June 29, 2003.


(Dollars in thousands)

								Direct-to-Retail			Unallocated
	Automotive		Industrial		Apparel			Home Fashions			Items			Total

	(Predecessor Company)
Thirteen weeks ended June 30, 2002
External sales	$	95,780	$	14,269	$	17,184		$	6,322		$	—		$	133,555
Intersegment sales		—		—		—			—			14,515			14,515
Restructuring charges		379		—		6,153			—			—			6,532
Reorganization costs		—		—		—			—			4,723			4,723
Operating income (loss)		4,906		1,658		(10,865	)		(4,255	)		(4,723	)		(13,279	)
Interest expense		—		—		—			—			714			714
Impaired investment charge		—		—		638			—			—			638
Other expense (income), net		—		—		—			—			730			730
Loss before income taxes		—		—		—			—			—			(15,361	)

	(Successor Company)
Thirteen weeks ended June 29, 2003
External sales	$	92,697	$	13,594	$	7,203		$	—		$	—		$	113,494
Intersegment sales		—		—		—			—			13,781			13,781
Restructuring charges		13		—		—			—			—			13
Reorganization costs		—		—		—			—			398			398
Operating income (loss)		7,518		477		(1,680	)		—			(398	)		5,917
Interest expense		—		—		—			—			3,921			3,921
Other expense (income), net		—		—		—			—			(278	)		(278	)
Income before income taxes		—		—		—			—			—			2,274


(Dollars in thousands)

									Direct-to-Retail			Unallocated
	Automotive		Industrial			Apparel			Home Fashions			Items			Total

	(Predecessor Company)
Thirty-nine weeks ended June 30, 2002
External sales	$	266,913	$	39,458		$	63,971		$	30,455		$	—		$	400,797
Intersegment sales		—		—			—			—			44,650			44,650
Restructuring charges		1,025		—			40,914			18,156			—			60,095
Reorganization costs		—		—			—			—			9,891			9,891
Operating income (loss)		4,838		(1,455	)		(66,781	)		(44,252	)		(9,891	)		(117,541	)
Interest expense		—		—			—			—			14,062			14,062
Impaired investment charge		—		—			9,327			—			—			9,327
Other expense (income), net		—		—			—			—			939			939
Loss before income taxes		—		—			—			—			—			(141,869	)

	(Successor Company)
Thirty-nine weeks ended June 29, 2003
External sales	$	278,503	$	40,221		$	20,682		$	—		$	—		$	339,406
Intersegment sales		—		—			—			—			40,046			40,046
Restructuring charges		331		6			293			—			—			630
Reorganization costs		—		—			—			—			1,253			1,253
Operating income (loss)		20,269		1,239			(5,418	)		—			(1,253	)		14,837
Interest expense		—		—			—			—			11,676			11,676
Other expense (income), net		—		—			—			—			(433	)		(433	)
Income before income taxes		—		—			—			—			—			3,594

14. Restructuring and Impaired Asset Charges

The Company announced several restructuring actions during fiscal 2002 and 2003.

Fiscal 2002 – Predecessor Company

On February 18, 2002, the Predecessor Company announced an agreement in principle to sell certain assets of its Direct-to-Retail Home Fashions segment to a third party. As a result, the Predecessor Company recorded goodwill and fixed asset impairments and severance costs of $18,156,000 as of March 31, 2002. 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.

On March 8, 2002, the Predecessor Company announced that it had agreed in principle to sell the business and certain assets of Twin Rivers Textile Printing and Finishing (located in Schenectady, New York) to a third party. As a result, the Predecessor Company recorded fixed asset and goodwill impairments of $3,671,000.

During the second quarter of fiscal 2002, the Predecessor Company decided to exit the production of automotive fabrics in its plant in Pouso Alegre, Brazil. As a result of this action, the Predecessor Company recorded fixed asset impairments, severance costs and other expenses totaling $646,000 as of March 31, 2002.

On April 22, 2002, the Predecessor Company announced that it would close its apparel plant in Altamira, Mexico, and its associated knitting plant in Lumberton, North Carolina which plants are no longer owned by the Company. Approximately 180 employees in Mexico and 100 employees in North Carolina were affected by the plant closures. As a result of these closures, the Predecessor Company recorded fixed asset impairments of $29,312,000 and investment impairments of $8,689,000 as of March 31, 2002. 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. The Predecessor Company also recorded additional charges for fixed asset impairments and severance costs at its apparel plant in Altamira, Mexico, and its associated knitting plant in Lumberton, North Carolina totaling $1,684,000, as well as an additional investment impairment of $638,000 as of June 30, 2002.

During the third quarter of fiscal 2002, the Predecessor Company determined that further impairment to the value of its closed facility in Cobleskill, New York had occurred. As a result, the Predecessor Company recorded a restructuring charge of $4,031,000 for fixed asset impairments at this facility which is no longer owned by the Company.

In addition, the Predecessor 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 $2,595,000.

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 as of June 30, 2002 (dollars in thousands):


			Fiscal		Write-down of
	September 30, 2001		2002		assets to net		Reserves		June 30, 2002
	reserve balance		charges		realizable value		utilized		reserve balance

Non-cash write-downs of property and equipment to net realizable value	$	—	$	47,242	$	47,242	$	—	$	—
Severance and related employee benefit costs		1,708		3,103		—		3,473		1,338
Goodwill impairment		—		9,012		9,012		—		—
Other costs		246		738		—		738		246

Total restructuring and asset impairment		1,954		60,095		56,254		4,211		1,584

Impaired investments		—		9,327		—		9,327		—

Total	$	1,954	$	69,422	$	56,254	$	13,538	$	1,584

Fiscal 2003 – Successor Company

As of September 29, 2002, the Company had an accrued liability of $1,343,000 for severance and related employee benefit costs as a result of restructuring its apparel segment operations.

In March 2003, the Company implemented a plan to realign its domestic automotive and Mexican operations. As a result, the Company recorded severance and related employee benefit costs of $630,000. The plan is expected to be completed during fiscal 2003.

The table below summarizes the restructuring accrual as of June 29, 2003 (dollars in thousands):


	September 29, 2002		Fiscal 2003		Reserves		June 29, 2003
	reserve balance		charges		utilized		reserve balance

Severance and related employee benefit costs	$	1,343	$	630	$	1,278	$	695

15. Commitments and Contingencies

Since January 1992, the Company has been involved in discussions with the United States Environmental Protection Agency (“EPA”) regarding remedial actions at its Gold Mills, Inc. (“Gold”) facility in Pine Grove, Pennsylvania which was acquired in October 1986. Between 1988 and 1990, the Company implemented a number of corrective measures at the facility in conjunction with the Pennsylvania Department of Environmental Resources. Subsequently, through negotiations with the EPA, Gold entered into a Final Administrative Consent Order 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 the EPA. This work will effectively satisfy the requirements of the consent order. The failure of Gold to comply with the terms of the consent order may result in the imposition of monetary penalties against the Company.

The Company received a letter from the North Carolina Department of Environment and Natural Resources (“DENR”) on September 18, 2001, stating that its facility in Fuquay-Varina, NC had been placed on the state list of Inactive Hazardous Waste Sites (“IHWS”). According to the state, the facility was placed on the IHWS due to information the state has concerning past waste handling practices. As a result of this listing, the Company completed a remedial investigation report that detected the presence at the site of certain chemical constituents; the Company believes, however, that it never used such constituents at the facility since the facility's acquisition in 1986. The investigation is continuing under the direction and supervision of DENR and the nature of any required remediation will be determined upon the completion of such investigation. The Company currently cannot estimate the costs of any remediation that it may be required to conduct at the facility.

The Company is implementing operational and capital improvements to the wastewater treatment plant at its facility in Kenansville, NC, begun under a Special Order by Consent (“SOC”) with the North Carolina Division of Water Quality (“DWQ”), that expired on June 1, 2003. Before expiration, the Company applied to DWQ for an extension of the SOC and the Company currently expects to receive such extension. The failure of the Company to achieve compliance with National Pollution Discharge Elimination System permit effluent limitations as specified in any extension of the SOC or, if the SOC extension is not obtained, the limitations as specified in applicable North Carolina law, may result in the imposition of monetary penalties against the Company.

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 Europe, a limited amount of fabrics which are identical to styles that are produced in the Company’s U.S. facilities. Upon importation of this merchandise, the Company paid all applicable customs duties, taxes, and fees. After the end of the 2002 fiscal year, however, Company management became aware that these imports from Europe 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 paid approximately $150,000 in additional marking duties in March 2003. This amount was reflected in the consolidated statement of operations for the fourth quarter of fiscal 2002. U.S. Customs could also seek penalties from the Company as a result of the improper markings and certifications; however, the Company believes that even if such penalties were imposed, they would not have a material impact on the Company’s financial position or future results of operations. The Company may be required to

reimburse certain of its customers for the amount of customs duties that may be assessed by non-U.S. customs authorities on the merchandise, an estimate of which has been accrued and reflected in the accompanying financial statements. 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.

Dr. Jacobo Zaidenweber, a 5% stockholder of the Company’s subsidiary Grupo Ambar, S.A. de C.V. (“Grupo Ambar”), is a party to a stockholders’ agreement with the Company relating to his Grupo Ambar stock ownership. (Dr. Zaidenweber also serves as Chairman of the Board of Grupo Ambar and is a former director of the Company.) The stockholders’ agreement provides, among other things, that upon the occurrence of certain designated events (each, an “Involuntary Put Event”), Dr. Zaidenweber has the right (the “Put”) to sell to the Company his Grupo Ambar shares at a price equal to the net worth of such shares, as defined in the agreement, multiplied by two (the “Put Price”). During the second quarter of fiscal 2003, Dr. Zaidenweber notified the Company that he believed that one or more Involuntary Put Events had occurred and that, as a result, he had elected to exercise the Put. Pursuant to the terms of the stockholders’ agreement, the Company is required to pay the Put Price 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 Grupo Ambar shares, except pursuant to a loan arrangement subordinated to the Company’s obligations under its senior loan agreements. The Company is currently evaluating the availability of any defenses to the enforceability of Dr. Zaidenweber’s Put exercise. The Company has not yet finalized the calculation of the Put Price, but expects that the payment of the Put Price (if it is ultimately determined that the Company is required to pay such amount) would not have a material effect on the Company’s financial position or its results of operations.

In addition to the matters described above, the Company is also involved in litigation arising in the ordinary course of business. As a result of the bankruptcy proceedings described above, persons who commenced lawsuits or other proceedings 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.

16. New Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Exit or Disposal Activities, effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that were previously accounted for pursuant to the guidance that the Emerging Issues Task Force (“EITF”) has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring). A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this SFAS eliminates the definition and requirements for recognition of exit costs in EITF Issue No. 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The scope of SFAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement or an individual deferred-compensation contract. The Company implemented the provisions of this accounting pronouncement connected with the restructuring of its operations in the second quarter of fiscal 2003, as described in Note 14 above.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. This Statement, which is effective for fiscal years ending after December 15, 2002, amends SFAS No. 123, Accounting for Stock-Based Compensation, and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 regardless of the accounting method used to account for stock-based compensation. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The

Company implemented the enhanced disclosure provisions as defined by Statement No. 148 during the second quarter of fiscal 2003.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. The Statement is primarily effective for transactions occurring after June 30, 2003. The Company is currently evaluating the impact of this pronouncement, but does not expect the adoption of this Statement to have a material effect on the Company’s financial position or net earnings.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently evaluating the impact of this pronouncement, but does not expect the adoption of this Statement to have a material effect on the Company’s financial position or net earnings.

In November 2002, the FASB’s Emerging Issues Task Force reached consensus on EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 addresses the accounting treatment for arrangements that provide the delivery or performance of multiple products or services where the delivery of a product, system or performance of services may occur at different points in time or over different periods of time. EITF No. 00-21 requires the separation of the multiple deliverables that meet certain requirements into individual units of accounting that are accounted for separately under the appropriate authoritative accounting literature. EITF No. 00-21 is applicable to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect the provisions of EITF 00-21 to have a material effect on its results of operations and financial position.

In November 2002, the FASB issued FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. For guarantees that fall within the scope of FIN 45, the Interpretation requires that guarantors recognize a liability equal to the fair value of the guarantee upon its issuance. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual periods that end after December 15, 2002. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The Company has not entered into any guarantees subsequent to December 15, 2002 and does not expect the measurement provisions of FIN 45 to have a material effect on its results of operations and financial position.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN No. 46 changes that by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not currently believe its maximum exposure of any loss resulting from involvement with variable interest entities will have a material effect on its results of operations or its financial position.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Condensed Consolidated Financial Statements of the Company for the thirteen weeks and thirty-nine weeks ended June 30, 2002 and June 29, 2003 and the related Notes to Condensed Consolidated Financial Statements herein.

Bankruptcy Reorganization

On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274 million senior indebtedness. To conclude the restructuring as quickly as possible, the Debtors filed voluntary petitions under the Bankruptcy Code with the Bankruptcy Court on the Filing Date. The Chapter 11 cases were jointly administered under case no. 02-40667 (BRL) and, pursuant to the Bankruptcy Court’s approval of the Plan, were substantively consolidated for the purpose of consummating the Plan. During the period from the Filing Date until the Effective Date, the Debtors operated their businesses as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

The Plan was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002, the Debtors emerged from their bankruptcy proceedings.

On or about the Effective Date, the following transactions or events occurred:

1. The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

2. All of the Company’s old common stock was cancelled and replaced with 5,501,053 shares of new common stock. Of these new shares, approximately 90% (4,950,000 shares) were issued to the Company’s senior lenders as partial consideration for the debt reduction described above. The remaining shares were issued to the holders of the Company’s old common stock in a ratio of one new share for every 34.776338 old shares, subject to rounding.

3. The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

4. The Company’s $30 million Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and replaced by a $25 million revolving credit facility.

5. The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

6. The new members of the board of directors began serving as directors.

Fresh Start Reporting

The Company has applied Fresh Start Reporting to its consolidated balance sheet as of September 29, 2002 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” as promulgated by the AICPA. Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date.

General

Historically, Guilford operated as a diversified textile manufacturer and participated in a broad range of markets and segments. During fiscal 2001 and 2002, the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company also participates in certain industrial and apparel markets.

Fabrics produced in the Automotive segment are sold to suppliers of OEMs. These fabrics are then used in the production of seats and headliners and other interior components of passenger cars, sports utility vehicles, conversion vans and light

and heavy trucks. Guilford is a major producer and supplier 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 City.

Fabrics produced in the Industrial segment are sold for use in home furnishings and 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.

Guilford’s business has undergone significant changes over the last decade and, in particular, over the last four years. Guilford had for many years been known primarily as a producer of fabrics for apparel applications. While Guilford had diversified into automotive fabrics in the 1970s, sales of apparel fabrics remained dominant through most of the 1990s. Guilford, along with substantially all other domestic textile manufacturers, was dramatically impacted by staggering increases in imported fabrics and garments during the late 1990s.

In July 2000, the Company announced a strategic realignment of its apparel operations designed to improve the Company’s cost structure and increase profitability. As conditions worsened, the Company expanded and accelerated its apparel realignment plan in fiscal 2001. By the end of fiscal 2001, the Company had closed or committed to close all but one of its domestic apparel dyeing and finishing facilities. The Company further de-emphasized its apparel business in 2002, closing one of its manufacturing facilities in Mexico and another in the U.S. The Company has continued to participate in the apparel segment, but on a much smaller scale. Following these restructuring actions, the Company expects that revenues in its Apparel segment will be less than 10% of total revenue in fiscal 2003.

The Company currently produces goods in the United States, the United Kingdom and Mexico. For the first nine months of fiscal 2003, approximately 68%, 23% and 9% of the Company’s net sales originated from the United States, Europe and Mexico, respectively. Guilford’s non-U.S. operations are subject to fluctuations in foreign exchange rates that affect the Company’s operating results and financial position due to translation gains and losses recognized in converting such activity to local currency and to U.S. dollars.

Results of Operations for the thirteen weeks ended June 30, 2002 and June 29, 2003

As a result of the application of Fresh Start Reporting, the financial statements of the Successor Company are not comparable to the financial statements of the Predecessor Company.

The following table sets forth the results of operations for the thirteen weeks ended June 30, 2002 compared to June 29, 2003 (dollars in thousands):


		Predecessor			Successor
		Company			Company						Percentage
		June 30,			June 29,			Increase			Increase
(Unaudited)		2002			2003			(Decrease)			(Decrease)

Net Sales		$	133,555		$	113,494		$	(20,059	)		(15.0	)%
Cost of goods sold			119,668			96,571			(23,099	)		(19.3	)

	Gross profit		13,887			16,923			3,040			N/A
Selling and administrative expenses			15,911			10,595			(5,316	)		(33.4	)
Restructuring charges			6,532			13			(6,519	)		(99.8	)
Reorganization costs			4,723			398			(4,325	)		(91.6	)

Operating income (loss)			(13,279	)		5,917			19,196			N/A
Interest expense			714			3,921			3,207			449.2
Impaired investments			638			—			(638	)		N/A
Other expense (income), net			730			(278	)		(1,008	)		N/A

Income (loss) before income taxes			(15,361	)		2,274			17,635			N/A
Income taxes			—			807			807			N/A

Net income (loss)		$	(15,361	)	$	1,467		$	16,828			N/A

Thirteen weeks ended June 29, 2003 compared to June 30, 2002

Net sales for the third quarter of fiscal 2003 were $113.5 million, a decrease of $20.1 million, or 15.0% from net sales of $133.6 million for the third quarter of fiscal 2002.

Automotive segment sales, which comprised 82% of consolidated sales, decreased 3.2% in the third quarter of fiscal 2003 to $92.7 million as compared to $95.8 million for the third quarter of fiscal 2002. The decline was primarily related to decreased bodycloth and headliner sales at the U.S operations resulting from lower automotive industry build rates in the 2003 period. In addition, sales declined at the Mexico City operations due to lost programs, and in Brazil as the Company exited the production of automotive fabric at this facility during the fourth quarter of fiscal 2002. Sales volume in Europe improved due to increased market share.

Third quarter fiscal 2003 sales in the Industrial segment decreased 4.7% to $13.6 million as compared to $14.3 million in the third quarter of fiscal 2002. The decrease was due to lower sales of certain fabrics used in home furnishings.

Sales in the Apparel segment for the third quarter of fiscal 2003 declined 58.1% to $7.2 million from $17.2 million in the third quarter of fiscal 2002. The decrease is attributed to the Company’s reduced participation in this segment in connection with its apparel restructuring plan and lower sales volumes in the Mexico City operations.

During the third quarter of fiscal 2002, the Company recorded $6.3 million of sales in its Direct-to-Retail Home Fashions segment. As described elsewhere herein, the Company exited this business during fiscal 2002, and the Company had no sales in this business during fiscal 2003.

Gross profit for the third quarter of fiscal 2003 increased to $16.9 million or 14.9% of net sales, from $13.9 million or 10.4% of net sales for the third quarter of fiscal 2002. In fiscal 2003, the Company benefited from a reduction in

depreciation expense of approximately $5.1 million from fiscal 2002 as a result of Fresh Start Reporting. Increased sales by the operations in Europe and improved capacity utilization and manufacturing efficiencies in the U.S. Automotive operations also contributed to the improvement. Partially offsetting this improvement was a decline in gross profit of approximately $1.9 million related to lower sales volume in Mexico City. In addition, fiscal 2002 results were affected by $1.9 million in inventory impairment charges and other costs related to plant closings.

For the third quarter of fiscal 2003, selling and administrative expenses were $10.6 million or 9.3% of net sales, compared to $15.9 million or 11.9% of net sales, for the third quarter of fiscal 2002. The decrease from the prior year was due primarily to reduced selling and administrative staffing levels, as a result of the Company’s exit from the Direct-to-Retail Home Fashions business and its significant decrease in participation in the Apparel segment. The Company also reduced its professional fee expenses, as the fiscal 2002 amount included fees for financial advisors and other professionals retained to assist the Company in restructuring its debt.

Restructuring charges for the third quarter of fiscal 2003 were approximately zero compared to $6.5 million for the third quarter of fiscal 2002. The third quarter fiscal 2002 charges related primarily to fixed asset impairments and severance costs.

During the third quarter of fiscal 2003, the Company incurred reorganization costs of $0.4 million, consisting primarily of professional fees related to the Company’s emergence from bankruptcy. During the third quarter of fiscal 2002, the Company recognized reorganization costs of $4.7 million.

Interest expense for the third quarter of fiscal 2003 was $3.9 million compared to $0.7 million for the third quarter of fiscal 2002. The increase in interest expense was primarily attributable to the Predecessor Company not incurring interest expense during the pendency of its bankruptcy case. Upon its emergence from bankruptcy, the senior secured debt of approximately $274 million was replaced with $135 million of new debt.

Income tax expense for the third quarter of fiscal 2003 was $0.8 million compared to zero income tax expense for the third quarter of fiscal 2002. For the third quarter of fiscal 2002, the Company recorded no income tax benefit for its losses due to uncertainties regarding the realization of future income tax benefits from those losses.

For the third quarter of fiscal 2003, net income was $1.5 million, or $0.26 per diluted share, compared to a net loss of $15.4 million, or $0.83 per diluted share, for the third quarter of fiscal 2002.

Results of Operations for the thirty-nine weeks ended June 30, 2002 and June 29, 2003

The following table sets forth the results of operations for the thirty-nine weeks ended June 30, 2002 compared to June 29, 2003 (dollars in thousands):


		Predecessor			Successor
		Company			Company						Percentage
		June 30,			June 29,			Increase			Increase
(Unaudited)		2002			2003			(Decrease)			(Decrease)

Net Sales		$	400,797		$	339,406		$	(61,391	)		(15.4	)%
Cost of goods sold			390,616			289,691			(100,925	)		(25.8	)

	Gross profit		10,181			49,715			39,534			N/A
Selling and administrative expenses			57,736			32,995			(24,741	)		(42.9	)
Restructuring charges			60,095			630			(59,465	)		(99.0	)
Reorganization costs			9,891			1,253			(8,638	)		(87.3	)

Operating income (loss)			(117,541	)		14,837			132,378			N/A
Interest expense			14,062			11,676			(2,386	)		(17.0	)
Impaired investments			9,327			—			(9,327	)		N/A
Other expense (income), net			939			(433	)		(1,372	)		N/A

Income (loss) before income taxes			(141,869	)		3,594			145,463			N/A
Income taxes			(12,083	)		1,242			13,325			N/A

Net income (loss)		$	(129,786	)	$	2,352		$	132,138			N/A

Thirty-nine weeks ended June 29, 2003 compared to June 30, 2002

Net sales for the thirty-nine weeks ended June 29, 2003 were $339.4 million, a decrease of $61.4 million, or 15.4% from net sales of $400.8 million for the thirty-nine weeks ended June 30, 2002.

Automotive segment sales, which comprised 82% of consolidated sales, increased 4.3% in the thirty-nine weeks ended June 29, 2003 to $278.5 million as compared to $266.9 million for the same thirty-nine week period in fiscal 2002. The Company’s sales in this segment increased due to increased market share in Europe. This increase was partially offset by declines in the Mexico City operations due to lost programs, and in Brazil as the Company exited the production of automotive fabric at this facility during the fourth quarter of fiscal 2002. Sales volume in the U.S. was approximately the same as in the prior year in spite of lower car builds in the U.S. market.

Sales for the thirty-nine weeks ended June 29, 2003 in the Industrial segment increased 1.9% to $40.2 million as compared to $39.5 million in the same thirty-nine week period in fiscal 2002. The increase was attributed to higher external fibers sales partially offset by a decrease in sales in fabric for home furnishing applications.

Sales in the Apparel segment for the thirty-nine weeks ended June 29, 2003 declined 67.7% to $20.7 million from $64.0 million in the same thirty-nine week period in fiscal 2002. The decrease is attributed to the Company’s reduced participation in this segment in connection with its apparel restructuring plan and lower sales volumes in Mexico.

During the thirty-nine weeks ended June 30, 2002, the Company recorded $30.5 million of sales in its Direct-to-Retail Home Fashions segment. As described elsewhere herein, the Company exited this business during fiscal 2002, and the Company had no sales in this business during fiscal 2003.

Gross profit for the thirty-nine weeks ended June 29, 2003 increased to $49.7 million or 14.6% of net sales, from $10.2 million or 2.5% of net sales for the same thirty-nine week period in fiscal 2002. In fiscal 2003, the Company benefited from a reduction in depreciation expense of approximately $15.6 million from fiscal 2002 as a result of Fresh Start Reporting. Also contributing to the improvement were increased sales in Europe and improved capacity utilization and

manufacturing efficiencies in both the domestic automotive operations and Europe. Partially offsetting this improvement was a decline in gross profit of approximately $5.3 million related to lower sales volume in Mexico City. In addition, fiscal 2002 results were affected by $19.9 million in inventory impairment charges and other costs related to plant closings.

For the thirty-nine weeks ended June 29, 2003, selling and administrative expenses were $33.0 million or 9.7% of net sales, compared to $57.7 million or 14.4% of net sales, for the thirty-nine weeks ended June 30, 2002. The decrease from the prior year was due primarily to reduced selling and administrative staffing levels, as a result of the Company’s exit from the Direct-to-Retail Home Fashions business and its significant decrease in participation in the Apparel segment. The Company also reduced its professional fee expenses as the fiscal 2002 amount included fees for financial advisors and other professionals retained to assist the Company in restructuring its debt. In fiscal 2003, the Company benefited from lower bad debt expense as a result of improved collection experience as compared to the prior year that included $5.0 million of bad debt expense mostly related to the planned shutdown of the Company’s plant in Altamira, Mexico.

Restructuring charges for the thirty-nine weeks ended June 29, 2003 were $0.7 million compared to $60.1 million for fiscal 2002. Fiscal 2003 charges related to severance and employee benefit costs as the Company implemented a plan to realign its domestic automotive and Mexico City operations. Fiscal 2002 charges primarily related to asset impairments and severance costs related to the shutdown of the apparel plant in Altamira, Mexico and its associated knitting plant in Lumberton, North Carolina in addition to the exit of the Direct-to-Retail home fashions in Herkimer, New York.

During the thirty-nine weeks ended June 29, 2003, the Company incurred reorganization costs of $1.3 million, consisting primarily of professional fees related to the Company’s emergence from bankruptcy. During the thirty-nine weeks ended June 30, 2002, the Company recognized reorganization costs of $9.9 million.

Interest expense for the thirty-nine weeks ended June 29, 2003 was $11.7 million compared to $14.1 million for the thirty-nine weeks ended June 30, 2002. The change in interest expense in fiscal 2003 compared with fiscal 2002 is attributable to significantly decreased debt levels, as the Predecessor Company’s senior secured debt of approximately $274 million was replaced with $135 million of new debt upon the Company’s emergence from bankruptcy, offset by the Predecessor Company not incurring interest expense during fiscal 2002 on the senior secured debt after its March 2002 bankruptcy filing.

Income tax expense for the thirty-nine weeks ended June 29, 2003 was $1.2 million, compared to a $12.1 million income tax benefit for the thirty-nine weeks ended June 30, 2002. For fiscal 2002, the Company recorded income tax benefit as a result of favorable tax legislation passed by the U.S. Congress during the second quarter of fiscal 2002.

For the thirty-nine weeks ended June 29, 2003, net income was $2.4 million, or $0.43 per diluted share, compared to a net loss of $129.8 million, or $7.02 per diluted share, for the thirty-nine weeks ended June 30, 2002.

Liquidity and Capital Requirements

At June 29, 2003, working capital was $122.2 million, an increase of $9.4 million, or 8.3%, from $112.8 million at September 29, 2002. The Company’s receivables declined significantly, due to the receipt of proceeds from a number of life insurance policies the Company surrendered near the end of fiscal 2002, as well as a decline in trade receivables. The Company’s accounts payable also declined as the Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

Capital expenditures for the thirty-nine weeks ended June 29, 2003 were $5.0 million, compared to $5.3 million in the thirty-nine weeks ended June 30, 2002. Depreciation expense was $11.1 million in the thirty-nine weeks ended June 29, 2003, a decrease from $28.6 million in the same period of fiscal 2002. As a result of the previously described restructuring actions, the Company disposed of a significant amount of fixed assets. In addition, as of the Effective Date, the Successor Company reduced the carrying value of its property, plant and equipment to estimated fair value in conjunction with the implementation of Fresh Start Reporting, and began depreciating those assets over their estimated remaining useful lives.

During the second quarter of fiscal 2003, a minority stockholder of Grupo Ambar put his Grupo Ambar shares to the Company, though the closing of such stock sale has not yet occurred and the Company is currently evaluating the availability of any defenses to the enforceability of the Put exercise. See Note 15 of the Notes to Consolidated Financial Statements.

In connection with the bankruptcy reorganization, on October 4, 2002, the Company entered into a new Credit, Security, Guaranty and Pledge Agreement, which expires October 4, 2005, with a group of lenders. The new facility provides for a revolving credit loan facility and letters of credit (the “Revolving Credit Facility”) in a maximum principal amount equal to the lesser of (a) $25 million or (b) a specified borrowing base, which is based upon eligible receivables and eligible inventory. The Revolving Credit Facility restricts investments (including investments in non-U.S. subsidiaries), capital expenditures, acquisitions, dividends and the incurrence of additional debt. The Revolving Credit Facility contains customary financial covenants relating to minimum levels of EBITDA, minimum net worth, minimum fixed charge coverage ratios and a maximum leverage ratio, all as defined therein. The Revolving Credit Facility is secured by a first lien on substantially all of the assets of the Company and its domestic subsidiaries, as well as on the stock of all of the Company’s subsidiaries (with the latter, in the case of the Company’s non-U.S. subsidiaries, being limited to 65% of the capital stock). Upon the Company’s receipt of proceeds from certain transactions, such as certain asset sales (including net cash proceeds arising from the Company’s beneficial interest in the Altamira Trust), 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 June 29, 2003, the Company had no outstanding loans and had approximately $18.8 million available for borrowing under the Revolving Credit Facility. Management believes that cash on hand along with cash expected to be generated through operations and availability under the Revolving Credit Facility will be sufficient to fund operations, anticipated capital expenditures and current maturities under the Company’s debt agreement over the next twelve months.

The Company’s Europe and Mexico City operations each have separate secured lending arrangements which are available to finance operations in those locations. These credit facilities have been adequate to finance such operations to date. 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 reduce costs, improve production and quality levels and increase sales in this subsidiary. As a result of the continued losses and related pressure on working capital, the Company will pursue additional sources of operating capital or financing and has begun an investigation of strategic alternatives for its Mexico City operations.

Outlook

The Company has undergone substantial changes over the last two years, substantially exiting or downsizing its unprofitable lines of business, including Direct-to-Retail Home Fashions and Apparel, culminating in the financial reorganization in bankruptcy. Although this reorganization was difficult, traumatic and expensive, it resulted in a more viable capital structure for Guilford.

Guilford is, and plans to continue to be a company focused on serving its primary customer base, the automotive industry. While participation in the industrial and apparel markets is important to balance manufacturing capacity and to generate positive earnings, the Company plans to dedicate substantially all of its efforts and resources towards its Automotive segment.

A key component in the continued profitability of the Automotive segment will be the number of vehicles built by auto manufacturers in Guilford’s markets (North America and Europe). Many analysts project car build rates to be relatively flat in 2003 and 2004 compared with 2002.

The Company’s Automotive segment has historically not seen significant competitive threats from foreign textile manufacturers. Auto manufacturers and their suppliers have typically desired their sources of supply locally situated in order to have greater confidence in the supply chain and to avoid the complexities and issues associated with importing fabrics or components from foreign countries. The Company, however, has seen recent indications from one major auto manufacturer that it will import fabric from Asia for one of its programs that Guilford supplied and that it may be considering expanding this sourcing channel in an effort to reduce its costs. The Company has maintained and protected its position on other fabric programs with this auto manufacturer, although at lower initial margins, and has not lost additional programs to Asian suppliers. The impact of the actions to date is not expected to have a material impact on the financial position or future results of operations. It is currently unclear whether the significant logistical problems associated with sourcing fabric in Asia can be economically resolved by the auto manufacturers. If, however, importation of fabric or components were to become a trend among auto manufacturers, such a trend could materially adversely impact the Company’s business, and the Company would need to determine how to respond to this new competitive threat.

Because the Company’s reorganization in bankruptcy was completed relatively quickly, Guilford believes it was generally able to preserve its strong customer and supplier relationships. Guilford is a well-established, key supplier to the automotive industry with substantial market share, and expects to continue to grow and improve its profitability in the future.

Contingencies

The Company is involved in various litigation and environmental matters arising in the ordinary course of business. These are discussed in Note 15 under Item 1 “Condensed Consolidated Financial Statements” of this document. The Company maintains insurance coverage against certain potential claims in amounts that the Company believes to be adequate. As a result of the bankruptcy proceedings described above, persons who commenced lawsuits or other proceedings prior to March 13, 2002 retain all rights to proceed against the Company, but only to the extent and limit of applicable insurance coverage. Such claim holders have no direct claim against the Company post-confirmation of bankruptcy, including any deductible under an insurance policy or any excess over the policy coverage limits. Although the final outcome of these legal and environmental matters cannot be determined, based on the facts presently known, it is management’s opinion that the final resolution of these matters will not have a material adverse effect on the Company’s financial position or future results of operations.

Safe Harbor-Forward-Looking Statements

From time to time, the Company may publish forward-looking statements relative to such matters, including, without limitation, anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “forecast,” “budget,” “goal” or other words that convey the uncertainty of future events or outcomes.

Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements speak only as of the date of this report; the Company disclaims any obligation to update these statements and cautions against any undue reliance on them. These forward-looking statements are based on current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control.

Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include:

• 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

• the overall level of automotive production and the production of specific car models

• information and technological advances

• cost and availability of raw materials, labor and natural and other resources

• domestic and foreign competition

• changes in purchasing practices of automotive customers, including price pressures and sourcing of products in Asia

• domestic and foreign governmental regulations and trade policies

• reliance on major customers

• inability to successfully effect any necessary restructuring while preserving customer relationships

• inability to maintain sufficient liquidity to finance the Company’s operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk for changes in interest rates and foreign currency exchange rates and has exposure to commodity price risk, including prices of primary raw materials, fiber and foam. The Company does not hold or issue any financial instruments for trading purposes. During the thirteen weeks and thirty-nine weeks ended June 29, 2003, the Company did not experience any material changes with respect to its sensitivity or management of interest rate or commodity price risk. However, the Company is subject to foreign currency risk primarily related to sales and expenditures and other transactions denominated in foreign currencies and investments in foreign subsidiaries. The Company manages the exposure related to this risk through forward foreign currency exchange contracts with durations generally less than 12 months. The changes in the market value of such contracts have a high correlation to the price changes in the currency of the related hedged transactions. The Company enters into forward foreign currency exchange contracts in the normal course of business to manage exposure related to anticipated sales denominated in foreign currencies and against fluctuations in the purchase price of capital equipment and other transactions having firm commitments. On June 29, 2003, the Company held foreign currency forward contracts with a fair value of $11.6 million and a notional value of $12.1 million that expire in less than one year.

Item 4. Controls and Procedures

Within the 90-day period prior to the filing of this Form 10-Q, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation (the “Evaluation”) of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Based upon the Evaluation of disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that material information relating to the Company and the Company’s consolidated subsidiaries would be made known to them by others within those entities to allow timely decisions regarding required disclosures.

There have been no significant changes in internal controls, or in other factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and the Chief Financial Officer completed their Evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to Item 2 of Part I of this Quarterly Report under the heading titled “Contingencies” for the information required by this Item.

Items 2 — 5.

Not Applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:


Exhibit Number		Description

10		Form of Indemnification Agreement for Directors and Certain Employees (filed herewith).
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 (furnished herewith).
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 (furnished herewith).

(b) Reports on Form 8-K

Not Applicable

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GUILFORD MILLS, INC. (Registrant)

		Date: August 13, 2003
		/s/ David H. Taylor

		Name: David H. Taylor Title: Chief Financial Officer

302 CERTIFICATION

I, John A. Emrich, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Guilford Mills, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: August 13, 2003



		/s/ John A. Emrich John A. Emrich President and Chief Executive Officer

302 CERTIFICATION

I, David H. Taylor, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Guilford Mills, Inc.

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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


Date: August 13, 2003



		/s/ David H. Taylor David H. Taylor Chief Financial Officer

EXHIBIT INDEX


Exhibit Number		Description

10		Form of Indemnification Agreement for Directors and Certain Employees (filed herewith).
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 (furnished herewith).
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 (furnished herewith).

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1.		The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

2.		All of the Company’s old common stock was cancelled and replaced with 5,501,053 shares of new common stock. Of these new shares, approximately 90% (4,950,000 shares) were issued to the Company’s senior lenders as partial consideration for the debt reduction described above. The remaining shares were issued to the holders of the Company’s old common stock in a ratio of one new share for every 34.776338 old shares, subject to rounding.

3.		The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

4.		The Company’s $30 million Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a $25 million revolving credit facility.

5.		The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

6.		The new members of the board of directors began serving as directors.

•		Interest expense

•		Other income and expense

•		Income tax expense or benefit

•		Reorganization costs

•		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

•		the overall level of automotive production and the production of specific car models

•		information and technological advances

•		cost and availability of raw materials, labor and natural and other resources

•		domestic and foreign competition

•		changes in purchasing practices of automotive customers, including price pressures and sourcing of products in Asia

•		domestic and foreign governmental regulations and trade policies

•		reliance on major customers

•		inability to successfully effect any necessary restructuring while preserving customer relationships

•		inability to maintain sufficient liquidity to finance the Company’s operations