SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDING JANUARY 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 (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 (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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regular S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
None of the voting securities of Glenoit Corporation or Glenoit Asset
Corporation is held by non-affiliates.
As of January 2, 1999, there were 1,000 shares of Glenoit Corporation common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
GLENOIT CORPORATION AND GLENOIT ASSET CORPORATION
FORM 10-K Annual Report Index
Item 1. Business, page 1.
Item 2. Properties, page 9.
Item 3. Legal Proceedings, page 9.
Item 4. Submission of Matters to a Vote of Security Holders, 9.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters,
page 9.
Item 6. Selected Financial Data, page 10.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, page 12.
Item 8. Financial Statements and Supplementary Data, page 16.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure, page 16.
Item 10. Directors and Executive Officers of the Registrant, page 17.
Item 11. Executive Compensation, page 18.
Item 12. Security Ownership of Certain Beneficial Owners and Management, page
20.
Item 13. Certain Relationships and Related Transactions, page 21.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, page
23.
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PART I
ITEM 1: BUSINESS
GENERAL
Glenoit Corporation (the "Company"), founded in 1954, is a domestic
manufacturer and marketer of specialty fabrics known as "sliver-knit" pile
fabrics, a domestic manufacturer of printed rugs for the home and, through its
recently acquired subsidiary, American Pacific Enterprises, Inc., ("APE") a
designer, importer and marketer of decorative textile home furnishings. Through
its Fabric Division, the Company produces an extensive line of sliver
(pronounced "sly-ver") knit pile fabrics, principally made from acrylic, which
are used in the manufacture of performance-oriented outerwear, sportswear,
coats, accessories, home textiles, automotive interiors, military uniforms, toys
and a variety of other end-use products. The Company principally manufactures
fabrics on a made-to-order basis and currently has over 1,100 customers.
Sliver-knit pile fabrics are produced through a specialized process in which
fabric is manufactured directly from loose fibers, in contrast to the more
traditional knitting process in which fibers are first spun into yarn and then
knit into fabric. The Fabric Division's sales for fiscal 1998 totaled
approximately $106.7 million. Through its Consumer Products Division, the
Company manufactures a wide variety of printed kitchen rugs, welcome mats, bath
rugs and children's area rugs sold primarily through national discount
retailers. Fiscal 1998 sales for the Consumer Products Division totaled
approximately $47.9 million. On October 2, 1998, the Company acquired all of the
outstanding stock of APE. APE is a designer, importer and marketer of
fashion-forward decorative textile home furnishings, principally quilts and
specialty bedding items. Since the acquisition, APE's net sales were
approximately $17.4 million in fiscal 1998. On February 12, 1999, the Company
acquired all outstanding shares of Ex-Cell Home Fashions, Inc. ("Ex-Cell").
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.
The Company has experienced growth in sales, operating income and earnings
before interest, taxes, depreciation and amortization ("EBITDA") over the past
five years. However, there was a decline in operating income and EBITDA from
1997 to 1998. In connection with this growth, the Company has incurred
significant debt. As of January 2, 1999, the Company had outstanding
indebtedness of $160.7 million (excluding trade payables, accrued liabilities,
and unused commitments under its credit facilities). From fiscal 1994 to fiscal
1998, the Company's net sales have grown from $72.5 million to $172.0 million,
representing a compound annual growth rate ("CAGR") of 24.1%. Excluding the
impact of certain expenses totaling $6.9 million related to the results of APE
subsequent to the acquisition, operating income for fiscal 1998 was $22.4
million and has grown from $10.3 million in fiscal 1994 representing a CAGR of
21.2% and EBITDA has grown from $11.7 million to $27.9 million representing a
CAGR of 24.2%. The growth from fiscal 1994 to fiscal 1997 principally occurred
in the Fabric Division and is attributable to the Company's development and
introduction of branded, performance-oriented sliver-knit fabrics. During fiscal
1998, sales in the Fabric Division decreased slightly but were offset by sales
growth in the Consumer Products Division and net sales of $17.4 million
generated from APE since October 2, 1998.
The Company developed fabrics to target the increasing consumer preference
towards more casual and comfortable dress and a growing emphasis on outdoor
activities and styling related to outdoor activities. Beginning with Glenaura
(TM) in 1993, the Company has introduced a series of branded,
performance-oriented fabrics which have transformed the Company's Fabric
Division from a traditional deep-pile fabric manufacturer dependent upon the
coat market into a diversified fabric producer serving a broader range of faster
growing end-use markets. Today, the Company's performance-oriented fabrics are
principally manufactured from acrylic micro-fiber and are marketed under the
brand names Berber by Glenoit(TM), Glenaura(TM), Zendura(TM) and GlenPile
(TM). The Company believes that its performance-oriented sliver-knit fabrics
offer apparel manufacturers greater design flexibility and superior performance
characteristics in comparison with competing fleece fabrics. These qualities
include the enhanced design and color capability of "Jacquard" knitting (which
allows the fabrics to have intricate and colorful designs knitted into the
fabric rather than printed onto the surface), added versatility in texture and
feel and greater warmth-to-weight ratios and the ability to promote the
evaporation of perspiration, thereby providing greater warmth to the wearer.
These performance-oriented fabrics have been introduced by the Company's
customers into sportswear lines marketed under brand names such as Liz
Claiborne, Jones New York, Ralph Lauren and Anne Klein; outerwear lines marketed
under brand names such as L.L. Bean, Lands' End, Columbia, Woolrich and Bogner;
and private label programs for retailers such as Saks Fifth Avenue, Nordstrom,
Lord & Taylor, Banana Republic, Victoria's Secret and The Gap.
In addition to performance-oriented sliver-knit fabrics, the Company is a
manufacturer and marketer of FAUX furs in the United States. FAUX fur
synthetically replicates animal fur such as mink, beaver and leopard and is
typically used in women's and children's coats. The Company also manufactures
fabrics used to cover audio speakers in certain models of automobiles, fireproof
fabric marketed under the Glentec(TM) name used by the United States Navy, and
a wide variety of other fabrics used in the manufacture of toys, golf club head
covers, powder puffs, case linings and other end-use products.
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The Company believes that it is currently the principal domestic
manufacturer of sliver-knit fabrics made from micro-fiber (which is defined as
fiber having a diameter of less than one denier). The Company's ability to
produce these fabrics is a result of its (i) manufacturing expertise in the
sliver-knitting process which is more complex and difficult to utilize than
traditional knitting, (ii) state-of-the-art sliver-knitting equipment with
proprietary manufacturing enhancements, (iii) experienced sliver-knitting
workforce and (iv) exclusive supply agreement for Microsupreme(R) acrylic
micro-fiber with Sterling Fibers, Inc. Over the last seven years, the Company
has replaced or substantially upgraded all of its knitting equipment. Effective
August 30, 1997, the Company, through its wholly-owned subsidiary, Glenoit
Corporation of Canada, acquired certain assets and liabilities of Collins &
Aikman's Canada, Inc. Management believes as a result of unseasonably warm
weather during the last 18 months which affected retailer demand for our high
performance outerwear fabrics and the influx of low priced apparel products,
mostly from Asia, the Fabric Division's sales growth has slowed and may
potentially decline. While the Company continues to develop new and innovative
fabrics, there has been an overall decline in the sourcing of apparel fabric
manufactured in the United States. As a result, the Company is taking steps in
1999 to consolidate operations and eliminate excess capacity. In connection with
those actions, the Company will close its Tennessee facility and relocate
certain machinery and equipment necessary to its North Carolina and Canadian
facilities to support current and future sales volumes.
The Consumer Products Division manufactures a wide variety of printed
kitchen rugs, welcome mats, bath rugs and children's area rugs which are sold to
national discount retailers including Wal-Mart, Kmart and Target, which
typically sell such rugs at retail prices ranging from $3.99 to $9.99. A
majority of the Company's kitchen rugs are manufactured under an exclusive
licensing agreement with Barth and Dreyfuss of California, Inc. ("B&D"), a major
manufacturer of kitchen textiles such as towels and potholders. Under the
licensing agreement, the Company has the exclusive right to use B&D's designs on
the Company's kitchen rugs, which are marketed jointly with B&D's kitchen
textile products.
The Company believes that its vertically integrated, state-of-the-art
manufacturing and design operations provide the Consumer Products Division with
efficient design capabilities, a low-cost, high-quality product line, and the
ability to manufacture and ship large orders in a short time period. The
Company's technology allows it to take a customer's design and produce numerous
rug samples in as little as two hours, without incurring the expense and the one
month time delay associated with full scale production. The Company's heat
transfer and screen printing capabilities allow it to produce printed rugs that
have an appearance similar to that of woven rugs but cost significantly less to
produce. The Company has the ability to produce over 500,000 rugs per week and
generally ships rugs within five business days after receiving an order.
Founded in 1984 and acquired by the Company on October 2, 1998, APE is a
leading designer, importer and marketer of decorative textile home furnishings,
principally quilts and decorative bedding items. APE's operating strategy is
based on its ability to design products based on current and forecasted fashion
trends and then contract for production with established, independent
manufacturers principally located in China. This strategy results in a
competitive advantage of being able to market high quality, fashion forward
consumer products at competitive price points. APE's product mix consists of
specialty decorative bedding, handmade quilts, seasonal and novelty home
furnishings, fashion window coverings and complementary bath fashions. APE's
overseas manufacturing infrastructure allows for a large quantity of customized
designs without significant additional capital investment in plant and
equipment. Key brands include American Pacific, Match, Hawthorne Hill, Tucker
Lane and Country Classics. APE also maintains licensing agreement with Waverly
and just recently Nautica. The Company believes that the acquisition of APE will
expand its current product offerings to the large retailers, further penetrate
the specialty retailing segment and diversify product sourcing capabilities
beyond North America.
On August 31, 1998, the Company announced that it is expanding its presence
in the home fashions arena with the launch of a new home textiles division,
Madison Landing. This division will supply decorative pillows, table linens,
duvets and other fashion accessories to the retail industry.
BUSINESS STRATEGY
Principal elements of the Company's strategy are:
LEVERAGE EXISTING DISTRIBUTION CHANNELS. The Company seeks to utilize its
strong distribution relationships with large national discount retailers such as
Wal-Mart, Kmart and Target to expand distribution of its expanded home
furnishing products. Today, the Company primarily sells kitchen rugs through
this distribution channel; however, the Company is planning to expand its
distribution of APE's products through this channel. In addition, the Company
intends to utilize APE's strong relationships with certain specialty retailers
to expand its distribution of household rugs.
LEVERAGE FOREIGN SOURCING CAPABILITIES. As part of the acquisition of APE,
Glenoit obtained the ability to source products for its operating units beyond
North America. Glenoit intends to expand its ability to leverage the low-cost,
high quality overseas sourcing capabilities.
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MAKE SELECTIVE ACQUISITIONS. The Company intends to pursue selective
strategic acquisitions in order to broaden consumer product offerings to the
large national discount retailers as well as further penetrate the specialty
retailing segment. As previously mentioned, the Company acquired all the
outstanding shares of Ex-Cell, which will broaden the Company's product
offerings to the above mentioned distribution channels.
INCREASE PENETRATION OF HOME TEXTILE MARKET WITH INNOVATIVE NEW PRODUCTS.
The Company plans to continue to develop innovative fabric products for the home
textile market, a relatively small but fast growing segment of the Fabric
Division. The Company believes that its micro-fiber fabrics are well suited for
use in products for the home textile market, and the Company recently began
selling its micro-fiber fabrics for use in throws, covered pillows and
comforters.
BUILD BRAND AWARENESS. The Company has been building brand awareness for its
performance-oriented fabrics by promoting Glenoit's brand names through garment
hang-tags, a print advertising campaign undertaken jointly with its supplier of
acrylic micro-fiber and designers' advertisements and retailers' catalogs which
mention the Company's fabric by name.
PRODUCTS
FABRIC DIVISION
The Fabric Division manufactures a diverse line of sliver-knit pile fabrics
used in the manufacture of performance-oriented outerwear, sportswear, coats,
accessories, home textiles, automotive interiors, military clothing and other
products. The Fabric Division's largest and fastest growing segment is a line of
performance-oriented micro-fiber fabrics which are principally made from
Microsupreme(R) micro-fiber produced by Sterling Fibers, Inc. In 1993, the
Company introduced the first of its performance-oriented fabrics, Glenaura(TM),
and has since introduced Berber by Glenoit(TM)(1994), Zendura(TM)(1995) and
GlenPile(TM)(1996). These fabrics are primarily used in the manufacture of
outerwear, sportswear, and accessories, including coats, pullovers, heavy
shirts, hats, gloves, scarves, robes and slippers, and are sold to manufacturers
of sportswear marketed under brand names such as Liz Claiborne, Jones New York,
Ralph Lauren and Anne Klein; manufacturers of outerwear marketed under brand
names such as L.L. Bean, Lands' End, Columbia, Woolrich and Bogner; and private
label programs for retailers such as Saks Fifth Avenue, Nordstrom, Lord &
Taylor, Banana Republic, Victoria's Secret and The Gap. In addition, the Company
sells micro-fiber fabrics in the home textile market for use in throws, covered
pillows and comforters manufactured and marketed by Revman Industries Inc. under
the brand name Indoor Outfitters(TM).
The Fabric Division's second largest product category is FAUX fur which is
composed of fabrics with a heavier, deeper pile than performance-oriented
fabrics and is used in women's and children's coats and linings, which was the
Fabric Division's principal business prior to 1993. FAUX fur is typically used
to replicate traditional animal fur such as mink, beaver, seal and leopard. The
Company believes that it is the leading domestic supplier of FAUX fur and sells
its fabrics to manufacturers of garments that are sold through retailers such as
Saks Fifth Avenue, Bloomingdale's, Nordstrom, Neiman Marcus, Kmart and JC
Penney.
In the automotive market, the Company's fabrics, which allow for greater
sound penetration than other knit or woven fabrics, are used to cover audio
speakers in the interiors of automobiles produced by the Cadillac, Buick and
Oldsmobile divisions of General Motors Corporation. The Company also sells
fabric to the U.S. Government, including a fireproof fabric marketed under the
brand name Glentec(TM), which is used by the United States Navy. In addition,
the Company's fabrics are used in the manufacture of toys, golf club head
covers, powder puffs, linings for golf bags and musical instrument cases and
other end-use products.
CONSUMER PRODUCTS DIVISION
The Consumer Products Division produces a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs which are typically
two-feet by three-feet in size. The Consumer Product Division's largest product
category is kitchen rugs, which accounted for a substantial majority of its
fiscal 1998 net sales. A majority of the Company's kitchen rugs are manufactured
under an exclusive license agreement with B&D. Under this agreement, the Company
has the exclusive right to use B&D copyrighted designs to produce kitchen rugs
that are coordinated with B&D's towels, pot holders and other kitchen textiles.
These products are marketed jointly to retailers as a coordinated package. In
the children's area rug category, the Company produces rugs decorated with
licensed cartoon characters for Couristan, Inc., a major manufacturer and
distributor of area rugs. The Company's rugs have various surface textures and
are made primarily from polyester. The Company also produces cotton and
polypropylene rugs. The Consumer Products Division sells its rugs directly to
national discount retailers such as Wal-Mart, Kmart and Target, which typically
sell such rugs at retail prices ranging from $3.99 to $9.99.
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AMERICAN PACIFIC ENTERPRISES
APE is a designer, importer and distributor of fashion forward home textile
products. APE's principal products consist of quilts and specialty bedding
items. APE also designs and distributes seasonal/novelty home furnishings,
fashion window coverings and complementary bath products. These products are
designed by APE's in-house design department and are then sourced through its
overseas buying office. These products are typically sold to specialty retailers
such as Bed, Bath and Beyond as well as national retailers.
SALES AND MARKETING
FABRIC DIVISION
The Fabric Division's marketing efforts are handled by an in-house sales
force supported by a customer service department. The Fabric Division
supplements its sales coverage with several experienced commissioned, outside
sales organizations specializing in certain markets. The Fabric Division
maintains a showroom at the Company's headquarters in New York. The Fabric
Division has its own design and research and development departments that
develop exclusive designs for the Company and certain of the Company's
customers. No single customer accounted for more than 10% of the Fabric
Division's net sales in fiscal 1998, reflecting the diversity of its customer
base.
The Fabric Division principally manufactures fabrics on a made-to-order
basis, thereby minimizing its inventory. The Company's performance-oriented
fabrics are marketed principally under the brand names Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM) and GlenPile(TM), and are being increasingly promoted
through garment hang-tags and through a print advertising campaign undertaken
jointly with the Company's supplier of Microsupreme micro-fiber. As a result of
growing consumer recognition of the Company's branded fabrics, designers and
retailers are increasingly using the Company's brand names in their advertising
and catalogs.
CONSUMER PRODUCTS DIVISION
The B&D sales force, supervised by the Consumer Products Division's
marketing management, acts as representative agents for a large portion of all
the Consumer Products Division's products. In return, the Company pays B&D a
variable royalty on the sale of all rugs printed with B&D designs and also
contributes to the compensation of the B&D sales force. The Consumer Products
Division's marketing management maintains active relationships with key
customers, and marketing calls to these customers are made jointly by the
Company and B&D employees. The Consumer Products Division markets its products
primarily to national discount retailers such as Wal-Mart, Kmart and Target,
which collectively accounted for approximately 61% of the Consumer Products
Division's net sales in fiscal 1998. The Consumer Products Division has recently
entered into strategic marketing relationships in order to increase distribution
of the Company's rugs through hardware stores and specialty retail gift shops.
In order to support its sales force and respond promptly to the delivery
requirements of its customers, the Consumer Products Division utilizes
Electronic Data Interchange ("EDI") with most of its principal customers. EDI
minimizes the lead time for customer orders, permits a more efficient, targeted
manufacturing schedule, and improves communication, planning and processing
times at each stage of the production cycle. EDI, combined with the Company's
manufacturing capabilities, allows the customer to place an order on Monday and
in most cases have the products shipped by Friday. This rapid order turn-around
has resulted in an expanded relationship with Wal-Mart, Kmart, Target and other
major customers.
AMERICAN PACIFIC ENTERPRISES
APE's products are marketed through a network of home textile and seasonal
sales representatives. APE maintains a customer service center in Columbus, Ohio
that works closely with the various customers and production staff. Senior
management is actively involved in customer relations and the development of
licensing agreements. APE's current systems enables customers to participate in
product design, to customize product assortments and to execute purchase orders
electronically.
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MANUFACTURING FACILITIES AND OPERATIONS
The Company operates two manufacturing facilities located in Tarboro, North
Carolina, one manufacturing facility located in Jacksboro, Tennessee, and one
manufacturing facility located in Elmira, Ontario, Canada. APE leases a 160,000
square foot warehouse in Columbus, Ohio, a sales and design office in San
Francisco and a showroom in New York City. These leases terminate in April 2001,
July 1999 and April 2002, respectively. Annual rental cost for the APE
facilities total approximately $1,000,000. The Tennessee facility is leased with
an expiration date in August, 2007, and an annual rental cost of approximately
$580,000. As previously discussed, the Company is in the process of closing the
Tennessee facility and is negotiating with the owner a potential early
termination of this lease. The North Carolina and Canadian facilities are owned
by the Company. The Company also maintains a 10,000-square-foot administrative
office and sales showroom at 111 West 40th Street in New York City's garment
district. The lease on the New York office expires on July 31, 2005, and has an
annual rental cost of approximately $296,000. In the opinion of management, the
Company's manufacturing capacity is sufficient to meet the Company's requirement
for the foreseeable future. The following table sets forth certain information
relating to the Company's facilities:
<TABLE>
<CAPTION>
LOCATION APPROXIMATE SQUARE FEET USE
-------- ----------------------- ---
<S> <C> <C>
Tarboro, North Carolina
Plant #1.............................. 427,000 Fabric Division
Plant #2.............................. 281,000 Consumer Products Division
Jacksboro, Tennessee...................... 140,000 Fabric Division
Elmira, Ontario........................... 135,000 Fabric Division
Columbus, Ohio............................ 160,000 American Pacific Enterprises
San Francisco, California................. 14,000 American Pacific Enterprises
New York, New York........................ 10,000 American Pacific Enterprises
New York, New York........................ 10,000 Headquarters and Showroom
</TABLE>
FABRIC DIVISION
The Company is a vertically integrated manufacturer involved in all aspects
of the sliver-knitting process including dyeing, carding, knitting and
finishing. Sliver-knit fabrics are produced using a process in which the fabric
is knit directly from loose fibers, in contrast with the more traditional
knitting process in which fibers are first spun into yarn before being knit into
fabric. In the sliver-knitting process, pile is constructed by attaching loose
fibers to a lightweight knit backing. Tufts of fibers are caught in the tight
loops of the knit, allowing their loose ends to stand free from the backing to
form the pile. Because the fibers are added individually, various colors and
types of fiber can be mixed. This allows for versatility in fabric texture,
appearance and technical features. In addition, the Company's computer
controlled sliver-knitting machines have the capability of creating intricate
"Jacquard" patterns by mixing various fibers and colors. The Company's equipment
also performs a number of finishing processes that create different surface
textures from sheared and velvet-like to curled "sherpa" to "hi-low" patterns
with a subtle embossed look. With the Company's state-of-the-art equipment and
experienced research and production personnel, the Company manufactures a wide
variety of fabrics that can be used in a range of end-use products.
The sliver-knitting process begins with loose fibers that have been selected
for the aesthetic and technical qualities they will lend to the finished fabric.
Most of the fibers used by the Company are pre-dyed by the supplier and then
mixed to create the required shade. The loose fibers are blown together in air
chambers mixing their color and fiber type. The mixed fibers are subsequently
sent through a series of carding machines that aligns them in the same
direction, producing a soft rope called "roving" or "sliver." The sliver is fed
into the sliver-knitting machine where portions of the fibers are blown by small
air jets into the high speed needles. As the needles knit the lightweight but
strong knit backing, the fibers are caught securely into each of the loops. The
high-speed, computerized needles can be programmed to knit a large variety of
patterns using multiple slivers simultaneously. After knitting, the pile fabric
is sent to the finishing area and sheared to the desired height. The fabric is
subsequently placed through a series of technical finishing processes developed
by the Company to control the weight, thickness and surface texture of the final
fabric. Since 1991, under a new management team, the Company has replaced or
upgraded substantially all of its knitting machines. In addition, the Company
has replaced or upgraded its blending and carding machines and made
modifications to its dyeing and finishing equipment.
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CONSUMER PRODUCTS DIVISION
The Consumer Products Division's rug manufacturing operations are vertically
integrated. The rug manufacturing process begins with fabric formation (although
the Company purchases certain pre-formed fabrics on the open market). The fabric
is then coated with a durable textured backing. Next, the fabric is printed with
a design and cut into individual rugs. After cutting, the rugs are "serged" and
inspected for quality. The customer's unique price tag and bar code are
attached, and the rugs are packaged for shipment.
The Company's technology allows it to take a customer's design and produce
numerous rug samples in as little as two hours without incurring the expense and
one month delay associated with full scale production. Accordingly, the Company
commences full production only after it has received confirmed orders from its
customers. The Company has the ability to produce over 500,000 rugs per week and
generally ships rugs within five business days after receiving an order. The
Company believes that its production capabilities are an important competitive
advantage.
The Company uses a high-speed, continuous heat transfer printing process
that results in deep and permanent colors which will withstand machine washing
and drying. In addition, heat transfer printed rugs have an appearance similar
to that of rugs woven from dyed yarn, yet can be produced at a substantially
lower cost than woven rugs. In 1995, the Company added screen printing to its
manufacturing capabilities to enable the printing of designs on cotton and
polypropylene rugs as well as to facilitate shorter production runs.
AMERICAN PACIFIC ENTERPRISES
APE utilizes offshore independent manufacturers located principally in China
for the majority of all production. APE fills decorative pillows in its
Columbus, Ohio facility and sources the filling of imported comforter shells at
independent contractors in North Carolina and South Carolina. Through a
subsidiary, APE supervises overseas production with four expatriate senior
managers and approximately 50 Chinese textile and administrative specialists.
APE contracts for production with a number of manufacturers, many of which have
served APE since 1984. Finished production is inspected by APE personnel
overseas and is shipped to the Ohio warehousing facility or to a lesser extent
directly to customers. Management believes this strategy allows it to focus
investment in design, marketing and customer service as opposed to manufacturing
equipment and a significant labor force.
LICENSES AND TRADEMARKS
The Company's principal trademarks are Glenoit(TM), Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM), GlenPile(TM) and Glentec(TM).
Under an agreement with B&D, the Company has the exclusive right to use B&D
copyrighted designs on its printed kitchen rugs in all countries worldwide
except Canada. Under the licensing agreement, the Company is required to pay B&D
a variable royalty (subject to a $250,000 annual minimum) on all products
utilizing B&D designs. This agreement terminates in November 1999 and may be
extended indefinitely at the Company's option in successive one-year periods by
giving written notice to B&D at least 90 days before the expiration of each
term. Under this agreement, the Company is required to maintain a high level of
quality and style and to comply with certain reporting obligations. B&D can
terminate the agreement in the event of a material default by the Company
(including a failure to pay the $250,000 minimum annual royalty).
APE's key brands are American Pacific, Match, Hawthorne Hill, Tucker Lane
and Country Classics. APE also maintains licensing agreements with Waverly and
recently, Nautica.
RAW MATERIALS AND SUPPLIERS
The Company's principal raw materials are acrylic and polyester, which the
Company purchases from several large chemical companies. The Company's largest
supplier is Sterling Fibers, Inc., which is the exclusive supplier of acrylic
micro-fiber used in the Company's fabrics. The Company seeks to purchase
sufficient amounts of acrylic and polyester to cover existing order commitments.
The Company does not speculate on the price of raw materials. Although the
Company has always been able to obtain sufficient supplies of raw materials, any
shortage or interruption in the supply, variations in the quality or
fluctuations in the cost of raw materials could have a material adverse effect
on the Company's business, financial condition or results of operations.
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The Company has entered into a supply agreement dated February 1, 1997 by
and between the Company and Sterling Fibers, Inc. (the "Sterling Agreement"),
pursuant to which the Company has the exclusive right to purchase from Sterling
(and the Company has agreed not to purchase from any other supplier) colored
micro-fiber for the purpose of manufacturing pile knits (other than pile knits
based on stretchable yarns such as spandex) in the United States, Mexico and
Canada, subject to the terms and conditions of the Sterling Agreement. Under the
Sterling Agreement, the Company has agreed to purchase from Sterling certain
minimum quantities of Sterling's Microsupreme(R) micro-fiber, and Sterling and
the Company have agreed to promote and advertise micro-fiber and micro-fiber
products. The Sterling Agreement has an initial term expiring on February 1,
2000, but will be automatically extended for successive one-year periods unless
either party gives written notice to other party at least one year before the
expiration of the current term. Either party may terminate the Sterling
Agreement in the event of a default by the other party which is not cured within
30 days after notice.
COMPETITION
The textile industry is highly competitive, with no one company dominating
the industry. The Company's competitors range from large vertically integrated
textile companies producing a variety of goods to numerous smaller companies
which direct their efforts at particular niches in the textile markets. Each of
these competitors seeks to set or anticipate fashion trends and respond quickly
to changes in styles with new products. The primary competitive factors in the
textile industry are price, product styling and differentiation, quality,
manufacturing flexibility, delivery time and customer service. In addition,
imports of foreign-made textile and apparel products are a significant source of
competition for many domestic textile manufacturers. The Company believes that
its manufacturing presence in the United States and its emphasis on shortening
production and lead times allows the Company to respond more quickly than
foreign producers to changing fashion trends and to its domestic customers'
requirement that suppliers meet tight production schedules and provide rapid
delivery. The Company's continued success, however, will be affected by the
ability of certain of the Company's customers to remain competitive, which may
be affected by the level of imports. The Company's continued success will also
depend upon the Company's ability to maintain its manufacturing flexibility and
capacity and, most importantly, its ability to continue to produce innovative,
quality products to satisfy specific customer needs.
The Fabric Division competes directly with several smaller manufacturers of
sliver-knit pile fabrics, including Monterey Mills, Inc., Tex-Tenn Corporation,
Draper Knitting Company, Inc. and Roller Fabrics Inc. The Company also competes
with manufacturers of competing non-sliver-knit natural and synthetic fabrics
such as high-end fleece. Such manufacturers include Malden Mills Distributors
Corp., Dyersburg Corporation and Menra Mills Corporation.
The Consumer Products Division competes with various manufacturers of rugs
for the home, including foreign rug producers. The Consumer Products Division's
principal competitors are Bacova Guild Ltd., a subsidiary of Burlington
Industries, Inc., and American Rug Craftsmen, Inc., a subsidiary of Mohawk
Industries, Inc.
APE competes in the home furnishings industry. The key competitors include
major domestic home textile manufacturers and selected niche importers. The
largest competitors include the major textile mills such as Spring Industries,
Westpoint Stevens and Dan River.
EMPLOYEES
The Company benefits from an experienced work force with which it maintains
good working relationships. As of January 2, 1999, the Company employed 1,290
employees, of whom 1,005 were hourly and 285 were salaried.
Of the Company's hourly employees, approximately 294 are represented by the
Union of Needletrades, Industrial Textile Employees and are located in
Jacksboro, Tennessee and Elmira, Ontario. The Tennessee agreement with this
union expired on February 21, 1999. As previously discussed, the Company is in
the process of closing that facility. The Canadian agreement expires December
25, 1999. The Company's other facilities are non-unionized.
BACKLOG
The Company's order backlog was approximately $17.1 million at January 2,
1999 as compared to approximately $10.6 million at January 3, 1998. Included in
the 1998 amount is APE's order backlog of approximately $11.3 million at January
2, 1999. Substantially all of the orders outstanding at January 2, 1999 are
expected to be filled within three months of that date. Orders on hand are not
necessarily indicative of total future sales.
No significant order backlog exists for the Consumer Products Division as
most customers order on a weekly basis.
7
<PAGE>
ENVIRONMENTAL, SAFETY AND HEALTH REGULATION
The Company is subject to increasingly stringent federal, state and local
laws and regulations governing, among other things, the management of hazardous
substances, discharges to air and water, and occupational health and safety.
Such laws include the Federal Water Pollution Control Act, the Clean Air Act and
the Resource Conservation and Recovery Act. The Company's operations,
particularly its dyeing and finishing processes, result in the discharge of
substantial quantities of wastewater and hazardous air emissions. Operating
permits establishing discharge and emission limits for these processes are
subject to revocation, modification or renewal, and violations of such permits
may result in substantial fines and/or civil or criminal sanctions.
The Company may be subject to the requirements of the 1990 Amendments to the
Federal Clean Air Act, including those relating to emissions of hazardous air
pollutants. The Company believes that it will be able to achieve compliance with
such requirements at a cost which will not be material. However, the Company
cannot currently estimate with certainty the impact of future emissions
limitations or enforcement practices upon its operations.
The Company's operations also are governed by certain requirements under the
Occupational Safety and Health Act relating to workplace safety and worker
health which, among other things, establish permissible exposure limits for
cotton dust, formaldehyde, asbestos and noise. In addition, the Company may be
liable under environmental laws, particularly the Federal Comprehensive
Environmental Response, Compensation and Liability Act, for the cleanup of
contamination that occurs on or from the Company's properties, including
contamination that occurred prior to the Company's ownership or operation of the
properties, or for cleanup of contamination on any off-site location to which
the Company shipped hazardous substances for disposal.
The Company believes that it is in compliance in all material respects with
all applicable environmental, health and safety requirements. However, there can
be no assurance that the costs or liabilities related to such requirements that
may be imposed in the future will not result in a material adverse effect on the
Company's business, financial condition and results of operations.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the Company's business, financial condition or results of operations.
During 1998, the Company settled the previously outstanding examination and
assessment that resulted from the Internal Revenue Service's ("IRS") review of
the Company's and Holding's income tax returns for January 1, 1994 and December
31, 1994. The Company paid approximately $798,000 in tax, penalty and interest
in connection with this settlement.
The Company's state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of Finance.
In April 1997, the New York Department of Finance assessed taxes and interest in
the amount of approximately $130,000. The Company is currently in the process of
responding to the New York Department of Finance and believes that any potential
settlements will be within amounts accrued.
Holdings has an indemnification agreement with a shareholder with respect to
certain tax obligations. While tax obligations are the expense and liability of
the Company and Holdings, the indemnification agreement provides for an
additional contribution of capital to Holdings from this shareholder via
reductions of long-term obligations due the shareholder from Holdings.
8
<PAGE>
ITEM 2: PROPERTIES
For information concerning the principal physical properties of the Company
and subsidiaries, see "Item 1: BUSINESS - - Manufacturing Facilities and
Operations".
.
ITEM 3: LEGAL PROCEEDINGS
For information concerning any material pending legal proceedings the
Company or its subsidiaries are party to, see "Item 1: BUSINESS - - Legal
Proceedings".
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MEETINGS
Glenoit Corporation is a privately held company with no established public
trading market for its equity securities. The equity securities are held by
Glenoit Universal, Ltd. ("Holdings"). Glenoit Asset Corporation is a wholly
owned subsidiary of Glenoit Corporation.
Glenoit Corporation will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal and
interest of debt obligations of Holdings, (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 and
restrictive covenants in the agreements governing the Company's credit facility
and 11% Senior Subordinated Notes.
During fiscal 1998 and 1997, the Company distributed $1.9 million and $7.3
million to Holdings respectively. No such distributions were made during fiscal
1996.
9
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company for the periods indicated. The historical consolidated financial data of
the Company prior to December 13, 1995 reflect the historical results of Glenoit
Mills, Inc. and subsidiary ("Mills"). The selected historical financial data of
the Company as of and for the years ended January 4, 1997, January 3, 1998 and
January 2, 1999 has been derived from the Consolidated Financial Statements of
the Company included elsewhere herein. The selected historical financial data of
the Company as of and for the year ended December 30, 1995 and December 31, 1994
has been derived from the Consolidated Financial Statements of the Company not
included herein. The selected consolidated financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and related notes thereto included elsewhere in this Annual
Report.
<TABLE>
<CAPTION>
FISCAL YEAR
1994 1995 1996 1997 1998
------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales.................. $ 72,469 $ 93,840 $121,751 $146,921 $172,042
Cost of sales.............. 49,594 67,249 86,525 98,061 123,696
-------- -------- ------- -------- --------
Gross profit............... 22,875 26,591 35,226 48,860 48,346
Operating expenses......... 12,550 16,235 18,045 22,933 32,877
-------- -------- ------- -------- --------
Income from operations..... 10,325 10,356 17,181 25,927 15,469
Interest expense, net...... 2,208 3,745 9,125 10,938 13,942
Other expense ............. 83 166 589 733 838
Income tax expense......... 2,850 3,083 3,354 5,390 308
-------- -------- ------- -------- --------
Income before
extraordinary loss......... 5,184 3,362 4,113 8,866 381
Extraordinary loss, net of
tax benefit................ -- 2,407(a) -- 2,857(b) 117(c)
----- -------- ---- -------- --------
Net income................. $ 5,184 $ 955 $ 4,113 $6,009 $ 264
======== ======== ======= ======== ========
OTHER DATA:
Depreciation and
amortization............... $ 1,491 $ 1,946 $ 3,097 $3,862 $ 6,416
Capital expenditures....... 1,394 5,239 1,704 19,606 17,902
Cash flows from operating
activities................. 142 181 6,429 23,706 17,789
Cash flows used in
investing activities....... (1,201) (13,076) (1,388) (27,763) (73,518)
Cash flows from financing
activities................. 1,247 13,533 (6,014) 5,080 54,996
EBITDA(d).................. 11,733 12,136 19,689 29,056 21,047
Adjusted EBITDA(e)......... 11,733 12,136 20,990 29,056 27,935
BALANCE SHEET DATA:
Cash and cash equivalents.. $ 384 $ 1,023 $ 49 $ 1,072 $ 340
Working capital(f)......... 5,925 17,735 13,340 15,148 27,442
Total assets............... 21,317 50,946 49,497 75,230 144,699
Total liabilities(g)....... 27,547 97,857 92,295 119,396 191,054
Stockholder's deficit...... (6,230) (46,911) (42,798) (44,166) (46,355)
</TABLE>
(a) During fiscal 1995, the Company recognized an extraordinary loss, net of
income tax benefit of $1,240,000, as a result of the early retirement of
the Company's debt obligations.
(b) During April 1997, the Company recognized an extraordinary loss, net of
income tax benefit of $1,527,000, as a result of the refinancing of the
Company's debt in connection with the Initial Offering. See Note 5 to the
Consolidated Financial Statements.
(c) During September 1998, the Company recognized an extraordinary loss, net of
a tax benefit of $67,000, related to the purchase of senior subordinated
notes with a face amount of $5 million. See Note 5 to the Consolidated
Financial Statements.
(d) EBITDA represents income before extraordinary loss plus income tax expense,
interest expense (net), depreciation and amortization. The Company believes
that EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations, as defined by generally accepted accounting principles and
should not be considered as a substitute for net income as an indicator of
the Company's operating performance or cash flow as a measure of liquidity.
The definition of EBITDA presented herein differs from the definition of
EBITDA in the Indenture. EBITDA has not been adjusted to reflect certain
costs and expenses payable to related parties prior to fiscal 1996, which
were substantially reduced as a result of the Recapitalization.
(e) Adjusted EBITDA represents EBITDA (See Note (d) above), plus (i) for fiscal
1996, (A) moving expenses of approximately $320,000 incurred to relocate the
Company's Consumers Product Division and (B) fees of approximately $980,000
for a consulting project related to process improvement and cash flow
management and (ii) for fiscal 1998 (A) non-cash, non-
10
<PAGE>
recurring charges related to inventory sold during the fourth quarter that
had been written up by $3,367,000 at time of the acquisition in accordance
with generally accepted accounting principles and (B) $3,521,000 of
compensation expense recorded for amounts owed to employees of APE in
connection with incentive compensation arrangements entered into as part of
the APE acquisition. Adjusted EBITDA is presented because the Company
believes that it provides useful information regarding the Company's ability
to incur and service debt; however, Adjusted EBITDA does not represent cash
flow from operations as defined by generally accepted accounting principles
and should not be considered as a substitute for net income as an indicator
of the Company's operating performance or cash flow as a measure of
liquidity.
(f) Working capital represents consolidated current assets less consolidated
current liabilities.
(g) The Company's fiscal 1994 balance sheet includes indebtedness of Holdings
which has been accounted for as indebtedness of the Company under the
"push-down" method of accounting. This debt was paid off on December 13,
1995. The "push-down" method requires that the debt of Holdings guaranteed
and collateralized by the assets of the Company be treated for accounting
purposes as debt of the Company.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's net sales grew from $121.7 million in fiscal 1996 to $172.0
million in fiscal 1998 primarily as a result of increased sales of the Company's
performance-oriented pile fabrics and the acquisition of American Pacific
Enterprises, Inc. ("APE") on October 2, 1998. The growth in sales of pile fabric
came during 1993 through 1997. Sales of these fabrics were flat in 1998 compared
to 1997. The sales growth that occurred in 1998 was primarily due to APE's
results being included in the fourth quarter of 1998 and increased sales of
household rugs in the Company's Consumer Products Division.
RECENT DEVELOPMENTS
On February 12, 1999, the Company acquired all of the outstanding shares of
capital stock of Ex-Cell Home Fashions, Inc. ("Ex-Cell") for $43.2 million,
subject to post-closing adjustment. 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.
Since the acquisition occurred subsequent to fiscal 1998, Ex-Cell's operating
results are not included in the discussions below.
On October 2, 1998, the Company acquired all the capital stock of 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. APE
is a leading designer, importer and marketer of decorative textile home
furnishings, principally quilts and decorative bedding items. The Company
believes that the acquisitions of APE and Ex-Cell will (i) expand its current
product offerings to the large retailers whereby strengthening its relationships
with key customers, (ii) further penetrate the specialty retailing segment and
(iii) diversify product sourcing capabilities beyond North America.
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 will be discontinuing operations at its leased Tennessee
facility and will terminate substantially all of the associates at that
facility. During the first quarter of fiscal 1999, the Company will record a
charge against operations 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. The Company currently
estimates these total charges to total approximately $12 million to $18 million.
RESULTS OF OPERATIONS
The following table sets forth selected results of operations expressed in
millions of dollars and as a percentage of total net sales for fiscal years
1996, 1997 and 1998.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Fabric Division....... $ 79.4 65.2% $107.1 72.9% $106.7 62.0%
Consumer Products
Division............. 42.3 34.8 39.8 27.1 47.9 27.8
American Pacific
Enterprises.......... 0 0 0 0 17.4 10.2
-------- ------- -------- ------- ------- -----
Total net sales..... 121.7 100.0 146.9 100.0 172.0 100.0
Cost of sales........... 86.5 71.1 98.1 66.8 123.7 71.9
-------- ------- -------- ------- ------- -----
Gross profit........... 35.2 28.9 48.8 33.2 48.3 28.1
Operating expenses...... 18.0 14.8 22.9 15.6 32.9 19.1
-------- ------- -------- ------- ------- -----
Income from operations 17.2 14.1 25.9 17.6 15.4 9.0
Interest expense, net... 9.1 7.5 10.9 7.4 13.9 8.1
Other expense........... 0.6 0.5 .7 0.5 .8 0.5
Income tax expense...... 3.4 2.7 5.4 3.7 .3 0.2
-------- ------- -------- ------- ------- -----
Income before
extraordinary loss...... 4.1 3.4 8.9 6.0 .4 0.2
Extraordinary loss...... -- -- 2.9 2.0 .1 0.0
-------- ------- -------- ------- ------- -----
Net income.......... $ 4.1 3.4% $6.0 4.0% $ .3 0.2%
======== ======= ======== ======= ======= =====
</TABLE>
12
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for the year ended January 2, 1999 were $172.0 million compared to
$146.9 million for fiscal 1997. This increase of $25.1 million or 17.1% is
primarily related to the purchase of APE which generated approximately $17.4
million in sales subsequent to October 2, 1998 as well as increased sales of
household rugs which increased to $47.9 million from $39.8 million. The Fabric
Division sales for 1998 were down slightly to $106.7 million from $107.1 million
in fiscal 1997.
Gross profit for fiscal 1998 was $48.3 million or 28.1% of net sales compared
to $48.8 million or 33.2% of net sales for the prior year. This decrease is
attributable to lower operating results in the Fabric Division, as a result of
increased overhead costs including increased levels of depreciation as a result
of the Company's capital expenditure program. This decrease was partially offset
by improvements in the Consumer Products Division. In addition, gross profit for
APE was $3.2 million which was negatively impacted by approximately $3.4 million
of costs associated with inventory sold during the fourth quarter of 1998 that
had been written up at time of the acquisition in accordance with generally
accepted accounting principles.
Operating expenses for fiscal 1998 increased to $32.9 million from $22.9
million for the prior year. Of this $10.0 million increase, APE's operating
expenses totaled $8.0 million. APE's results include a $3.5 million charge for
incentive compensation expense related to employees of APE based on 1998
earnings as outlined in the acquisition agreement. Operating expenses increased
$ .8 million as a result of Glenoit Canada being included in a full year of
operations. Other increases were primarily related to sales categories such as
commissions and compensation costs.
Operating income decreased to $15.4 million for fiscal 1998 from $25.9 million
in fiscal 1997. The Fabric Division's operating income declined $6.7 million to
$21.1 million and was partially offset by the improved operating results in the
Consumer Products Division which increased 11.5% to $7.5 million. In addition,
as a result of the $6.9 million of charges for APE described above, APE reported
an operating loss of $4.8 million since October 2, 1998.
Interest expense for fiscal 1998 was $13.9 million compared to $10.9 million
for 1997. Interest expense has increased due to higher levels of debt and a
higher effective borrowing rate relating to senior subordinated debt issued at
the end of the first quarter of 1997 and the acquisition of APE during October
1998.
The Company recognized a loss of approximately $ .1 million, net of an income
tax benefit, during September 1998 related to the purchase of Senior
Subordinated Notes with a face amount of $5 million. The Company recorded an
extraordinary loss on the early extingishment of debt of $2.9 million, net of an
income tax benefit, related to the refinancing of the Company's debt which took
place on April 1, 1997.
Net income for 1998 was $ .3 million compared to $6.0 million for the same
period in the prior year based on the factors discussed above.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased to $146.9 million or 20.7% compared to
$121.7 million for fiscal 1996. Fabric Division sales increased $27.7 million or
34.9% over prior year due to both increased unit volume in the Company's
performance-oriented fabrics in sportswear and outerwear and an improved average
selling price which reflects an improved sales mix over the prior year. Sales in
the Fabric Division were also positively impacted by the acquisition made by
Glenoit Canada which generated sales of $4.2 million from the acquisition date
through January 3, 1998. Fabric Division sales offset a decline in sales in the
Consumer Products Division which occurred primarily in the second quarter as a
result of a unit volume shortfall as well as a promotional mix in the third
quarter which yielded lower selling prices.
Gross profit for fiscal 1997 was $48.8 million or 33.2% of net sales
compared with $35.2 million or 28.9% of net sales for the prior year. This
increase of $13.6 million or 38.7% resulted from increased unit volume and
higher average selling prices in the Fabric Division. The improved results in
the Fabric Division were partially offset by the margin effect of a second
quarter decline in sales volume and the third quarter promotional mix in the
Consumer Products Division.
Operating expenses for fiscal 1997 were $22.9 million or 15.6% of net sales
compared to $18.0 million or 14.8% of net sales in the prior year. Dollar
increases over the prior year were primarily in sales related categories such as
commissions and credit collection expense as well as the acquisition by Glenoit
Canada which reported operating expenses of $.3 million. Accruals for pension,
professional fees, and profit related compensation plans increased over the
prior year.
Operating income was $25.9 million for fiscal 1997 compared to $17.2 million
in the prior year. This increase, resulting from the factors described above,
represents an increase of $8.7 million or 50.9%. The Fabric Division's operating
income increased approximately 84% which was offset by a $1.4 million decline in
operating income in the Consumer Products Division.
13
<PAGE>
Interest expense in fiscal 1997 was $10.9 million compared to $9.1 million
for the same period last year. Interest expense has increased due to higher
levels of debt and a higher effective borrowing rate as a result of the issuance
of the $100 million 11% Senior Subordinated Notes ("the Initial Offering").
Net income for fiscal 1997 was $6.0 million (including the effect of an
extraordinary loss on early extinguishment of debt of $2.9 million, net of an
income tax benefit, related to the refinancing of the Company's debt which took
place at April 1, 1997) compared to $4.1 million for fiscal 1996.
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 Banque Nationale de Paris ("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) 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 acquisition of APE. At
January 2, 1999, there were borrowings of $15.0 million under the Working
Capital Commitment and approximately $17.9 million available to borrow under the
Working Capital Commitment and up to $20.3 million under the Acquisition
Commitment. A more detailed description of the Notes and the New Credit Facility
may be found in the notes to consolidated financial statements. In connection
with the acquisition of Ex-Cell on February 12, 1999, the Company amended the
New Credit Facility and increased total borrowings available to $200 million.
This increased borrowing availability consists of the following (i) up to $90.0
million for working capital and general corporate purposes, subject to a
Borrowing Base, (ii) $40.0 million Term A loan and (iii) $70.0 million Term B
loan. Principal payments on the Term A and Term B loans begin in September 1999
and total $3.4 million during fiscal year 1999.
Principal and interest payments in respect of the Notes and the New Credit
Facility will 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 to certain
amounts 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.
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 January 2, 1999, Holdings has
obligations with a face amount of $29.2 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 11 of the Consolidated Financial Statements.
On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million to a shareholder of Holdings in
satisfaction of a contingent earnout obligation of Holdings as discussed in Note
9 to the 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 9 to the Consolidated Financial Statements. 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.
14
<PAGE>
During September 1998, the Company acquired $5 million of the 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 Notes.
During fiscal 1998, net cash provided by operating activities was $17.8
million, which includes the impact of APE subsequent to October 2, 1998.
Receivables decreased by $6.1 million, inventories and other assets decreased by
$5.7 million. Accrued liabilities increased by $5.7 million, due primarily to
compensation related costs including the amounts owed to APE employees as
previously discussed. Accounts payable decreased by $4.4 million related to
decreased raw material purchases and tax related accruals decreased $0.9
million.
During fiscal 1997, net cash provided by operating activities was $23.7
million. Accounts and other receivables decreased by $ 1.0 million, inventories
and other current assets decreased by $2.1 million. Accrued liabilities
increased by $3.2 million, due primarily to accrued interest on senior
subordinated notes and profit related compensation plans. Accounts payable
increased by $2.1 million and "Due to Holdings" increased $ .9 million related
to accrued federal taxes.
During fiscal 1996, cash provided by operating activities was $6.4 million.
Changes in operating assets resulted in a use of $0.5 million. Increases in
receivables and a decrease in payables required $2.3 million and $3.0 million,
respectively. Cash was provided by changes in accrued expenses of $1.3 million,
changes in inventories and prepaid expenses totaling $1.0 million and a change
in the amount "Due to Holdings" of $2.6 million.
CAPITAL IMPROVEMENTS
Capital expenditures for fiscal 1998 totaled $17.9 million. These additions
were primarily to increase capacity in the Fabric Division as well as the
Consumer Products Division. Expenditures were made for upgrades to Management
Information System. Capital expenditures for the year ended January 3, 1998 were
$19.6 million. These additions were primarily in the Fabric Division for
additions of knitting and blending equipment to increase capacity as well as a
plant expansion in Tarboro, N. C. Expenditures were also made for upgrades to
management information systems. During fiscal 1996, the Company's capital
expenditures were $1.7 million. These additions included upgrading equipment in
the Fabric Division to accommodate the growth in micro-fiber products, as well
as upgrading plant and equipment in the Consumer Products Division.
SEASONALITY
The Company's business is seasonal in nature. Generally, there is increased
retail demand for garments and rugs during the fall (back-to-school) and
December 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 for these selling seasons.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three fiscal years ended January 2, 1999 due to
the relatively low rates of inflation during this period.
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 expects the
conversions and the review of its IT systems to be completed by June 1999 and,
accordingly, a contingency plan for IT risks has not been developed. However,
should the remaining review 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's review of Non-IT systems is ongoing with
expected completion by June 1999. To date, 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
15
<PAGE>
been developed. However, should the remaining 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 June 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-K 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. 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-K
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 RISK
The Company's exposure to market risk relates to changes in interest rates
and foreign currency rates. The Company has not used derivative financial
instruments. 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 January 2, 1999, the Company had $65.7 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 January
2, 1999, the average interest rate on the borrowings under the New Credit
Facility was 7.9%. The definitive 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
operations. However, less than 10% of its annual revenues are generated by this
subsidiary. Canada has traditionally had a relatively stable currency and
therefore the Company feels its exposure to significant adjustments in the
Canadian currency to be minimal. Additionally, the Company's consolidated
financial statements are denominated in U. S. dollars and, accordingly, changes
in the exchange rate between U. S. dollars and Canadian dollars 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.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of Glenoit Corporation and
Subsidiaries included herein and listed on the indices to the Consolidated
Financial Statements and Financial Statement Schedule as set forth in Item 14 of
this Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
16
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages as of January 2, 1999, and a
brief account of the business experience of each director and executive officer
of the Company. Under the terms of the Stockholders Agreement (as defined), the
board of directors of Holdings will be the same as the board of directors of the
Company. See "Certain Relationships and Related Transactions--Stockholders
Agreement." The Company's By-laws, provide that each director shall hold office
for a term of one (1) year or until his or her successor is elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------
<S> <C> <C>
Thomas J. O'Gorman....................... 64 President, Chief Executive Officer and Director
Larry Levine............................. 65 President and Chief Operating Officer--Fabric Division
Kevin R. Kennedy......................... 44 President and Chief Operating Officer--Consumer Products Division
Lester D. Sears.......................... 50 Executive Vice President and Chief Financial Officer
John Mowbray O'Mara...................... 70 Director
Saleem Muqaddam.......................... 51 Director
Isaac Schapira........................... 45 Director
Joseph M. Silvestri...................... 36 Director
</TABLE>
THOMAS J. O'GORMAN. Mr. O'Gorman has served as the President, Chief
Executive Officer and a Director of the Company since 1991. Mr. O'Gorman has
been in the textile industry since 1956 and has served as the General Manager of
the Menswear Business of Milliken & Co.; President of Knit-Away; and President
of the Denim, Corduroy and Blended Fabrics Divisions of Burlington Industries,
Inc., and Burlington's International Denim operations headquartered in London.
Subsequently, Mr. O'Gorman was the President and a Director of Greenwood Mills
Marketing Company, Inc. Mr. O'Gorman has served on the Market Committee of the
American Textile Manufacturers Institute and as a member of the Steering
Committee of Crafted With Pride in the U.S.A. Council.
LARRY LEVINE. Mr. Levine joined the Company in 1991 as Vice President of
Marketing for the Company's Fabric Division and was promoted to President of the
Fabric Division in 1996. Mr. Levine previously served as the President of Fabric
View Ltd., a textile and marketing company, and was a Vice President and a
founder of Monterey Mills, Inc.
KEVIN R. KENNEDY. Mr. Kennedy joined the Company in 1997 as President and
Chief Operating Officer of the Consumer Products Division. Prior to that, Mr.
Kennedy served in various executive positions with Couristan, Inc., most
recently as Executive Vice President of Sales and Marketing. Mr. Kennedy was
also employed by Abraham & Strauss as a buyer for the area rug business and
participated in A & S's executive management training program.
LESTER D. SEARS. Mr. Sears joined the Company in 1996 as Executive Vice
President and Chief Financial Officer. From 1989 to 1996, Mr. Sears was the
Executive Vice President, Chief Financial Officer and an equity owner of Perfect
Fit Industries, Inc., a privately held company. Prior to 1989, Mr. Sears was
employed in various positions including as Controller of the Consumer Products
Division of Springs Industries, Inc.; Vice President and Controller of Mill
Fabrics, Inc.; and as a certified public accountant for Deloitte, Haskins and
Sells.
JOHN MOWBRAY O'MARA. Mr. O'Mara has been a management consultant and
private investor since January 1990. From July 1990 to May 1993, he served as
Chairman of the Executive Committee of Quality Care Systems, Inc., a provider of
computer-based "expert" medical cost containment systems. From August 1988
through December 1989, Mr. O'Mara served as Chairman of the Board and Chief
Executive Officer of Global Natural Resources, Inc. Prior to serving as Chairman
of Global Natural Resources, Inc., Mr. O'Mara spent 22 years as an investment
banker, serving most recently as Managing Director for Chase Securities Inc., a
subsidiary of The Chase Manhattan Bank. Mr. O'Mara is a director of Baldwin &
Lyons, Inc., Plantronics, Inc. and The Midland Company.
SALEEM MUQADDAM. Mr. Muqaddam has served as a Vice President of Citicorp
Venture Capital, Ltd. ("CVC") and its affiliated investment companies since
1989. Previously he spent 15 years with Citibank, N.A. and its affiliates in
senior management positions. Mr. Muqaddam is a director of Pamida Holdings
Corporation, Plantronics, Inc., Chromcraft Remington Inc. and Fairwood
Corporation.
17
<PAGE>
ISAAC SCHAPIRA. Mr. Schapira has served as a director of Stirling
Investment Holdings, Inc. since December 1994. In addition, Mr. Schapira is the
President of Glenoit (U.K.) Limited, and has been in this position for over 15
years.
JOSEPH M. SILVESTRI. Mr. Silvestri has been a director of the Company since
his appointment by CVC in 1994. Mr. Silvestri has been employed by CVC since
1990 and has been a Vice President since 1995. Mr. Silvestri served as Assistant
Vice President of CVC from 1990 to 1995. Mr. Silvestri serves on the Board of
Directors of International Media Group, Triumph Group, Polyfibron Technologies,
Inc., The GNI Group, ISG Resources, Inc. and Euramax International, Inc.
COMPENSATION OF DIRECTORS
The Company's Board of Directors receive no compensation for their service
as directors. Directors are reimbursed for their out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal year ended
January 2, 1999, concerning cash and non-cash compensation earned by the Chief
Executive Officer and the three other most highly compensated executive officers
of the Company whose combined salary and bonus exceeded $100,000 during such
year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM OTHER ANNUAL
ANNUAL COMPENSATION COMPENSATION
COMPENSATION ------------ ------------
------------ RESTRICTED STOCK
NAME PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) AWARD ($) ($)
---- ------------------ ----------- ---------- --------- -------------- ---
<S> <C> <C> <C> <C> <C> <C>
Thomas J. O'Gorman... Chief Executive Officer 1998 $400,000 $800,000 --
1997 400,000 800,000 $182,787(4)
1996 406,250 615,271 - $106,250(6)
Larry Levine......... President & Chief Operating 1998 300,000 25,125 33,333(5) --
Officer - Fabric Division 1997 203,077 332,423
1996 204,846 213,100
Robert B. Dale(3).... President & Chief Operating 1997 300,000 37,500 --
Officer - Consumer Products 1996 305,769 37,120
Div.
Lester D. Sears(2)... Executive Vice President & 1998 181,912 116,078 33,333(5)
Chief Financial Officer 1997 172,932 141,077
1996 69,808 50,000 35,000(7)
Kevin R. Kennedy(1) . President & Chief Operating 1998 200,000 150,000 33,333(5)
Officer - Consumer Products 1997 59,888
Div.
</TABLE>
(1) Employed as of September 1997
(2) Employed as of August 1996.
(3) Mr. Dale resigned from the Company effective as of July 1, 1997.
(4) In August 1997, Mr. O'Gorman was granted 1,286.211 options for restricted
shares of Holdings' Class A common stock at an exercise price of $37,500.
Mr. O'Gorman exercised the shares immediately. At the time of exercise, the
Company estimated fair market value for the shares to be $220,287. See
"Item 12: Security Ownership of Certain Beneficial Owners and Management"
for total shares owned by Mr. O'Gorman.
(5) During June 1998, Holdings sold each of these three officers 285.82 shares
of Holdings' Class A Common Stock at an exercise price of $52,777. The
Company estimated the fair market value of each block of shares to be
$86,110.
(6) Amount shown reflects deferred compensation from 1992 through 1995 which Mr.
O'Gorman elected to receive in 1996.
(7) Amount shown reflects a signing bonus under the employment agreement with
Mr. Sears. See - "Employment Agreements".
18
<PAGE>
DEFINED BENEFIT PLAN
The Company's retirement benefit, for employees hired prior to May 1, 1997,
provides a maximum monthly benefit regardless of the employees compensation
level of $2,000. The normal retirement benefit is 45% of the average final
compensation of the employee, reduced pro rata for each year of service less
than 25 years.
EMPLOYMENT AGREEMENTS
Mr. O'Gorman has an employment agreement (the "O'Gorman Agreement") with the
Company dated as of October 28, 1997, as amended, which expires on January 1,
2001. The O'Gorman Agreement provides for Mr. O'Gorman's employment as Chief
Executive Officer and President or Chairman, if so elected, of Holdings and the
Company at an annual salary of $400,000 and a bonus based on the financial
performance of the Company. Mr. O'Gorman's employment may be terminated by him
on 12-months' notice to the Company. In the event the Company were to terminate
Mr. O'Gorman for other than "Cause" (as defined therein), Mr. O'Gorman would be
entitled to severance payments consisting of a pro-rated portion of his annual
bonus for the year of termination and his annual salary and other benefits for
12 months following the date of such termination. The O'Gorman Agreement also
provides that he will not compete with the Company during the employment term
and for a period of 18 months following termination.
Mr. Sears has an employment agreement (the "Sears Agreement") dated as of
August 5, 1996 which expires on December 31, 1999, subject to one year renewals
thereafter unless either party elects not to renew at least six months prior to
the termination date. The Sears Agreement provides for Mr. Sears' employment as
Executive Vice President and Chief Financial Officer of the Company at an annual
salary of $165,000 and a bonus of $50,000 for the year ended December 31, 1996.
The salary is subject to a minimum increase each year of 5% and future minimum
bonus payments will be the lesser of (x) 66.7% of Mr. Sear's base salary and (y)
a fixed percentage of the Company's EBITDA. The fixed percentage is calculated
by dividing $50,000 by the Company's EBITDA for the fiscal year ending December
31, 1995. In addition to the payments provided therein, Mr. Sears received an
initial cash payment of $35,000. Mr. Sears' employment may be terminated by him
or the Company at any time. In the event Mr. Sears' employment is terminated
other than for "Cause" (as defined therein) or Mr. Sears terminates his
employment for "Good Reason" (as defined therein), Mr. Sears will receive as a
severance payment a cash lump sum in the amount of (A) the base salary at its
then current annual rate and (B) the highest annual bonus paid to or accrued by
the Company for the term of the agreement.
19
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Holdings owns 100% of the Company's common stock. The following table sets
forth, as of January 2, 1999, certain information with respect to each class of
Holdings Common Stock (as defined) beneficially owned by each director of the
Company, all officers and directors of the Company as a group, and each person
known to the Company to own beneficially more than 5% of Holdings Common Stock
of any such class. Unless otherwise noted, the individuals have sole voting and
investment power. As described under "Description of Capital Stock and
Indebtedness of Holdings," certain classes of Holdings Common Stock are
convertible into other classes of Holdings Common Stock. Except as noted in the
footnotes to the table, the information in the table assumes no such conversion.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
------- ------- ------- ------- -------
NAME AND ADDRESS SHARES % SHARES % SHARES % SHARES % SHARES %
- ---------------- ------ -- ------ -- ------ -- ------ -- ------ --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citicorp Venture Capital,
Ltd.......................... 5,607 43.2% 16,901 78.5% -- -- -- -- -- --
399 Park Avenue
New York, New York 10043
Isaac Schapira(a)............ 1,826 14.1 -- 3,579 100% -- -- -- --
c/o Gratch Jacobs & Brozman
950 Third Avenue
New York, New York 10022
Thomas J. O'Gorman........... 3,112 24.0 -- -- -- -- -- -- -- --
111 West 40th Street
New York, New York 10018
The Equitable Life Assurance
Society of the
United States.............. 2,412(b) 15.7 -- -- -- -- -- -- 2,412(b) 100%
c/o Alliance Corporate
Finance Group Incorporated
1345 Avenue of the Americas
New York, New York 10105
Banque Nationale de Paris.... 1,715(c) 11.7 1,715(c) 7.3 -- -- -- -- -- --
499 Park Avenue
New York, New York
10022-1245
CCT Partners II, L.P.(d)..... 997 7.7 3,005 13.8 -- -- -- -- -- --
399 Park Avenue
New York, New York 10043
Saleem Muqaddam(e)........... 55 * 167 * -- -- -- -- -- --
c/o Citicorp Venture
Capital, Ltd.
399 Park Avenue
New York, New York 10043
Joseph Silvestri(e).......... 1 * 3 * -- -- -- -- -- --
c/o Citicorp Venture
Capital, Ltd.
399 Park Avenue
New York, New York 10043
John Mowbray O'Mara.......... 42 -- 125 -- -- -- 20 100 -- --
623 Lake Avenue
Greenwich, Connecticut
06830
All officers and directors
as a group(e)
(7 persons)................ 5,893 45.3 295 1.4 3,579 100 20 100 -- --
</TABLE>
* Represents less than 1%
(a) Includes shares held by Stirling Investment Holdings, Inc., a British Virgin
Islands corporation (the "Seller"). Under Rule 13d-3 under the Exchange Act,
Mr. Schapira is deemed to beneficially own shares held by the Seller.
(b) Includes a warrant to purchase 2,412 shares of Class A or Class E Stock with
an exercise price of $0.01 per share and an expiration date of December 14,
2003.
(c) Includes a warrant to purchase 1,715 shares of Class A or Class B Stock with
an exercise price of $0.01 per share and an expiration date of December 14,
2003.
(d) CCT Partners II, L.P. is a Delaware limited partnership, the limited
partners of which are employees of CVC.
(e) Does not include shares held by CVC or CCT Partners II, L.P. that may be
deemed to be beneficially owned by Messrs. Muqaddam and Silvestri. Messrs.
Muqaddam and Silvestri disclaim beneficial ownership of shares held by CVC
and CCT Partners II, L.P. Includes shares owned by Mr. Sears, Mr. Levine and
Mr. Kennedy not reflected above.
Certain stockholders of the Company have entered into the Stockholders
Agreement, which contains certain agreements relating to the composition of the
board of directors of Holdings and its subsidiaries. See "Certain Relationships
and Related Transactions--Stockholders Agreement."
20
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
In connection with the O'Gorman Agreement, Mr. O'Gorman received a loan in
the amount of $300,000 from the Company. Pursuant to the O'Gorman Agreement, the
loan bears a simple interest rate equal to the lowest rate in effect pursuant to
the Treasury Regulations so as to preclude the loan from bearing imputed
interest. The loan shall be due on the last day of the Employment Period (as
defined therein) or shall be forgiven if Mr. O'Gorman is still employed by the
Company on December 31, 2003. During March 1998, Mr. O'Gorman received a loan in
the amount of $100,000 from the Company and created an unsecured note
receivable. The unsecured note bears an interest rate of 4%.
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 shares price and created
full recourse notes receivable secured by the issued shares.
STOCKHOLDERS AGREEMENT
Holdings is a party to a stockholders agreement dated December 14, 1995 (the
"Stockholders Agreement") by and among Holdings, CVC, John Mowbray O'Mara
("O'Mara"), BNP, The Equitable Life Assurance Society of the United States
("Equitable"), the Seller, Soannes Investment Corp. ("Soannes"), Thomas J.
O'Gorman and certain other parties thereto (collectively, the "Stockholders"),
which contains certain agreements among the Stockholders relating to the
composition of the board of directors of Holdings and its subsidiaries and
limiting the manner and terms by which the Stockholders may transfer their
shares of Holdings Common Stock or warrants to purchase Holdings Common Stock.
Pursuant to the Stockholders Agreement, the Board of Directors of Holdings
will be composed at all times of five directors as follows: the Chief Executive
Officer of Holdings; two directors appointed by CVC; one director appointed by
O'Mara or the party that then holds the Holdings Common Stock owned by O'Mara on
the date of the execution of the Stockholders Agreement; one director appointed
by the Seller until such time as the Seller and Soannes together own less than
9.9% of the outstanding Holdings Common Stock, at which time the remaining
director shall be appointed by the holders of a majority of the shares of
Holdings Common Stock owned by the original parties to the Stockholders
Agreement. The composition of the boards of directors of the Company and its
subsidiaries shall be the same as the composition of the board of directors of
Holdings.
RIGHTS OFFERING. The Stockholders Agreement provides the stockholders with
the right to participate ratably, in accordance with their fully-diluted common
equity ownership, in all additional offerings of Holdings Common Stock or
preferred stock, if any, or of securities exercisable, convertible or
exchangeable for or into Holdings Common Stock (other than certain offerings
permitted by the Stockholders Agreement relating primarily to then outstanding
options and warrants and a public offering of Holdings Common Stock having an
aggregate value of at least $20 million).
RIGHT OF FIRST OFFER. If a Stockholder wishes to transfer any Holdings
Common Stock or if BNP or Equitable wish to transfer their warrants, Holdings
must first be given the opportunity to purchase all of Holdings Common Stock or
warrants offered (but not less than all) at the same price and on the same terms
as those proposed by the Stockholder transferee. Each other Stockholder may
elect to purchase its pro rata share (but not less than all of its pro rata
share) of Holdings Common Stock or warrants at the same price and on the same
terms, but only in the event that Holdings does not exercise its right to
purchase such Common Stock or warrants.
TAG ALONG RIGHTS. In the event that CVC proposes to sell Holdings Common
Stock which would result in CVC, O'Gorman and certain related investors
collectively owning less than 50% of the then outstanding Holdings Common Stock
(other than in a registered public offering or other permitted transaction), the
other Stockholders will have the option to participate in the proposed sale on
the same terms and conditions as CVC, with the participating Stockholders each
selling a pro rata number of shares.
SALE OF HOLDINGS. If the board of directors of Holdings and holders of a
majority of the Holdings Common Stock then outstanding approve the sale of
Holdings (an "Approved Sale"), each Stockholder has agreed to (i) consent to
such sale and raise no objections against it, (ii) waive any dissenter's rights
and other similar rights and (iii) if such Approved Sale includes the sale of
Holdings Common Stock, each Stockholder will sell all of such Stockholder's
Holdings Common Stock on the terms and conditions approved by the board of
directors of Holdings and holders of the majority of the Holdings Common Stock
then outstanding.
21
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Holdings is a party to a registration rights agreement (the "Holdings
Registration Rights Agreement") by and among Holdings and the Stockholders.
Pursuant to the terms of the Holdings Registration Rights Agreement CVC, BNP and
Equitable have the right to require Holdings, at the sole expense of Holdings
and subject to certain limitations, to register under the Securities Act all or
part of the shares of Holdings Common Stock (the "Registrable Securities") held
by them. CVC is entitled to demand three long-form registrations and unlimited
short-form registrations, while BNP and Equitable are entitled to demand one
long-form registration and unlimited short-form registrations; PROVIDED,
HOWEVER, that no registration may be demanded within six months of the effective
date of a previous demand registration. Additionally, CVC is entitled to demand
one shelf registration.
All Stockholders are entitled to an unlimited number of "piggyback"
registrations, with Holdings paying all expenses of the offering, whenever
Holdings proposes to register its Common Stock under the Securities Act (except
in the case of an initial public offering).
Pursuant to the Holdings Registration Rights Agreement, Holdings has agreed
to indemnify all holders of Registrable Securities against certain liabilities,
including liabilities under the Securities Act.
TAX SHARING AGREEMENT
Holdings, the Company and its domestic subsidiaries will be included in the
consolidated United States federal income tax return of Holdings. Holdings, the
Company and its domestic subsidiaries have entered into a Tax Sharing Agreement
whereby the Company and its domestic subsidiaries will pay Holdings their
respective pro rata share of the total consolidated tax liability, as set forth
in the Tax Sharing Agreement. Under the Tax Sharing Agreement, the Company and
its domestic subsidiaries are treated as separate tax groups for purposes of the
agreement. The Tax Sharing Agreement provides that if the Company or its
domestic subsidiaries has losses that are absorbed by the rest of the
consolidated tax group, the Company, as the case may be, cannot carry those
losses forward to offset its own future taxable income. In the event that the
Company and its subsidiaries are included in a joint, combined, consolidated or
unitary state or local income or franchise tax return with Holdings, the Company
will make payments to Holdings in a manner consistent with that described above
for federal tax purposes. Under the Indenture, the Company will be permitted to
make payments to Holdings under the Tax Sharing Agreement; PROVIDED, HOWEVER,
that certain amendments to the Tax Sharing Agreement will be required if more
than a nominal amount of gross income is generated by Holdings or any subsidiary
of Holdings.
IMPORTANCE OF B&D LICENSE AGREEMENT; CVC'S INTEREST IN B&D; POSSIBLE SALE OF B&D
A substantial majority of the products sold by the Consumer Products
Division are manufactured, marketed and sold under a license agreement with B&D.
See "Business--Licenses and Trademarks." Although the Company has the right to
perpetually renew the license agreement for successive one-year terms (subject
to certain conditions), the loss of this license or a deterioration in B&D's
business could have a material adverse effect on the Company's business,
financial condition and results of operations.
CVC, the Company's largest shareholder, has an interest in B&D as a result
of CVC's purchase in 1991 of certain notes of Papercraft Corporation
("Papercraft"), the then-parent company of B&D, while Papercraft was the subject
of a bankruptcy proceeding in the Western District of Pennsylvania. During the
bankruptcy proceeding, a committee of certain other creditors of Papercraft (the
"Committee") sought to have CVC's claim equitably subordinated to the claims of
other creditors. In October 1995, the bankruptcy court denied the Committee's
request for equitable subordination, but limited CVC's claim to the purchase
price of the Papercraft notes (resulting in CVC receiving an 11% interest in the
reorganized entity, which emerged from bankruptcy as BDK Holdings Inc. ("BDK")),
rather than the face value of the notes (which would result in CVC receiving a
41% interest in BDK). CVC and the Committee appealed the bankruptcy court's
decision. In August 1997, the district court reversed and remanded the
bankruptcy court decision for further finding on the proper extent of
subordination. The District Court's order was affirmed by the Federal Court of
Appeals for the Third Circuit in November 1998. The matter is now before the
bankruptcy court.
The Company believes that its relationship with B&D is excellent and has no
reason to believe that the matters relating to CVC's interest in BDK or any sale
of BDK will have a material adverse effect on the Company's business, financial
condition or results of operations.
22
<PAGE>
PART IV:
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
On October 16, 1998, the Company filed on Form 8-K information regarding
the acquisition of the capital stock of American Pacific Enterprises,
Inc. which occurred on October 2, 1998. On December 11, 1998, the
Company filed on Form 8-K/A, an amendment to the October 16 filing, to
include financial statements and proforma financial information with
respect to the APE acquisition.
On February 26, 1999, the Company filed on Form 8-K information
regarding the acquisition of the capital stock of Ex-Cell Home Fashions,
Inc. which occurred on February 12, 1999.
(c) 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.
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.
23
<PAGE>
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.
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.
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.
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.
(d) Schedules
Not applicable.
24
<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, in the city of New
York, state of New York, on March 31, 1999.
GLENOIT CORPORATION
By /S/ THOMAS J. O'GORMAN
----------------------
Thomas J. O'Gorman
President, Chief Executive
Officer and Director
(principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. O'Gorman and Lester D. Sears his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of Glenoit
Corporation to sign any and all amendments (including post-effective amendments)
to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report and
power of attorney have been signed by the following persons on behalf of the
registrant on March 31, 1999 in the capacities indicated:
By /S/ THOMAS J. O'GORMAN
----------------------
Thomas J. O'Gorman
President, Chief Executive
Officer and Director
(principal executive officer)
By /S/ LESTER D. SEARS
----------------------
Lester D. Sears
Executive Vice President and Chief
Financial Officer (principal financial
and accounting officer)
By /S/ JOHN MOWBRAY O'MARA
----------------------
John Mowbray O'Mara
Director
By /S/ SALEEM MUQADDAM
----------------------
Saleem Muqaddam
Director
By /S/ ISAAC SCHAPIRA
----------------------
Isaac Schapira
Director
By /S/ JOSEPH M. SILVESTRI
----------------------
Joseph M. Silvestri
Director
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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, in the city of New
York, state of New York, on March 31, 1999.
GLENOIT ASSET CORPORATION
By/S/ THOMAS J. O'GORMAN
----------------------
Thomas J. O'Gorman
President, Chief Executive Officer and
Director (principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. O'Gorman and Lester D. Sears his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of Glenoit
Corporation to sign any and all amendments (including post-effective amendments)
to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Annual
Report and power of attorney have been signed by the following persons on behalf
of the registrant on March 31, 1999 in the capacities indicated:
By/S/ THOMAS J. O'GORMAN
----------------------
Thomas J. O'Gorman
President, Chief Executive Officer and
Director (principal executive officer)
By/S/ PETER J. WINNINGTON
-----------------------
Peter J. Winnington
Secretary and Vice President
By/S/ WILLIAM S. RYMER
--------------------
William S. Rymer
Treasurer
26
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of January 3, 1998 and
January 2, 1999........................................................ F-3
Consolidated Statements of Income for the years ended
January 4, 1997, January 3, 1998 and January 2, 1999................... F-5
Consolidated Statements of Stockholder's Deficit for the years ended
January 4, 1997, January 3, 1998 and January 2, 1999................... F-6
Consolidated Statements of Comprehensive Income (Loss) for the
years ended January 4, 1997, January 3, 1998 and January 2, 1999........ F-6
Consolidated Statements of Cash Flows for the years ended
January 4, 1997, January 3, 1998 and January 2, 1999................... F-7
Notes to Consolidated Financial Statements............................... F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Glenoit Corporation
In our opinion, the consolidated balance sheets and the related consolidated
statements of income, stockholder's deficit, comprehensive income (loss), and
cash flows present fairly, in all material respects, the financial position of
Glenoit Corporation and subsidiaries (the "Company"), a wholly-owned subsidiary
of Glenoit Universal, Ltd., as of January 3, 1998 and January 2, 1999, and the
results of their operations and their cash flows for the years ended January 4,
1997, January 3, 1998 and January 2, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers L.L.P.
Raleigh, North Carolina
March 22, 1999
F-2
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2,
1998 1999
----- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents...................... $1,072,280 $339,700
Receivables:
Trade accounts receivable, net of allowance of
$543,000 and $2,360,000 as of January 3, 1998
and January 2, 1999, respectively............. 21,216,104 29,666,112
Other receivables............................. 174,561 364,996
Inventories................................... 6,932,272 19,734,042
Deferred tax asset............................ 776,560 2,981,306
Prepaid expenses and other current assets..... 379,201 816,173
----------- -----------
Total current assets.................. 30,550,978 53,902,329
----------- ----------
Property, plant and equipment:
Land.......................................... 720,511 698,891
Buildings and improvements..................... 8,482,548 10,619,144
Machinery and equipment........................ 32,802,578 48,510,929
Computer equipment............................. 1,258,476 4,207,744
Furniture and fixtures......................... 817,495 940,409
Leasehold improvements......................... 411,276 670,027
Equipment under capital leases................. 1,636,246 -
Construction-in-progress....................... 9,356,955 3,276,432
----------- -------------
Total.................................. 55,486,085 68,923,576
Less accumulated depreciation and amortization. (20,344,981) (19,815,265)
------------ ------------
Net property, plant and equipment...... 35,141,104 49,108,311
------------ -----------
Other assets:
Notes receivable from related party............ 187,500 266,821
Intangible assets, net of accumulated amortization of
$1,251,000 and $1,735,000 as of
January 3, 1998 and January 2, 1999,
respectively ................................ 4,420,319 35,715,233
Deferred loan costs and other, net of accumulated
amortization of $524,000 and $1,181,000
as of January 3, 1998 and January 2, 1999,
respectively................................. 4,929,666 5,195,653
Other.......................................... - 510,716
----------- ------------
Total assets........................... $75,229,567 $144,699,063
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2,
1998 1999
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................. $ 5,961,475 $ 2,888,602
Accrued expenses................................. 1,635,657 5,389,816
Accrued compensation............................. 2,105,825 5,208,116
Accrued interest................................. 2,323,700 2,701,102
Current maturities of capital lease obligations.. 697,934 -
Payable to related party......................... - 8,521,000
Due to Holdings.................................. 2,678,587 1,752,143
---------- ---------
Total current liabilities................ 15,403,178 26,460,779
Long-term debt--less current maturities............. 102,000,000 160,707,499
Capital lease obligations--less current maturities.. 61,685 -
Deferred income taxes............................... 1,930,694 3,382,058
Other long-term liabilities......................... - 504,196
---------- ---------
Total liabilities...................... 119,395,557 191,054,532
------------ -----------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding as January 3, 1998
and January 2, 1999.......................... 10 10
Additional paid-in capital..................... 1,361,713 1,461,713
Accumulated deficit............................ (45,295,099) (46,966,633)
Accumulated other comprehensive loss........... (232,614) (850,559)
--------- ---------
Total stockholder's deficit............ (44,165,990) (46,355,469)
------------ ------------
Total liabilities and stockholder's
deficit.............................. $75,229,567 $144,699,063
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
YEARS ENDED
---------------------------------------
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
----- ----- ----
Net sales.......................... $121,750,833 $146,920,759 $172,042,207
Cost of sales...................... 86,525,495 98,061,440 123,696,704
------------ ------------ ------------
Gross profit............... 35,225,338 48,859,319 48,345,503
------------ ------------ ------------
Operating expenses:
Selling........................ 10,262,349 12,309,451 15,024,758
Administrative................. 5,635,692 8,780,595 16,115,200
Research and development....... 2,146,627 1,842,639 1,736,106
------------ ------------ -----------
Total operating expenses... 18,044,668 22,932,685 32,876,064
------------ ------------ -----------
Income from operations............. 17,180,670 25,926,634 15,469,439
------------ ------------ -----------
Other income (expense):
Interest expense, net.......... (9,124,655) (10,938,341) (13,941,672)
Amortization of deferred financing
costs........................ (641,806) (645,621) (690,656)
Other.......................... 52,932 (86,853) (147,624)
----------- ----------- ----------
Total other expense........ (9,713,529) (11,670,815) (14,779,952)
---------- ----------- -----------
Income before income taxes and
extraordinary loss............... 7,467,141 14,255,819 689,487
Income tax expense................. 3,354,504 5,390,412 307,915
--------- --------- -------
Income before extraordinary loss... 4,112,637 8,865,407 381,572
Extraordinary loss on early
extinguishment of debt, net of tax
benefit of $1,527,000 for the year
ended January 3, 1998 and
$67,000 for the year ended
January 2, 1999..................
- 2,856,884 117,236
---------- ---------- -------
Net income......................... $4,112,637 $6,008,523 $ 264,336
========== ========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED JANUARY 4, 1997, JANUARY 3, 1998 AND JANUARY 2, 1999
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF ADDITIONAL OTHER
COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE
STOCK STOCK CAPITAL DEFICIT INCOME TOTAL
----- ----- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 30, 1995..... 1,000 $10 $1,161,713 $(48,072,678) $ - $(46,910,955)
Net income........................... 4,112,637 4,112,637
----- ---- ---------- ------------ --------- ------------
Balance as of January 4, 1997........ 1,000 10 1,161,713 (43,960,041) (42,798,318)
Net income .......................... 6,008,523 6,008,523
Dividends ........................... (7,343,581) (7,343,581)
Stock compensation .................. 200,000 200,000
Accumulated other comprehensive
income............................. (232,614) (232,614)
----- ---- ---------- ------------ --------- ------------
Balance as of January 3, 1998........ 1,000 10 1,361,713 (45,295,099) (232,614) (44,165,990)
Net income........................... 264,336 264,336
Dividends ........................... (1,935,870) (1,935,870)
Stock compensation................... 100,000 100,000
Accumulated other comprehensive
income............................. (617,945) (617,945)
----- ---- ---------- ------------ --------- ------------
Balance as of January 2, 1999........ 1,000 $ 10 $1,461,713 $(46,966,633) $(850,559) $(46,355,469)
===== ==== ========== ============ ========= ============
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Years Ended
January 4, 1997 January 3, 1998 January 2, 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income........................... $4,112,637 $6,008,523 $264,336
Other comprehensive income, net of tax:
Currency translation adjustment.... - (147,710) (392,395)
---------- -------- --------
Comprehensive income (loss).......... $4,112,637 $5,860,813 $(128,059)
========== ========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
-----------
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 4,112,637 $ 6,008,523 $ 264,336
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss on early extinguishment of debt... - 4,383,884 184,624
Deferred income taxes.................. (278,396) (81,781) (753,382)
Depreciation and amortization.......... 3,096,902 3,861,613 6,415,650
Loss (gain) on sale of property and
equipment............................ (22,311) 234,020 19,497
Stock compensation .................... - 200,000 100,000
Effect of foreign currency exchange
rate................................. - (232,614) (617,945)
Changes in operating assets and
liabilities, net of acquired
operating assets and liabilities:
Trade and other receivables.......... (2,329,232) 1,025,410 6,112,704
Inventories.......................... 315,796 1,678,022 6,345,582
Prepaid expenses and other........... 660,715 443,589 (640,061)
Due to Holdings...................... 2,555,722 944,564 (926,444)
Accounts payable..................... (2,957,528) 2,079,009 (4,415,003)
Accrued expenses and other
liabilities........................ 1,274,230 3,161,820 5,699,801
--------- ----------- ---------
Net cash provided by operating
activities........................ 6,428,535 23,706,059 17,789,359
--------- ----------- ---------
Cash flows from investing activities:
Purchases of acquired businesses.......... - (8,209,333) (55,671,337)
Purchases of and additions to property,
plant and equipment..................... (1,704,631) (19,605,752) (17,901,934)
Proceeds from sale of property and
equipment and refunds of deposits....... 316,400 52,300 55,542
--------- ----------- ---------
Net cash used in investing
activities........................ (1,388,231) (27,762,785) (73,517,729)
----------- ------------ ------------
Cash flows from financing activities:
Payments on capital lease obligations..... (362,668) (625,821) (759,619)
Proceeds from line of credit and issuance
of debt................................. 8,200,000 124,600,000 80,707,499
Payments on line of credit and debt....... (14,633,768) (104,600,000) (17,000,000)
Payments for financing costs.............. (35,137) (6,950,409) (987,121)
Increase in Due to Holdings............... 817,330 - -
Advances on notes receivable - related
party................................... - - (79,099)
Dividends paid............................ - (1,600,000) (1,935,870)
Purchase of senior subordinated notes..... - - (4,950,000)
Payment of note payable to related party.. - (5,743,581) -
----------- ------------ ------------
Net cash provided by (used in)
financing activities............. (6,014,243) 5,080,189 54,995,790
--------- ----------- ---------
Net increase (decrease) in cash and
cash equivalents................ (973,939) 1,023,463 (732,580)
Cash and cash equivalents at beginning of
year...................................... 1,022,756 48,817 1,072,280
--------- ----------- ---------
Cash and cash equivalents at end of year.... $ 48,817 $ 1,072,280 $ 339,700
========= =========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company has three main operating units: (1) Fabric Division, which
manufactures apparel and automotive fabric; (2) Consumer Products Division,
which manufacturers household rugs and (3) American Pacific Enterprise, Inc.
("APE") an importer and distributor of home textile products. The Company's
manufacturing facilities are located in eastern North Carolina, eastern
Tennessee and Ontario, Canada.
BASIS OF PRESENTATION
In September 1997, Glenoit Corporation's newly formed wholly-owned
subsidiary, Glenoit Corporation of Canada ("Glenoit Canada"), acquired certain
assets and liabilities of Collins & Aikman Canada, Inc. (see Note 3). On October
2, 1998, the Company acquired all the capital stock of American Pacific
Enterprises, Inc. ("APE") (see Note 3). Accordingly, as of January 2, 1999, the
consolidated financial statements presented include the amounts of Glenoit
Corporation and its wholly-owned subsidiaries Glenoit Canada, Glenoit Asset
Corporation and APE.
PRINCIPLES OF CONSOLIDATION
All material intercompany accounts and transactions are eliminated. The
Company reports its operations on a fifty-two/fifty-three week fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH FLOW STATEMENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. During 1996, the Company
entered into a capital lease of $1,636,246, which is a noncash investing and
financing activity. During 1998, the Company accrued approximately $8.5 million
as additional purchase price of APE, which is a non-cash investing activity.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost; property, plant and
equipment obtained through purchase business combinations is stated at estimated
fair value as of the date of acquisition. Property and equipment under capital
leases are initially recorded at the lower of the present value of the future
minimum lease payments or the fair value of the related equipment.
Depreciation (which includes the amortization of capital leased assets) is
computed using the straight-line method over the related asset's estimated
useful life as follows:
Buildings and improvements............................... 20 to 40 years
Machinery and equipment.................................. 5 to 12 years
Computer equipment....................................... 3 to 5 years
Furniture and equipment.................................. 3 to 12 years
F-8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED LOAN COSTS
Deferred loan costs, primarily composed of loan origination costs and legal
fees, are amortized over the term of the related loan agreement using the
straight-line method.
INTANGIBLE ASSETS
Intangible assets principally represent the amount by which the costs of
acquired net assets exceeded their related fair value (goodwill) as of the date
of acquisition. Goodwill is being amortized on a straight-line basis over lives
of twenty to twenty-five years. The carrying value of goodwill will be reviewed
if the facts and circumstances suggest that it is impaired. If this review
indicates that goodwill will not be recoverable as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company will adjust the carrying value of goodwill.
NET SALES
The Company generally recognizes a sale when title passes to the customer
(usually at the date of shipment). Amounts which are determined to be
uncollectible are charged to operating expense. Sales returns and allowances are
recorded against sales based on management's estimates of sales returns. Where
right of return exists under guaranteed sales arrangements, revenue is
recognized when the products are sold by the retailer. One customer for each of
the years ended January 4, 1997 and January 2, 1999 accounted for approximately
11% of consolidated net sales. No single customer accounted for greater than 10%
of consolidated net sales during the year ended January 3, 1998.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
CONCENTRATION OF CREDIT RISK
The Company's principal financial instruments subject to potential
concentration of credit risk are cash and cash equivalents and trade accounts
receivable. The Company places cash deposits with federally insured financial
institutions; however, at times deposits have exceeded the amounts insured by
the Federal Deposit Insurance Corporation. The concentration of credit risk with
respect to trade accounts receivable is limited due to the large number of
customers and their dispersion across different geographic locations. Although
the Company does not require collateral for unpaid balances, credit losses have
been within management's expectations.
F-9
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES (A WHOLLY
OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
On January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS No. 107"). The Company's primary financial
instruments subject to the provisions of FAS No. 107 are debt instruments. The
fair values of these instruments are based on market quotations for similar
instruments and present value calculations using market interest rates. As of
January 3, 1998 and January 2, 1999, the Company estimates the fair value of its
debt instruments to be approximately $108,000,000 and $155,000,000,
respectively.
FOREIGN CURRENCY
Foreign currency activity is reported in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation" ("FAS No.
52"). FAS No. 52 generally provides that the assets and liabilities of foreign
operations be translated at the current exchange rate as of the end of the
accounting period and that revenues and expenses be translated using average
exchange rates. The resulting translation adjustments arising from foreign
currency translations are accumulated as a separate component of stockholder's
deficit. Gains and losses resulting from foreign currency transactions are
recognized in income.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130") for its 1998 fiscal year. SFAS No. 130
requires the Company to display an amount representing the total comprehensive
income for the period in a financial statement which is displayed with the same
prominence as other financial statements. Upon adoption, all prior period data
presented was restated to conform to the provisions of SFAS No. 130.
The Company adopted Statement of Financial Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131") for
its 1998 fiscal year. SFAS No. 131 requires the Company to report selected
information about operating segments in its financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
The Company adopted Statement of Financial Standards No. 132 "Employers'
Disclosures about Pensions and Other Post Retirement Benefits ("SFAS No. 132")
for its 1998 fiscal year. SFAS No. 132 revises the Company's disclosures about
pension benefit plans, but does not change the measurement or recognition of
expenses related to those plans.
The adoption of these accounting pronouncements did not have a material
impact on the Company's consolidated financial position, results of operations,
or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
is effective for financial statements for all fiscal quarters of all fiscal
years beginning after June 15, 1999. The Company intends to adopt SFAS No. 133
when required; however, SFAS No. 133 is not expected to have a material impact
on the Company's consolidated financial position, results of operations, or cash
flows.
F-10
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RECAPITALIZATION
On December 13, 1995, Holdings completed a series of transactions in order
to consummate a leveraged recapitalization (the "Recapitalization"). The Company
obtained two new financing arrangements: an $80 million credit facility from a
financial institution and a $15 million note from another financial institution.
The Company used the proceeds from these borrowings to pay off all of the
Company's outstanding debt as of December 13, 1995 and to terminate the
Company's factor agreement. In addition, the Company paid a cash dividend of
$40,486,261 to Holdings.
3. ACQUISITIONS
Effective August 30, 1997, Glenoit Corporation through Glenoit Canada,
acquired certain assets and certain liabilities of Collins & Aikman Canada, Inc.
for cash consideration of approximately $8.2 million. The acquisition has been
accounted for as a purchase and, accordingly, the operating results of the
acquired business have been included in the results of operations since the
acquisition date. The purchase price allocation attributed approximately $3.4
million to net working capital items, approximately $4.4 million to property,
plant and equipment and approximately $ .4 million to goodwill. For the year
ended December 28, 1996, the acquired business had sales of approximately $11.6
million. Net income for the periods presented in the accompanying consolidated
statements of income would not differ significantly on a pro forma basis
adjusted for this acquisition.
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 and current employees of APE if certain earning
targets for APE's operations are met during 1998 and 1999. For fiscal 1998,
approximately $12.0 million will be paid to the former owners and current
employees. Of this amount, $3.5 million, representing the amount to be paid to
current employees, has been recognized as compensation expense. The remaining
$8.5 million was recorded as additional purchase price. A portion of payments,
if any, made based on 1999 earnings will be recorded as compensation expense
during 1999. 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 initial 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.
The following unaudited proforma summary of consolidated results of
operations have been prepared as if the acquisition of APE occurred at the
beginning of the periods presented. In connection with the allocation of
purchase price, the Company wrote up APE's inventory by an estimated $3.4
million. This write-up of inventory negatively impacted gross margin during the
Company's fourth quarter of 1998 as this inventory was sold. This one-time
nonrecurring adjustment of $2.0 million, net of tax, is not reflected in the
proforma results presented below. The 1998 proforma operating results below
reflect $3.5 million of compensation expense related to the consideration paid
to employees of APE as previously discussed. The unaudited proforma operating
results for the year ended January 3, 1998 also reflect the issuance of the
Senior Subordinated Notes as of the beginning of the fiscal year.
YEARS ENDED
-----------
JANUARY 3, JANUARY 2,
1998 1999
---- ----
(Unaudited)
Net sales.................................. $204,800,000 $225,400,000
============ ============
Income before extraordinary item........... 9,800,000 5,000,000
========= =========
Net income................................. 9,800,000 4,900,000
========= =========
These unaudited pro forma results do not purport to be indicative of the
results that would have actually been obtained if APE had been acquired as of
January 4, 1997 or results of future periods.
F-11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIES
Inventories are summarized as follows:
JANUARY 3, JANUARY 2,
1998 1999
---- ----
Raw materials................................ $2,082,516 $2,843,387
Work-in-progress............................. 1,516,899 1,933,812
Finished goods............................... 3,332,857 14,956,843
---------- ----------
Total Inventories........................ $6,932,272 $19,734,042
========== ===========
5. LONG-TERM DEBT
As of January 3, 1998 and January 2, 1999 long-term debt consisted of
the following:
January 3, January 2,
1998 1999
---- ----
Senior credit facility........... $2,000,000 $65,707,499
11% Senior subordinated notes ... 100,000,000 95,000,000
------------ ------------
Total long-term debt......... $102,000,000 $160,707,499
============ ============
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 APE,
discussed in Note 3, the Company borrowed approximately $55.7 million under the
Acquisition Commitment of which $5 million was repaid during December, 1998. The
Company may borrow under the Acquisition Facility through December 31, 1999. 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 January 2, 1999, the Company had $15.0 million
outstanding under the Working Capital Commitment, and approximately $17.9
million available under the Working Capital Commitment and up to $20.3 million
available under the Acquisition Commitment.
F-12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG TERM DEBT (CONTINUED)
At the option of the Company, the Company may designate advances under the
Facility to bear interest at the Base Rate, as defined in the Facility, plus 1%
for an Acquisition Commitment Advance and .5% for a Working Capital Commitment
Advance or the Eurodollar Rate plus 2.5% for an Acquisition Commitment Advance
or 2% for a Working Capital Commitment Advance. The Company must pay a
commitment fee equal to five eighths of one percent per year of the unused
Acquisition Commitment and one half of one percent per year of the unused
Working Capital Commitment. Additionally, the Company must pay a letter of
credit fee of two percent per year of the average available amount under the
letters of credit for each quarter such letters of credit are outstanding. All
interest, commitment fees and letter of credit fees under the Facility are
payable quarterly and began on June 30, 1997. The principal balance of the
Acquisition Commitment is repayable quarterly commencing on March 31, 2000 in
amounts equal to one-twentieth of the aggregate principal balance then
outstanding, with the balance due on December 31, 2001. The Working Capital
commitment is due on December 31, 2001.
Prior to December 31, 1999, the Company may be required to prepay the
Acquisition Commitment and Working Capital Commitment in amounts equal to the
Net Cash Proceeds of the sale of assets, stock, debt securities or any other Net
Cash Proceeds, as defined by the Facility. The Acquisition and Working Capital
Commitments would then be permanently reduced by such payment.
As further discussed in Note 12, 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. This additional
availability is comprised of (i) $90.0 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 bear interest at the Base Rate plus 1.75% or
the Eurodollar Rate plus 3.00%. Advances under the Term B loan bear interest at
the Base Rate plus 2.50% or the Eurodollar Rate plus 3.75%. Beginning in July
1999, the interest rate charged on the Term A and Working Capital Commitment
borrowings could decrease by .5% 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 Facility and Senior Subordinated Notes have various covenants 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.
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 and, as of October 2,
1998, APE. 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. Prior to the formation of Glenoit
Canada in June 1997, all of Glenoit Corporation's wholly-owned subsidiaries
fully and unconditionally guaranteed the Senior Subordinated Notes. For periods
prior to the formation of Glenoit Canada, the Company had no independent
operations or assets other than its investment in its subsidiaries. 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 the acquisition discussed in Note 3, Glenoit Canada had no
operations.
F-13
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. LONG TERM DEBT (CONTINUED)
The following tables present summarized balance sheet information of Glenoit
Corporation, Glenoit Asset Corporation, American Pacific Enterprises, Inc. and
Glenoit Canada as of January 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 Glenoit Asset Corporation and APE, the sole subsidiary guarantors of
the Senior Subordinated Notes, are not material to investors. Summarized balance
sheet information, in thousands, as of January 2, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary
Corporation Guarantors Elimination Sub-total Canada Elimination Consolidated
----------- ---------- ----------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 39 $ 179 $ 218 $ 122 $ 340
Accounts and other receivables, net 17,373 10,998 28,371 1,660 30,031
Inventories........................ 5,766 13,307 19,073 661 19,734
Other current assets............... 3,588 163 3,751 46 3,797
--------- --------- --------- --------- ---------
Total current assets.......... 26,766 24,647 51,413 2,489 53,902
Property, plant and equipment, net. 39,800 1,189 40,989 8,119 49,108
Other assets....................... 112,989 79,176 $(139,649) 52,516 378 (11,205) 41,689
--------- --------- --------- --------- --------- --------- ---------
Total assets.................. $ 179,555 $ 105,012 $(139,649) $ 144,918 $ 10,986 $ (11,205) $ 144,699
========= ========= ========= ========= ========= ========= =========
Accounts payable................... 1,617 920 2,537 352 2,889
Other current liabilities.......... 10,713 12,605 - 23,318 254 23,572
--------- --------- --------- --------- --------- ---------
Total current liabilities..... 12,330 13,525 25,855 606 26,461
Long-term debt..................... 208,869 5,393 $ (53,555) 160,707 2,115 (2,115) 160,707
Other long-term liabilities........ 3,862 3,862 25 3,887
Stockholders equity (deficit)...... (45,506) 86,094 (86,094) (45,506) 8,240 (9,090) (46,356)
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and equity.. $ 179,555 $ 105,012 $(139,649) $ 144,918 $ 10,986 $ (11,205) $ 144,699
========= ========= ========= ========= ========= ========= =========
</TABLE>
Summarized operating statements information, in thousands, for the year
ended January 2, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Glenoit
Corporation Guarantors Elimination Sub-total Canada Elimination Consolidated
----------- ---------- ----------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 143,858 $ 17,423 $ 161,281 $ 10,761 $ 172,042
Cost of sales ........... 100,906 14,219 115,125 8,572 123,697
--------- --------- --------- ---------- ----------
Gross profit ............ 42,952 3,204 46,156 2,189 48,345
Operating expenses ...... 23,991 7,772 31,763 1,113 32,876
Royalty income (expense) (9,155) 9,155 - - -
--------- --------- --------- ---------- ----------
Income from operations .. 9,806 4,587 14,393 1,076 15,469
Interest expense (income) 16,202 (2,394) 13,808 134 13,942
Other expense (income) .. (4,589) 236 $ 4,523 170 182 486 838
Income taxes ............ (2,188) 2,222 34 274 308
Extraordinary loss, net . 117 - - 117 - - 117
--------- --------- --------- --------- --------- --------- ---------
Net income ......... $ 264 $ 4,523 $ (4,523) 264 $ 486 $ (486) $ 264
========= ========= ========= ========= ========= ========= =========
</TABLE>
Summarized cash flow statement information, in thousands, for the year ended
January 2, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Glenoit
Corporation Guarantors Elimination Sub-total Canada Eliminations Consolidated
----------- ---------- ----------- --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities .. $ (5,232) $ 22,211 $ 16,979 $ 810 $ 17,789
Cashflows used in investing activities (70,358) (70,358) (3,160) (73,518)
Cashflows from financing activities .. 74,978 (22,108) 52,870 2,127 54,997
-------- -------- -------- -------- --------
Net increase (decrease) in cash ...... (612) 103 (509) (223) (732)
Cash at beginning of period .......... 651 76 727 345 1,072
-------- -------- -------- -------- --------
Cash at end of period ................ $ 39 $ 179 $ 218 $ 122 $ 340
======== ======== ======== ======== ========
</TABLE>
F-14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. LONG TERM DEBT (CONTINUED)
Summarized balance sheet information, in thousands, as of January 3, 1998 is as
follows:
<TABLE>
<CAPTION>
Consolidated
Glenoit Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
----------- ----------- ----------- ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ............ 651 76 727 345 1,072
Accounts and other receivables, net .. 19,046 19,046 2,345 21,391
Inventories .......................... 6,259 6,259 673 6,932
Other current assets ................. 1,119 0 0 1,119 37 0 1,156
------- ------ ------- ------ ----- ------ ------
Total current assets ............ 27,075 76 27,151 3,400 30,551
Property, plant and equipment, net .. 29,490 29,490 5,651 35,141
Other assets ......................... 43,844 26,054 (52,183) 17,715 428 (8,605) 9,538
------- ------ ------- ------ ----- ------ ------
Total assets .................... 100,409 26,130 (52,183) 74,356 9,479 (8,605) 75,230
======= ====== ======= ====== ===== ====== ======
Accounts payable ..................... 5,337 1 5,338 623 5,961
Accrued expenses ..................... 8,958 651 (651) 8,958 484 0 9,442
------- ------ ------- ------ ----- ------ ------
Total current liabilities ....... 14,295 652 (651) 14,296 1,107 0 15,403
Long-term debt ....................... 102,000 102,000 102,000
Other long-term liabilities .......... 28,047 (26,054) 1,993 1,993
Stockholders equity (deficit) ........ (43,933) 25,478 (25,478) (43,933) 8,372 (8,605) (44,166)
------- ------ ------- ------ ----- ------ ------
Total liabilities and equity (deficit) 100,409 26,130 (52,183) 74,356 9,479 (8,605) 75,230
======= ====== ======= ====== ===== ====== ======
</TABLE>
Summarized operating statements information, in thousands, for the year
ended January 3, 1998 is as follows:
<TABLE>
<CAPTION>
Consolidated
Glenoit Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
----------- ----------- ----------- ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... 142,689 142,689 4,232 146,921
Cost of sales ........... 94,668 0 0 94,668 3,394 0 98,062
----- ----- ------ ----- --- ---- -----
Gross profit ............ 48,021 0 0 48,021 838 48,859
Operating expenses ...... 22,586 12 22,598 334 22,932
Royalty income (expense) (7,610) 7,610 0 0 0 0 0
----- ----- ------ ----- --- ---- -----
Income from operations .. 17,825 7,598 0 25,423 504 0 25,927
Interest expense (income) 12,757 (1,817) 10,940 (2) 10,938
Other expense (income) .. (5,707) 6,120 413 (11) 331 733
Income taxes ............ 1,909 3,295 5,204 186 5,390
Extraordinary loss, net . 2,857 0 0 2,857 0 0 2,857
----- ----- ------ ----- --- ---- -----
Net income ......... 6,009 6,120 (6,120) 6,009 331 (331) 6,009
===== ===== ====== ===== === ==== =====
</TABLE>
Summarized cash flow statement information, in thousands, for the year ended
January 3, 1998 is as follows:
<TABLE>
<CAPTION>
Consolidated
Glenoit Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
----------- ----------- ------------ ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating activites ... 15,874 6,078 21,952 1,754 23,706
Cashflows used in investing activities (26,354) (26,354) (1,409) (27,763)
Cashflows from financing activities .. 11,172 (6,092) 0 5,080 0 0 5,080
------ ------ ----- ----- ----- ----- -----
Net increase (decrease) in cash ...... 692 (14) 678 345 1,023
Cash at beginning of period .......... (41) 90 0 49 0 0 49
------ ------ ----- ----- ----- ----- -----
Cash at end of period ................ 651 76 0 727 345 0 1,072
====== ====== ===== ===== ===== ===== =====
</TABLE>
F-15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. LONG TERM DEBT (CONTINUED)
On April 1, 1997, the Company utilized the proceeds from the 11% Senior
Subordinated Notes to retire the Company's existing debt with financial
institutions, which included the balance of an $80 million senior credit
facility (the Term A and B Notes and the working capital line of credit) (the
"Old Facility") and a $15 million 12.5% Senior Subordinated Note payable (the
$15 Million Senior Subordinated Note"). Additionally, on April 1, 1997, the
Company retired a note to a shareholder of Holdings in the amount of
approximately $5.8 million. As a result of the Company's payoff of these
obligations, the Company charged to earnings $2,884,000 of net deferred loan
costs and a $1,500,000 prepayment penalty related to the $15 million Senior
Subordinated Note. During the first quarter of 1997, the Company recognized an
extraordinary loss from the early extinguishment of debt of $2,857,000, which is
net of a tax benefit of $1,527,000 related to these charges.
During the years ended January 4, 1997, January 3, 1998 and January 2, 1999,
the Company paid $8,730,000, $9,017,000, and $13,570,000, respectively, in cash
for interest.
6. LEASES
The Company leases certain equipment and facilities under operating leases
that expire through August 2007. Rent expense was $3,640,000, $ 4,075,000 and
$4,410,000 during the years ended January 4, 1997, January 3, 1998 and January
2, 1999, respectively.
As of January 2, 1999, future minimum rental payments required under
operating leases that have initial or remaining noncancelable terms in excess of
one year are as follows:
1999 $3,293,000
2000 3,172,000
2001 2,282,000
2002 1,517,000
2003 664,000
Thereafter................................................. 2,177,000
---------
Total minimum lease payments........................... $13,105,000
===========
F-16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The provision, including tax benefits on extraordinary losses, for federal,
state and foreign income taxes consist of the following components:
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
---- ---- ----
Current:
Federal .... $ 3,260,957 $ 2,867,333 $ 1,157,800
State ...... 371,943 891,521 (412,308)
Foreign .... - 186,339 248,805
----------- ----------- -----------
3,632,900 3,945,193 994,297
----------- ----------- -----------
Deferred:
Federal .... (263,662) 730,402 (483,903)
State ...... (14,734) (812,183) (294,311)
Foreign .... - - 24,832
----------- ----------- -----------
(278,396) (81,781) (753,382)
----------- ----------- -----------
Total .. $ 3,354,504 $ 3,863,412 $ 240,915
=========== =========== ===========
The 1997 and 1998 provisions for federal and state income taxes has been
allocated to income before income taxes and extraordinary loss, and the
extraordinary loss on early extinguishment of debt. Included in earnings before
tax expense are foreign earnings of $517,000 and $760,000 in fiscal 1997 and
1998, respectively.
A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
---- ----- ----
<S> <C> <C> <C>
Statutory federal income tax expense........ $2,539,000 $3,356,000 $171,786
State income taxes, net of federal benefit.. 275,000 191,000 (466,368)
Contingencies and nondeductible expenses.... 475,000 307,000 522,487
Other....................................... 65,504 9,412 13,010
---------- ---------- --------
Income tax expense.......................... $3,354,504 $3,863,412 $240,915
========== ========== ========
</TABLE>
Undistributed earnings of the Company's foreign subsidiary amounted to
approximately $815,000 at January 2, 1999. These earnings are considered to be
indefinitely reinvested and, accordingly, no U. S. federal and state income
taxes have been provided. Upon distribution of these earnings in the form of
dividends or otherwise, the Company would be subject to additional income taxes.
F-17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. The significant components of the Company's deferred tax assets
and liabilities at January 3, 1998 and January 2, 1999 are as follows:
JANUARY 3, JANUARY 2,
1998 1999
---- ----
Deferred tax assets:
Capital loss carryforwards.................... $ 416,440 $ 431,723
Accrued liabilities........................... 305,778 1,963,663
Asset valuation allowances.................... 179,500 221,132
State net operating losses.................... 561,430 763,331
Inventory..................................... - 562,810
Other ........................................ 139,554 71,503
---------- ----------
Gross deferred assets......................... 1,602,702 4,014,162
Valuation allowance........................... (416,440) (431,723)
---------- ----------
Deferred tax assets........................... 1,186,262 3,582,439
Less: Noncurrent portion..................... (409,702) (601,133)
---------- ----------
Current deferred tax assets................... $776,560 $2,981,306
---------- ----------
Deferred tax liabilities:
Depreciation and amortization................. $2,248,599 $3,926,856
Other ........................................ 91,797 56,335
---------- ----------
Deferred tax liabilities...................... 2,340,396 3,983,191
Less: Noncurrent deferred tax asset.......... (409,702) (601,133)
---------- ----------
Noncurrent deferred tax liability............. $1,930,694 $3,382,058
========== ==========
A deferred tax asset is required to be recognized for the tax benefit of
deductible temporary differences and net operating loss carryforwards. A
valuation allowance is recognized if it is more likely than not that some or all
of the deferred tax asset will not be realized. The valuation allowance was
provided for the charge-off of an investment in 1993 which is a capital loss
realizable as an offset against capital gains in future periods. Since September
1997, the Company has generated net operating losses of approximately $15.4
million at the state level.
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 federal
consolidated tax liability or receive its respective pro rata share of the total
consolidated federal 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.
During 1998, the Company settled the previously outstanding examination and
assessment that resulted from the Internal Revenue Service's ("IRS") review of
the Company's and Holding's income tax returns for January 1, 1994 and December
31, 1994. The Company paid approximately $798,000 in tax, penalty and interest
in connection with this settlement.
The Company's state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of Finance.
In April 1997, the New York Department of Finance assessed taxes and interest in
the amount of approximately $130,000. The Company is currently in the process of
responding to the New York Department of Finance and believes that any potential
settlements will be within amounts accrued.
F-18
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
Holdings has an indemnification agreement with a shareholder with respect to
certain tax obligations. While tax obligations are the expense and liability of
the Company and Holdings, the indemnification agreement provides for an
additional contribution of capital to Holdings from this shareholder via
reductions of long-term obligations due the shareholder from Holdings.
During the years ended January 4, 1997, January 3, 1998 and January 2, 1999,
the Company paid $2,952,000, $ 2,033,000 and $1,150,000, respectively, in cash
for taxes.
8. EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all employees located in its North Carolina and New York
operations hired prior to May 1, 1997. This plan also includes the salaried
employees located in the Tennessee operation hired prior to May 1, 1997. Glenoit
Canada maintains a defined benefit plan for substantially all of its hourly
employees. The benefits for both plans are based on years of service and the
employee's compensation during the years of credited service. The Company's
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Assets of the plans are managed by a trustee and
invested in marketable securities, money market instruments and mutual funds.
YEARS ENDED
JANUARY 3, JANUARY 2,
Change in Benefit Obligation: 1998 1999
---- ----
Benefit obligation at beginning of year........... $11,022,900 $11,931,128
Service cost....................................... 512,293 679,609
Interest cost...................................... 757,142 894,151
Actuarial losses/(gains)........................... 246 1,555,994
Benefits paid...................................... (361,453) (425,508)
----------- -----------
Benefit obligation at end of year..................$11,931,128 $14,635,374
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year.....$10,304,734 $12,100,951
Actual return on plan assets....................... 1,585,410 1,160,288
Company contributions.............................. 572,260 601,939
Benefits paid...................................... (361,453) (425,508)
----------- -----------
Fair value of plan assets at end of year.......... $12,100,951 $13,437,670
=========== ===========
Funded status of the plans:
Funded status at end of year...................... $169,823 $(1,197,704)
Unrecognized transition asset .................... (210,983) (96,504)
Unrecognized prior service cost................... 322,825 250,976
Unamortized net actuarial (gains) losses.......... (408,170) 927,737
----------- -----------
Accrued benefit cost.............................. $(126,505) $(115,495)
=========== ===========
F-19
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, JANUARY 2,
1997 1998 1999
----- ----- ----
<S> <C> <C> <C>
Net pension cost includes the following components:
Service cost--benefits earned during the period . $ 530,689 $ 512,293 $ 679,609
Interest cost on projected benefit obligations .. 666,149 757,142 894,151
Expected return on plan assets .................. (972,441) (757,907) (943,864)
Net amortization and deferral of unrecognized net
gain (loss) .................................. 344,316 37,410 (38,475)
--------- --------- ---------
Net periodic pension expense for year ........... $ 568,713 $ 548,938 $ 591,421
========= ========= =========
</TABLE>
A weighted average discount rate of 7.5% and 6.75% for 1997 and 1998,
respectively, and a 4.5% rate of increase in future compensation levels was used
in determining the actuarial present value of the projected benefit obligations
for both 1997 and 1998. The expected long-term rate of return of pension plan
assets was 8% for both 1997 and in 1998.
In 1995, the Company established a defined contribution plan (the "Plan")
for all hourly employees in Tennessee. Under the Plan, the Company must
contribute 2.5% of employee salaries to the Plan each plan year. Contributions
were approximately $20,000, $65,000 and $75,000 during the years ended January
4, 1997, January 3, 1998 and January 2, 1999, respectively. In 1997, the Company
established a defined contribution plan (the "1997 Plan") for all other domestic
employees not covered by the Plan. Under the 1997 Plan, the Company matches
contributions made by the employees at 50% up to a maximum of 3% of the
employee's earnings. Contributions made by the Company were approximately
$240,000 and $325,000 during 1997 and 1998, respectively. Amounts contributed
under the Plan and the 1997 Plan are invested by a trustee in a variety of
investment options, including marketable securities and mutual funds. In
connection with the acquisition of Glenoit Canada, the Company established a
defined contribution plan for salaried employees in which Company contributions
are based on years of service. Total contributions made by the Company were
approximately $14,000 and $35,000 during 1997 and 1998, respectively.
9. RELATED PARTY TRANSACTIONS
The Company has an unsecured 4% note receivable from an officer with a face
amount of $300,000. The note will be forgiven by the Company under certain
circumstances and, accordingly, the Company is recognizing compensation expense
over the term of the note, which is expected to be December 31, 2005. The
unamortized balance at January 3, 1998 and January 2, 1999 was $187,500 and
$163,500 respectively.
During the year ended January 4, 1997, the Company paid a total of
approximately $175,000 to companies under common ownership and related parties
for management and consulting fees. During the years ended January 3, 1998 and
January 2, 1999, the Company paid $200,000 each year to related parties for
management and consulting fees.
All expenses of the Company are reflected in the Consolidated Financial
Statements. No costs are incurred by Holdings on behalf of the Company. As
discussed in Note 7, the Company has a tax sharing agreement with Holdings
whereby the Company will pay Holdings its respective prorata share of the total
federal consolidated tax liability or receive its respective prorata share of
the total federal consolidated tax refund. The impact to the Company is recorded
in the "Due to Holdings" account.
On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million to a shareholder of Holdings in
satisfaction of a contingent earnout obligation of Holdings related to the
Recapitalization discussed in Note 2. This note contained a mandatory prepayment
provision which required the Company to retire the Note and accrued interest as
of the date of a bond offering of the Company. On April 1, 1997, the Company
retired the Note with proceeds from the bond offering described in Note 5.
F-20
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
On June 14, 1997, the Company declared a dividend in the amount of $1.6
million to enable Holdings to exercise an option to repurchase shares of
Holdings' common stock and to repay a note due to a shareholder of Holdings.
This transaction was related to the Recapitalization discussed in Note 2.
Additionally, as part of the same transaction the Company made a loan of
$931,263 to an officer at an interest rate of prime plus .5%. The principal and
interest were repaid in full on August 12, 1997.
In August 1997, Holdings granted an officer of the Company 1,286.211 options
for shares of Holdings' Class A common stock at an exercise price of $37,500 in
the aggregate. The officer exercised the options immediately; however, the stock
is restricted and subject to certain vesting requirements. On December 30, 1997,
Holdings removed all vesting requirements and the Company recorded non-cash
compensation expense of approximately $200,000 during the fourth quarter of
1997.
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.
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.
10. OPERATING SEGMENTS
DESCRIPTION OF SEGMENTS
Subsequent to the APE acquisition, the Company has three operating
divisions: (1) Fabric Division ("Fabric"), manufacturer and distributor of
fabric for the apparel, automotive and home furnishing industries, (2) Consumer
Products Division ("CPD"), manufacturer and distributor of household rugs to
large discount retailers and specialty retailers and (3) APE, designer, importer
and distributor of decorative textile home furnishings, principally for the
bedroom, to all major specialty and broadline retail distribution channels.
MEASUREMENT OF SEGMENT PROFIT
The Company evaluates performance and allocates resources based on
operating income of each division. The accounting policies of the reportable
segments are the same as described in Note 1 and exclude any costs associated
with the Company's corporate administrative and finance functions.
F-21
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. OPERATING SEGMENTS (CONTINUED)
FACTORS MANAGEMENT USED TO IDENTIFY THE REPORTABLE SEGMENTS
The Company's reportable segments are business units that offer different
products and each are managed separately. The following tables present operating
results and other financial information utilized by management in analyzing each
operating division. All amounts are in thousands.
Fiscal Years
1996 1997 1998
---- ---- ----
Net Sales
Fabric ................. $ 79,435 $ 107,142 $ 106,679
CPD .................... 42,316 39,779 47,940
APE .................... 0 0 17,423
--------- --------- ---------
Consolidated ................ $ 121,751 $ 146,921 $ 172,042
========= ========= =========
Operating income (loss)
Fabric ................. $ 15,101 $ 27,815 $ 21,162
CPD .................... 8,170 6,751 7,525
APE .................... 0 0 (4,792)
Corporate/Other ........ (6,090) (8,639) (8,426)
--------- --------- ---------
Consolidated ................ $ 17,181 $ 25,927 $ 15,469
========= ========= =========
Depreciation and amortization
Fabric ................. $ 994 $ 1,535 $ 3,452
CPD .................... 604 743 843
APE .................... -- -- 331
Corporate/Other ........ 1,499 1,584 1,790
--------- --------- ---------
Consolidated ................ $ 3,097 $ 3,862 $ 6,416
========= ========= =========
As of Fiscal Year Ended
1997 1998
---- ----
Inventory and accounts
receivable
Fabric .......... $20,601 $13,500
CPD ............. 7,547 11,684
APE ............. -- 24,216
------- -------
Consolidated ......... $28,148 $49,400
======= =======
Note 5 identifies sales and assets of the Company's Canadian operation.
There were no other material sales or assets outside of the United States.
MAJOR CUSTOMERS
During fiscal 1996, a single customer of the Fabric Division had net sales
of approximately $12.3 million. During fiscal 1998, a single customer of the
Consumer Products Division had net sales of approximately $17.4 million.
F-22
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. 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.
As of January 2, 1999, Holdings has obligations with a face amount of
approximately $29.2 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 $9.8 million contain certain
acceleration clauses. They include the sale of stock in a registered public
offering, certain mergers and certain changes of existing shareholder ownership.
At the option of Holdings, subject to the Company's existing debt restrictions
(Note 5), 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 pays 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.
From time to time, the Company is involved in litigation which arises in
the ordinary course of business. Management believes the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
12. SUBSEQUENT EVENTS
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 $43.2 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.
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 will be discontinuing operations at its leased Tennessee
facility and will terminate substantially all of the associates at that
facility. During the first quarter of fiscal 1999, the Company will record a
charge against operations 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. The Company currently
estimates these charges to total approximately $12 million to $18 million.
F-23
Exhibit 10.8
THIRD AMENDMENT AND WAIVER
TO THE CREDIT AGREEMENT
Dated as of October 30, 1998
THIRD AMENDMENT AND WAIVER TO THE CREDIT AGREEMENT among GLENOIT
CORPORATION, a Delaware corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and BANQUE NATIONALE DE PARIS,
as agent (the "Agent") for the Lenders (as amended, supplemented or otherwise
modified from time to time, the "Amendment and Waiver").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent have entered into a Second Amended
and Restated Credit Agreement dated as of April 1, 1997, a First Amendment and
Waiver dated as of July 10, 1997 and a Second Amendment and Waiver dated as of
October 2, 1998 (as amended, supplemented or otherwise 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 has requested certain amendments and waivers to the Credit
Agreement, including but not limited to (i) an amendment to the definitions of
"EBITA" and "EBITDA" to exclude a certain noncash, nonrecurring item and (ii) a
waiver of noncompliance with Section 5.02(g) resulting from a dividend paid by
the Borrower to Universal, which dividend was used by Universal to satisfy its
obligations under the Settlement Agreement dated as of July 17, 1998 (the
"Settlement Agreement") between Universal and Stirling Investment Holdings, Inc.
(3) The Lenders, on the terms and conditions stated below, are willing to grant
the request of the Borrower and the Borrower and the Lenders have agreed to
further amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Amendment and Waiver, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
SECTION 1. Amendments to 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, hereby amended as follows:
(a) (i) The definition of "EBITA" in Section 1.01 is amended by adding a
new clause (b)(v) to read "(v) noncash, nonrecurring charges in the
aggregate amount of approximately $3,000,000 during the Borrower's
fourth quarter 1998 associated with the one time write-up of inventory
pursuant to the Borrower's
<PAGE>
2
election of Section 338 of the Internal Revenue Code in connection with
the acquisition of American Pacific Enterprises, Inc.".
(b) (ii) The definition of "EBITDA" in Section 1.01 is amended by adding
a new clause (b)(vi) to read "(vi) noncash, nonrecurring charges in the
aggregate amount of approximately $3,000,000 during the Borrower's
fourth quarter 1998 associated with the one time write-up of inventory
pursuant to the Borrower's election of Section 338 of the Internal
Revenue Code in connection with the acquisition of American Pacific
Enterprises, Inc.".
SECTION 2. Waivers to the Credit Agreement. The Lenders and the Agent
hereby waive, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3, the noncompliance with Section
5.02(g) of the Credit Agreement resulting from a $1,935,871.53 cash dividend
paid by the Borrower to Universal, which dividend was used by Universal to
satisfy its obligations under the Settlement Agreement.
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 all of the following documents, each such document
(unless otherwise specified) dated the date of receipt thereof by the Agent, in
form and substance satisfactory to the Agent and (unless otherwise specified) in
sufficient copies for each Lender:
(i) Counterparts of this Amendment and Waiver executed by the
Borrower, and the Lenders or, as to any of the Lenders, advise
satisfactory to the Agent that such Lender has executed this Amendment
and Waiver.
(ii) Counterparts of the Consent appended hereto, executed by
each of the Loan Parties (other than the Borrower).
(iii) A certificate signed by a duly authorized officer of the
Borrower stating that:
(A) The representations and warranties contained in Section
4 are correct on and as of the date of such certificate as
though made on and as of such date; and
(B) No event has occurred and is continuing that
constitutes a default.
SECTION 4: Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly
<PAGE>
3
qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed except where
the failure to so qualify or be licensed could not have a Material
Adverse Effect and (iii) has all requisite corporate power and authority
(including, without limitation, all governmental licenses, permits and
other approvals) to own or lease and operate its properties and to carry
on its business as now conducted and as proposed to be conducted.
(b) The execution, delivery and performance by each Loan Party of this
Amendment and Waiver and the Loan Documents, as amended hereby, to which
such Loan Party is or is to be a party, and the consummation of the
transactions contemplated hereby or thereby, are within such Loan
Party's corporate powers, have been duly authorized by all necessary
corporate action and do not (i) contravene such Loan Party's charter or
by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended, and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime
Control Act of 1970), rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System),
or any order, writ, judgment, injunction, decree, determination or
award, binding on or affecting any Loan Party or any of their respective
Subsidiaries or any of their respective properties, (iii) conflict with
or result in the breach of, or constitute a default under, any material
contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument binding on or affecting any Loan Party or any of their
respective Subsidiaries or any of their respective properties or (iv)
except for the Liens created under the Loan Documents, as amended
hereby, result in or require the creation or imposition of any Lien upon
or with respect to any of the properties of any Loan Party or any of
their respective Subsidiaries. No Loan Party or any of their respective
Subsidiaries is in violation of any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which could
have a Material Adverse Effect.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery,
recordation, filing or performance by any Loan Party of this Amendment
and Waiver, the Notes, any other Loan Document, as amended hereby, or
any Related Document to which it is or is to be a party, or for the
consummation of the transactions contemplated hereby or thereby, (ii)
the grant by any Loan Party of the Liens granted by it pursuant to the
Collateral Documents, (iii) the perfection or maintenance of the Liens
created by the Collateral Documents (including the first priority nature
thereof) or (iv) the exercise by the Agent or any Lender Party of its
rights under the Loan Documents or the remedies in respect of the
Collateral pursuant to the Collateral Documents, except for the
authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(d) of the Credit Agreement, all of which have been duly
obtained,
<PAGE>
4
taken, given or made and are in full force and effect (other than
filings with the patent, trademark and copyright offices of the United
States and the relevant foreign countries). All applicable waiting
periods in connection with the transactions contemplated hereby and
thereby have expired without any action having been taken by any
competent authority restraining, preventing or imposing materially
adverse conditions upon the rights of the Loan Parties or their
respective Subsidiaries freely to transfer or otherwise dispose of, or
to create any Lien on, any properties now owned or hereafter acquired by
any of them.
(d) This Amendment and Waiver and each of the Loan Documents and each of the
Related Documents have been duly executed and delivered by each Loan
Party party thereto. This Amendment and Waiver and each of the Loan
Documents, as amended hereby, and Related Documents, as amended hereby,
to which any Loan Party is or is to be a party are legal, valid and
binding obligations of such Loan Party enforceable against such Loan
Party in accordance with the respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of their respective Subsidiaries,
including any Environmental Action, pending or, to the best of such Loan
Parties' knowledge, threatened before any court, governmental agency or
arbitrator that (i) could have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this
Amendment and Waiver, any Note, any other Loan Document as amended
hereby or any Related Document or the consummation of the transactions
contemplated hereby or thereby.
SECTION 5. Reference to and Effect on the Credit Agreement and the Loan
Documents.
(a) On and after the effectiveness of this Amendment and Waiver, each
reference in the Credit Agreement to "this Agreement", "hereunder", or
"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. Without limiting the generality of the
foregoing, the Collateral Documents and all of the Collateral described
therein do and shall continue to secure the payment of all Obligations
of the Loan Parties under the Loan Documents, in each case as amended by
this Amendment and Waiver.
<PAGE>
5
(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 and Expenses. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Agent in connection with the preparation,
execution, delivery and administration, modification and amendment of this
Amendment and Waiver 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.
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.
[The remainder of this page has been left blank intentionally.]
<PAGE>
6
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.
SECTION 9. Successors and Assigns. This Amendment and Waiver shall be
binding upon, and shall inure to the benefit of, the Agent, each of the Lenders,
each of the Loan Parties and, in each case, their respective successors and
permitted assigns under the Credit Agreement.
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_____________________________
Name:
Title:
BANQUE NATIONALE DE PARIS
By______________________________
Name:
Title:
By______________________________
Name:
Title:
SANWA BUSINESS CREDIT CORPORATION
By______________________________
Name:
Title:
<PAGE>
7
FLEET BANK, N.A.
By_____________________________
Name:
Title:
CIBC INC.
By_____________________________
Name:
Title:
LASALLE NATIONALE BANK
By_____________________________
Name:
Title:
CENTURA BANK
By_____________________________
Name:
Title:
FIRST UNION BANK OF CALIFORNIA, N.A.
By____________________________
Name:
Title:
FIRST SOURCE FINANCIAL, LLP
By FIRST SOURCE FINANCIAL, INC.
(its Agent/Manager
By____________________________
Name:
Title:
<PAGE>
8
CONSENT
Dated as of October 30, 1998
The undersigned, each a Grantor under the Second Amended and Restated
Security Agreement dated April 1, 1997 and the Amended and Restated Patent and
Trademark Security Agreement dated April 1, 1997, (the "Security Agreements") in
favor of the Agent, for its benefit and the benefit of the Secured Parties (as
defined in the Credit Agreement referred to in the foregoing Second Amendment
and Waiver (the "Credit Agreement")) and a Guarantor under the Second Amended
and Restated Guarantee dated April 1, 1997 (the "Guarantee") in favor of the
Agent and the Secured Parties, hereby consents to such Second Amendment and
Waiver and hereby confirms and agrees that (a) notwithstanding the effectiveness
of such Second Amendment and Waiver, each of (i) the Security Agreements and
(ii) the Guarantee is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects, except that, on and after the
effectiveness of such Second Amendment and Waiver, each reference in the
Guarantee or the Security Agreements 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 Second Amendment and Waiver and (b) the Collateral
Documents to which 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_____________________________
Name:
Title:
GLENOIT ASSETS CORP.
By_____________________________
Name:
Title:
AMERICAN PACIFIC ENTERPRISES, INC.
By_____________________________
Name:
Title:
<PAGE>
9
GLENOIT CORPORATION OF CANADA
By____________________________
Name:
Title:
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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 fiscal year ending January 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> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> PLEASE FILL IN
<PERIOD-END> JAN-02-1999
<CASH> 340
<SECURITIES> 0
<RECEIVABLES> 32,026
<ALLOWANCES> (2,360)
<INVENTORY> 19,734
<CURRENT-ASSETS> 53,902
<PP&E> 68,924
<DEPRECIATION> 19,815
<TOTAL-ASSETS> 144,699
<CURRENT-LIABILITIES> 26,461
<BONDS> 160,707
0
0
<COMMON> 0
<OTHER-SE> (46,355)
<TOTAL-LIABILITY-AND-EQUITY> 144,699
<SALES> 172,042
<TOTAL-REVENUES> 172,042
<CGS> 123,697
<TOTAL-COSTS> 123,697
<OTHER-EXPENSES> 32,876
<LOSS-PROVISION> (273)
<INTEREST-EXPENSE> 13,942
<INCOME-PRETAX> 689
<INCOME-TAX> 308
<INCOME-CONTINUING> 381
<DISCONTINUED> 0
<EXTRAORDINARY> (117)
<CHANGES> 0
<NET-INCOME> 264
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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 fiscal year ending January 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> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> PLEASE FILL IN
<PERIOD-END> JAN-02-1999
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,680
<CURRENT-LIABILITIES> 1
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,285
<TOTAL-LIABILITY-AND-EQUITY> 39,680
<SALES> 0
<TOTAL-REVENUES> 9,154
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,392)
<INCOME-PRETAX> 11,548
<INCOME-TAX> 4,037
<INCOME-CONTINUING> 7,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,498
<EPS-PRIMARY> 7.50
<EPS-DILUTED> 7.50
</TABLE>
