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 JULY 1, 2000
OR
------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file numbers 333-42411 and 333-42411-01
--------------------------------------------------
Glenoit Corporation
-------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3862561
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Glenoit Asset Corporation
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0343206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 West 40th Street
New York, New York 10018
Telephone: (212) 391-3915
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
None of the voting securities of Glenoit Corporation or Glenoit Asset
Corporation is held by non-affiliates.
As of July 1, 2000, there were 1,000 shares of Glenoit Corporation common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 1, July 1,
2000 2000
--------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,015,080 $ 4,201,650
Receivables:
Trade accounts receivable, net of allowance of $5,470,000 and
$6,095,000 as of January 1, 2000 and July 1, 2000,
respectively 27,639,925 25,630,462
Other receivables 2,396,339 5,933,706
Inventories 50,974,925 62,193,518
Current deferred tax assets 3,406,960 5,406,960
Prepaid expenses and other current assets 1,012,441 2,744,342
--------------- ----------------
Total current assets 87,445,670 106,110,638
Property, plant and equipment, net 67,701,677 62,601,614
Other assets:
Notes receivable from related party 246,810 236,805
Intangible assets, net of accumulated amortization of $3,185,000
and $4,387,000 as of January 1, 2000 and July 1, 2000,
respectively 50,933,860 49,722,167
Deferred loan costs and other, net of accumulated amortization of
$2,836,000 and $3,837,000 as of January 1, 2000 and July 1,
2000, respectively 9,293,032 8,292,246
Other assets 1,324,424 933,950
--------------- ----------------
Total assets $ 216,945,473 $ 227,897,420
=============== ================
</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 1, July 1,
2000 2000
--------------- ---------------
LIABILITIES AND STOCKHOLDER'S DEFICIT (Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,061,519 $ 15,444,535
Accrued expenses 13,907,287 22,429,089
Current maturities of long-term debt 237,681,953 244,022,158
Due to Holdings 2,462,933 1,770,952
--------------- ---------------
Total current liabilities 264,113,692 283,666,734
Long-term debt less current maturities - -
Deferred income taxes 5,840,012 5,839,385
Other long-term liabilities 6,125,933 3,930,636
--------------- ---------------
Total liabilities 276,079,637 293,436,755
--------------- ---------------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding as of January 1, 2000 and July 1, 2000 10 10
Additional paid-in capital 1,461,713 1,461,713
Accumulated deficit (60,255,036) (66,437,084)
Accumulated other comprehensive loss (340,851) (563,974)
--------------- ---------------
Total stockholder's deficit (59,134,164) (65,539,335)
--------------- ---------------
Total liabilities and stockholder's deficit $ 216,945,473 $ 227,897,420
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
3
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ---------------------------------------
July 3, July 1, July 3, July 1,
1999 2000 1999 2000
-------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 81,274,254 $ 83,425,907 $ 136,156,572 $ 161,295,427
Cost of sales 56,459,636 63,016,321 96,917,173 121,543,523
-------------- --------------- ---------------- ----------------
Gross profit 24,814,618 20,409,586 39,239,399 39,751,904
-------------- --------------- ---------------- ----------------
Operating expenses:
Selling 6,564,125 5,851,063 11,449,489 11,495,782
Administrative 9,601,995 10,984,790 18,333,451 20,420,070
Research and development 1,399,110 1,175,296 2,039,425 2,311,056
Restructuring charge - - 13,100,000 -
-------------- --------------- ---------------- ----------------
Total operating expenses 17,565,230 18,011,149 44,922,365 34,226,908
-------------- --------------- ---------------- ----------------
Income (loss) from operations 7,249,388 2,398,437 (5,682,966) 5,524,996
-------------- --------------- ---------------- ----------------
Other income (expense):
Interest expense (6,269,859) (7,007,917) (11,392,472) (13,711,999)
Amortization of deferred
financing costs (395,719) (500,393) (687,538) (1,000,786)
Other 158,711 546,444 205,352 675,808
-------------- --------------- ---------------- ----------------
Total other expense (6,506,867) (6,961,866) (11,874,658) (14,036,977)
-------------- --------------- ---------------- ----------------
Income (loss) before income taxes 742,521 (4,563,429) (17,557,624) (8,511,981)
Income tax expense (benefit) 289,012 (1,376,269) (6,489,686) (2,329,933)
-------------- --------------- ---------------- ----------------
Net income (loss) $ 453,509 $ (3,187,160) $ (11,067,938) $ (6,182,048)
============== =============== ================ ================
</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 six months ended July 1, 2000
<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 1, 2000 1,000 $ 10 $ 1,461,713 $ (60,255,036) $ (340,851) $ (59,134,164)
Net loss (6,182,048) (6,182,048)
Accumulated Other
Comprehensive
Loss (223,123) (223,123)
---------- ---------- ------------ ------------------ ---------------- ----------------
Balance as of
July 1, 2000 1,000 $ 10 $ 1,461,713 $ (66,437,084) $ (563,974) $ (65,539,335)
========== ========== ============ ================== ================ ================
</TABLE>
Consolidated Statement of Comprehensive Loss (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------
July 3, July 1,
1999 2000
------------------ ----------------
<S> <C> <C>
Net loss $ (11,067,938) $ (6,182,048)
Other comprehensive income (loss), net of tax:
Currency translation adjustment 237,068 (136,105)
------------------ ----------------
Comprehensive loss $ (10,830,870) $ (6,318,153)
================== ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------
July 3, July 1,
1999 2000
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (11,067,938) $ (6,182,048)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,026,655 6,601,433
Restructuring charge 13,100,000 -
Gain on sale of property and equipment (50,439) (507,837)
Effect of foreign currency exchange rate 382,367 (223,123)
Changes in operating assets and liabilities:
Trade and other receivables (16,438,383) (1,679,904)
Inventories (17,547,663) (11,218,593)
Prepaid expenses and other assets (849,692) (3,331,422)
Due to Holdings (2,065,380) (691,981)
Accounts payable 5,227,694 5,383,016
Accrued expenses and other liabilities (3,478,525) 8,149,489
--------------- ---------------
Net cash used in operating activities (26,761,304) (3,700,970)
--------------- ---------------
Cash flows from investing activities:
Purchases of acquired businesses, net of cash acquired (59,548,691) -
Purchases of and additions to property, plant and equipment (4,371,728) (1,237,771)
Proceeds from sale of property and equipment and refunds of
deposits 436,856 785,106
--------------- ---------------
Net cash used in investing activities (63,483,563) (452,665)
--------------- ---------------
Cash flows from financing activities:
Proceeds from line of credit and issuance of debt, net 95,875,669 8,000,000
Repayments of long-term debt - (1,659,795)
Payments for financing costs (5,035,046) -
--------------- ---------------
Net cash provided by financing activities 90,840,623 6,340,205
--------------- ---------------
Net increase in cash and cash equivalents 595,756 2,186,570
Cash and cash equivalents at beginning of period 339,700 2,015,080
--------------- ---------------
Cash and cash equivalents at end of period $ 935,456 $ 4,201,650
=============== ===============
</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 six-month period ended
July 1, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 30, 2000. The unaudited
financial statements should be read in conjunction with the audited
financial statements and footnotes thereto for the fiscal year ended
January 1, 2000. On August 8, 2000, Glenoit Universal, Ltd., the
Company and six of its operating subsidiaries filed for protection
under Chapter 11 of the U. S. Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. (See Note 4 and Note
10). This matter raises substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of
this uncertainty.
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 July
1, 2000, the accompanying financial statements include the accounts of
Glenoit Corporation and its wholly-owned subsidiaries Glenoit Canada,
American Pacific Enterprises, Inc., Glenoit Asset Corporation and
Ex-Cell Home Fashions, Inc. The Company is a wholly-owned subsidiary of
Glenoit Universal, Ltd. ("Holdings").
7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Adoption of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS
No. 133 establishes standards related to the recording and reporting of
derivative instruments. The FASB recently delayed the required
implementation of SFAS No. 133 until fiscal year 2001. During 1999, the
Company entered into an interest rate hedge agreement but has yet to
determine any future impact of SFAS No. 133.
2. RELATED PARTY TRANSACTIONS
In January 1999, the Company loaned an officer $150,000 and created an
unsecured note receivable which was repaid in February, 1999.
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
January 1, July 1,
2000 2000
----------------- -----------------
(Unaudited)
<S> <C> <C>
Raw materials $9,269,434 $9,539,627
Work-in-process 4,985,545 8,295,269
Finished goods 36,719,946 44,358,622
----------------- -----------------
Total inventories $50,974,925 $62,193,518
================= =================
</TABLE>
4. LONG-TERM DEBT
As of January 1, 2000 and July 1, 2000, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
January 1, July 1,
2000 2000
----------- -----------
(unaudited)
<S> <C> <C>
Senior credit facility........................... $142,681,953 $149,022,158
11% Senior subordinated notes ................... 95,000,000 95,000,000
----------- -----------
Total long-term debt........................ 237,681,953 244,022,158
Less current portion ............................ 237,681,953 244,022,158
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG-TERM DEBT
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. Previously, the
Company at its option, could 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. 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 is a revolving credit facility limited to the
Borrowing Base as defined in the Facility. On October 2, 1998, the
Facility was amended to increase the Acquisition Commitment to $76
million. On October 2, 1998, in connection with the acquisition of
American Pacific Enterprises, Inc., discussed in Note 7, the Company
borrowed approximately $55.7 million under the Acquisition Commitment.
As further discussed in Note 7, the Company acquired all outstanding
shares of capital stock of Ex-Cell Home Fashions, Inc. on February 12,
1999. In connection with that acquisition, the Company amended and
restated the Facility to increase the borrowing availability to $200
million. The additional availability was reduced to $175 million in
connection with the June, 1999 amendment discussed below and is
currently comprised of (i) $65.0 million as the Working Capital
Commitment, subject to the Borrowing Base as defined, (ii) $40.0
million Term A loan and (iii) $70.0 million Term B loan. The borrowings
under both the Working Capital Commitment and Term A loan, as amended,
bear interest at the Base Rate plus 2.25% or the Eurodollar Rate plus
3.50%. Advances under the Term B loan bear interest at the Base Rate
plus 3.00% or the Eurodollar Rate plus 4.25%. Beginning in July 1999,
the interest rate charged on the Term A and Working Capital Commitment
borrowings could decrease by 1.0% if certain financial ratios are met.
Principal payments on the Term A and Term B loans began 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
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)
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.
The Facility and Senior Subordinated Notes have various covenants, as
well as cross-acceleration provisions, that require the Company to:
maintain key financial ratios, restrict corporate borrowings, limit the
Company's ability to pay dividends, limit the type and amount of
certain investments which may be undertaken by the Company, limit the
Company's disposition of assets, limit the Company's ability to enter
into operating and capital leases, and restrict the Company's ability
to issue shares of its stock.
As a result of certain defaults under the Facility, the Company was
prohibited by its lenders from paying $5.25 million of interest due to
holders of the Senior Subordinated Notes. Accordingly, as of April 15,
2000, the Company was in default and remains in default under the terms
of the Senior Subordinated Notes. The Company continued working with
its lenders and received various waivers and amendments through August
8, 2000 to enable the Company to operate without the lenders demanding
payment on the Facility.
On August 8, 2000, the Company announced that it had terminated a
tender offer and related solicitation of consents to certain proposed
amendments for the Senior Subordinated Notes. Also, it was announced
that Glenoit Universal, Ltd., the Company and six operating
subsidiaries filed for protection under Chapter 11 of the U. S.
Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware. On August 9, 2000, the Company filed its amended plan of
reorganization that was pre-approved by its banks and holders of the
Senior Subordinated Notes in a format known as a "pre-packaged"
bankruptcy. The plan of reorganization calls for the payment of 17
cents for every dollar of principal outstanding under the Senior
Subordinated Notes while vendors will be paid in the ordinary course
without interruption. The Company's operations during the bankruptcy
proceeding will be funded by a $65 million Debtor-in-possession credit
facility ("DIP Facility"). The DIP Facility's availability will be
based on a "borrowing base", similar to the Facility, plus an
overadvance rate of up to $13 million less outstanding letters of
credit less $47 million of pre-petition borrowings under the Working
Capital Commitment. As of August 17, 2000, approximately $ 4 million
was outstanding under the DIP Facility and total availability was
approximately $10.2 million.
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)
Additionally, the Company will continue to pay interest on the
outstanding principal balances of the Working Capital Commitment, Term
A loan and Term B loan. Loans under the Working Capital Commitment and
Term A loan will bear interest at the Base Rate plus 2.25% or the
Eurodollar Rate plus 3.50%. Advances made under the Term B loan bear
interest at the Base Rate plus 3.00% or the Eurodollar Rate plus 4.25%.
However, the Company will not be required to make principal
amortization payments during the Chapter 11 proceedings. Loans
outstanding under the DIP Facility will bear interest at the Base Rate
plus 2.25% or the Eurodollar Rate plus 3.50%. On August 8, 2000, the
Company also announced that it successfully negotiated $169 million of
exit financing with the same bank group that will be available to the
Company upon emergence from Chapter 11.
During June 1999, the Company entered into an interest rate cap
agreement which caps the maximum Eurodollar rate to be paid by the
Company at 6.5% on an $82.5 million notional amount. The Company paid
approximately $820,000 to enter into this agreement.
Substantially all of the Company's assets and operations are pledged as
collateral for the Facility. Holdings and Glenoit Asset Corporation
have guaranteed the Company's obligations under the Facility. Holdings
and Glenoit Asset Corporation have no substantive assets or operations
and rely on the Company to fund their obligations.
The Senior Subordinated Notes are fully and unconditionally guaranteed,
on a joint and several basis, by Glenoit Asset Corporation, American
Pacific Enterprises, Inc. and, as of February 12, 1999, Ex-Cell Home
Fashions, Inc. (together the "Subsidiary Guarantors"). Glenoit Asset
Corporation's operations consist solely of leasing certain trademarks
and other intangibles to Glenoit Corporation. Accordingly, Glenoit
Asset Corporation's assets and operations consist primarily of
intercompany assets and operations with Glenoit Corporation. Glenoit
Canada and the foreign subsidiaries of APE and Ex-Cell, together the
("Subsidiary Non-Guarantors") do not guarantee 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.
11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG-TERM DEBT (Continued)
The following tables present summarized balance sheet information of
Glenoit Corporation, the Subsidiary Guarantors, and Subsidiary
Non-Guarantors as of July 1, 2000 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
July 1, 2000 is as follows (unaudited):
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 3,130 $ 222 $ 850 $ 4,202
Accounts and other
receivables, net................. 9,870 16,871 4,823 31,564
Inventories....................... 12,544 45,224 4,426 62,194
Other current assets.............. 8,997 (1,090) 244 - 8,151
------ ------ ---- -------- -----
Total current assets........... 34,541 61,227 10,343 0 106,111
Property, plant and equipment,
net ............................ 30,328 22,763 9,511 62,602
Other assets...................... 186,076 107,784 1,897 (236,573) 59,184
------- ------- ----- -------- ------
Total assets................... 250,945 191,774 21,751 (236,573) 227,897
======= ======= ====== ======== =======
Accounts payable.................. 2,992 8,096 4,357 15,445
Other current liabilities......... 244,483 31,852 (8,113) 268,222
------- ------ ------- -------- -------
Total current liabilities...... 247,475 39,948 (3,756) 0 283,667
Long-term debt.................... 69,415 0 3,719 (73,134) 0
Other long-term liabilities....... (970) 10,605 134 9,769
Stockholders equity (deficit)..... (64,975) 141,221 21,654 (163,439) (65,539)
------- ------- ------ -------- --------
Total liabilities and equity... $250,945 $191,774 $21,751 $(236,573) $227,897
======== ======== ======= ========= ========
</TABLE>
Summarized operating statements information, in thousands, for the six
months ended July 1, 2000 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 56,953 $94,979 $22,266 $(12,903) $161,295
Cost of sales..................... 45,682 69,737 19,027 (12,903) 121,543
-------- ------ ------ -------- -------
Gross profit...................... 11,271 25,242 3,239 0 39,752
Operating expenses................ 12,371 21,196 660 34,227
Royalty income (expense).......... (3,574) 3,574 - - -
------ ------- ------ -------- -------
Income (loss) from operations..... (4,674) 7,620 2,579 0 5,525
Interest expense (income)......... 14,781 (1,118) 49 13,712
Other expense (income)............ (6,540) (1,701) 19 8,547 325
Income taxes (benefit)............ (6,733) 3,550 853 - (2,330)
------- ----- ---- ------ -------
Net income (loss)............ $(6,182) $6,889 $ 1,658 $ (8,547) $(6,182)
======= ====== ====== ======== =======
</TABLE>
12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
4. LONG-TERM DEBT (Continued)
Summarized cash flow statement information, in thousands, for the six
months ended July 1, 2000 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Cashflows from operating
activities........................ $(4,779) $2,163 $(1,085) $(3,701)
Cashflows used in investing
Activities.................... (82) (223) (147) (452)
Cashflows from financing
activities........................ 7,922 (1,582) 0 0 6,340
------ ------ ---- --- -----
Net increase(decrease) in cash.... 3,061 358 (1,232) 0 2,187
Cash at beginning of period....... 69 (136) 2,082 2,015
------ ------ ---- --- -----
Cash at end of period............. $3,130 $ 222 850 $0 $4,202
====== ====== ==== ==== ======
</TABLE>
Summarized operating statements information, in thousands, for the six
months ended July 3, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 60,150 $68,795 11,211 $(4,000) $136,156
Cost of sales..................... 44,856 46,917 9,144 (4,000) 96,917
--------- ------- ------ ------- --------
Gross profit...................... 15,294 21,878 2,067 39,239
Operating expenses................ 25,540 18,731 651 44,922
Royalty income (expense).......... (3,942) 3,942 0 0 0
--------- ------- ------ ------- --------
Income (loss) from operations..... (14,188) 7,089 1,416 0 (5,683)
Interest expense (income)......... 12,280 (982) 94 11,392
Other expense (income)............ (5,422) (451) (90) 6,446 483
Income taxes...................... (9,978) 2,992 496 0 (6,490)
--------- ------- ------ ------- --------
Net income (loss)................. $(11,068) $ 5,530 $916 $(6,446) $(11,068)
========= ======= ==== ====== =========
</TABLE>
Summarized cash flow statement information, in thousands, for the six
months ended July 3, 1999 is as follows:
<TABLE>
<CAPTION>
Glenoit Subsidiary Subsidiary
Corporation Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Cashflows from operating
activities........................ $(20,536) $(5,273) $(952) $(26,761)
Cashflows used in investing
Activities.................... (61,699) (1,060) (725) (63,484)
Cashflows from financing
activities........................ 82,166 6,672 2,002 0 90,840
------ ----- ----- --- ------
Net increase (decrease) in
cash.............................. (69) 339 325 0 595
Cash at beginning of period....... 39 179 122 - 340
------ ----- ----- --- ------
Cash at end of period............. $(30) $518 $447 $0 $935
====== ===== ===== === ======
</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 $33.3
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. 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.
Consistent with the year ending January 1, 2000, the Company provided a
valuation allowance for net operating losses generated in North
Carolina and New York which are not currently anticipated to be
utilized. During the first six months of 2000, the allowance was
increased $250,000. The Company estimates its annual effective income
tax rate to be a benefit of approximately 27%.
14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
7. ACQUISITIONS
On October 2, 1998, the Company acquired all the capital stock of
American Pacific Enterprises, Inc. ("APE") for approximately $39.1
million, including fees and expenses, subject to post-closing
adjustments. In addition, approximately $16.6 million of indebtedness
of APE was extinguished by the Company in connection therewith. The
purchase agreement also includes additional payments to the former
owners of APE if certain earning targets for APE's operations are met
during 1998 and 1999. For fiscal 1998, approximately $12.3 million was
paid to the former owners and current employees during April 1999. Of
this amount, approximately $3.5 million was paid to current employees
and expensed during 1998. The remaining $8.8 million was recorded as
additional purchase price. Based on APE's projected operating results
through the second quarter of 1999, the Company recorded approximately
$1.7 million of compensation expense related to this agreement.
However, based on the full year of APE's 1999 operating results, this
charge was later reversed and no compensation expense was recorded for
the twelve months ended January 1, 2000. APE is a leading designer,
importer and marketer of decorative textile home furnishings,
principally quilts and specialty decorative bedding items. The purchase
price allocation attributed approximately $31.8 million to net working
capital items, approximately $1.3 million to property, plant and
equipment and approximately $31.4 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 $44.1 million, including fees and
expenses, subject to post-closing adjustments. In addition,
approximately $6.8 million of indebtedness of Ex-Cell was extinguished
by the Company in connection therewith. Ex-Cell is engaged in the
design, manufacture, importation, and distribution of textile home
furnishings consisting principally of shower curtains, table linens and
decorative pillows. 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 $15.1 million to net working capital items, approximately
$22.8 million to property, plant and equipment, $7.1 million to long
term liabilities including deferred income taxes and approximately
$20.1 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 Ex-Cell occurred
at the beginning of the period presented. In connection with the
allocation of purchase price, the Company wrote up Ex-Cell's inventory
by approximately $2.2 million. This write-up negatively impacted gross
margin during the Company's first nine months of 1999 as that inventory
was sold. The impact of this write-up is not reflected in the proforma
results presented below. Certain costs associated with the former
shareholders of Ex-Cell are also excluded from the proforma results.
15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
7. ACQUISITIONS (Continued)
Six Months Ended
----------------
July 3,
1999
----
(Unaudited)
Net sales $145,000,000
============
Net loss $(10,100,000)
============
These proforma results do not purport to be indicative of the results
that would have actually been obtained if Ex-Cell had been acquired as
of January 3, 1999 or results of future periods.
8. RESTRUCTURING CHARGE
On February 25, 1999, the Company's Board of Directors approved a plan
to close one of the manufacturing operations of the Fabric Division. In
connection with this activity, the Company discontinued operations at
its leased Tennessee facility and terminated substantially all of the
associates at that facility. The Company ceased substantially all
operations in the facility on or about May 28, 1999. During the first
quarter of fiscal 1999, the Company recorded a restructuring charge
totaling $13.1 million of which $3.2 million related to the write-off
of the goodwill, $1.8 million to cover the write-down of machinery and
equipment to fair market value and the remainder for the costs of
operating leases, severance and other personnel costs related to the
termination of approximately 225 associates. Management reviewed its
original write-down of fixed assets and compared the actual results of
asset sales to original appraised values as well as reviewed any
remaining asset values. In connection with this review as of January 1,
2000, management determined that the write down of machinery and
equipment should be increased to $3.4 million. Management also reviewed
the anticipated requirements for operating leases and determined this
amount should decrease by $1.6 million as a result of certain leased
equipment being transferred to its other manufacturing facilities and
placed in service. The components of the reserves for this facility are
as follows (in thousands):
<TABLE>
<CAPTION> Original Remaining
Reserve Usage Adjustment Reserve
<S> <C> <C> <C> <C>
Anticipated expenditures related to
operating leases for plant and equipment $7,323 $(1,524) $(1,586) $4,213
Anticipated severance benefits 850 ( 850) 0 0
--- -------- -------- ------
$8,173 $(2,374) $(1,586) $4,213
====== ======== ======== ======
</TABLE>
16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
9. OPERATING SEGMENTS
Description of Segments
The Company has two operating segments: (i) Decorative Home Furnishings
which designs, manufacturers, imports and distributes decorative
textile home furnishings and (ii) a domestic manufacturer and marketer
of specialty fabrics, primarily for the apparel industry, known as
"sliver knit" pile fabrics ("Fabric Division").
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.
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.
<TABLE>
<CAPTION>
Second Quarter Ended
----------------------------------
July 3, July 1,
1999 2000
---- ----
<S> <C> <C>
Net Sales
Decorative Home Furnishings.......... $56,354 $64,804
Fabric............................... 25,631 20,056
Intercompany......................... (711) (1,434)
----- -------
Consolidated.................... $81,274 $83,426
======= =======
Operating income (loss)
Decorative Home Furnishings.......... $4,990 $3,798
Fabric............................... 4,580 2,332
Corporate/Other...................... (2,321) (3,732)
------- -------
Consolidated................... $7,249 $2,398
====== ======
Depreciation and amortization
Decorative Home Furnishings.......... $ 1,601 $1,751
Fabric............................... 1,060 971
Corporate/Other...................... 549 621
----- ---
Consolidated................... $3,210 $3,343
====== ======
</TABLE>
17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(a wholly-owned subsidiary of Glenoit Universal, Ltd.)
Notes to Consolidated Financial Statements (Unaudited)
9. OPERATING SEGMENTS (Continued)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
July 3, July 1,
1999 2000
---- ----
<S> <C> <C>
Net Sales
Decorative Home Furnishings.......... $96,720 $130,304
Fabric............................... 40,148 32,718
Intercompany......................... (711) (1,727)
----- -----
Consolidated................... $136,157 $161,295
======== ========
Operating income (loss)
Decorative Home Furnishings.......... $7,377 $9,180
Fabric............................... (8,832) 1,934
Corporate/Other...................... (4,228) (5,589)
======= ======
Consolidated.................... $(5,683) $5,525
======== ======
Depreciation and amortization
Decorative Home Furnishings.......... $2,539 $3,412
Fabric............................... 2,227 1,948
Corporate/Other...................... 1,261 1,241
----- -----
Consolidated.................... $6,027 $6,601
====== ======
July 1,
2000
-------
Inventory and accounts receivable
Decorative Home Furnishings.......... $77,725
Fabric............................... 10,099
-------
Consolidated.................... $87,824
=======
</TABLE>
18
<PAGE>
10. Subsequent Event
On August 8, 2000, the Company announced that it had terminated a
tender offer and related solicitation of consents to certain proposed
amendments for its 11% Senior Subordinated Notes. The Company also
announced that it filed for protection under Chapter 11 of the U. S.
Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware. On August 9, 2000, the Company filed its amended plan of
reorganization that was pre-approved by its banks and bondholders in a
format known as a "pre-packaged" bankruptcy. The amended plan of
reorganization allows for the Company to pay its vendors in the
ordinary course of operations and on normal trade terms without
interruption.
The Company will maintain liquidity during the bankruptcy proceedings
through cash generated from operations and a revolving credit facility
under a debtor-in-possession ("DIP") financing agreement provided by
the existing bank group led by BNP Paribas, as agent. The Company also
announced that the plan of reorganization includes a substantial
reduction in the Company's subordinated debt through a cash infusion
from its major investor, Citicorp Venture Capital, Ltd. In addition,
the Company has successfully negotiated the terms of a restructuring of
its existing credit facility that will finance the Company upon
emergence from Chapter 11. See Note 4.
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
On December 13,1995, Glenoit Universal, Ltd. ("Holdings") formed a
wholly-owned subsidiary, Glenoit Corporation (the Company), formerly Glenoit
Intermediate, Inc. and exchanged all of the issued and outstanding stock of
Glenoit Mills, Inc. and subsidiary ("Mills") for all of the issued and
outstanding shares of common stock of Glenoit Corporation. During 1997, Mills
was merged into the Company. The Company has two operating segments: (i)
Decorative Home Furnishings which manufactures, imports and distributes
decorative textile home furnishings and (ii) a domestic manufacturer and
marketer of specialty fabrics, primarily for the apparel industry, known as
"sliver-knit" pile fabrics ("Fabric Division"). The Company's two most recent
acquisitions, American Pacific Enterprises and Ex-Cell Home Fashions, Inc., are
part of the Decorative Home Furnishings segment.
Recent Developments
On August 8, 2000, the Company announced that it had terminated a tender
offer and related solicitation of consents to certain proposed amendments for
its 11% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes").
The Company also announced that it filed for protection under Chapter 11 of the
U. S. Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. On August 9, 2000, the Company filed its amended plan of
reorganization that was pre-approved by its banks and bondholders in a format
known as a "pre-packaged" bankruptcy. The amended plan of reorganization allows
for the Company to pay its vendors in the ordinary course of operations and on
normal trade terms without interruption.
The Company will maintain liquidity during the bankruptcy proceedings
through cash generated from operations and a revolving credit facility under a
debtor-in-possession ("DIP") financing agreement provided by the existing bank
group led by BNP Paribas, as agent. The Company also announced that the plan of
reorganization includes a substantial reduction in the Company's subordinated
debt through a cash infusion from its major investor, Citicorp Venture Capital,
Ltd. In addition, the Company has successfully negotiated the terms of a
restructuring of its existing credit facility that will finance the Company upon
emergence from Chapter 11.
On October 2, 1998, the Company acquired all the capital stock of American
Pacific Enterprises, Inc. ("APE") for approximately $39.1 million, including
fees and expenses, subject to post-closing adjustment. In addition,
approximately $16.6 million of indebtedness of APE was extinguished by the
Company in connection therewith. In addition, the Company paid the former
shareholders approximately $8.8 million and certain employees approximately $3.5
million during April 1999 in connection with the acquisition agreement. APE is a
leading designer, importer and marketer of decorative textile home furnishings,
principally quilts and decorative bedding items. 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 $44.1
million, subject to post-closing adjustments. In addition, approximately $6.8
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
20
<PAGE>
curtains, table linens, and decorative pillows. The Company believes that these
acquisitions will expand its current product offerings to large retailers,
further penetrate the specialty retailing segment and diversify product sourcing
capabilities beyond North America to include Chinese suppliers. 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. These acquisitions have been
accounted for as "purchases" under APB Opinion No. 16 and, accordingly, the
financial statements reflect the results of operations from the dates of
purchase.
On February 25, 1999, the Company's Board of Directors approved a plan to
close one of the manufacturing operations of the Fabric Division. In connection
with this activity, the Company discontinued all operations at its leased
Tennessee facility and terminated substantially all of the associates at that
facility. During the first quarter of fiscal 1999, the Company recorded a
restructuring charge totaling $13.1 million to cover the estimated costs
associated with the closing of that facility including the cost of operating
leases, the write-off of the related goodwill, the write-down of machinery and
equipment to fair market value and severance and other personnel costs.
Results of Operations
Net sales for the quarter ended July 1, 2000, increased to $ 83.4 million
or 2.6 % compared to $81.3 million during the comparable quarter in the prior
year. The increase in net sales occurred in the Decorative Home Furnishing
segment which increased from $56.4 million in the second quarter of 1999 to
$64.8 million in 2000. The increase in net sales was the result of increased
sales of quilts and specialty bedding items. These increases in sales of home
furnishing items were partially offset by a decline in sales of the Fabric
Division to $20.1 million from $25.6 million. This decrease was due to continued
softness in the product category and to manufacturing inefficiencies which
restricted the shipment of finished goods.
Net sales for the six months ended July 1, 2000 increased to $161.3
million from $136.2 million in the first half of 1999. The increase was the
result of the sales growth of the Decorative Home Furnishing segment and to the
inclusion of Ex-Cell for the full first quarter of 2000. Year-to-date sales for
the Fabric Division declined to $32.7 million from $40.1 million in the first
half of 1999.
Gross profit for the quarter ended July 1, 2000 was $20.4 million or 24.5%
of net sales compared to $24.8 million or 30.5% of net sales for the same period
last year. The Fabric Division's results were negatively impacted by decreased
volume and manufacturing inefficiencies which resulted in a low absorption of
overhead costs decreasing gross margin to $4.4 million from $7.4 million. Gross
margin in the second quarter of 1999 was negatively impacted by $1.1 million of
additional cost of sales related to the sale of Ex-Cell's inventory that had
been written up at the time of acquisition in accordance with generally accepted
accounting principles. Gross margin in the Decorative Home Furnishings segment
decreased to $16.3 million from $17.5 million as a result of a change in product
mix to lower margin sales as well as sales of excess inventory at amounts below
original cost.
21
<PAGE>
Gross profit for the first half of 2000 was $39.8 million as compared to
$39.2 million in 1999. The increase in gross profit for the six months was
related to an increase in the Decorative Home Furnishings segment during the
first quarter of 2000. Gross margin was negatively impacted by $1.7 million in
the first half of 1999 as a result of Ex-Cell's inventory write-up. These gains
were offset by the decrease in gross profit in the Fabric Division to $5.9
million in 2000 from $9.1 million for the first half of 1999 as a result of
decreased volume and manufacturing inefficiencies.
Operating expenses for the quarter ended July 1, 2000, were $18.0 million
compared to $17.6 million in the second quarter of the prior year. Operating
expenses for the six months ended July 1, 2000 totaled $34.2 million as compared
to $44.9 million for 1999. Operating expenses for 1999 include a $13.1 million
restructuring charge recorded in the first quarter related to the consolidation
of manufacturing facilities in the Fabric Division as discussed in "Recent
Developments". In addition to the restructuring charge, dollar increases in 2000
relate to the operating expenses of Ex-Cell for the first full quarter of 2000.
Based on APE's projected operating results, the Company recorded approximately
$1.0 million of compensation charges in the first quarter of 1999 and $1.7
million in the first half of 1999 related to the APE purchase agreement.
However, based on the full year of APE's 1999 operating results, this charge was
later reversed and no compensation expense was recorded for the twelve months
ended January 1, 2000.
The Company reported operating income of $2.4 million for the second
quarter ended July 1, 2000 compared to operating income of $7.2 million in the
prior year and operating income of $5.5 million for the first half of 2000 as
compared to operating loss of $5.7 million in 1999 as a result of factors
described above.
Interest expense for the quarter ended July 1, 2000, was $7.0 million
compared to $6.3 million for the same period last year. Year-to-date interest
expense in 2000 was $13.7 million compared to $11.4 million in 1999. Interest
expense has increased due to higher levels of debt as a result of the Ex-Cell
acquisition and higher interest rates.
Net loss for the quarter ended July 1, 2000, was $3.2 million compared to
net income of $0.5 million the prior year. Net loss for the six months ended
July 1, 2000 was $6.2 million compared to net loss of $11.1 million the prior
year.
Liquidity and Capital Resources
The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor financing
to meet its debt service requirements, capital expenditures and working capital
needs. The Company is highly leveraged.
On April 1, 1997, the Company issued $100 million of senior subordinated
notes (the "Notes"). Concurrently with the issuance of the Notes, the Company
entered into a $70 million senior credit facility ("the New Credit Facility")
with a syndicate of lenders led by BNP, pursuant to which the Company obtained
available credit (i) up to $45.0 million for working capital and general
corporate purposes (the "Working Capital Commitment"), subject to a Borrowing
Base,
22
<PAGE>
and (ii) up to $25.0 million for acquisitions (the "Acquisition Commitment"). 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. In connection with the acquisition of Ex-Cell, the
Company amended and restated the New Credit Facility to increase its borrowing
availability to $200 million. This additional availability was reduced to $175
million in connection with the June, 1999 amendment discussed below and is
currently comprised of (i) $65 million as the Working Capital Commitment,
subject to the Borrowing Base, as defined, (ii) $40 million Term A loan, and
(iii) $70 million Term B loan. Principal payments under the Term A and Term B
loans began 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. During November 1999, the Company prepaid a total of
approximately $1 million of loans outstanding under the Term A and Term B
facilities with excess cash proceeds from the sale of fixed assets. A more
detailed description of the senior subordinated notes and the senior credit
agreement may be found in the notes to consolidated financial statements.
As a result of certain defaults under the Facility, the Company was
prohibited by its lenders from paying $5.25 million of interest due to holders
of the Senior Subordinated Notes. Accordingly, as of April 15, 2000, the Company
was in default and remains in default under the terms of the Senior Subordinated
Notes. The Company continued working with its lenders and received various
waivers and amendments through August 8, 2000 to enable the Company to operate
without the lenders demanding payment on the Facility.
On August 8, 2000, the Company announced that it had terminated a tender
offer and related solicitation of consents to certain proposed amendments for
the Senior Subordinated Notes. The Company also announced that it filed for
protection under Chapter 11 of the U. S. Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. On August 9, 2000, the Company
filed its amended plan of reorganization that was pre-approved by its banks and
holders of the Senior Subordinated Notes in a format known as a "pre-packaged"
bankruptcy. The plan of reorganization calls for the payment of 17 cents for
every dollar of principal outstanding under the Senior Subordinated Notes while
vendors will be paid in the ordinary course without interruption. The Company's
operations during the bankruptcy proceeding will be funded by a $65 million
Debtor-in-possession credit facility ("DIP Facility"). The DIP Facility's
availability will be based on a "borrowing base", similar to the Facility, plus
an overadvance rate of up to $13 million less outstanding letters of credit less
$47 million of pre-petition borrowings under the Working Capital Commitment. As
of August 17, 2000, approximately $ 4 million was outstanding under the DIP
Facility and total availability was approximately $10.2 million.
Additionally, the Company will continue to pay interest on the outstanding
principal balances of the Working Capital Commitment, Term A loan and Term B
loan. Loans under the Working Capital Commitment and Term A loan will bear
interest at the Base Rate plus 2.25% on the Eurodollar Rate plus 3.50%. Advances
made under the Term B loan bear interest at the Base Rate plus 3.00% or the
Eurodollar Rate plus 4.25%. However, the Company will not be required to make
principal amortization payments during the Chapter 11 proceedings. Loans
outstanding under the DIP Facility will bear interest at the Base Rate plus
2.25% or the Eurodollar Rate plus 3.50%. On August 8, 2000, the Company also
announced that it successfully negotiated exit financing with the same bank
group that will be available to the Company upon emergence from Chapter 11.
Ex-Cell has a factoring arrangement whereby substantially all of its
accounts receivable are assigned and sold without recourse. During November
1999, the Company entered into a factoring agreement for its domestic Fabric
Division whereby all pre-approved accounts are
23
<PAGE>
assigned without recourse. The Company does retain credit risks on customer
orders that were not approved by the factor. As of July 1, 2000, the Company
retained credit risk of approximately $1.4 million related to accounts not
factored under these two agreements.
Principal and interest payments in respect of the Notes and the New Credit
Facility represent significant liquidity requirements for the Company. In
addition, the Company will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal and
interest of the Seller Notes, (ii) to cover certain administrative and operating
expenses of Holdings and (iii) to cover certain tax liabilities allocable to the
Company, subject in each case to certain conditions as described in the Notes
and the New Credit Facility.
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 July 1, 2000, Holdings has
obligations with a face amount of $33.3 million, bearing interest at stated
rates between 5% to 12.5%, to shareholders with principal due in 2004 and 2005.
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 June 1999, the Company entered into an interest rate cap agreement
which caps the maximum Eurodollar rate to be paid by the Company at 6.5% on an
$82.5 million national amount. The Company paid approximately $820,000 to enter
into this agreement.
During the six months ended July 1, 2000, net cash used in operations was
$3.7 million. Receivables increased by $1.7 million, inventories increased by
$11.2 million, accrued expenses increased $8.1 million, and accounts payable
increased $5.4 million. These increases are primarily to support the sales
growth in the Decorative Home Furnishing Segment and to meet the company's
seasonal requirements. The increase in accrued expenses mainly relates the
Company's inability to pay interest outstanding on the Senior Subordinated
Notes.
Capital Improvements
Capital expenditures for the six months ended July 1, 2000 were $1.2
million. These additions were related to several projects in the two operating
segments.
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.
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Inflation
The Company believes that inflation has not had a material impact on the
results of operations presented.
Impact of Year 2000 Compliance
The Company has currently not experienced any significant systems or other
Year 2000 related problems. The Company substantially completed all the
conversions that were in progress to improve operating efficiencies in which
Year 2000 corrections were ancillary. The Company capitalized the costs
associated with these conversions in accordance with appropriate accounting
policies.
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, maintaining financing on reasonable terms and a successful
emergence from Chapter 11. These statements are based upon a number of
assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions which are subject to change. Some
of these assumptions inevitably will not materialize, and unanticipated events
will occur which will affect the Company's results. The forward looking
statements in this Form 10-Q are intended to be subject to the safe harbor
protection provided by Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934 (the "Safe Harbor Acts").
Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk relates to changes in interest rates
and foreign currency rates. During 1999, the Company entered into an interest
rate cap agreement which caps the maximum Eurodollar rate to be paid by the
Company at 6.5% on an $82.5 million notional amount. As of July 1, 2000, the
market value of this cap was approximately $1.0 million. The Company has not
used any other 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 July 1, 2000, the Company had $149.0 million
outstanding under its New Credit Facility with an average interest rate of
10.5%. The Company's other borrowings consist of $95.0 million of senior
subordinated debt due on April 2007 at a fixed rate of 11%. 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
and Chinese operations. However, less than 10% of its annual revenues are
generated by these operations. Both China and Canada have traditionally had
relatively stable currencies and therefore the Company feels its exposure to
significant adjustments to be minimal. Additionally, the Company's consolidated
financial statements are denominated in U. S. dollars and, accordingly,
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changes in the exchange rate between U. S. dollars and these currencies affect
the operating results as well as stockholder's deficit. These adjustments, to
date, have not been material to the Company's consolidated balance sheet.
PART II - Other Information
ITEM 1: 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 1, 2000. See "Item 2: Changes in Securities and
Use of Proceeds" for a discussion related to the Company filing for
protection under Chapter 11 of the U.S. Bankruptcy Code.
ITEM 2: Changes in Securities and Use of Proceeds
On August 8, 2000, the Company announced that it had terminated a tender
offer and related solicitation of consents to certain proposed amendments
for its 11% Senior Subordinated Notes (the "Notes"). The Company also
announced it filed for protection under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware.
On August 9, 2000, the Company filed an amended plan of reorganization that
was pre-approved by its banks and a majority of holders of the Notes in a
format known as a "pre-packaged" bankruptcy. The plan calls for payment,
upon confirmation, to the holders of the Notes of 17 cents for every dollar
of principal outstanding.
ITEM 3. Defaults upon Senior Securities
On April 15, 2000, the Company was prohibited by its bank group from paying
$5.25 million of interest due on the Notes and the Company was in default
and remains in default under the terms of the Notes. In addition, the
Company's filing for protection under Chapter 11 of the U.S. Bankruptcy
Code was also a default under the terms of the Notes.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Glenoit Corporation is hereby
incorporated by reference to Exhibit 3.1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411)
filed on December 16, 1997.
3.2 By-Laws of Glenoit Corporation are hereby incorporated by
reference to Exhibit 3.2 to Glenoit Corporation's Registration
Statement on Form S-4 (Registration No. 333-42411) filed on
December 16, 1997.
3.3 Certificate of Incorporation of Glenoit Asset Corporation is
hereby incorporated by reference to Exhibit 3.3 of Amendment No.
1 to Glenoit Asset Corporation's Registration Statement of Form
S-4 (Registration No. 333-42411-01) filed February 4, 1998.
3.4 By-Laws of Glenoit Asset Corporation are hereby incorporated by
reference to Exhibit 3.4 of Amendment No. 1 to Glenoit Asset
Corporation's Registration Statement of Form S-4 (Registration
No. 333-42411-01) filed February 4, 1998.
4.1 Indenture dated as of April 1, 1997 between Glenoit Corporation,
the Subsidiary Guarantors (as defined therein) and United States
Trust Company of New York is hereby incorporated by reference to
Exhibit 4.1 to Glenoit Corporation's Registration Statement on
Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
4.2 Purchase Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein),
Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is
hereby incorporated by reference to Exhibit 4.2 to Glenoit
Corporation's Registration Statement on Form S-4 (Registration
No. 333-42411) filed on December 16, 1997.
4.3 Registration Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein),
Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is
hereby incorporated by reference to Exhibit 4.3 to Glenoit
Corporation's Registration Statement on Form S-4 (Registration
No. 333-42411) filed on December 16, 1997.
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10.1 Second Amended and Restated Credit Agreement dated as of April 1,
1997 among Glenoit Corporation, the banks, financial institutions
and other institutional lenders listed on the signature pages
thereto as the Restatement Lenders, the Banque Nationale de
Paris, as Administrative Agent for the Lender Parties (as defined
therein) is hereby incorporated by reference to Exhibit 10.1 to
Glenoit Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on December 16, 1997.
10.2 Supply Agreement dated February 1, 1997 by and between the
Company and Sterling Fibers, Inc. is hereby incorporated by
reference to Exhibit 10.2 of Amendment No. 1 to Glenoit
Corporation's Registration Statement on Form S-4 (Registration
No. 333-42411) filed on February 4, 1998.
10.3 Employment Agreement dated October 28, 1997 by and among the
Company, Glenoit Universal, Inc. and Thomas J. O'Gorman is hereby
incorporated to reference to Exhibit 10.3 of Amendment No. 1 to
Glenoit Corporation's Registration Statement on Form S-4
(Registration No. 333-42411) filed on February 4, 1998.
10.4 Employment Agreement dated August 5, 1996 by and between the
Company and Lester D. Sears is hereby incorporated by reference
to Exhibit 10.4 of Amendment No. 1 to Glenoit Corporation's
Registration Statement on Form S-4 (Registration No. 333-42411)
filed on February 4, 1998.
10.5 Stockholders Agreement dated as of December 14, 1995 by and among
Glenoit Universal, Inc., Citicorp Venture Capital, John Mowbray
O'Mara, Banque Nationale de Paris, The Equitable Life Assurance
Society of the United States, the Seller, Soannes Investment
Corporation, Thomas J. O'Gorman and certain other parties thereto
to is hereby incorporated by reference to Exhibit 10.5 of
Amendment No. 1 to Glenoit Corporation's Registration Statement
on Form S-4 (Registration No. 333-42411) filed on February 4,
1998.
10.6 Second Amendment and Waiver to the Credit Agreement, dated
October 2, 1998, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the
Credit Agreement and Banque Nationale de Paris as Agent is hereby
incorporated by reference to Exhibit 4.1 of Glenoit Corporation's
Form 8-K filed on October 16, 1998.
10.7 Stock Purchase Agreement dated October 2, 1998 among Glenoit
Corporation, American Pacific Enterprises, Inc., Steven J. Block,
Jeffrey J. Block and Gregory D. Block is hereby incorporated by
reference to Exhibit 2.1 of Glenoit Corporation's Form 8-K filed
on October 16, 1998
10.8 Third Amendment and Waiver to the Credit Agreement, dated October
30, 1998, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the
Credit Agreement and Banque Nationale de Paris as Agent is
incorporated by reference to Exhibit 10.8 of Glenoit
Corporation's Form 10-K filed on April 1, 1999.
10.9 Third Amended and Restated Credit Agreement, dated February 12,
1999, among Glenoit Corporation, the banks, financial
institutions and other institutional lenders parties to the
Credit Agreement and Banque Nationale de Paris as Agent is hereby
incorporated by reference to Exhibit 4.1 of Glenoit Corporation's
Form 8-K filed on February 26, 1999.
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10.10 Stock Purchase Agreement dated February 12, 1999, among Glenoit
Corporation, Ex-Cell Home Fashions, Inc., Arnold Angerman, Irving
Angerman, Samuel Samelson and two trusts is hereby incorporated
by reference to Exhibit 2.1 of Glenoit Corporation's Form 8-K
filed on February 26, 1999.
10.11 Amendment No. 2 to the Third Amended and Restated Credit
Agreement, dated as of June 29, 1999, among Glenoit Corporation,
the banks, financial institutions and other institutional lenders
and Banque Nationale de Paris as Agent is hereby incorporated by
reference to Exhibit 10.11 of Glenoit Corporation's Form 10-Q
filed on August 24, 1999.
10.12 Amendment No. 3 to the Third Amended and Restated Credit
Agreement, dated as of August 20, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent is
hereby incorporated by reference to Exhibit 10.12 of Glenoit
Corporation's Form 10-Q filed on August 24, 1999.
10.13 Amendment No. 4 to the Third Amended and Restated Credit
Agreement, dated as of October 29, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent, is
hereby incorporated by reference to Exhibit 10.13 of Glenoit
Corporation's Form 10-Q filed on November 23, 1999.
10.14 Amendment No. 5 to the Third Amended and Restated Credit
Agreement, dated as of November 19, 1999, among Glenoit
Corporation, the banks, financial institutions and other
institutional lenders and Banque Nationale de Paris as Agent, is
hereby incorporated by reference to Exhibit 10.14 of Glenoit
Corporation's Form 10-Q filed on November 23, 1999.
10.15 Amendment No. 6 to the Third Amended and Restated Credit
Agreement, dated as of March 16, 2000, among Glenoit Corporation,
the banks, financial institutions, and other institutional
lenders and Banque Nationale de Paris as Agent, is hereby
incorporated by reference to Exhibit 10.15 of Glenoit
Corporation's Form 10-K filed on April 17, 2000.
10.16 Amendment No. 7 to the Third Amended and Restated Credit
Agreement dated as of April 26, 2000, among Glenoit Corporation,
the banks, financial institutions, and other institutional
lenders and Banque Nationale de Paris as Agent is hereby
incorporated by reference to Exhibit 10.16 of Glenoit
Corporation's Form 10-Q filed on May 22, 2000.
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.
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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: August 21, 2000
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: August 21, 2000
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)
