SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED APRIL 3, 1999
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file numbers 333-42411 and 333-42411-01
GLENOIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3862561
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
GLENOIT ASSET CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0343206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 West 40th Street
New York, New York 10018
Telephone: (212) 391-3915
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
None of the voting securities of Glenoit Corporation or Glenoit Asset
Corporation is held by non-affiliates.
As of April 3, 1999, there were 1,000 shares of Glenoit Corporation common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GLENOIT CORPORATION AND SUBSIDIARIES (a wholly-owned subsidiary of
Glenoit Universal, Ltd.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 2, April 3,
1999 1999
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 339,700 $ 1,458,007
Receivables:
Trade accounts receivable, net of allowance of $2,360,000 29,666,112 33,021,511
and $3,001,000 as of January 2, 1999 and April 3,
1999, respectively
Other receivables 364,996 1,880,052
Inventories 19,734,042 46,523,026
Due from Holdings - 3,938,582
Prepaid expenses and other current assets 3,797,479 3,067,357
------------- -------------
Total current assets 53,902,329 89,888,535
Property, plant and equipment, net 49,108,311 71,407,646
Other assets:
Notes receivable from related party 266,821 261,818
Intangible assets, net of accumulated amortization of $1,735,000 35,715,233 51,581,175
and $1,598,000 as of January 2, 1999 and April 3, 1999,
respectively
Deferred loan costs and other, net of accumulated amortization of 5,195,653 9,096,688
$1,181,000 and $1,473,000 as of January 2, 1999 and April 3,
1999, respectively
Other assets 510,716 1,013,674
------------- -------------
Total assets $ 144,699,063 $ 223,249,536
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 2, April 3,
1999 1999
------------ ------------
LIABILITIES AND STOCKHOLDER'S DEFICIT (Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,888,602 $ 9,570,145
Accrued expenses 21,820,034 29,988,037
Current maturities of long-term debt - 5,025,000
Due to Holdings 1,752,143 -
------------ ------------
Total current liabilities 26,460,779 44,583,182
Long-term debt less current maturities 160,707,499 219,558,168
Deferred income taxes 3,382,058 10,283,112
Other long-term liabilities 504,196 6,513,322
------------ ------------
Total liabilities 191,054,532 280,937,784
------------ ------------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding as of January 2, 1999 and
April 3, 1999 10 10
Additional paid-in capital 1,461,713 1,461,713
Accumulated deficit ( 46,966,633 ) ( 58,488,080 )
Accumulated other comprehensive loss ( 850,559 ) ( 661,891 )
------------ ------------
Total stockholder's deficit ( 46,355,469 ) ( 57,688,248 )
------------ ------------
Total liabilities and stockholder's
deficit $144,699,063 $223,249,536
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 4, April 3,
1998 1999
--------------- ----------------
<S> <C> <C>
Net sales $ 38,779,918 $ 54,882,318
Cost of sales 27,236,963 40,457,537
--------------- ----------------
Gross profit 11,542,955 14,424,781
--------------- ----------------
Operating expenses:
Selling 3,420,050 4,885,364
Administrative 2,385,065 8,731,456
Research and development 427,977 640,315
Restructuring charge - 13,100,000
--------------- ----------------
Total operating expenses 6,233,092 27,357,135
--------------- ----------------
Income (loss) from operations 5,309,863 ( 12,932,354 )
--------------- ----------------
Other income (expense):
Interest expense ( 3,003,349 ) ( 5,122,613 )
Amortization of deferred financing costs ( 158,746 ) ( 291,819 )
Other 16,663 46,641
--------------- ----------------
Total other expense ( 3,145,432 ) ( 5,367,791 )
--------------- ----------------
Income (loss) before income taxes 2,164,431 ( 18,300,145 )
Income tax expense (benefit) 778,626 ( 6,778,698 )
--------------- ----------------
Net income (loss) $ 1,385,805 $( 11,521,447 )
=============== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statement of Stockholder's Deficit (Unaudited)
for the three months ended April 3, 1999
<TABLE>
<CAPTION>
Accumulated
Shares of Additional Other
Common Common Paid-in Accumulated Comprehensive
Stock Stock Capital Deficit Loss Total
-------- --------- ---------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 2, 1999 1,000 $ 10 $1,461,713 $( 46,966,633 ) $ ( 850,559 ) $( 46,355,469 )
Net loss ( 11,521,447 ) ( 11,521,447 )
Accumulated Other
Comprehensive
Income 188,668 188,668
-------- --------- ---------- ----------- -------- -----------
Balance as of
April 3, 1999 1,000 $ 10 $1,461,713 $( 58,488,080 ) $ ( 661,891 ) $( 57,688,248 )
======== ========= ========== =========== ======== ===========
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
------------------------------
April 4, April 3,
1998 1999
------------- ----------------
Net income (loss) $ 1,385,805 $ ( 11,521,447 )
Other comprehensive income, net of tax:
Currency translation adjustment 34,503 116,974
------------- ----------------
Comprehensive income $ 1,420,308 $ ( 11,404,473 )
============= ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
statements.
5
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
April 4, April 3,
1998 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,385,805 $( 11,521,447 )
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,289,538 2,816,585
Restructuring charge - 13,100,000
Loss on sale of property and equipment ( 4,778 ) -
Effect of foreign currency exchange rate 34,503 188,668
Changes in operating assets and liabilities:
Trade and other receivables ( 13,804,427 ) ( 639,586 )
Inventories ( 2,861,703 ) ( 8,750,576 )
Prepaid expenses and other assets ( 593,091 ) ( 280,197 )
Due to Holdings 390,000 ( 5,690,725 )
Accounts payable 3,321,301 1,588,390
Accrued expenses and other liabilities 3,372,312 3,513,311
------------- -------------
Net cash (used in) operating activities ( 7,470,540 ) ( 5,675,577 )
------------- -------------
Cash flows from investing activities:
Purchases of acquired businesses, net of cash acquired - ( 50,279,944 )
Purchases of and additions to property, plant and equipment ( 6,230,777 ) ( 2,608,987 )
Proceeds from sale of property and equipment and refunds of
deposits 11,500 -
------------- -------------
Net cash used in investing activities ( 6,219,277 ) ( 52,888,931 )
------------- -------------
Cash flows from financing activities:
Payments on capital lease obligations ( 167,386 ) -
Proceeds from line of credit and issuance of debt, net 13,000,000 63,875,669
Advances on notes receivable - related parties ( 100,000 ) -
Payments for financing costs -- ( 4,192,854 )
------------- -------------
Net cash provided by financing activities 12,732,614 59,682,815
------------- -------------
Net increase (decrease) in cash and cash equivalents ( 957,203 ) 1,118,307
Cash and cash equivalents at beginning of period 1,072,280 339,700
------------- -------------
Cash and cash equivalents at end of period $ 115,077 $ 1,458,007
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Glenoit Corporation and subsidiaries (collectively the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended April
3, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 1, 2000. The unaudited
financial statements should be read in conjunction with the audited
financial statements and footnotes thereto for the fiscal year ended
January 2, 1999.
CONSOLIDATION
Prior to September 1997, the accompanying financial statements included
the accounts of Glenoit Corporation and its wholly-owned subsidiaries
Glenoit Mills, Inc. ("Mills"), Tarboro Properties, Inc. ("Tarboro"), and
Glenoit Asset Corporation, Inc. ("Glenoit Asset Corporation"). In
September 1997, Glenoit Corporation merged with Mills and Tarboro. In
addition, Glenoit Corporation's newly formed wholly-owned subsidiary,
Glenoit Corporation of Canada ("Glenoit Canada") acquired the assets of
Collins & Aikman Canada Inc. On October 2, 1998, the Company acquired
all the capital stock of American Pacific Enterprises, Inc. On February
12, 1999, the Company acquired all the outstanding shares of capital
stock of Ex-Cell Home Fashions, Inc. (See Note 7). Accordingly, at April
3, 1999, the accompanying financial statements include the accounts of
Glenoit Corporation and it's wholly-owned subsidiaries Glenoit Canada,
American Pacific Enterprises, Inc., Glenoit Asset Corporation and
Ex-Cell Home Fashions, Inc. The Company is a wholly-owned subsidiary of
Glenoit Universal, Ltd. ("Holdings").
7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133
establishes standards related to the recording and reporting of
derivative instruments. Since the Company does not hold any derivative
instruments, SFAS No. 133 does not have any impact on the Company's
results from operation or financial position.
2. RELATED PARTY TRANSACTIONS
In March 1998, the Company loaned an officer $100,000 and created an
unsecured note receivable. During June 1998, Holdings sold three
officers of the Company a total of 857.46 shares of Holdings' Class A
common stock for approximately $158,000. Holdings loaned the officers an
amount equal to the sales price and created full recourse notes
receivable collateralized by the issued shares. In connection with the
stock issuance, the Company recorded non-cash compensation expense of
$100,000.
In July 1998, Holdings settled a dispute regarding additional purchase
price owed to a shareholder associated with the recapitalization in
December 1995 discussed in Note 2 to the Consolidated Financial
Statements as of January 2, 1999. Accordingly, Holdings paid
approximately $1.9 million to the shareholder during July 1998. These
funds were paid to Holdings by the Company as a dividend.
3. INVENTORIES
Inventories are summarized as follows:
January 2, April 3,
1999 1999
-------------- --------------
(Unaudited)
Raw Materials $2,843,387 $9,037,471
Work-in-process 1,933,812 8,574,432
Finished goods 14,956,843 28,911,123
-------------- --------------
Total inventories $19,734,042 $46,523,026
============== ==============
8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT
As of January 2, 1999 and April 3, 1999, long-term debt consisted of the
following:
January 2, April 3,
1999 1999
---- ----
(unaudited)
Senior credit facility................. $65,707,499 $129,583,168
11% Senior subordinated notes ......... 95,000,000 95,000,000
------------- ------------
Total long-term debt............... 160,707,499 224,583,168
Less current portion .................. - 5,025,000
------------- ------------
$160,707,499 $219,558,168
============= ============
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 was
designated as an Acquisition Commitment and $45 million as a Working
Capital Commitment, which was a revolving credit facility limited to the
Borrowing Base as defined in the Facility. On October 2, 1998, the
Facility was amended to increase the Acquisition Commitment to $76
million. On October 2, 1998, in connection with the acquisition of
American Pacific Enterprises, Inc., discussed in Note 7, the Company
borrowed approximately $55.7 million under the Acquisition Commitment.
9
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG TERM DEBT (CONTINUED)
As further discussed in Note 7, the Company acquired all outstanding
shares of capital stock of Ex-Cell Home Fashions, Inc. on February 12,
1999. In connection with that acquisition, the Company amended and
restated the Facility to increase the borrowing availability to $200
million. 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, as further amended, at the Base Rate plus 2.25% or
the Eurodollar Rate plus 3.50%. Advances under the Term B loan bear
interest at the Base Rate plus 3.00% or the Eurodollar Rate plus 4.25%.
Beginning in July 1999, the interest rate charged on the Term A and
Working Capital Commitment borrowings could decrease by 1.0% if certain
financial ratios are met. Principal payments on the Term A and Term B
loans begin on September 30, 1999 at a total of $1.7 million per quarter
and increase over the lives of the loans. Borrowings under the Term A
loan and Working Capital Commitment are required to be fully repaid by
December 31, 2003 and borrowings under the Term B loan are required to
be fully repaid by June 30, 2004. On the date of the Ex-Cell
acquisition, the Term A and Term B loans were fully drawn. The bank also
extended up to a total of $5 million in letters of credit to the
Company; however, the amount is limited to the amount of the unused
Working Capital Commitment. At April 3, 1999, the Company had $19.6
million outstanding under the Working Capital Commitment, and
approximately $26.4 million available under the Working Capital
Commitment.
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.
10
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG TERM DEBT (CONTINUED)
The Senior Subordinated Notes are fully and unconditionally guaranteed,
on a joint and several basis, by Glenoit Asset Corporation, American
Pacific Enterprises, Inc. and, as of February 12, 1999, Ex-Cell Home
Fashions, Inc. (together the "Subsidiary Guarantors"). Glenoit Asset
Corporation's operations consist solely of leasing certain trademarks
and other intangibles to Glenoit Corporation. Accordingly, Glenoit Asset
Corporation's assets and operations consist primarily of intercompany
assets and operations with Glenoit Corporation. Glenoit Canada has not
guaranteed the Senior Subordinated Notes. The financial information of
the subsidiary guarantors for these periods has been excluded because
management believes that this information is not material to investors.
Prior to September 1997, Glenoit Canada had no operations.
The following tables present summarized balance sheet information of
Glenoit Corporation, the Subsidiary Guarantors, and Glenoit Canada as of
April 3, 1999 and the related summarized operating statement and cash
flow statement information for the period then ended. The Company
believes that separate financial statements and other disclosures
regarding the Subsidiary Guarantors, are not material to investors.
Summarized balance sheet information, in thousands, as of April 3, 1999
is as follows (unaudited):
<TABLE>
<CAPTION>
Glenoit Subsidiary
Corporation Guarantors Elimination Sub-total Canada Eliminations Consolidated
----------- --------- ----------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 288 $1,015 $1,303 $ 155 $ 1,458
Accounts and other receivables, net 19,177 13,771 32,948 1,954 34,902
Inventories 9,702 35,920 45,622 901 46,523
Other current assets 5,056 1,917 6,973 33 7,006
-------- -------- -------- ------- --------
Total current assets 34,223 52,623 86,846 3,043 89,889
Property, plant and equipment, net 46,586 16,718 63,304 8,104 71,408
Other assets 157,486 101,818 $(186,510) 72,794 382 $(11,223) 61,953
-------- -------- --------- -------- ------- -------- --------
Total assets $238,295 $171,159 $(186,510) $222,944 $11,529 $(11,223) $223,250
======== ======== ========= ======== ======= ======== ========
Accounts payable $ 4,213 $ 4,861 $ 9,074 496 $ 9,570
Other current liabilities 10,417 24,150 - 34,567 446 35,013
-------- -------- --------- -------- ------- --------
Total current liabilities 14,630 29,011 43,641 942 44,583
Long-term debt 267,778 $ (48,220) 219,558 2,081 $ (2,081) 219,558
Other long-term liabilities 12,913 3,858 16,771 26 16,797
Stockholders equity (deficit) (57,026) 138,290 (138,290) (57,026) 8,480 (9,142) (57,688)
-------- -------- --------- -------- ------- -------- --------
Total liabilities and equity $238,295 $171,159 $(186,510) $222,944 $11,529 $(11,223) $223,250
======== ======== ========= ======== ======= ======== ========
</TABLE>
11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
Summarized operating statements information, in thousands, for the three
months ended April 3, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Glenoit
Corporation Guarantors Eliminations Sub-total Canada Eliminations Consolidated
----------- ---------- ------------ --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $24,765 $27,948 $52,713 $2,169 $54,882
Cost of sales 19,883 18,793 38,676 1,782 40,458
-------- ------- ------- ------- ------ --------
Gross profit 4,882 9,155 14,037 387 14,424
Operating expenses 18,732 8,316 27,048 309 27,357
Royalty income (expenses) (1,705) 1,705 - - -
-------- ------- ------- ------- ------ --------
Income from operations (15,555) 2,544 (13,011) 78 (12,933)
Interest expense (income) 5,641 (557) 5,084 39 5,123
Other expense (income) (1,719) $ 1,954 235 (42) 51 244
Income taxes (7,956) 1,147 - (6,809) 30 - (6,779)
-------- ------- ------- ------- ------ ---- --------
Net income $(11,521) $ 1,954 $(1,954) $(11,521) $ 51 $(51) $(11,521)
======== ======= ======= ======= ====== ==== ========
</TABLE>
Summarized cash flow statement information, in thousands, for the three
months ended April 3, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Glenoit
Corporation Guarantors Eliminations Sub-total Canada Eliminations Consolidated
----------- ---------- ------------ --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities $(7,323) $1,395 $(5,928) $252 $(5,676)
Cashflows used in investing activities (52,203) (501) (52,704) (185) (52,889)
Cashflows from financing activities 59,775 (58) 59,717 (34) 59,683
------- ------ ------- ---- -------
Net increase (decrease) in cash 249 836 1,085 33 1,118
Cash at beginning of period 39 179 218 122 340
------- ------ ------- ---- -------
Cash at end of period $ 288 $1,015 $ 1,303 $155 $ 1,458
======= ====== ======= ==== =======
</TABLE>
12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
Summarized operating statements information, in thousands, for the three
months ended April 4, 1998 is as follows:
<TABLE>
<CAPTION>
Glenoit Consolidated
Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
----------- ---------- ------------ --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $35,531 $35,531 $3,249 $38,780
Cost of sales 24,792 0 0 24,792 2,445 0 27,237
-------- ------- ------- ------- ------ ---- --------
Gross profit 10,739 0 0 10,739 804 11,543
Operating expenses 5,959 3 5,962 271 6,233
Royalty income (expenses) (1,935) $ 1,935 0 0 0 0 0
-------- ------- ------- ------- ------ ---- --------
Income from operations 2,845 1,932 4,777 533 0 5,310
Interest expense (income) 3,534 (525) 3,009 (6) 3,003
Other expense (income) (1,797) $ 1,597 (200) (7) $ 349 142
Income taxes (278) 860 0 582 197 0 779
-------- ------- ------- ------- ------ ---- --------
Net income $ 1,386 $ 1,597 $(1,597) $ 1,386 $ 349 $(349) $ 1,386
======== ======= ======= ======= ====== ==== ========
</TABLE>
Summarized cash flow statement information, in thousands, for the three months
ended April 4, 1998 is as follows:
<TABLE>
<CAPTION>
Glenoit Consolidated
Glenoit Asset Domestic Glenoit
Corporation Corporation Eliminations Operations Canada Eliminations Consolidated
----------- ----------- ------------ --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities (10,617) 2,455 (8,162) 691 (7,471)
Cashflows used in investing activities (5,344) (5,344) (875) (6,219)
Cashflows from financing activities 15,024 (2,457) 0 12,567 166 0 12,733
------- ------ ----- ------- ---- ----- -------
Net increase (decrease) in cash (937) (2) (939) (18) (957)
Cash at beginning of period 651 76 0 727 345 0 1,072
------- ------ ----- ------- ---- ----- -------
Cash at end of period (286) 74 0 (212) 327 0 115
======= ====== ===== ======= ==== ===== =======
</TABLE>
13
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES
Holdings is a holding company and as a result does not have any
substantive assets or operations that generate revenues or cash flows.
Accordingly, Holdings relies on the Company's distribution of dividends
in order to fund its operations and meet its obligations, including its
interest and principal payments.
Holdings has obligations with a face amount of approximately $29.4
million, bearing interest at stated rates between 5% to 12.5%, to
shareholders ("Shareholder Notes") with principal due in 2004 and 2005.
These obligations are not reflected in the Company's accompanying
balance sheets or income statements. Subject to existing debt
restrictions, Shareholder Notes with a face amount of approximately $9.7
million contain certain acceleration clauses. At the option of Holdings,
subject to the Company's existing debt restrictions, the interest may be
paid by the issuance of additional notes or in cash.
However, Holdings must pay interest in cash on certain of the
Shareholder Notes if defined levels of consolidated cash flows of
Holdings are attained. Annual interest payments during the next five
years are approximately $2.6 million per year, excluding interest on
notes that may be issued to pay interest. Assuming Holdings makes all
interest payments related to the Shareholder Notes with additional
notes, the Company's ultimate distribution of dividends in order for
Holdings to meet its existing debt obligations is expected to be
approximately $63 million beginning December 2004 through December 2005.
However, the Company may be required to declare dividends in order for
Holdings to fund certain of its obligations in cash as discussed above.
Such amounts could approximate $3 million in the aggregate and are due
through December 2004, if the defined levels of consolidated cash flow
of Holdings are met.
6. INCOME TAXES
The Company and Holdings, have entered into a Tax Sharing Agreement
whereby the Company will pay Holdings its respective pro rata share of
the total consolidated tax liability or receive its respective pro rata
share of the total consolidated tax refund, as set forth in the tax
sharing agreement. Under the Tax Sharing Agreement, the Company and
Holdings are treated as separate tax groups.
14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. ACQUISITIONS
On October 2, 1998, the Company acquired all the capital stock of
American Pacific Enterprises, Inc. ("APE") for approximately $39.1
million, including fees and expenses, subject to post-closing
adjustments. In addition, approximately $16.6 million of indebtedness of
APE was extinguished by the Company in connection therewith. The
purchase agreement also includes additional payments to the former
owners of APE if certain earning targets for APE's operations are met
during 1998 and 1999. For fiscal 1998, approximately $12.0 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 was
recognized as compensation expense during the Company's fourth quarter
of 1998. The remaining $8.5 million was recorded as additional purchase
price. A portion of any payments to be made related to 1999 earnings may
be recorded as compensation expense during 1999. APE is a leading
designer, importer and marketer of decorative textile home furnishings,
principally quilts and specialty decorative bedding items. The
acquisition has been accounted for as a purchase. The preliminary
purchase price allocation attributed approximately $31.8 million to net
working capital items, approximately $1.3 million to property, plant and
equipment and approximately $22.6 million to goodwill. Goodwill is being
amortized over 25 years.
On February 12, 1999, the Company acquired all the outstanding shares of
capital stock of Ex-Cell Home Fashions, Inc. ("Ex-Cell") in a single
transaction for approximately $43.4 million, including fees and
expenses, subject to post-closing adjustments. In addition,
approximately $6.9 million of indebtedness of Ex-Cell was extinguished
by the Company in connection therewith. The acquisition has been
accounted for as a purchase. The preliminary purchase price allocation
attributed approximately $14.7 million to net working capital items,
approximately $23.3 million to property, plant and equipment, $7.1
million to long term liabilities including deferred income taxes and
approximately $19.4 million to goodwill. Goodwill is being amortized
over 25 years.
The following unaudited proforma summary of consolidated results of
operations have been prepared as if the acquisitions of APE and Ex-Cell
occurred at the beginning of the periods presented. In connection with
the allocation of purchase price, the Company wrote up APE's inventory
by approximately $3.4 million. This write-up of inventory negatively
impacted gross margin during the Company's fourth quarter of 1998 as
that inventory was sold. This one-time nonrecurring adjustment of $2.0
million, net of tax, is not reflected in the proforma results presented
below. In connection with the allocation of purchase price, the Company
wrote up Ex-Cell's inventory by approximately $2.5 million. This
write-up will negatively impact gross margin during the Company's first
and second quarter of 1999. The impact of this write-up is not reflected
in the proforma results presented below. Certain costs associated with
the former shareholders of Ex-Cell which will not occur in the future
are also excluded from the proforma results.
15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. ACQUISITIONS (CONTINUED)
Three Months Ended
----------------------------
April 3, April 3,
1998 1999
(Unaudited)
Net sales $70,260,000 $63,700,000
=========== ===========
Net income(loss) 1,000,000 (11,400,000)
======= ============
These proforma results do not purport to be indicative of the results
that would have actually been obtained if APE and Ex-Cell had been
acquired as of January 4, 1998.
8. RESTRUCTURING CHARGE
On February 25, 1999, the Company's Board of Directors approved a plan
to consolidate its manufacturing operations of the Fabric Division into
its facilities located in North Carolina and Canada. In connection with
this activity, the Company will be discontinuing operations at its
leased Tennessee facility and will terminate substantially all of the
associates at that facility. The Company intends to cease all operations
in the facility on or about May 28, 1999. During the first quarter of
fiscal 1999, the Company recorded a restructuring charge totaling $13.1
million to cover the estimated costs associated with the closing of that
facility including the estimated present value 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
related to the termination of approximately 225 associates. The
components of the reserves for this facility are as follows (in
thousands):
Original Reserve
----------------
Estimated losses associated with the disposal of
machinery and equipment $1,760
Write-off of goodwill 3,167
Estimated expenditures related to operating leases
for plant and equipment 7,323
Estimated severance benefits 850
-------
$13,100
=======
9. OPERATING SEGMENTS
DESCRIPTION OF SEGMENTS
Subsequent to the APE and Ex-Cell acquisitions, the Company has two
operating divisions: (1) Fabric Division ("Fabric"), manufacturer and
distributor of fabric for the apparel, automotive and home furnishing
industries and (2) Decorative Home Furnishings,
16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. OPERATING SEGMENTS (CONTINUED)
which manufactures, imports and distributes decorative textile home
furnishings to all major specialty and broadline retail distribution
channels. Decorative Home Furnishings products include specialty bedding
items, shower curtains, household rugs, decorative pillows and table
linens.
Three Months
April 4, April 3,
1998 1999
-------- ---------
Net Sales
Fabric....................... $28,521 $14,517
Decorative Home Furnishings.. 10,259 40,365
------- ------
Consolidated................. $38,780 $54,882
======= =======
Operating income (loss)
Fabric....................... $6,083 $(13,350)
Decorative Home Furnishings.. 1,482 3,037
Corporate/Other.............. (2,255) (2,619)
------- ------
Consolidated................. $5,310 $(12,932)
======= =======
Depreciation and
amortization
Fabric....................... $724 $1,167
Decorative Home Furnishings.. 201 938
Corporate/Other.............. 365 712
------- ------
Consolidated................. $1,290 $2,817
======= =======
April 3,
1999
----
Inventory and accounts
receivable
Fabric....................... $18,550
Decorative Home Furnishings.. 60,995
-------
Consolidated................. $79,545
=======
17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 4 identifies sales and assets of the Company's Canadian operation.
There were no other material sales or assets outside of the United
States.
10. FACTORING RECEIVABLES
Under an agreement with a third party, Ex-Cell, subject to credit
approval, assigns and sells substantially all its accounts receivable
without recourse. In instances where credit approval has not been
received prior to shipment, the risk of collectibility is retained by
Ex-Cell. As of April 3, 1999, there were no factored receivables with
recourse.
18
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
On December 13,1995, Glenoit Universal, Ltd. ("Holdings") formed a wholly owned
subsidiary, Glenoit Corporation (the Company), formerly Glenoit Intermediate,
Inc. and exchanged all of the issued and outstanding stock of Glenoit Mills,
Inc. and subsidiary ("Mills") for all of the issued and outstanding shares of
common stock of Glenoit Corporation. During 1997, Mills was merged into the
Company. The Company has two operating segments: (i) a domestic manufacturer and
marketer of specialty fabrics known as "sliver-knit" pile fabrics ("Fabric
Division"), and (ii) Decorative Home Furnishings which consist of a domestic
manufacturer of household rugs ("Consumer Products Divisions"), a designer,
importer and marketer of decorative textile home furnishings ("American Pacific
Enterprises, Inc.") and, through its recently acquired subsidiary, Ex-Cell Home
Fashions, Inc., a manufacturer and distributor of textile home furnishings.
RECENT DEVELOPMENTS
On October 2, 1998, the Company acquired all the capital stock of American
Pacific Enterprises, Inc. ("APE") for approximately $39.1 million, including
fees and expenses, subject to post-closing adjustment. In addition,
approximately $16.6 million of indebtedness of APE was extinguished by the
Company in connection therewith. In addition, the Company paid the former
shareholders approximately $8.5 million and certain employees approximately $3.5
million during April 1999 in connection with the acquisition agreement. APE is a
leading designer, importer and marketer of decorative textile home furnishings,
principally quilts and decorative bedding items. The Company believes that the
acquisition of APE will expand its current product offerings to the large
retailers, further penetrate the specialty retailing segment and diversify
product sourcing capabilities beyond North America.
On February 12, 1999, the Company acquired all the outstanding shares of capital
stock of Ex-Cell Home Fashions, Inc. ("Ex-Cell") in a single transaction for
approximately $43.4 million, including fees and expenses, subject to
post-closing adjustments. In addition, approximately $6.9 million of debt of
Ex-Cell was extinguished in connection therewith. Ex-Cell is engaged in the
design, manufacture, importation and distribution of textile home furnishings,
principally shower curtains, table linens, and decorative pillows. As a result
of these acquisitions, the Company believes it has transformed itself from a
specialty textile manufacturer focused on niche segments to a diversified
manufacturer and distributor of consumer goods, with the majority of its
revenues derived from the home textile market.
On February 25, 1999, the Company's Board of Directors approved a plan to
consolidate its manufacturing operations of the Fabric Division into its
facilities located in North Carolina and Canada. In connection with this
activity, the Company 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 recorded a
restructuring charge totaling $13.1 million to cover the estimated costs
associated with the closing of that facility including the cost of operating
leases, the write-off of the related goodwill, the write-down of machinery and
equipment to fair market value and severance and other personnel costs.
19
<PAGE>
RESULTS OF OPERATIONS
Net sales for the quarter ended April 3, 1999, increased to $54.9 million or
41.5% compared to $38.8 million during the comparable quarter in the prior year.
The increase in net sales is directly attributable to the acquisitions of APE
and Ex-Cell. APE generated sales of $17.3 million for the first quarter of 1999
and Ex-Cell's net sales totaled $10.6 million since its acquisition on February
12, 1999. Net sales in the Consumer Products Division increased approximately
20.9% to $12.4 million during the first quarter of 1999 compared to 1998 as a
result of increased unit volume and average selling price. These increases in
sales were offset by a decline in sales of the Fabric Division to $14.5 million
from $28.5 million. This decrease was due to continued softness in the product
category as a result of unseasonably warm weather and the influx of low priced
apparel products, mainly from Asia.
Gross profit for the quarter ended April 3, 1999 was $14.4 million or 26.3% of
net sales compared to $11.5 million or 29.8% of net sales for the same period
last year. The increase relates to the inclusion of APE and Ex-Cell's operating
results which combined contributed $9.2 million of gross profit in the first
quarter of 1999. Ex-Cell's gross margin was negatively impacted by $ .6 million
of additional cost of sales related to the sale of inventory that had been
written up at the time of acquisition in accordance with generally accepted
accounting principles. The Consumer Products Division gross margin increased
29.9% to $3.9 million as a result of the increased unit volume. As a result of
the significant decline in sales, the Fabric Division's gross margin decreased
to $1.7 million from $8.5 million. The Fabric Division's results were negatively
impacted by the decreased volume which resulted in a low absorption of overhead
costs.
Operating expenses for the quarter ended April 3, 1999, were $27.4 million
compared to $6.2 million in the first quarter of the prior year. Operating
expenses for 1999 include a $13.1 million restructuring charge related to the
consolidation of manufacturing facilities in the Fabric Division as discussed in
"Recent Developments". In addition to the restructuring charge, dollar increases
in 1999 relate to the operating expenses of APE and Ex-Cell which totaled $8.3
million. These expenses include $ .4 million of goodwill amortization specific
to APE and Ex-Cell as well as $1.0 million of incentive compensation charges
directly attributable to the APE acquisition agreement.
The Company reported an operating loss of $12.9 million for the quarter ended
April 3, 1999 compared to operating income of $5.3 million in the prior year as
a result of factors described above.
Interest expense for the quarter ended April 3, 1999, was $5.1 million compared
to $3.0 million for the same period last year. Interest expense has increased
due to higher levels of debt as a result of the APE and Ex-Cell acquisitions.
Net loss for the quarter ended April 3, 1999, was $11.5 million compared to net
income of $1.4 million the prior year.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor financing
to meet its debt service requirements, capital expenditures and working capital
needs. The Company is highly leveraged.
On April 1, 1997, the Company issued $100 million of senior subordinated notes
(the "Notes"). Concurrently with the issuance of the Notes, the Company entered
into a $70 million senior credit facility ("the New Credit Facility") with a
syndicate of lenders led by BNP, pursuant to which the Company obtained
available credit (i) up to $45.0 million for working capital and general
corporate purposes (the "Working Capital Commitment"), subject to a Borrowing
Base, and (ii) up to $25.0 million for acquisitions (the "Acquisition
Commitment"). The Company also prepaid all outstanding indebtedness under the
Old Facility. On October 2, 1998, the new Credit Facility was amended to
increase the Acquisition Commitment to $76 million. On October 2, 1998, the
Company borrowed approximately $55.7 million under the Acquisition Commitment in
connection with the APE Acquisition. In connection with the acquisition of
Ex-Cell, the Company amended and restated the New Credit Facility to increase
its borrowing availability to $200 million. This additional availability is
comprised of (i) $90 million as the Working Capital Commitment, subject to the
Borrowing Base, as defined, (ii) $40 million Term A loan, and (iii) $70 million
Term B loan. Principal payments under the Term A and Term B loans begin on
September 30, 1999 at a total of $1.7 million per quarter and increase over the
life of loans. Borrowings under the Term A loan and Working Capital Commitment
are required to be fully repaid by December 31, 2003 and borrowings under the
Term B loan are required to be fully repaid by June 30, 2004. On the date of the
Ex-Cell acquisition, both the Term A and Term B loans were fully drawn. At April
3, 1999, there were borrowings of $19.6 million under the Working Capital
Commitment and approximately $26.4 million available to borrow under the Working
Capital Commitment. A more detailed description of the senior subordinated notes
and the senior credit agreement may be found in the notes to consolidated
financial statements. Ex-Cell has a factoring arrangement whereby substantially
all of its accounts receivable are assigned and sold without recourse.
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 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.
21
<PAGE>
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 April 3, 1999, Holdings has
obligations with a face amount of $29.4 million, bearing interest at stated
rates between 5% to 12.5%, to shareholders with principal due in 2004 and 2005.
For further discussion see Note 5 of the Unaudited Consolidated Financial
Statements.
In July 1998, Holdings settled a dispute regarding additional purchase price
owed to a shareholder associated with the recapitalization in December 1995
discussed in Note 2 to the Consolidated Financial Statements as of January 3,
1998. Accordingly, Holdings paid approximately $1.9 million to the shareholder
during July 1998. These funds were paid to Holdings by the Company as a
dividend.
During the three months ended April 3, 1999, net cash used in operating
activities was $5.7 million, which resulted from the Company increasing its
working capital to meet its seasonal requirements. Excluding the purchase of
Ex-Cell, receivables increased by $.6 million, inventories and other assets
increased by $9.0 million. Accrued liabilities increased by $3.5 million, due
primarily to sales and compensation related costs. Accounts payable increased by
$1.6 million related to increased raw material purchases and tax related
accruals decreased $5.7 million.
CAPITAL IMPROVEMENTS
Capital expenditures for the three months ended April 3, 1999 were $2.6 million.
These additions were primarily in the Consumer Products Divisions for advanced
printing equipment and the purchase of machinery for the start-up of the
Company's decorative pillow operations. Expenditures were made for upgrades to
management information systems.
SEASONALITY
The Company's business is seasonal in nature. Generally, there is increased
retail demand for the Company's products during the fall (back-to-school) and
holiday selling seasons. Consequently, demand for the Company's products is
generally higher during the Company's second and third fiscal quarters when such
products are produced and distributed for these selling seasons.
INFLATION
The Company believes that inflation has not had a material impact on the results
of operations presented.
22
<PAGE>
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 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.
23
<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including in
particular, the likelihood of the Company's success in developing and expanding
its business. These statements are based upon a number of assumptions and
estimates, which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results. The forward looking statements in this Form 10-Q
are intended to be subject to the safe harbor protection provided by Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 (the
"Safe Harbor Acts").
PART II - OTHER INFORMATION
ITEM 2: LEGAL PROCEEDINGS
There have been no material developments in legal proceedings involving the
Company or its subsidiaries since the Company's Annual Report on Form 10-K
for the year ended January 2, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Glenoit Corporation is hereby
incorporated by reference to Exhibit 3.1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411)
filed on December 16, 1997.
3.2 By-Laws of Glenoit Corporation are hereby incorporated by reference
to Exhibit 3.2 to Glenoit Corporation's Registration Statement on
Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
3.3 Certificate of Incorporation of Glenoit Asset Corporation is hereby
incorporated by reference to Exhibit 3.3 of Amendment No. 1 to
Glenoit Asset Corporation's Registration Statement of Form S-4
(Registration No. 333-42411-01) filed February 4, 1998.
3.4 By-Laws of Glenoit Asset Corporation are hereby incorporated by
reference to Exhibit 3.4 of Amendment No. 1 to Glenoit Asset
Corporation's Registration Statement of Form S-4 (Registration No.
333-42411-01) filed February 4, 1998.
4.1 Indenture dated as of April 1, 1997 between Glenoit Corporation, the
Subsidiary Guarantors (as defined therein) and United States Trust
Company of New York is hereby incorporated by reference to Exhibit
4.1 to Glenoit Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on December 16, 1997.
24
<PAGE>
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.
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
25
<PAGE>
10.8 Third Amendment and Waiver to the Credit Agreement, dated October
30, 1998, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the Credit
Agreement and Banque Nationale de Paris as Agent is incorporated by
reference to Exhibit 10.8 of Glenoit Corporation's Form 10-K filed
on April 1, 1999.
10.9 Third Amended and Restated Credit Agreement, dated February 12,
1999, among Glenoit Corporation, the banks, financial institutions
and other institutional lenders parties to the Credit Agreement and
Banque Nationale de Paris as Agent is hereby incorporated by
reference to Exhibit 4.1 of Glenoit Corporation's Form 8-K filed on
February 26, 1999.
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.
(b) Reports on Form 8-K
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. In addition, on
April 27, 1999, the Company filed an amendment to this Form 8-K to
include requried financial information related to the acquisition.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 17, 1999
GLENOIT CORPORATION
By /S/ LESTER D. SEARS
-------------------------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 17, 1999
GLENOIT ASSET CORPORATION
By /S/ LESTER D. SEARS
-------------------------------------------
Lester D. Sears
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
27
<TABLE> <S> <C>
<ARTICLE> 5
<NAME> GLENOIT ASSET CORPORATION
<CIK> 0001051260
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 42,050
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,080
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,080
<CURRENT-LIABILITIES> 6,233
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 35,844
<TOTAL-LIABILITY-AND-EQUITY> 42,080
<SALES> 0
<TOTAL-REVENUES> 1,705
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (700)
<INCOME-PRETAX> 2,402
<INCOME-TAX> 841
<INCOME-CONTINUING> 1,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,561
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<NAME> GLENOIT CORPORATION AND SUBSIDIARIES
<CIK> 0001047368
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 1,458
<SECURITIES> 0
<RECEIVABLES> 36,022
<ALLOWANCES> 3,001
<INVENTORY> 46,523
<CURRENT-ASSETS> 89,889
<PP&E> 94,668
<DEPRECIATION> 23,260
<TOTAL-ASSETS> 223,250
<CURRENT-LIABILITIES> 44,583
<BONDS> 224,583
0
0
<COMMON> 0
<OTHER-SE> (57,688)
<TOTAL-LIABILITY-AND-EQUITY> 223,250
<SALES> 54,882
<TOTAL-REVENUES> 54,882
<CGS> 40,458
<TOTAL-COSTS> 4,885
<OTHER-EXPENSES> 21,831
<LOSS-PROVISION> 641
<INTEREST-EXPENSE> 5,415
<INCOME-PRETAX> (18,300)
<INCOME-TAX> (6,779)
<INCOME-CONTINUING> (11,521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,521)
<EPS-PRIMARY> (11.52)
<EPS-DILUTED> (11.52)
</TABLE>
