SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED OCTOBER 2, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
Commission file numbers 333-42411 and 333-42411-01
GLENOIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3862561
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
GLENOIT ASSET CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0343206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 West 40th Street
New York, New York 10018
Telephone: (212) 391-3915
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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 [ ] No [X]
None of the voting securities of Glenoit Corporation or Glenoit Asset
Corporation is held by non-affiliates.
As of October 2, 1999, there were 1,000 shares of Glenoit Corporation common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 2, October 2,
1999 1999
----------- ------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 339,700 $ 760,749
Receivables:
Trade accounts receivable, net of allowance of $2,360,000 and 29,666,112 48,300,204
$4,450,000 as of January 2, 1999 and October 2, 1999,
respectively
Other receivables 364,996 4,852,327
Inventories 19,734,042 56,912,311
Due from Holdings - 613,745
Prepaid expenses and other current assets 3,797,479 3,661,220
----------- -----------
Total current assets 53,902,329 115,100,556
Property, plant and equipment, net 49,108,311 70,521,258
Other assets:
Notes receivable from related party 266,821 251,818
Intangible assets, net of accumulated amortization of $1,735,000
and $2,655,000 as of January 2, 1999 and October 2, 1999,
respectively 35,715,233 50,470,614
Deferred loan costs and other, net of accumulated amortization of
$1,181,000 and $2,337,000 as of January 2, 1999 and October 2,
1999, respectively 5,195,653 9,408,457
Other assets 510,716 957,017
----------- -----------
Total assets $ 144,699,063 $ 246,709,720
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 2, October 2,
1999 1999
--------------- ---------------
LIABILITIES AND STOCKHOLDER'S DEFICIT (Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,888,602 $ 12,514,986
Accrued expenses 21,820,034 19,678,405
Current maturities of long-term debt - 161,325,000
Due to Holdings 1,752,143 -
--------------- ---------------
Total current liabilities 26,460,779 193,518,391
Long-term debt less current maturities 160,707,499 95,000,000
Deferred income taxes 3,382,058 6,433,618
Other long-term liabilities 504,196 7,011,979
--------------- ---------------
Total liabilities 191,054,532 301,963,988
--------------- ---------------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding as of January 2, 1999 and October 2, 1999 10 10
Additional paid-in capital 1,461,713 1,461,713
Accumulated deficit (46,966,633) (56,229,244)
Accumulated other comprehensive loss (850,559) (486,747)
--------------- ---------------
Total stockholder's deficit (46,355,469) (55,254,268)
--------------- ---------------
Total liabilities and stockholder's deficit $ 144,699,063 $ 246,709,720
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
October 3, October 2, October 3, October 2,
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 45,126,817 $ 85,978,312 $ 133,066,909 $ 222,134,884
Cost of sales 31,919,884 60,081,107 91,073,159 156,998,280
------------- ------------- ------------- -------------
Gross profit 13,206,933 25,897,205 41,993,750 65,136,604
------------- ------------- ------------- -------------
Operating expenses:
Selling 3,910,112 6,494,976 11,173,760 17,944,465
Administrative 2,011,487 7,992,445 6,951,888 26,325,896
Research and development 562,173 1,083,690 1,484,254 3,123,115
Restructuring charge -- -- -- 13,100,000
------------- ------------- ------------- -------------
Total operating expenses 6,483,772 15,571,111 19,609,902 60,493,476
------------- ------------- ------------- -------------
Income from operations 6,723,161 10,326,094 22,383,848 4,643,128
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (3,292,375) (6,637,999) (9,608,288) (18,030,471)
Amortization of deferred financing costs (160,411) (468,414) (479,134) (1,155,952)
Other (177,861) (24,566) (181,567) 180,786
------------- ------------- ------------- -------------
Total other expense (3,630,647) (7,130,979) (10,268,989) (19,005,637)
------------- ------------- ------------- -------------
Income (loss) before income taxes 3,092,514 3,195,115 12,114,859 (14,362,509)
Income tax expense (benefit) 1,120,985 1,389,788 4,444,038 (5,099,898)
------------- ------------- ------------- -------------
Income (loss) before extraordinary loss 1,971,529 1,805,327 7,670,821 (9,262,611)
Extraordinary loss on early extinguishment
of debt net of tax benefit of $67,000 117,236 117,236
------------- ------------- ------------- -------------
Net income (loss) $ 1,854,293 $ 1,805,327 $ 7,553,585 $ (9,262,611)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT (UNAUDITED)
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999
<TABLE>
<CAPTION>
Accumulated
Shares of Additional Other
Common Common Paid-in Accumulated Comprehensive
Stock Stock Capital Deficit Loss Total
---------- ---------- ------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 2, 1999 1,000 $ 10 $ 1,461,713 $ (46,966,633) $ (850,559) $ (46,355,469)
Net loss (9,262,611) (9,262,611)
Accumulated Other
Comprehensive 363,812 363,812
Income
---------- ---------- ------------ ------------------ ---------------- ----------------
Balance as of
October 2, 1999 1,000 $ 10 $1,461,713 $ (56,229,244) $ (486,747) $ (55,254,268)
========== ========== ============ ================== ================ ================
Consolidated Statement of Comprehensive Income (Unaudited)
Nine Months Ended
----------------------------------------
October 3, October 2,
1998 1999
------------------ ----------------
Net income (loss) $ 7,553,585 $ (9,262,611)
Other comprehensive income (loss), net of tax:
Currency translation adjustment (693,581) 231,020
------------------ ----------------
Comprehensive income (loss) $ 6,860,004 $ (9,031,591)
================== ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
October 3, October 2,
1998 1999
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,553,585 $ (9,262,611)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Loss on early extinguishment of debt 184,624 -
Depreciation and amortization 4,298,878 9,019,764
Restructuring Charge - 13,100,000
Stock compensation 100,000 -
Loss (gain) on sale of property and equipment 19,183 (50,439)
Effect of foreign currency exchange rate (693,581) 363,812
Changes in operating assets and liabilities:
Trade and other receivables (17,275,358) (18,890,554)
Inventories (2,142,465) (19,139,861)
Prepaid expenses and other assets (317,118) (807,403)
Due to Holdings 2,602,073 (2,365,888)
Accounts payable (958,647) 4,533,231
Accrued expenses and other liabilities 4,839,579 (970,492)
--------------- ----------------
Net cash used in operating activities (1,789,247) (24,470,441)
--------------- ----------------
Cash flows from investing activities:
Purchases of acquired businesses, net of cash acquired (54,428,203) (59,548,691)
Purchases of and additions to property, plant and equipment (13,168,031) (6,448,271)
Proceeds from sale of property and equipment and refunds of
deposits 42,042 639,706
--------------- ----------------
Net cash used in investing activities (67,554,192) (65,357,256)
--------------- ----------------
Cash flows from financing activities:
Payments on capital lease obligations (516,222) -
Proceeds from line of credit and issuance of debt, net 77,707,499 95,617,501
Dividends paid (1,935,871) -
Advances on notes receivable - related parties (84,324) -
Payments for financing costs (987,121) (5,368,755)
Purchase of senior subordinated notes (4,950,000) -
--------------- ----------------
Net cash provided by financing activities 69,233,961 90,248,746
--------------- ----------------
Net increase (decrease) in cash and cash equivalents (109,478) 421,049
Cash and cash equivalents at beginning of period 1,072,280 339,700
--------------- ----------------
Cash and cash equivalents at end of period $ 962,802 $ 760,749
=============== ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Glenoit Corporation and subsidiaries (collectively the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended
October 2, 1999 are not necessarily indicative of the results that may
be expected for the fiscal year ending January 1, 2000. The unaudited
financial statements should be read in conjunction with the audited
financial statements and footnotes thereto for the fiscal year ended
January 2, 1999.
CONSOLIDATION
Prior to September 1997, the accompanying financial statements included
the accounts of Glenoit Corporation and its wholly-owned subsidiaries
Glenoit Mills, Inc. ("Mills"), Tarboro Properties, Inc. ("Tarboro"),
and Glenoit Asset Corporation, Inc. ("Glenoit Asset Corporation"). In
September 1997, Glenoit Corporation merged with Mills and Tarboro. In
addition, Glenoit Corporation's newly formed wholly-owned subsidiary,
Glenoit Corporation of Canada ("Glenoit Canada") acquired the assets of
Collins & Aikman Canada Inc. On October 2, 1998, the Company acquired
all the capital stock of American Pacific Enterprises, Inc. On February
12, 1999, the Company acquired all the outstanding shares of capital
stock of Ex-Cell Home Fashions, Inc. (See Note 7). Accordingly, at
October 2, 1999, the accompanying financial statements include the
accounts of Glenoit Corporation and its wholly-owned subsidiaries
Glenoit Canada, American Pacific Enterprises, Inc., Glenoit Asset
Corporation and Ex-Cell Home Fashions, Inc. The Company is a
wholly-owned subsidiary of Glenoit Universal, Ltd. ("Holdings").
7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS
No. 133 establishes standards related to the recording and reporting of
derivative instruments. The FASB recently delayed the required
implementation of SFAS No. 133 until fiscal year 2000. The Company
recently entered into an interest rate hedge agreement but has yet to
determine any future impact of SFAS No. 133.
2. RELATED PARTY TRANSACTIONS
In March 1998, the Company loaned an officer $100,000 and created an
unsecured note receivable. During June 1998, Holdings sold three
officers of the Company a total of 857.46 shares of Holdings' Class A
common stock for approximately $158,000. Holdings loaned the officers
an amount equal to the sales price and created full recourse notes
receivable secured by the issued shares. In connection with the stock
issuance, the Company recorded non-cash compensation expense of
$100,000.
In July 1998, Holdings settled a dispute regarding additional purchase
price owed to a shareholder associated with the recapitalization in
December 1995 discussed in Note 2 to the Consolidated Financial
Statements as of January 2, 1999. Accordingly, Holdings paid
approximately $1.9 million to the shareholder during July 1998. These
funds were paid to Holdings by the Company as a dividend.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories are summarized as follows:
January 2, October 2,
1999 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Raw Materials $2,843,387 $10,252,080
Work-in-process 1,933,812 10,382,284
Finished goods 14,956,843 36,277,947
----------------- -----------------
Total inventories $19,734,042 $56,912,311
================= =================
</TABLE>
8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT
As of January 2, 1999 and October 2, 1999, long-term debt consisted of
the following:
January 2, October 2,
1999 1999
---- ----
(unaudited)
Senior credit facility ...... $ 65,707,499 $161,325,000
11% Senior subordinated notes 95,000,000 95,000,000
------------ ------------
Total long-term debt ... 160,707,499 256,325,000
Less current portion ........ - 161,325,000
------------ ------------
$160,707,499 $ 95,000,000
============ ============
On April 1, 1997, the Company issued $100,000,000 of senior
subordinated notes (the "Senior Subordinated Notes") in a private
placement bond offering. The Senior Subordinated Notes bear interest at
a fixed rate of 11% and mature on April 15, 2007. The Company at its
option, can prepay these notes at a price of 105.5% of the original
principal amount, beginning on April 15, 2002. The premium declines by
1.833% thereafter each year beginning on April 15 until reduced to the
original principal amount. Additionally, prior to April 15, 2000, the
Company may redeem in the aggregate up to 25% of the original aggregate
principal amount with the proceeds of one or more Public Equity
Offerings, as defined in the Indenture governing the Senior
Subordinated Notes, at a redemption price of 110% of the original
principal amount. Upon a Change of Control of the Company, as defined
in the Indenture governing the Senior Subordinated Notes, the holder of
a Senior Subordinated Note may require the Company to redeem the note
at a price of 101% of the principal amount. Interest is payable
semi-annually, and began on October 15, 1997.
During September 1998, the Company acquired $5 million of the Senior
Subordinated Notes in the open market. These notes were subsequently
retired. In connection with this transaction, the Company recorded an
extraordinary loss of approximately $117,000, net of a tax benefit,
which consisted of the write off of a pro rata share of deferred
financing costs associated with the issuance of the Senior Subordinated
Notes.
On April 1, 1997, the Company also entered into a $70 million senior
credit facility (the "Facility") with a financial institution. Of the
total commitment of $70 million under the Facility, $25 million is
designated as an Acquisition Commitment and $45 million as a Working
Capital Commitment, which is a revolving credit facility limited to the
Borrowing Base as defined in the Facility. On October 2, 1998, the
Facility was amended to increase the Acquisition Commitment to $76
million. On October 2, 1998, in connection with the acquisition of
American Pacific Enterprises, Inc., discussed in Note 7, the Company
borrowed approximately $55.7 million under the Acquisition Commitment.
9
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG TERM DEBT (CONTINUED)
As further discussed in Note 7, the Company acquired all outstanding
shares of capital stock of Ex-Cell Home Fashions, Inc. on February 12,
1999. In connection with that acquisition, the Company amended and
restated the Facility to increase the borrowing availability to $200
million. The additional availability was reduced to $175 million in
connection with the June, 1999 amendment discussed below and is
currently comprised of (i) $65.0 million as the Working Capital
Commitment, subject to the Borrowing Base as defined, (ii) $40.0
million Term A loan and (iii) $70.0 million Term B loan. The borrowings
under both the Working Capital Commitment and Term A loan, as amended,
bear interest at the Base Rate plus 2.25% or the Eurodollar Rate plus
3.50%. Advances under the Term B loan bear interest at the Base Rate
plus 3.00% or the Eurodollar Rate plus 4.25%. Beginning in July 1999,
the interest rate charged on the Term A and Working Capital Commitment
borrowings could decrease by 1.0% if certain financial ratios are met.
Principal payments on the Term A and Term B loans begin on September
30, 1999 at a total of $1.7 million per quarter and increase over the
lives of the loans. Borrowings under the Term A loan and Working
Capital Commitment are required to be fully repaid by December 31, 2003
and borrowings under the Term B loan are required to be fully repaid by
June 30, 2004. On the date of the Ex-Cell acquisition, the Term A and
Term B loans were fully drawn. The bank also extended up to a total of
$5 million in letters of credit to the Company; however, the amount is
limited to the amount of the unused Working Capital Commitment. At
October 2, 1999, the Company had approximately $53.0 million
outstanding under the Working Capital Commitment, and approximately
$10.0 million available under the Working Capital Commitment.
The Facility and Senior Subordinated Notes have various covenants, as
well as cross-acceleration provisions, that require the Company to:
maintain key financial ratios, restrict corporate borrowings, limit the
Company's ability to pay dividends, limit the type and amount of
certain investments which may be undertaken by the Company, limit the
Company's disposition of assets, limit the Company's ability to enter
into operating and capital leases, and restrict the Company's ability
to issue shares of its stock.
As of June 29, 1999, the Company's senior lenders waived the Company's
requirement to maintain and meet certain financial covenants contained
in the Facility for the period ending July 3, 1999. In connection with
obtaining the waiver, the Working Capital Commitment was reduced from
$90 million to $65 million and certain financial covenants were amended
including an amendment to require monthly testing of the Company's
total leverage and senior leverage ratios. The Company was not in
compliance with these ratios for the month of July, 1999 and,
accordingly, received a waiver for such non-compliance as well as
amended the August, 1999 and September, 1999 covenants on August 20,
1999. In connection with these waivers and amendments, the Company paid
a fee to the banking group of $440,0000. As a result of a temporary
shutdown of two facilities in Tarboro, N. C. caused by Hurricane Floyd
during September, 1999, the Company was not in
10
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
compliance with the revised covenants as of October 2, 1999 and
received a waiver for such non-compliance as of October 29, 1999. On
November 19, 1999, the Company received a waiver which eliminated the
requirement to meet certain financial covenants for the month of
October and amended existing covenants for November and December 1999
as well as created monthly covenants for January and February 2000. The
waiver also eliminated previous borrowing restrictions and reinstated
the original Borrowing Base limitations. The Company paid a fee to the
banking group of $440,000 in connection with obtaining these waivers
and amendments. Based on the Company's operating results and current
business environment, it is likely the Company will not be in
compliance with existing financial covenants for the month ending April
1, 2000. Therefore, in accordance with generally accepted accounting
principles, all amounts outstanding under the Facility remain
classified as current liabilities. The Company is seeking additional
amendments to the Facility to conform the financial ratios contained
therein to the Company's business plan. While the Company's
relationship with its senior lenders has been good and discussions are
ongoing, there can be no assurance that the Company will obtain the
necessary amendments or as to the terms thereof. The failure to obtain
the necessary amendments could have a material negative effect on the
Company's liquidity as it would be forced to seek alternative financing
and to consider additional strategic options. The Company is currently
in compliance with the requirements of the indenture governing the
Senior Subordinated Notes.
During June 1999, the Company entered into an interest rate cap
agreement which caps the maximum Eurodollar rate to be paid by the
Company at 6.5% on an $82.5 million notional amount. The Company paid
approximately $820,000 to enter into this agreement.
Substantially all of the Company's assets and operations are pledged as
collateral for the Facility. Holdings and Glenoit Asset Corporation
have guaranteed the Company's obligations under the Facility. Holdings
and Glenoit Asset Corporation have no substantive assets or operations
and rely on the Company to fund their obligations.
The Senior Subordinated Notes are fully and unconditionally guaranteed,
on a joint and several basis, by Glenoit Asset Corporation, American
Pacific Enterprises, Inc. and, as of February 12, 1999, Ex-Cell Home
Fashions, Inc. (together the "Subsidiary Guarantors"). Glenoit Asset
Corporation's operations consist solely of leasing certain trademarks
and other intangibles to Glenoit Corporation. Accordingly, Glenoit
Asset Corporation's assets and operations consist primarily of
intercompany assets and operations with Glenoit Corporation. Glenoit
Canada has not guaranteed the Senior Subordinated Notes. The financial
information of the subsidiary guarantors for these periods has been
excluded because management believes that this information is not
material to investors. Prior to its acquisition, Glenoit Canada had no
operations.
11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
The following tables present summarized balance sheet information of
Glenoit Corporation, the Subsidiary Guarantors, and Glenoit Canada as
of October 2, 1999 and the related summarized operating statement and
cash flow statement information for the period then ended. The Company
believes that separate financial statements and other disclosures
regarding the Subsidiary Guarantors, are not material to investors.
Summarized balance sheet information, in thousands, as of October 2,
1999 is as follows (unaudited):
<TABLE>
<CAPTION>
Glenoit Subsidiary Glenoit
Corporation Guarantors Eliminations Sub-total Canada Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ (28) 723 695 66 761
Accounts and other receivables, net 25,512 23,858 49,370 3,782 53,152
Inventories........................ 10,526 45,388 55,914 998 56,912
Other current assets............... 4,306 (61) - 4,245 30 - 4,275
-------- -------- -------- -------- -------- -------- --------
Total current assets.......... 40,316 69,908 0 110,224 4,876 0 115,100
Property, plant and equipment, net. 35,454 25,258 60,712 9,809 70,521
Other assets....................... 182,679 82,261 (190,520) 74,420 516 (13,847) 61,089
-------- -------- -------- -------- -------- -------- --------
Total assets.................. 258,449 177,427 (190,520) 245,356 15,201 (13,847) 246,710
======== ======== ======== ======== ======== ======== ========
Accounts payable................... 5,977 5,947 11,924 591 12,515
Other current liabilities.......... 163,066 16,713 - 179,779 1,224 - 181,003
-------- -------- -------- -------- -------- -------- --------
Total current liabilities..... 169,043 22,660 191,703 1,815 193,518
Long-term debt..................... 138,102 (43,102) 95,000 3,871 (3,871) 95,000
Other long-term liabilities........ 6,071 7,349 13,420 26 13,446
Stockholders equity (deficit)...... (54,767) 147,418 (147,418) (54,767) 9,489 (9,976) (55,254)
-------- -------- -------- -------- -------- -------- --------
Total liabilities and equity.. 258,449 177,427 (190,520) 245,356 15,201 (13,847) 246,710
======== ======== ======== ======== ======== ======== ========
Summarized operating statements information, in thousands, for the nine
months ended October 2, 1999 is as follows:
Glenoit Subsidiary Glenoit
Corporation Guarantors Eliminations Sub-total Canada Eliminations Consolidated
Net sales.......................... $91,043 120,485 211,528 10,607 222,135
Cost of sales...................... 66,673 82,234 - 148,907 8,091 - 156,998
-------- -------- -------- -------- -------- -------- --------
Gross profit....................... 24,370 38,251 0 62,621 2,516 0 65,137
Operating expenses................. 31,624 27,854 59,478 1,016 60,494
Royalty income (expense)........... 5,822 (5,822) - 0 - - -
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations...... (13,076) 16,219 0 3,143 1,500 0 4,643
Interest expense (income).......... 19,303 (1,446) 17,857 173 18,030
Other expense (income)............. (10,872) (58) 11,077 147 (56) 885 976
Income taxes(benefit).............. (12,244) 6,646 - (5,598) 498 - (5,100)
-------- -------- -------- -------- -------- -------- --------
Net income(loss).............. (9,263) 11,077 (11,077) (9,263) 885 (885) (9,263)
======== ======== ======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
Summarized cash flow statement information, in thousands, for the nine
months ended October 2, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Glenoit
Corporation Guarantors Eliminations Sub-total Canada Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Cashflows from operating
activities ................... $(19,733) (3,028) (22,761) (1,710) (24,471)
Cashflows used in investing .. (63,767) (1,488) (65,255) (102) (65,357)
Cashflows from financing
activities ................... 83,433 5,060 88,493 1,756 90,249
-------- -------- -------- -------- -------- -------- --------
Net increase(decrease) in cash (67) 544 0 477 (56) 0 421
Cash at beginning of period .. 39 179 -- 218 122 - 340
-------- -------- -------- -------- -------- -------- --------
Cash at end of period ........ (28) 723 0 695 66 0 761
======== ======== ======== ======== ======== ======== ========
Summarized operating statements information, in thousands, for the nine
months ended October 3, 1998 is as follows:
Consolidated
Glenoit Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
Net sales ............... 123,895 123,895 9,172 133,067
Cost of sales ........... 83,898 0 0 83,898 7,175 0 91,073
-------- -------- -------- -------- -------- -------- --------
Gross profit ............ 39,997 0 0 39,997 1,997 0 41,994
Operating expenses ...... 18,619 10 18,629 981 19,610
Royalty income (expense) (7,874) 7,874 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Income from operations .. 13,504 7,864 21,368 1,016 0 22,384
Interest expense (income) 11,252 (1,727) 9,525 83 9,608
Other expense (income) .. (6,245) 6,235 (10) 207 464 661
Income taxes ............ 826 3,356 0 4,182 262 0 4,444
Extraordinary loss, net . 117 0 0 117 0 0 117
-------- -------- -------- -------- -------- -------- --------
Net income .............. 7,554 6,235 (6,235) 7,554 464 (464) 7,554
======== ======== ======== ======== ======== ======== ========
Summarized cash flow statement information, in thousands, for the nine months
ended October 3, 1998 is as follows:
Consolidated
Glenoit Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
Cashflows from operating
activities ............. (11,583) 9,591 (1,992) 203 (1,789)
Cashflows used in
investing Activities ... (64,618) (64,618) (2,936) (67,554)
Cashflows from
financing activities ... 76,175 (9,583) 0 66,592 2,642 0 69,234
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in cash ................ (26) 8 (18) (91) (109)
Cash at beginning of
period ................. 651 76 0 727 345 0 1,072
-------- -------- -------- -------- -------- -------- --------
Cash at end of period .. 625 84 0 709 254 0 963
======== ======== ======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES
Holdings is a holding company and as a result does not have any
substantive assets or operations that generate revenues or cash flows.
Accordingly, Holdings relies on the Company's distribution of dividends
in order to fund its operations and meet its obligations, including its
interest and principal payments.
Holdings has obligations with a face amount of approximately $29.9
million, bearing interest at stated rates between 5% to 12.5%, to
shareholders ("Shareholder Notes") with principal due in 2004 and 2005.
These obligations are not reflected in the Company's accompanying
balance sheets or income statements. Subject to existing debt
restrictions, Shareholder Notes with a face amount of approximately
$9.7 million contain certain acceleration clauses. At the option of
Holdings, subject to the Company's existing debt restrictions, the
interest may be paid by the issuance of additional notes or in cash.
However, Holdings must pay interest in cash on certain of the
Shareholder Notes if defined levels of consolidated cash flows of
Holdings are attained. Annual interest payments during the next five
years are approximately $2.6 million per year, excluding interest on
notes that may be issued to pay interest. Assuming Holdings makes all
interest payments related to the Shareholder Notes with additional
notes, the Company's ultimate distribution of dividends in order for
Holdings to meet its existing debt obligations is expected to be
approximately $63 million beginning December 2004 through December
2005. However, the Company may be required to declare dividends in
order for Holdings to fund certain of its obligations in cash as
discussed above. Such amounts could approximate $3 million in the
aggregate and are due through December 2004, if the defined levels of
consolidated cash flow of Holdings are met.
6. INCOME TAXES
The Company and Holdings, have entered into a Tax Sharing Agreement
whereby the Company will pay Holdings its respective pro rata share of
the total consolidated tax liability or receive its respective pro rata
share of the total consolidated tax refund, as set forth in the tax
sharing agreement. Under the Tax Sharing Agreement, the Company and
Holdings are treated as separate tax groups.
14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. ACQUISITIONS
On October 2, 1998, the Company acquired all the capital stock of
American Pacific Enterprises, Inc. ("APE") for approximately $39.1
million, including fees and expenses, subject to post-closing
adjustments. In addition, approximately $16.6 million of indebtedness
of APE was extinguished by the Company in connection therewith. The
purchase agreement also includes additional payments to the former
owners of APE if certain earning targets for APE's operations are met
during 1998 and 1999. For fiscal 1998, approximately $12.3 million was
paid to the former owners and current employees during April 1999. Of
this amount, approximately $3.5 million was paid to current employees.
The remaining $8.8 million was recorded as additional purchase price. A
portion of any payments to be made related to 1999 earnings may be
recorded as compensation expense during 1999. Through July 3, 1999, the
Company has recorded approximately $1.7 million as compensation expense
associated with APE's forecasted 1999 results. APE is a leading
designer, importer and marketer of decorative textile home furnishings,
principally quilts and specialty decorative bedding items. The
acquisition has been accounted for as a purchase. The preliminary
purchase price allocation attributed approximately $31.8 million to net
working capital items, approximately $1.3 million to property, plant
and equipment and approximately $22.6 million to goodwill. Goodwill is
being amortized over 25 years.
On February 12, 1999, the Company acquired all the outstanding shares
of capital stock of Ex-Cell Home Fashions, Inc. ("Ex-Cell") in a single
transaction for approximately $43.4 million, including fees and
expenses, subject to post-closing adjustment. In addition,
approximately $6.9 million of indebtedness of Ex-Cell was extinguished
by the Company in connection therewith. The acquisition has been
accounted for as a purchase. The preliminary purchase price allocation
attributed approximately $14.7 million to net working capital items,
approximately $23.3 million to property, plant and equipment, $7.1
million to long term liabilities including deferred income taxes and
approximately $19.4 million to goodwill. Goodwill is being amortized
over 25 years.
The following unaudited proforma summary of consolidated results of
operations have been prepared as if the acquisitions of APE and Ex-Cell
occurred at the beginning of the periods presented. In connection with
the allocation of purchase price, the Company wrote up APE's inventory
by approximately $3.4 million. This write-up of inventory negatively
impacted gross margin during the Company's fourth quarter of 1998 as
that inventory was sold. This one-time nonrecurring adjustment of $2.0
million, net of tax, is not reflected in the proforma results presented
below. In connection with the allocation of purchase price, the Company
wrote up Ex-Cell's inventory by approximately $2.5 million. This
write-up will negatively impact gross margin during the Company's first
nine months of 1999. The impact of this write-up is not reflected in
the proforma results presented below. Certain costs associated with the
former shareholders of Ex-Cell are also excluded from the proforma
results.
15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. ACQUISITIONS (CONTINUED)
Nine Months Ended
-------------------------------------
October 3, October 2,
1998 1999
---- ----
(Unaudited)
Net sales $243,900,000 $230,900,000
============ ============
Net income 10,000,000 (8,100,000)
============ ============
These proforma results do not purport to be indicative of the results
that would have actually been obtained if APE and Ex-Cell had been
acquired as of January 4, 1998.
8. RESTRUCTURING CHARGE
On February 25, 1999, the Company's Board of Directors approved a plan
to consolidate its manufacturing operations of the Fabric Division into
its facilities located in North Carolina and Canada. In connection with
this activity, the Company discontinued operations at its leased
Tennessee facility and terminated substantially all of the associates
at that facility. The Company ceased substantially all operations in
the facility on or about May 28, 1999. During the first quarter of
fiscal 1999, the Company recorded a restructuring charge totaling $13.1
million of which $3.2 million related to the write-off of the goodwill,
$1.8 milion to cover the write-down of machinery and equipment to fair
market value and the remainder for the cost of operating leases and
severance and other personnel costs related to the termination of
approximately 225 associates. The components of the reserves for this
facility are as follows (in thousands):
<TABLE>
<CAPTION>
Original Reserve Usage Remaining Reserve
---------------- ----- -----------------
<S> <C> <C> <C>
Anticipated expenditures related to $7,323 $(893) $6,430
operating leases for plant and equipment
Anticipated severance benefits 850 (678) 172
------ -------- ------
$8,173 $(1,571) $6,602
====== ======== ======
</TABLE>
16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. OPERATING SEGMENTS
DESCRIPTION OF SEGMENTS
Subsequent to the APE and Ex-Cell acquisitions, the Company has two
operating divisions: (1) Decorative Home Furnishings, which
manufactures, imports and distributes decorative textile home
furnishings to all major specialty and broadline retail distribution
channels and (2) Fabric Division ("Fabric"), manufacturer and
distributor of fabric for the apparel, automotive and home furnishing
industries. Decorative Home Furnishing products include specialty
bedding items, shower curtains, household rugs, decorative pillows and
table linens. All amounts shown below are in thousands.
Third Quarter Ended
------------------------------
October 3, October 2,
1998 1999
------------- ------------
Net sales
Decorative Home Furnishings $ 15,143 $ 63,801
Fabric .................... 29,984 22,839
Interdivisional ........... -- (662)
----------- ------------
Consolidated ......... $ 45,127 $ 85,978
=========== ============
Operating income (loss)
Decorative Home Furnishings $ 2,594 7,340
Fabric .................... 6,041 5,194
Corporate/Other ........... (1,912) (2,208)
---------- -----------
Consolidated ......... $ 6,723 $ 10,326
========== ===========
Depreciation and amortization
Decorative Home Furnishings $ 217 $ 1,704
Fabric .................... 957 986
Corporate/Other ........... 373 303
----------- -----------
Consolidated ......... $ 1,547 $ 2,993
=========== ===========
17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------
October 3, October 2,
1998 1999
---- ----
<S> <C> <C>
Net sales
Decorative Home Furnishings $36,702 $160,521
Fabric............................... 96,365 62,987
Interdivisional..................... - (1,373)
-------- --------
Consolidated................... $133,067 $222,135
======== ========
Operating income (loss)
Decorative Home Furnishings $6,023 $14,717
Fabric............................... 22,653 (3,638)
Corporate/Other................... (6,292) (6.436)
-------- --------
Consolidated................... $22,384 $4,643
======== ========
Depreciation and amortization
Decorative Home Furnishings $623 $4,243
Fabric............................... 2,572 3,213
Corporate/Other................... 1,104 1,564
-------- --------
Consolidated................... $4,299 $9,020
======== ========
October 2,
1999
----------
Inventory and accounts receivable
Decorative Home Furnishings $79,995
Fabric............................... 25,217
--------
Consolidated................... $105,212
========
</TABLE>
Note 4 identifies sales and assets of the Company's Canadian operation.
There were no other material sales or assets outside of the United States.
10. FACTORING RECEIVABLES
Under an agreement with a third party, Ex-Cell, subject to credit
approval, assigns and sells substantially all its accounts receivable
without recourse. In instances where credit approval has not been
received prior to shipment, the risk of collectibility is retained by
Ex-Cell.
18
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
On December 13,1995, Glenoit Universal, Ltd. ("Holdings") formed a wholly owned
subsidiary, Glenoit Corporation (the Company), formerly Glenoit Intermediate,
Inc. and exchanged all of the issued and outstanding stock of Glenoit Mills,
Inc. and subsidiary ("Mills") for all of the issued and outstanding shares of
common stock of Glenoit Corporation. During 1997, Mills was merged into the
Company. The Company has two operating segments: (i) Decorative Home Furnishings
which manufactures, imports and distributes decorative textile home furnishings
and (ii) a domestic manufacturer and marketer of specialty fabrics, primarily
for the apparel industry, known as "sliver-knit" pile fabrics ("Fabric
Division"). The Company's two most recent acquisitions, American Pacific
Enterprises and Ex-Cell Home Fashions, Inc., are part of the Decorative Home
Furnishings segment
RECENT DEVELOPMENTS
On October 2, 1998, the Company acquired all the capital stock of American
Pacific Enterprises, Inc. ("APE") for approximately $39.1 million, including
fees and expenses, subject to post-closing adjustment. In addition,
approximately $16.6 million of indebtedness of APE was extinguished by the
Company in connection therewith. In addition, the Company paid the former
shareholders approximately $8.8 million and certain employees approximately $3.5
million during April 1999 in connection with the acquisition agreement. APE is a
leading designer, importer and marketer of decorative textile home furnishings,
principally quilts and decorative bedding items. The Company believes that the
acquisition of APE will expand its current product offerings to large retailers,
further penetrate the specialty retailing segment and diversify product sourcing
capabilities beyond North America to include Chinese suppliers.
On February 12, 1999, the Company acquired all the outstanding shares of capital
stock of Ex-Cell Home Fashions, Inc. ("Ex-Cell") in a single transaction for
approximately $43.4 million, subject to post-closing adjustments. In addition,
approximately $6.9 million of debt of Ex-Cell was extinguished in connection
therewith. Ex-Cell is engaged in the design, manufacture, importation and
distribution of textile home furnishings, principally shower curtains, table
linens, and decorative pillows. As a result of these acquisitions, the Company
believes it has transformed itself from a specialty textile manufacturer focused
on profitable niche segments to a diversified manufacturer and distributor of
consumer goods, with the majority of its revenues derived from the home textile
market.
On February 25, 1999, the Company's Board of Directors approved a plan to
consolidate its manufacturing operations of the Fabric Division into its
facilities located in North Carolina and Canada. In connection with this
activity, the Company discontinued all operations at its leased Tennessee
facility and terminated substantially all of the associates at that facility.
During the first quarter of fiscal 1999, the Company recorded a restructuring
charge totaling $13.1 million to cover the estimated costs associated with the
closing of that facility including the cost of operating leases, the write-off
of the related goodwill, the write-down of machinery and equipment to fair
market value and severance and other personnel costs.
19
<PAGE>
During September 1999, the Company's two Tarboro, North Carolina facilities were
temporarily shut down as a result of the extensive flooding caused by Hurricane
Floyd. While the facilities did not sustain damage, the shortage of
utilities and the dramatic impact to the local workforce resulted in work
stoppage and a delay in shipments for approximately ten days. The Company
continued to pay its affected employees during the shutdown.
Management estimates that the third quarter's net sales in the Decorative Home
Furnishings and Fabric segments were negatively impacted by approximately $3.0
million and $2.3 million, respectively. The negative impact to the Company's
operating performance has resulted in certain covenant violations under the
Company's senior credit facility. The Company is in the process of submitting a
claim with its insurance providers but did not record any anticipated receipts
as of October 2, 1999. See "Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
Net sales for the quarter ended October 2, 1999, increased to $86.0 million or
90.5 % compared to $45.1 million during the comparable quarter in the prior
year. The increase in net sales occurred in the Decorative Home Furnishings
segment which increased from $15.1 million in the third quarter of 1998 to $63.8
million in 1999. The increase in net sales is attributable to the acquisitions
of APE and Ex-Cell which generated combined sales of $50.7 million during the
third quarter of 1999. These increases in sales of home furnishing items were
slightly offset by a decline in sales of the Fabric Division to $22.8 million
from $30.0 million. This decrease was due to continued softness in the product
category as a result of unseasonably warm weather and the continued influx of
low priced apparel products, mainly from Asia.
Net sales for the nine months ended October 2, 1999 increased to $222.1 million
from $133.1 million in the nine months of 1998. The increase was the result of
the sales growth of the Decorative Home Furnishing segment. APE and Ex-Cell
generated a total of $120.5 million for that period. Year-to-date sales for the
Fabric Division declined to $63.0 million from $96.4 million in the first nine
months of 1998.
Gross profit for the quarter ended October 2, 1999 was $25.9 million or 30.1% of
net sales compared to $13.2 million or 29.3% of net sales for the same period
last year. The increase of $12.7 million relates to an increase in sales in the
Decorative Home Furnishings segment which benefited from the inclusion of APE
and Ex-Cell's operating results. Gross margin was negatively impacted by $.5
million of additional cost of sales related to the sale of Ex-Cell's inventory
that had been written up at the time of acquisition in accordance with generally
accepted accounting principles. The Fabric Division's results were negatively
impacted by the decreased sales volume which resulted in a decrease in gross
margin from $8.3 million to $7.5 million. However, as a result of the previously
discussed restructuring efforts, which reduced the division's manufacturing
overhead and streamlined operations, the Fabric Division's gross margin as a
percent of sales for the third quarter of 1999 increased to 32.7% from 27.8%
during the third quarter of 1998.
20
<PAGE>
Gross profit for the first nine months of 1999 was $65.1 million as compared to
$42.0 million in 1998. The increase in gross profit was related to the
Decorative Home Furnishings segment and the acquisitions of APE and Ex-Cell.
Gross margin was negatively impacted by $2.2 million year-to-date October 2,
1999 as a result of Ex-Cell's inventory write-up. These gains were offset by the
decrease in gross profit in the Fabric Division to $16.5 million in 1999 from
$30.5 million for the first nine months of 1998.
Operating expenses for the quarter ended October 2, 1999, were $15.6 million
compared to $6.5 million in the third quarter of the prior year. Operating
expenses for the nine months ended October 2, 1999 totaled $60.5 million as
compared to $19.6 million for 1998. Dollar increases in 1999 relate to the
operating expenses of APE and Ex-Cell which totaled $9.1 million and $27.8
million for the third quarter and first nine months of 1999, respectively. These
expenses include $.5 million and $1.5 million, respectively, of goodwill
amortization specific to APE and Ex-Cell. During the third quarter, the Company
reversed $1 million of accrued compensation charges associated with the APE
acquisition agreement and expensed during the first quarter of 1999.
Year-to-date compensation expense for this agreement totals $ .7 million.
Operating expenses for 1999 include a $13.1 million restructuring charge
recorded in the first quarter related to the consolidation of manufacturing
facilities in the Fabric Division as discussed in "Recent Developments".
The Company reported operating income of $10.3 million for the third quarter
ended October 2, 1999 compared to operating income of $6.7 million in the prior
year. For the first nine months of 1999, the Company reported operating income
of $4.6 million as compared to income of $22.4 million in 1998.
Interest expense for the quarter ended October 2, 1999, was $6.6 million
compared to $3.3 million for the same period last year. Year-to-date interest
expense in 1999 was $18.0 million compared to $9.6 million in 1998. Interest
expense has increased due to higher levels of debt as a result of the APE and
Ex-Cell acquisitions.
Net income for the quarter ended October 2, 1999, was $ 1.8 million compared to
net income of $1.9 million the prior year. Net loss for the nine months ended
October 2, 1999 was $9.3 million compared to net income of $7.6 million the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor financing
to meet its debt service requirements, capital expenditures and working capital
needs. The Company is highly leveraged.
On April 1, 1997, the Company issued $100 million of senior subordinated notes
(the "Notes"). Concurrently with the issuance of the Notes, the Company entered
into a $70 million senior credit facility ("the New Credit Facility") with a
syndicate of lenders led by BNP, pursuant to which the Company obtained
available credit (i) up to $45.0 million for working capital and general
corporate purposes (the "Working Capital Commitment"), subject to a Borrowing
Base, and (ii)
21
<PAGE>
up to $25.0 million for acquisitions (the "Acquisition Commitment"). The Company
also prepaid all outstanding indebtedness under the Old Facility. On October 2,
1998, the new Credit Facility was amended to increase the Acquisition Commitment
to $76 million. On October 2, 1998, the Company borrowed approximately $55.7
million under the Acquisition Commitment in connection with the APE Acquisition.
In connection with the acquisition of Ex-Cell, the Company amended and restated
the New Credit Facility to increase its borrowing availability to $200 million.
This additional availability was reduced to $175 million in connection with the
June, 1999 amendment discussed below and is currently comprised of (i) $65
million as the Working Capital Commitment, subject to the Borrowing Base, as
defined, (ii) $40 million Term A loan, and (iii) $70 million Term B loan.
Principal payments under the Term A and Term B loans begin on September 30, 1999
at a total of $1.7 million per quarter and increase over the life of loans.
Borrowings under the Term A loan and Working Capital Commitment are required to
be fully repaid by December 31, 2003 and borrowings under the Term B loan are
required to be fully repaid by June 30, 2004. On the date of the Ex-Cell
acquisition, both the Term A and Term B loans were fully drawn. At October 2,
1999, there were borrowings of approximately $53.0 million under the Working
Capital Commitment and approximately $10.0 million available to borrow under the
Working Capital Commitment. A more detailed description of the senior
subordinated notes and the senior credit agreement may be found in the notes to
consolidated financial statements. Ex-Cell has a factoring arrangement whereby
substantially all of its accounts receivable are assigned and sold without
recourse.
As of June 29, 1999, the Company's senior lenders waived the Company's
requirement to maintain and meet certain financial covenants contained in the
New Credit Facility for the period ending July 3, 1999. In connection with
obtaining the waiver, the Working Capital Commitment was reduced from $90
million to $65 million and certain financial covenants were amended including an
amendment to require monthly testing of the Company's total leverage and senior
leverage ratios. The Company was not in compliance with these ratios for the
month of July, 1999 and, accordingly, received a waiver with respect to such
non-compliance as well as amended the August, 1999 and September, 1999 covenants
on August 20, 1999. As a result of the temporary shut down during September,
1999, the Company was not in compliance with the revised covenants as of October
2, 1999. The Company received a waiver for such non-compliance as of October 29,
1999. On November 19, 1999, the Company received a waiver which eliminated the
requirement to meet certain financial covenants for the month of October and
amended existing covenants for November and December 1999 as well as created
monthly covenants for January and February 2000. The waiver also eliminated
previous borrowing restrictions and reinstated the original Borrowing Base
limitations. Based on the Company's operating results and current business
environment, it is likely the Company will not be in compliance with existing
financial covenants for the month ending April 1, 2000. Therefore, in accordance
with generally accepted accounting principles, all amounts outstanding under the
New Credit Facility have been classified as current liabilities. The Company is
seeking additional amendments to the New Credit Facility to conform the
financial ratios contained therein to the Company's business plan. While the
Company's relationship with its senior lenders has been good and discussions are
ongoing, there can be no assurance that the Company will obtain the necessary
amendments or as to the terms thereof. The failure to obtain the necessary
amendments could have a material negative effect on the Company's liquidity as
it would be forced to seek alternative financing and to consider additional
strategic options. The Company is currently in compliance with the requirements
of the indenture
22
<PAGE>
governing the Notes.
Principal and interest payments in respect of the Notes and the New Credit
Facility represent significant liquidity requirements for the Company. In
addition, the Company will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal and
interest of the Seller Notes, (ii) to cover certain administrative and operating
expenses of Holdings and (iii) to cover certain tax liabilities allocable to the
Company, subject in each case to certain conditions as described in the Notes
and the New Credit Facility.
Assuming the Company is able to obtain the modifications to the New Credit
Facility discussed above, the Company believes that cash generated from
operations, together with vendor financing and amounts available under the New
Credit Facility, will be adequate to meet its debt service requirements, capital
expenditures and working capital needs for the foreseeable future, although no
assurance can be given in this regard. The Company's future operating
performance and ability to service or refinance the Notes and to extend or
refinance its other indebtedness will be subject to future economic conditions
and to financial, business and other factors beyond the Company's control.
Holdings is a holding company and as a result does not have any substantive
assets or operations that generate revenues or cashflows. Accordingly, Holdings
relies on the Company's distribution of dividends to meet its obligations,
including interest and principal payments. As of October 2, 1999, Holdings has
obligations with a face amount of $29.9 million, bearing interest at stated
rates between 5% to 12.5%, to shareholders with principal due in 2004 and 2005.
For further discussion see Note 5 of the Unaudited Consolidated Financial
Statements.
In July 1998, Holdings settled a dispute regarding additional purchase price
owed to a shareholder associated with the recapitalization in December 1995
discussed in Note 2 to the Consolidated Financial Statements as of January 3,
1998. Accordingly, Holdings paid approximately $1.9 million to the shareholder
during July 1998. These funds were paid to Holdings by the Company as a
dividend.
During June 1999, the Company entered into an interest rate cap agreement which
caps the maximum Eurodollar rate to be paid by the Company at 6.5% on an $82.5
million notional amount. The Company paid approximately $820,000 to enter into
this agreement.
During the nine months ended October 2, 1999, net cash used in operating
activities was $24.5 million, which resulted from the Company increasing its
working capital to meet its seasonal requirements. Excluding the purchase of
Ex-Cell, receivables increased by $18.9 million and inventories and other assets
increased by $19.9 million. Accounts payable increased by $4.5 million related
to increased raw material purchases and operating costs.
CAPITAL IMPROVEMENTS
Capital expenditures for the nine months ended October 2, 1999 were $6.4
million. These additions were primarily in the Decorative Home Furnishings
division for advanced printing equipment and the purchase of machinery for the
start-up of the Company's decorative pillow
23
<PAGE>
operations. Expenditures also were made for upgrades to management information
systems and expanded distribution systems.
SEASONALITY
The Company's business is seasonal in nature. Generally, there is increased
retail demand for the Company's products during the fall (back-to-school) and
holiday selling seasons. Consequently, demand for the Company's products is
generally higher during the Company's second and third fiscal quarters when such
products are produced and distributed for these selling seasons.
INFLATION
The Company believes that inflation has not had a material impact on the results
of operations presented.
IMPACT OF YEAR 2000 COMPLIANCE
The Company has evaluated its Year 2000 risk in three separate categories,
information technology systems ("IT"), non-IT systems ("Non-IT") and third party
relationships in which the Company has a material relationship ("Third Party
Risk"). The Company has developed a plan in which the risks in each of these
categories are being addressed and reviewed by the appropriate level of
management as follows:
Due to conversions already in progress to improve operating performance,
the Company believes that a failure of the IT system is unlikely and any
possible failure would not result in a material adverse effect. Management has
completed substantially all the conversions and the review of its IT systems and
did not identify any material deficiencies. Accordingly, a contingency plan for
IT risks has not been developed. However, should any remaining review or
conversions indicate a contingency plan is needed, the Company will react
accordingly.
Non-IT systems involve embedded technologies such as microcontrollers or
microprocessors. Examples of Non-IT systems include telephones, security systems
and computer controlled manufacturing equipment. A malfunction in one of these
areas could result in the Company not being able to manufacture and ship product
on time to its customers. The Company has substantially completed its review of
Non-IT systems and management believes the Non-IT risks are minimal. Any costs
of addressing Non-IT risks are included in normal upgrade and replacement
expenditures which were planned outside of the Company's Year 2000 review. Since
these risks are believed to be minimal, a contingency plan for Non-IT risks has
not been developed. However, should any additional review indicate a contingency
plan is needed, the Company will react accordingly.
The Company's review of its Third Party Risk includes detailed reviews of
critical relationships with suppliers and business partners, such as banking
institutions and key raw material suppliers. The Third Party Risk review is
ongoing and is expected to be completed by
24
<PAGE>
December 1999. The Company presently does not expect the risk associated with or
costs of addressing the Company's Third Party Risk to be material.
The Company's greatest Year 2000 risk would manifest itself in a critical
third party's system malfunction where the Company would suffer business
interruption until the supplier or customer corrected the problem or an
alternative supply was found. At this point in the Company's review, it is not
aware of any potential situations which may cause this scenario to occur, but
will formulate a contingency plan should its review indicate it is necessary to
do so.
There can be no assurance that these conclusions will be achieved and
actual results could differ from those anticipated. Specific factors that might
cause differences include, but are not limited to, the ability of the third
parties with which the Company has material relationships to modify or convert
their systems to be Year 2000 compliant, the ability of the Company to complete
its conversions on schedule, and similar uncertainties.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including in
particular, the likelihood of the Company's success in developing and expanding
its business and of maintaining financing on reasonable terms. These statements
are based upon a number of assumptions and estimates, which are inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions which are
subject to change. Some of these assumptions inevitably will not materialize,
and unanticipated events will occur which will affect the Company's results. The
forward looking statements in this Form 10-Q are intended to be subject to the
safe harbor protection provided by Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934 (the "Safe Harbor Acts").
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk relates to changes in interest rates and
foreign currency rates. The Company entered into an interest rate cap agreement
which caps the maximum Eurodollar rate to be paid by the Company at 6.5% on an
$82.5 million notional amount. The Company's borrowings under its New Credit
Facility bear interest rates based on either a floating Base Rate or the
Eurodollar Rate. As of October 2, 1999, the Company had $161.3 million
outstanding under its New Credit Facility. The Company's other borrowings
consist of $95.0 million of senior subordinated debt due on April 2007 at a
fixed rate of 11%. As of October 2, 1999, the average interest rate on the
borrowings under the New Credit Facility was 9.2%. The definite extent of the
Company's interest rate risk under the New Credit Facility is not quantifiable
or predictable because of the variability of future interest rates and borrowing
requirements.
The Company is exposed to foreign currency risk by virtue of its Canadian and
Chinese operations. However, less than 10% of its annual revenues are generated
by these subsidiaries. Both Canada and China have traditionally had a relatively
stable currency and therefore the Company feels its exposure to significant
adjustments to be minimal. Additionally, the Company's consolidated financial
statements are denominated in U. S. dollars and, accordingly,
25
<PAGE>
changes in the exchange rate between U. S. dollars and these currencies affect
the operating results as well as stockholder's deficit. These adjustments, to
date, have not been material to the Company's consolidated balance sheet.
PART II - OTHER INFORMATION
ITEM 2: LEGAL PROCEEDINGS
There have been no material developments in legal proceedings involving the
Company or its subsidiaries since the Company's Annual Report on Form 10-K
for the year ended January 2, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Glenoit Corporation is hereby
incorporated by reference to Exhibit 3.1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411)
filed on December 16, 1997.
3.2 By-Laws of Glenoit Corporation are hereby incorporated by
reference to Exhibit 3.2 to Glenoit Corporation's Registration
Statement on Form S-4 (Registration No. 333-42411) filed on
December 16, 1997.
3.3 Certificate of Incorporation of Glenoit Asset Corporation is
hereby incorporated by reference to Exhibit 3.3 of Amendment No. 1
to Glenoit Asset Corporation's Registration Statement of Form S-4
(Registration No. 333-42411-01) filed February 4, 1998.
3.4 By-Laws of Glenoit Asset Corporation are hereby incorporated by
reference to Exhibit 3.4 of Amendment No. 1 to Glenoit Asset
Corporation's Registration Statement of Form S-4 (Registration No.
333-42411-01) filed February 4, 1998.
4.1 Indenture dated as of April 1, 1997 between Glenoit Corporation,
the Subsidiary Guarantors (as defined therein) and United States
Trust Company of New York is hereby incorporated by reference to
Exhibit 4.1 to Glenoit Corporation's Registration Statement on
Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
4.2 Purchase Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein),
Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is
hereby incorporated by reference to Exhibit 4.2 to Glenoit
Corporation's Registration Statement on Form S-4 (Registration No.
333-42411) filed on December 16, 1997.
4.3 Registration Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein),
Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is
hereby incorporated by reference to Exhibit 4.3 to Glenoit
Corporation's Registration Statement on Form S-4 (Registration No.
333-42411) filed on December 16, 1997.
26
<PAGE>
10.1 Second Amended and Restated Credit Agreement dated as of April 1,
1997 among Glenoit Corporation, the banks, financial institutions
and other institutional lenders listed on the signature pages
thereto as the Restatement Lenders, the Banque Nationale de Paris,
as Administrative Agent for the Lender Parties (as defined
therein) is hereby incorporated by reference to Exhibit 10.1 to
Glenoit Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on December 16, 1997.
10.2 Supply Agreement dated February 1, 1997 by and between the Company
and Sterling Fibers, Inc. is hereby incorporated by reference to
Exhibit 10.2 of Amendment No. 1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411)
filed on February 4, 1998.
10.3 Employment Agreement dated October 28, 1997 by and among the
Company, Glenoit Universal, Inc. and Thomas J. O'Gorman is hereby
incorporated to reference to Exhibit 10.3 of Amendment No. 1 to
Glenoit Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on February 4, 1998.
10.4 Employment Agreement dated August 5, 1996 by and between the
Company and Lester D. Sears is hereby incorporated by reference to
Exhibit 10.4 of Amendment No. 1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411)
filed on February 4, 1998.
10.5 Stockholders Agreement dated as of December 14, 1995 by and among
Glenoit Universal, Inc., Citicorp Venture Capital, John Mowbray
O'Mara, Banque Nationale de Paris, The Equitable Life Assurance
Society of the United States, the Seller, Soannes Investment
Corporation, Thomas J. O'Gorman and certain other parties thereto
to is hereby incorporated by reference to Exhibit 10.5 of
Amendment No. 1 to Glenoit Corporation's Registration Statement on
Form S-4 (Registration No. 333-42411) filed on February 4, 1998.
10.6 Second Amendment and Waiver to the Credit Agreement, dated October
2, 1998, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the Credit
Agreement and Banque Nationale de Paris as Agent is hereby
incorporated by reference to Exhibit 4.1 of Glenoit Corporation's
Form 8-K filed on October 16, 1998.
10.7 Stock Purchase Agreement dated October 2, 1998 among Glenoit
Corporation, American Pacific Enterprises, Inc., Steven J. Block,
Jeffrey J. Block and Gregory D. Block is hereby incorporated by
reference to Exhibit 2.1 of Glenoit Corporation's Form 8-K filed
on October 16, 1998
10.8 Third Amendment and Waiver to the Credit Agreement, dated October
30, 1998, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the Credit
Agreement and Banque Nationale de Paris as Agent is incorporated
by reference to Exhibit 10.8 of Glenoit Corporation's Form 10-K
filed on April 1, 1999.
10.9 Third Amended and Restated Credit Agreement, dated February 12,
1999, among Glenoit Corporation, the banks, financial institutions
and other institutional lenders parties to the Credit Agreement
and Banque Nationale de Paris as Agent is hereby incorporated by
reference to Exhibit 4.1 of Glenoit Corporation's Form 8-K filed
on February 26, 1999.
27
<PAGE>
10.10 Stock Purchase Agreement dated February 12, 1999, among Glenoit
Corporation, Ex-Cell Home Fashions, Inc., Arnold Angerman, Irving
Angerman, Samuel Samelson and two trusts is hereby incorporated by
reference to Exhibit 2.1 of Glenoit Corporation's Form 8-K filed
on February 26, 1999.
10.11 Amendment No. 2 to the Third Amended and Restated Credit
Agreement, dated as of June 29, 1999, among Glenoit Corporation,
the banks, financial institutions and other institutional lenders
and Banque Nationale de Paris as Agent is hereby incorporated by
reference to Exhibit 10.11 of Glenoit Corporation's Form 10-Q
filed on August 24, 1999.
10.12 Amendment No. 3 to the Third Amended and Restated Credit
Agreement, dated as of August 20, 1999, among Glenoit Corporation,
the banks, financial institutions and other institutional lenders
and Banque Nationale de Paris as Agent is hereby incorporated by
reference to Exhibit 10.12 of Glenoit Corporation's Form 10-Q
filed on August 24, 1999.
10.13 Amendment No. 4 to the Third Amended and Restated Credit
Agreement, dated as of October 29, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent.
10.14 Amendment No. 5 to the Third Amended and Restated Credit
Agreement, dated as of November 8, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent.
21.1 Subsidiaries of Glenoit Corporation is hereby incorporated by
reference to Exhibit 21.1 to Glenoit Corporation's Registration
Statement on Form S-4 (Registration No. 333-42411) filed on
December 16, 1997.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
(b) Reports on Form 8-K
None
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 23, 1999
GLENOIT CORPORATION
By /S/ LESTER D. SEARS
-----------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 23, 1999
GLENOIT ASSET CORPORATION
By /S/ LESTER D. SEARS
-----------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
29
Exhibit 10.13
AMENDMENT NO. 4 AND WAIVER TO THE
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 29, 1999
AMENDMENT NO. 4 AND WAIVER TO THE THIRD AMENDED AND RESTATED
CREDIT AGREEMENT dated as of October 29, 1999 among Glenoit Corporation, a
Delaware corporation (the "Borrower"), the banks, financial institutions and
other institutional lenders listed on the signature pages thereof as the
Restatement Lenders (the "Lenders"), the bank listed on the signature pages
thereof as the Issuing Bank (the "Issuing Bank"), Banque Nationale de Paris, as
the swing line bank (the "Swing Line Bank") and as administrative agent (the
"Agent") for the Lender Parties and the arranger (the "Arranger"), Fleet
National Bank, as syndication agent (the "Syndication Agent"), and LaSalle Bank
National Association, as documentation agent (the "Documentation Agent";
together with the Agent and the Syndication Agent, the "Agents").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agents have entered into
a Third Amended and Restated Credit Agreement dated as of February 12, 1999 (as
amended, supplemented or modified through the date hereof, the "Credit
Agreement"). Capitalized terms not otherwise defined in this Amendment and
Waiver have the same meanings as specified in the Credit Agreement.
(2) The Borrower, the other Loan Parties and the Lenders have
agreed to amend and waive certain provisions of the Credit Agreement and the
Third Amended and Restated Security Agreement as hereinafter set forth.
SECTION 1. Waiver to the Credit Agreement. The Borrower hereby
requests that the Required Lenders waive, and by their signature on the
signature pages hereto, the Required Lenders hereby waive as of the date hereof
and subject to the satisfaction of the conditions precedent set forth in Section
3, maintenance of the Total Leverage Ratio, the Senior Leverage Ratio and the
Interest Coverage Ratio set forth in Sections 5.04(a)(i), 5.04(a)(ii) and
5.04(c) of the Credit Agreement, respectively, in each case for the Rolling
Period ending on or about September 1999.
SECTION 2. Amendment to the Credit Agreement. Schedule I to
the Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3 below, hereby
amended to increase the Letter of Credit Commitment of the Issuing Bank from
$2,500,000 to $5,000,000.
SECTION 3. Conditions of Effectiveness. This Amendment and
Waiver shall become effective as of the date first above written when, and only
when the Agent shall have received counterparts of this Amendment and Waiver
executed by the Borrower and the Required Lenders or, as to any of the Lenders,
advice satisfactory to the Agent that such Lender has executed this Amendment
and Waiver, and the consent attached hereto executed by each of the Guarantors
and each of the Grantors. Furthermore, this Amendment and Waiver is subject to
the provisions of Section 8.01 of the Credit Agreement.
<PAGE>
SECTION 4. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) the representations and warranties contained in each Loan
Document are correct on and as of the date hereof, after giving effect
to this Amendment and Waiver, as though made on and as of the date
hereof, other than any such representations or warranties that by their
terms, refer to a specific date, in which case, as of such specific
date; and
(b) no Default has occurred and is continuing under the Credit
Agreement, as amended hereby, or would result from this Amendment and
Waiver or the consummation of the transactions contemplated hereby.
SECTION 5. Reference to and Effect on the Loan Documents. (a)
On and after the effectiveness of this Amendment and Waiver, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the Notes and
each of the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended by this Amendment and
Waiver.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment and Waiver, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment and Waiver shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of any Lender or the Agent under any of
the Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all costs and expenses of the Agent in connection with the
preparation, execution, delivery and administration, modification and amendment
of this Amendment and Waiver, the Notes and the other instruments and documents
to be delivered hereunder (including, without limitation, the reasonable fees
and expenses of counsel for the Agent) in accordance with the terms of Section
8.04 of the Credit Agreement. In addition, the Borrower shall pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this Amendment and Waiver and the other instruments
and documents to be delivered hereunder, and agrees to hold the Agent and each
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.
SECTION 7. Execution in Counterparts. This Amendment and
Waiver may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute but one and
the same agreement. Delivery of an executed counterpart of a signature page to
this Amendment and Waiver by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment and Waiver.
SECTION 8. Governing Law. This Amendment and Waiver shall be
governed by, and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Waiver to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
<PAGE>
GLENOIT CORPORATION
By Thomas J. O'Gorman
Title:President and CEO
AGENT
-----
BANQUE NATIONALE DE PARIS,
as Agent and as a Lender
By Alan Mustacchi
Title:Director
By Elie Doft
Title:Associate
<PAGE>
LENDERS
-------
BOEING CAPITAL CORPORATION
By David Nelson
Name:David Nelson
Title:Special Credits Officer
<PAGE>
CENTURA BANK
By Lowry D. Perry
--------------
Name:Lowry D. Perry
Title:Bank Officer
<PAGE>
COMERICA
By Joel S. Gordon
Name:Joel S. Gordon
Title:Account Representative
<PAGE>
DEUTSCHE FINANCIAL SERVICES
By Philip G. Porcher, IX
Name:Philip G. Porcher, IX
Title:Vice President
<PAGE>
FIRST SOURCE FINANCIAL LLP,
By First Source Financial, Inc. as its
Agent/Manager
By Jeffrey A. Cerny
Name:Jeffrey A. Cerny
Title:Vice President
<PAGE>
FLEET BANK, N.A.
By Alfred Bonfantini
Name:Alfred Bonfantini
Title:Senior Vice President
<PAGE>
INVESCO
By Gregory Stoeckle
Name: Gregory Stoeckle
Title: Authorized Signatory
<PAGE>
LASALLE BANK NATIONAL
ASSOCIATION
By Kristen J. Lindgergh
Name: Kristen J. Lindbergh
Title: Corporate Banking Officer
<PAGE>
KZH ING-1 LLC
By Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
KZH ING-2 LLC
By Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
KZH ING-3 LLC
By Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
METROPOLITAN LIFE INSURANCE
COMPANY
By James R. Dinger
Name: James R. Dinger
Title: Director
<PAGE>
VAN KAMPEN SENIOR FLOATING RATE FUND
By Darvin D. Pierce
Name: Darvin D. Pierce
Title: Vice President
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST
By Darvin D. Pierce
Name: Darvin D. Pierce
Title: Vice President
<PAGE>
FLEET BUSINESS CREDIT CORPORATION
By Mark Pickering
Name: Mark Pickering
Title: Vice President
<PAGE>
Consent to Amendment No. 4 and Waiver
Dated as of October 29, 1999
The undersigned, Glenoit Universal, Ltd., a Delaware
corporation, and a Guarantor under the Third Amended and Restated Parent
Guarantee dated February 12, 1999 (the "Parent Guarantee") and a Grantor under
the Third Amended and Restated Security Agreement dated February 12, 1999 (as
amended through the date hereof, the "Security Agreement"), each in favor of the
Agent, for its benefit and the benefit of the Lenders parties to the Credit
Agreement referred to in the foregoing Amendment and Waiver; and Glenoit Assets
Corp., a Delaware corporation, American Pacific Enterprises, Inc., an Ohio
corporation, Grand Avenue Corp., a Delaware corporation, Ex-Cell Home Fashions,
Inc., a North Carolina corporation, Ex-Cell of Bentonville, Inc., an Arkansas
corporation, and Ex-Cell Linde of Carolina, a North Carolina corporation, each a
Guarantor under the Third Amended and Restated Subsidiary Guarantee dated
February 12, 1999 (the "Subsidiary Guarantee" and, together with the Parent
Guarantee, the "Guarantees" ) in favor of the Agent, for its benefit and the
benefit of the Lenders parties to the Credit Agreement referred to in the
foregoing Amendment and Waiver, and each a Grantor under the Security Agreement,
hereby consent to such Amendment and Waiver and hereby confirm and agree that
(a) notwithstanding the effectiveness of such Amendment and Waiver, the
Guarantees and the Security Agreement are, and shall continue to be, in full
force and effect and are hereby ratified and confirmed in all respects, except
that, on and after the effectiveness of such Amendment and Waiver, each
reference in the Parent Guarantee, the Subsidiary Guarantee and the Security
Agreement to the "Credit Agreement", "thereunder", "thereof" or words of like
import shall mean and be a reference to the Credit Agreement, as amended by such
Amendment and Waiver, and (b) the Collateral Documents to which each such
Guarantor and each such Grantor is a party and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations (in each case, as defined therein).
GLENOIT UNIVERSAL, LTD.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
GLENOIT ASSETS CORP.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
GRAND AVENUE CORP.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
EX-CELL HOME FASHIONS, INC.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
EX-CELL OF BENTONVILLE, INC.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
EX-CELL LINDE OF CAROLINA, INC.
By Thomas J. O'Gorman
Name:Thomas J. O'Gorman
Title:President and CEO
Exhibit 10.14
AMENDMENT NO. 5 AND WAIVER TO THE
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 18, 1999
AMENDMENT NO. 5 AND WAIVER TO THE THIRD AMENDED AND RESTATED
CREDIT AGREEMENT dated as of November 18, 1999 among Glenoit Corporation, a
Delaware corporation (the "Borrower"), the banks, financial institutions and
other institutional lenders listed on the signature pages thereof as the
Restatement Lenders (the "Lenders"), the bank listed on the signature pages
thereof as the Issuing Bank (the "Issuing Bank"), Banque Nationale de Paris, as
the swing line bank (the "Swing Line Bank") and as administrative agent (the
"Agent") for the Lender Parties and the arranger (the "Arranger"), Fleet
National Bank, as syndication agent (the "Syndication Agent"), and LaSalle Bank
National Association, as documentation agent (the "Documentation Agent";
together with the Agent and the Syndication Agent, the "Agents").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agents have entered into
a Third Amended and Restated Credit Agreement dated as of February 12, 1999 (as
amended, supplemented or modified through the date hereof, the "Credit
Agreement"). Capitalized terms not otherwise defined in this Amendment and
Waiver have the same meanings as specified in the Credit Agreement.
(2) The Borrower, the other Loan Parties and the Lenders have
agreed to amend and waive certain provisions of the Credit Agreement and the
Third Amended and Restated Security Agreement as hereinafter set forth.
SECTION 1. Waiver to the Credit Agreement. The Borrower hereby
requests that the Required Lenders waive as of the date first written above, and
by their signature on the signature pages hereto, the Required Lenders hereby
waive as of the date first written above, subject to the satisfaction of the
conditions precedent set forth in Section 3, maintenance of the Total Leverage
Ratio and the Senior Leverage Ratio set forth in Sections 5.04(a)(i) and (ii) of
the Credit Agreement, respectively, in each case for the Rolling Period ending
during October 1999.
SECTION 2. Amendments to the Credit Agreement. The Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3 below, hereby amended as
follows:
(a) Section 1.01 of the Credit Agreement is hereby amended (i)
to delete the definitions of "AGGREGATE REVOLVER BORROWINGS" and
"REVOLVER BORROWING LIMIT", (ii) to amend the definition of "EBITDA"
therein to (A) delete the language "and (vii)" in clause (b) thereof
and to substitute therefor the language "(vii)", and (B) insert the new
subclause (viii) to such clause (b) which new subclause reads as
follows:
", and (viii) the adjustment amount set forth in Schedule III
hereto for such Fiscal Month
", and
<PAGE>
(iii) to amend the definition of "MONTHLY AVERAGE WORKING CAPITAL
ADVANCES" therein to (A) delete the language "the first anniversary of
the Third Restatement Date" in the fourth and fifth lines thereof and
to substitute therefor the language "November 30, 2000" and (B) delete
the language "the Third Restatement Date" from clauses (i) and (ii) of
the proviso to such definition and to substitute therefor the language
"November 30, 1999".
(b) Section 2.06(b)(iii) is hereby amended (i) to delete the
parenthetical "(without duplication of amounts payable under both
clauses (A) and (B) below)" in the third and fourth line thereof, (ii)
to delete the language "(A)(1)" in the fourth line thereof and
substitute therefor the new language "(A)", (iii) to delete the
language "exceeds (2)" in the sixth line thereof and substitute
therefor the new language "exceeds (B)", and (iv) to delete clause (B)
of such Section 2.06(b)(iii) and the proviso thereto.
(c) Section 3.02 is hereby amended (i) to insert the word
"and" immediately before subsection (b) of such Section and (ii) to
delete the phrase "and (c) the amount of the Aggregate Revolver
Borrowings,".
(d) Section 5.04(a)(i) is hereby amended (i) to delete the
ratio "5.85:1.00" set forth in respect of Fiscal Month November 1999
and to substitute therefor the ratio "6.10:1.00"; (ii) to delete the
ratio "5.85:1.00" set forth in respect of Fiscal Month December 1999
and to substitute therefor the ratio "6.40:1.00"; and (iii) to insert
immediately after the Fiscal Month December 1999 the following:
------------------------- --------------
Fiscal Month Ratio
------------------------- --------------
------------------------- --------------
January 2000 6.45:1.00
------------------------- --------------
------------------------- --------------
February 2000 6.45:1.00
------------------------- --------------
(e) Section 5.04(a)(ii) is hereby amended (i) to delete the
ratio "3.70:1.00" set forth in respect of Fiscal Month December 1999
and to substitute therefor the ratio "3.85:1.00" and (ii) to insert
immediately after the Fiscal Month December 1999 the following:
------------------------- --------------
Fiscal Month Ratio
------------------------- --------------
------------------------- --------------
January 2000 3.85:1.00
------------------------- --------------
------------------------- --------------
February 2000 3.85:1.00
------------------------- --------------
(f) Section 5.04(c) is hereby amended to delete the ratio
"1.65:1.00" set forth in respect of Fiscal Month December 1999 and to
substitute therefor the ratio "1.40:1.00".
(g) Schedule III is hereby added to the Credit Agreement and
shall read as set forth on Exhibit A hereto.
SECTION 3. Conditions of Effectiveness. This Amendment and
Waiver shall become effective as of the date first above written when, and only
when the Agent shall have received:
<PAGE>
(a) counterparts of this Amendment executed by the Borrower
and the Required Lenders or, as to any of the Lenders, advice
satisfactory to the Agent that such Lender has executed this Amendment,
and the consent attached hereto executed by each of the Guarantors and
each of the Grantors; and
(b) for the benefit of each Lender, an amendment fee for the
account of each Lender in an amount equal to 0.25% of such Lender's
aggregate Commitments.
Furthermore, this Amendment and Waiver is subject to the provisions of Section
8.01 of the Credit Agreement.
SECTION 4. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) the representations and warranties contained in each Loan
Document are correct on and as of the date hereof, after giving effect
to this Amendment and Waiver, as though made on and as of the date
hereof, other than any such representations or warranties that by their
terms, refer to a specific date, in which case, as of such specific
date; and
(b) no Default has occurred and is continuing under the Credit
Agreement, as amended hereby, or would result from this Amendment and
Waiver or the consummation of the transactions contemplated hereby.
SECTION 5. Reference to and Effect on the Loan Documents. (a)
On and after the effectiveness of this Amendment and Waiver, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the Notes and
each of the other Loan Documents to "the Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended by this Amendment and
Waiver.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as specifically amended by this Amendment and Waiver, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment and Waiver shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of any Lender or the Agent under any of
the Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all costs and expenses of the Agent in connection with the
preparation, execution, delivery and administration, modification and amendment
of this Amendment and Waiver, the Notes and the other instruments and documents
to be delivered hereunder (including, without limitation, the reasonable fees
and expenses of counsel for the Agent) in accordance with the terms of Section
8.04 of the Credit Agreement. In addition, the Borrower shall pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this Amendment and Waiver and the other instruments
and documents to be delivered hereunder, and agrees to hold the Agent and each
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes.
<PAGE>
SECTION 7. Execution in Counterparts. This Amendment and
Waiver may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute but one and
the same agreement. Delivery of an executed counterpart of a signature page to
this Amendment and Waiver by telecopier shall be effective as delivery of a
manually executed counterpart of this Amendment and Waiver.
SECTION 8. Governing Law. This Amendment and Waiver shall be
governed by, and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Waiver to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
GLENOIT CORPORATION
By Thomas J. O'Gorman
Title: President and CEO
AGENT
BANQUE NATIONALE DE PARIS,
as Agent and as a Lender
By Alan Mustacchi
Title: Director
By Elie Doft
Title: Associate
LENDERS
BOEING CAPITAL CORPORATION
By David Nelson
Name: David Nelson
Title: Special Credits Officer
<PAGE>
CENTURA BANK
By Lowry D. Perry
Name: Lowry D. Perry
Title: Bank Officer
<PAGE>
COMERICA
By Joel S. Gordon
Name: Joel S. Gordon
Title: Account Representative
<PAGE>
DEUTSCHE FINANCIAL SERVICES
By Philip G. Porcher, IX
Name: Philip G. Porcher, IX
Title: Vice President
<PAGE>
FIRST SOURCE FINANCIAL LLP,
By First Source Financial, Inc. as its
Agent/Manager
By Jeffrey A. Cerny
Name: Jeffrey A. Cerny
Title: Vice President
<PAGE>
FLEET BANK, N.A.
By Alfred Bonfantini
Name: Alfred Bonfantini
Title: Senior Vice President
<PAGE>
INVESCO
By Gregory Stoeckle
Name: Gregory Stoeckle
Title: Authorized Signatory
<PAGE>
LASALLE BANK NATIONAL
ASSOCIATION
By Kristen J. Lindgergh
Name: Kristen J. Lindbergh
Title: Corporate Banking Officer
<PAGE>
KZH ING-1 LLC
By Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
KZH ING-2 LLC
By Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
KZH ING-3 LLC
By Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
By James R. Dinger
Name: James R. Dinger
Title: Director
<PAGE>
VAN KAMPEN SENIOR FLOATING RATE FUND
By Darvin D. Pierce
Name: Darvin D. Pierce
Title: Vice President
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST
By Darvin D. Pierce
Name: Darvin D. Pierce
Title: Vice President
FLEET BUSINESS CREDIT CORPORATION
By Mark Pickering
Name: Mark Pickering
Title: Vice President
<PAGE>
Consent to Amendment and Waiver No. 5
Dated as of November 18, 1999
The undersigned, Glenoit Universal, Ltd., a Delaware
corporation, and a Guarantor under the Third Amended and Restated Parent
Guarantee dated February 12, 1999 (the "Parent Guarantee") and a Grantor under
the Third Amended and Restated Security Agreement dated February 12, 1999 (as
amended through the date hereof, the "Security Agreement"), each in favor of the
Agent, for its benefit and the benefit of the Lenders parties to the Credit
Agreement referred to in the foregoing Amendment and Waiver; and Glenoit Assets
Corp., a Delaware corporation, American Pacific Enterprises, Inc., an Ohio
corporation, Grand Avenue Corp., a Delaware corporation, Ex-Cell Home Fashions,
Inc., a North Carolina corporation, Ex-Cell of Bentonville, Inc., an Arkansas
corporation, and Ex-Cell Linde of Carolina, a North Carolina corporation, each a
Guarantor under the Third Amended and Restated Subsidiary Guarantee dated
February 12, 1999 (the "Subsidiary Guarantee" and, together with the Parent
Guarantee, the "Guarantees" ) in favor of the Agent, for its benefit and the
benefit of the Lenders parties to the Credit Agreement referred to in the
foregoing Amendment and Waiver, and each a Grantor under the Security Agreement,
hereby consent to such Amendment and Waiver and hereby confirm and agree that
(a) notwithstanding the effectiveness of such Amendment and Waiver, the
Guarantees and the Security Agreement are, and shall continue to be, in full
force and effect and are hereby ratified and confirmed in all respects, except
that, on and after the effectiveness of such Amendment and Waiver, each
reference in the Parent Guarantee, the Subsidiary Guarantee and the Security
Agreement to the "Credit Agreement", "thereunder", "thereof" or words of like
import shall mean and be a reference to the Credit Agreement, as amended by such
Amendment and Waiver, and (b) the Collateral Documents to which each such
Guarantor and each such Grantor is a party and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations (in each case, as defined therein).
GLENOIT UNIVERSAL, LTD.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
GLENOIT ASSETS CORP.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
GLENOIT ASSETS CORP.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
<PAGE>
AMERICAN PACIFIC ENTERPRISES, INC.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
GRAND AVENUE CORP.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
EX-CELL HOME FASHIONS, INC.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
EX-CELL OF BENTONVILLE, INC.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
EX-CELL LINDE OF CAROLINA, INC.
By Thomas J. O'Gorman
Name: Thomas J. O'Gorman
Title: President and CEO
<PAGE>
Exhibit A to Amendment No. 5
Schedule III to the Credit Agreement
--------------------------- ---------------------------------
FISCAL MONTH ADJUSTMENT AMOUNT (000)
--------------------------- ---------------------------------
December 1998 $624
--------------------------- ---------------------------------
January 1999 $624
--------------------------- ---------------------------------
February 1999 $624
--------------------------- ---------------------------------
March 1999 $624
--------------------------- ---------------------------------
April 1999 $629
--------------------------- ---------------------------------
May 1999 $614
--------------------------- ---------------------------------
June 1999 $229
--------------------------- ---------------------------------
July 1999 $219
--------------------------- ---------------------------------
August 1999 $229
--------------------------- ---------------------------------
September 1999 $70
--------------------------- ---------------------------------
October 1999 $70
--------------------------- ---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
for the quarter ending October 2, 1999, and such is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001051260
<NAME> Glenoit Asset Corporation
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 28
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,666
<CURRENT-LIABILITIES> 8,191
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,475
<TOTAL-LIABILITY-AND-EQUITY> 47,666
<SALES> 0
<TOTAL-REVENUES> 5,822
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,168)
<INCOME-PRETAX> 7,981
<INCOME-TAX> 2,791
<INCOME-CONTINUING> 5,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,190
<EPS-BASIC> 5.19
<EPS-DILUTED> 5.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
for the quarter ending October 2, 1999, and such is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001047368
<NAME> Glenoit Corporation
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 761
<SECURITIES> 0
<RECEIVABLES> 52,750
<ALLOWANCES> (4,450)
<INVENTORY> 56,912
<CURRENT-ASSETS> 115,101
<PP&E> 117,300
<DEPRECIATION> (46,778)
<TOTAL-ASSETS> 246,710
<CURRENT-LIABILITIES> 32,193
<BONDS> 256,325
0
0
<COMMON> 0
<OTHER-SE> (55,254)
<TOTAL-LIABILITY-AND-EQUITY> 246,710
<SALES> 222,135
<TOTAL-REVENUES> 222,135
<CGS> 156,998
<TOTAL-COSTS> 60,493
<OTHER-EXPENSES> 17,944
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 19,186
<INCOME-PRETAX> (14,363)
<INCOME-TAX> (5,100)
<INCOME-CONTINUING> (9,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,263)
<EPS-BASIC> (9.26)
<EPS-DILUTED> (9.26)
</TABLE>
