<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 333-64669
----------------
GLOBE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2017769
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporationor organization)
456 Bedford Street, Fall River, 02720
Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 508/674-3585
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 18, 1999 was $0.00 (the Company has no equity
securities held by non-affiliates).
As of March 18, 1999, the Registrant had 2,179,150 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I ----
<S> <C> <C>
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 6
Item 3. Legal Proceedings..................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders................................... 7
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters............. 7
Item 6. Selected Consolidated Financial Data.................................................. 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8
Item 7a. Quantitative and Qualitative Disclosures about Market Risk............................ 13
Item 8. Financial Statements.................................................................. 14
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.. 14
PART III
Item 10. Directors and Executive Officers...................................................... 14
Item 11. Executive Compensation................................................................ 15
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 17
Item 13. Certain Relationships and Related Transactions........................................ 18
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K...................... 21
Consolidated Financial Statements.............................................................. F-1
</TABLE>
<PAGE>
PART I
Item 1. Business
Globe Holdings, Inc. (the "Company" or "Globe" or "Globe Holdings") is a
leading domestic manufacturer and worldwide supplier of spandex and latex
elastomeric fibers, marketing its products to more than 500 customers. The
Company's fibers are used in a broad range of applications, including men's
and women's hosiery, waistbands, intimate apparel, performance athletic wear,
swimwear, casual wear, suiting fabrics, body shaping (or foundation) garments,
personal care products (including diapers and adult incontinence products) and
footwear. The Company has produced elastomeric fibers exclusively for over 50
years and has developed long-term relationships with many of its principal
customers, including Fruit of the Loom, Inc., Kimberly-Clark Corporation,
Minnesota Mining & Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and
Worldtex, Inc. These customers in the aggregate contributed approximately 27%
of total revenue during the 1998 fiscal year.
Spandex fiber, which accounted for 84.1% of the Company's 1998 sales, is a
highly desirable component of fabrics designed for performance, durability,
comfort, control and resilience due to its unique chemical and physical
properties. Spandex fiber is produced in a broad range of fine and heavy
deniers and is sold on a private label basis and under brand names such as the
Company's GLOSPAN(R) and CLEERSPAN(R), DuPont's Lycra(R) and Bayer's
Dorlastan(R). Recent advances in fabric manufacturing technologies have
facilitated the use of spandex fiber in an increasing number of apparel and
non-apparel applications. Globe Holdings has benefited from this recent
proliferation of spandex fiber applications due to its exclusive focus on
elastomeric fibers, superior customer service, broad product line, strong
market position and efficient manufacturing processes.
The Company operates three manufacturing facilities, which are located in
Fall River, Massachusetts, Tuscaloosa, Alabama and Gastonia, North Carolina.
Since 1993, the Company has invested $114.3 million to increase manufacturing
capacity, enhance productivity and shift its product mix to the faster
growing, higher margin fine denier spandex fiber. During this period, the
Company's annual fine denier spandex fiber production capacity increased from
2.6 million to 14.2 million pounds.
Industry Overview
The Company operates in one industry segment encompassing the manufacture
and sale of elastomeric fibers. See Note 12 to the Company's Consolidated
Financial Statements for additional information.
Spandex Fiber
The worldwide spandex fiber industry has experienced significant growth in
recent years. First developed in the early 1960s, spandex fiber has repeatable
stretch and recovery capabilities, end-to-end uniformity, and unlike most
other elastomeric fibers, is resistant to breakdown from exposure to
oxidation, ozone, light, solvents, body oils, and perspiration. In addition,
advances in polymer chemistry and manufacturing technology have allowed
manufacturers to produce increasingly finer elastomeric fibers. These
production advances and the physical characteristics of spandex fiber have
made spandex fiber a highly desirable component of an increasing number of
applications.
As the production capabilities of spandex fiber suppliers have improved,
fabric manufacturers have also developed new processes that have allowed them
to integrate spandex fiber into a number of new applications. Traditionally,
manufacturers of circular knit fabrics were unable to use spandex fiber in the
manufacturing process unless the spandex fiber had been covered with another
fiber, such as cotton or nylon. Recently, new technologies enabling
manufacturers to knit uncovered spandex fibers have spurred an increased use
of spandex fiber in sheer, lightweight circular knit products.
<PAGE>
Suppliers of spandex fiber such as the Company generally target six end-use
markets for their fibers: circular knits (which includes product applications
such as active wear, swimwear and casual wear); hosiery; nonwovens (personal
care products such as diapers); narrow fabrics (waistbands and straps); warp
knits (intimate apparel and body shaping garments); and stretch wovens.
Stretch wovens include fabrics that are used in men's suits and pants, as well
as other new applications, and this segment represents a growth opportunity
for industry participants such as Globe. Spandex fiber is currently produced
throughout the world.
Latex Thread
The primary markets for extruded latex thread include men's hosiery, narrow
fabrics and fused tapes. Fine gauges of latex thread are typically used in
men's hosiery. Medium and heavy gauges are used in narrow fabrics and fused
tapes. Fused tapes are used for face masks and insert elastics. The Company
produces a heat resistant latex thread which resists degradation caused by
repeated household laundry drying cycles.
Products
The Company develops, manufactures and sells spandex and latex elastomeric
fibers. The Company's products include fine denier spandex fiber (15 to 140
denier), heavier denier spandex fiber (184 to 5040 denier), and latex thread
in a variety of gauges. Spandex fiber accounted for 84.1% of the Company's
sales in 1998, and latex thread accounted for the remaining 15.9%.
Spandex Fiber. The unique chemical and physical properties of spandex fiber
make it a desirable component of fabrics designed for performance, durability,
comfort, control and resilience. Spandex fiber, produced from polyether or
polyester, has repeatable stretch and recovery capabilities, end-to-end
uniformity, and unlike most other elastomeric fibers, is resistant to
breakdown from exposure to oxidation, ozone, light, solvents, body oils and
perspiration. Such properties, together with the wide range of available
deniers, make spandex fiber suitable for a broad range of applications,
including men's and women's hosiery, waistbands, intimate apparel, performance
athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or
foundation) garments, personal care products (including diapers and adult
incontinence products) and footwear. Spandex fiber can be made in deniers much
finer than alternative elastomeric fibers while retaining uniform physical
properties, and can be heat set in finishing, thereby allowing manufacturers
to create ultra sheer and lightweight, yet highly elastic fabrics. Although
spandex fiber typically accounts for a small percentage of the total fiber in
an application (ranging from 2% in men's suits to 40% in women's foundation
garments), it can be used to enhance the performance of an increasing number
of apparel and non-apparel products.
Latex Thread. The Company's first product was latex thread. Extruded latex
thread, which is round, was developed in the 1940's to replace cut rubber
thread, which was square and limited in size and usage. Finer gauge latex
thread is used in men's hosiery and athletic socks. Mid-range gauges are
typically used for narrow fabrics, such as waistbands, straps and insert
elastics, and for specialty products and medical garments. Coarse gauge latex
thread is also used for narrow fabrics and in specialty products. The Company
has engineered various latex thread compound formulations in response to
market needs for high-strength, chemical and heat resistance, and durability,
and the Company believes opportunities exist for additional uses for latex
thread.
The Company's products have historically been sold to a variety of
customers in five end-markets: circular knits, hosiery, nonwovens, narrow
fabrics and warp knits. In addition, the Company has recently begun selling
products to the stretch woven market for use in suiting fabrics and outerwear
linings.
Fine denier spandex fiber accounted for approximately 53.6% of the
Company's total 1998 sales, up from 26.3% in 1994. Based on current market
demand for products which utilize lightweight or high quality fabrics, the
Company believes that fine denier products manufactured for the circular knit,
warp knit and stretch woven markets will represent an increasing percentage of
Globe's sales.
2
<PAGE>
Customers
The Company sells its products to a diverse customer base of intermediate
and end-use manufacturers. Intermediate users of the Company's products, which
include Unifi, Inc., C.K.M. Industries, Inc. and Worldtex, Inc., cover the
elastomeric fibers with other materials, and then either sell them to another
manufacturer or knit or weave them. The Company's end-use customers, which
include Fruit of the Loom, Inc., Sara Lee Hosiery, Hanes Menswear, Inc., and
Kayser-Roth Corporation (manufacturer of No Nonsense pantyhose), produce
finished goods from the elastomeric fibers supplied by the Company. Most of
the Company's customers rely on sophisticated technologies and production
techniques to manufacture products of which the Company's fibers are a
significant value-added component. These customers typically operate high
speed, high volume production lines. In order to run their production lines
efficiently and avoid costly line stoppages, customers rely on the Company's
ability to provide reliable, on time delivery of high quality products. A
number of the Company's customers have selected Globe as a preferred supplier
of elastomeric fiber.
Globe markets its products to over 500 customers. The Company's top ten
customers accounted for approximately 47.7% of 1998 sales, with sales to CKM
Industries, Inc., a manufacturer of circular knit fabrics, accounting for 9.2%
of 1998 sales and sales to Unifi, Inc., a manufacturer of covered yarns for
men's and women's hosiery and for narrow fabrics, accounting for approximately
8.2% of 1998 sales. Export sales represented approximately 31.8% of the
Company's total sales in 1998. See Note 1 to the Company's Consolidated
Financial Statements for additional information. As is customary in the
industry, the Company generally does not have long-term supply agreements with
its customers.
Sales and Marketing
Globe's sales and marketing functions are organized into three product
lines: hosiery/narrow fabrics; wide fabrics (including circular knits, warp
knits, stretch wovens); and nonwovens. Each product line requires different
technical expertise and is the responsibility of one of the Company's product
managers. Management believes that organizing its sales and marketing team by
product line is the most efficient and effective way to develop and maintain
customer relationships, to stay abreast of technical and other developments
that may result in changing customer or consumer preferences and to take
advantage of new business opportunities.
The Company markets and sells its products under the direction of three
product managers who are supported by key account managers, inside sales
staff, field sales personnel, and technical service and customer service
personnel. By providing dedicated support to key customers, the Company
believes it can better support these larger customers, who, in many cases,
have a variety of different product application or production requirements.
Domestic sales are handled primarily by the Company's internal sales
organization. International sales activity is coordinated by a senior manager
and supported by a dedicated customer service staff. The Company sells its
products internationally through commissioned agents or authorized
distributors.
Technical service is an integral part of Globe's sales and marketing
efforts and includes providing product testing analysis of fabric composition
at the Company's laboratories, assisting customers with the integration of
Globe's products into the customer's production process and the development of
methods to enhance a customer's products through the incorporation of the
Company's elastomeric fibers. The Company's sales and marketing organization
regularly provides market feedback to Globe's research and development teams.
The Company believes this high level of service has been instrumental in
retaining and attracting customers.
Globe sells spandex fiber under its GLOSPAN(R) and CLEERSPAN(R) brand
names. The Company does not require customers to co-brand their fabrics or
products with its brand name. The Company believes that this marketing
strategy is attractive for customers who seek to build their own brand
identity and desire flexibility in sourcing their spandex fiber requirements.
Competition
Spandex Fiber. The Company competes in the spandex fiber markets primarily
on the basis of product quality, service, price and product innovation. The
Company competes in the spandex fiber market primarily with DuPont and Bayer,
both of which have domestic facilities, and with a number of foreign
competitors. Some of
3
<PAGE>
the Company's competitors have substantially greater financial, marketing,
manufacturing, distribution, sales and support resources, market share and
brand awareness than the Company. The Company seeks to differentiate its
product offerings by providing a high level of technical and customer service,
and believes that DuPont and Bayer are the only other major spandex fiber
suppliers that provide similar levels of technical and customer service.
Despite significant growth in demand for spandex fiber since 1990, the
number of spandex fiber manufacturers has remained relatively constant
primarily due to the technological expertise required to produce spandex fiber
and the substantial capital requirements to establish a spandex fiber
manufacturing facility. Because spandex fiber production is not labor-
intensive, the Company believes that the availability of low-cost unskilled
labor does not provide foreign manufacturers with a significant competitive
advantage.
Latex Thread. The Company competes in the latex thread market on the basis
of product quality, product variety and price. The Company focuses its latex
thread product marketing efforts on high quality and specialty latex thread,
which requires high levels of customer support. The Company believes that its
customer service and product quality, and its ability to respond to the just-
in-time inventory needs of domestic customers, permit it to compete
effectively with foreign latex thread manufacturers. The Company's primary
competitors in the latex thread markets are foreign producers.
Suppliers
During 1998, raw materials represented 40.5% of the Company's total cost of
sales and 26.4% of net sales. The primary raw materials used by the Company
are polytetramethylene ether glycol, which the Company purchases from BASF,
and polyester resin, which the Company purchases from two suppliers. These
materials are used in a wide variety of products, and based on its experience,
management believes that adequate quantities of these materials will be
available from existing or alternative suppliers in the foreseeable future.
The Company's ten largest suppliers accounted for approximately 90.6% of its
total raw material purchases and 33.7% of its total cost of sales in 1998,
with BASF, Polyurethane Specialties Corp. and Ennar Latex, Inc. accounting for
49.5%, 24.3% and 11.2% of such raw material purchases, respectively. The
prices for the Company's raw materials have generally been stable over the
past five years, although there can be no assurance that they will not
fluctuate in the future.
Intellectual Property
The Company utilizes a variety of proprietary technology in its
manufacturing processes. In addition to its proprietary technology, management
believes that the Company's research, development and engineering skills, as
well as its technical know-how, are significant to the Company's business.
Much of the Company's technology is not patented. The Company relies primarily
on intellectual property laws, confidentiality procedures and contractual
provisions to protect its intellectual property. The Company seeks to protect
the majority of its technology under trade secret laws, which afford only
limited protection. The Company owns certain brand names and trademarks used
in its business, including GLOSPAN(R) and CLEERSPAN(R).
Manufacturing
The Company utilizes multiple manufacturing processes that allow it to
cost-effectively produce a broad range of elastomeric fibers. The Company
utilizes real-time control and monitoring systems that continuously monitor
key process variables using a sophisticated closed loop system of computers,
sensors and custom software.
Spandex Fiber. The Company produces spandex fiber in a wide variety of
deniers, using dry-spin and reaction spin processes. Typically, spandex fiber
of heavier deniers is produced by the reaction spin process, while fine denier
threads are produced by the dry-spin process.
In 1985, the Company began commercial production of fine denier spandex
fiber using a dry-spin, polyether-based process at its Fall River facility.
Fine denier fiber production is a continuous process
4
<PAGE>
accomplished by vertical spinning of the polymer from the top of a production
cell to the bottom, where the chamber is heated and filled with nitrogen in
order to strip the solvent from the fiber. The solvent is removed from the
cell chamber as a gas, recovered and recycled in a separate process. The
process is monitored and controlled by a state-of-the-art computer system
developed specifically for the Company. The Company produces fine denier
spandex fiber using the dry-spin process at its facilities in Fall River,
Massachusetts and Tuscaloosa, Alabama, and currently has the capacity to
produce 14.2 million pounds of fine denier spandex fiber annually using the
dry-spin process.
The Company believes that it is the only manufacturer of spandex fiber
using the reaction spin process, which is based on technology proprietary to
the Company. The process begins with the preparation of the prepolymer which
is transported to an extruder, where it is processed through pumps and
filters. The resulting pressure forces the prepolymer through a series of
tubes and spinerettes, which distribute the prepolymer into a spinning tank
where the chemical reaction which gives the fiber its elasticity occurs and
the fibers are formed. The fibers are heated, cured and dried in ovens and
then cooled, lubricated and spooled for shipment. In some cases, the Company
uses a proprietary process which permits the Company to deliver the fiber in
"knit- tape" form, which facilitates its use for certain customers. The
Company conducts reaction spin production at its Fall River, Massachusetts,
and Gastonia, North Carolina facilities. It currently has the capacity to
produce 13.4 million pounds of heavy denier spandex fiber annually using the
reaction spin process.
Latex Thread. The Company manufactures latex thread through a batch process
which begins with the combination of latex (a natural rubber material) and
various base chemicals. This compound is matured, heated and fed to extruders,
where it is pumped through a series of filters and distributed separately out
of a group of capillaries. These capillaries produce latex thread which is
then moved through an acid bath reservoir before being washed, dried and
cured. At the end of the extruder, the fibers are combined into ribbons of
various counts depending on customer needs. The Company produces latex thread
at its Fall River, Massachusetts facility, and currently has the capacity to
produce 11.0 million pounds of latex thread annually.
Environmental, Health and Safety Matters
The Company is subject to stringent environmental, health and safety
requirements, including laws and regulations relating to air emissions,
wastewater management, the handling and disposal of waste and the cleanup of
properties affected by hazardous substances. The Company's management believes
that its operations have been and are in substantial compliance with
environmental, health and safety requirements, and that it has no liabilities
arising under such requirements, except as would not be expected to have a
material adverse effect on the Company's operations, financial condition or
competitive position.
During 1997 and 1998, respectively, the Company spent approximately $0.9
million and $0.6 million on environmental, health and safety compliance
activities at its three operating locations. Amounts spent in 1998 include
approximately $0.2 million spent in connection with the Company's efforts to
resolve pending compliance issues relating to air emissions and wastewater
discharges from the Company's Fall River, Massachusetts facility.
Since 1986, the Company has received requests for information and related
correspondence from the U.S. EPA and other third parties indicating that the
Company might be responsible under CERCLA or Superfund laws for costs
associated with the investigation and cleanup of ten contaminated sites. The
Company's management believes that the Company has resolved its involvement
with respect to eight of these sites (five of which were inter-related) since
1988 and that the Company's involvement in matters arising under the Superfund
laws will not have a material adverse effect on the Company's operations,
liquidity or financial condition.
In December 1996, the Company's management learned that the U.S. EPA and
the U.S. Attorney's Office were conducting an investigation into whether the
Company had engaged in criminal violations of environmental laws with respect
to its Fall River, Massachusetts facility. The investigators have not informed
the Company of the scope of their inquiry. The Company has provided certain
information regarding its Fall River operations to
5
<PAGE>
the federal investigators and believes it has cooperated fully with their
inquiry. The Company does not know whether the investigation is currently
active. If the Company is charged with violations of environmental laws, it
may be subject to substantial fines and other penalties. Based on the
Company's discussions with the investigators and the results of the Company's
internal investigation of this matter, the Company's management does not
believe that the investigation will result in any monetary or other penalties
that would have a material adverse effect on the Company's financial
condition, results of operations or ability to meet its obligations under the
Company's existing debt. The Company is entitled to indemnification from,
among other items, any liabilities arising out of this investigation to the
extent related to the activities of the Company prior to the Merger (as
defined in Item 7 Liquidity and Capital Resources--The Transaction). This
indemnity expires on December 31, 2001.
Employees
As of March 1, 1999, the Company had approximately 912 employees. Of these,
approximately 170 are salaried employees and 742 are hourly workers. None of
the Company's employees are covered by a collective bargaining agreement. The
Company believes its relationships with its employees are good.
Item 2. Properties
<TABLE>
<CAPTION>
Square
Location Footage Owned/Leased Principal Function
- -------- ------- ------------ --------------------------
<S> <C> <C> <C>
Fall River, Massachusetts....... 375,000 Owned Headquarters
Fine denier spandex fiber
Heavy denier spandex fiber
Latex thread
Gastonia, North Carolina........ 180,000 Owned Heavy denier spandex fiber
80,000 Owned Distribution center
10,000 Leased Warehouse
Tuscaloosa, Alabama............. 157,000 Owned Fine denier spandex fiber
Rancho Dominguez, California.... 15,000 Leased Warehouse
Charlotte, North Carolina....... 15,000 Leased Warehouse
</TABLE>
The Company believes that its facilities are adequate and suitable for the
purposes for which they are utilized by the Company.
Item 3. Legal Proceedings
In April 1997 two domestic purchasers of extruded latex thread filed a
complaint against a number of foreign manufacturers and distributors of such
thread, including an Indonesian limited liability company in which Globe
Holdings then owned a 40% interest (the "Joint Venture"). The complaint
alleged an international conspiracy to restrain trade in, and fix prices of,
the thread in the U.S. The Company was not named as a defendant in the case.
The Joint Venture alleged in its motion to dismiss that not all parties to the
conspiracy had been joined. There can be no assurance that the Company will
not be named in the future. The Company is entitled to indemnification from,
among other items, any liabilities arising out of any criminal or civil
antitrust claims or investigations resulting from the above-described
proceedings to the extent related to the Company's activities prior to the
Merger. This indemnity expires on December 31, 2001.
The U.S. Department of Commerce has imposed anti-dumping duties on
Indonesian extruded latex producers. Additional duties have been levied on
extruded latex thread imported from Indonesia as of March 1999. During 1997
and 1998, the Company purchased approximately $9.9 million and $7.3 million,
respectively, of latex thread from the Joint Venture for resale in the North
American market.
6
<PAGE>
From time to time, the Company has been and is involved in various legal
proceedings, all of which management believes are routine in nature and
generally incidental to the conduct of its business. The ultimate legal and
financial liability of the Company with respect to such proceedings cannot be
estimated with certainty, but the Company believes, based on its examination
of such matters, that none of such proceedings, if determined adversely to the
Company, would have a material adverse effect on the Company's results of
operations, financial condition and its ability to meet its obligations under
the Company's existing debt.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters.
As of March 18, 1999, the Company had outstanding an aggregate of 2,179,150
shares of Common Stock.
The Company does not expect to pay dividends on its Common Stock for the
foreseeable future. The payment of dividends by the Company to the holders of
Common Stock is restricted by the Company's bank credit facility and limited
by the indenture under which the Company's 14% Senior Discount Notes due 2009
were issued.
Item 6. Selected Consolidated Financial Data
The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following selected consolidated
financial information should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and the related notes
thereto included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Income Date:
Net sales.................... $112,475 $128,319 $152,603 $170,941 $171,093
Cost of sales................ 84,321 97,182 110,609 115,099 111,609
-------- -------- -------- -------- --------
Gross margin............... 28,154 31,137 41,994 55,842 59,484
Selling, general and
administrative expenses..... 14,152 18,515 21,705 24,381 23,656
Research and development
costs....................... 3,506 2,260 2,533 2,633 4,263
-------- -------- -------- -------- --------
Operating income........... 10,496 10,362 17,756 28,828 31,565
Other income (expenses):
Interest, net................ (3,514) (6,030) (5,285) (3,968) (14,154)
Transaction compensation
expense..................... -- -- -- -- (5,778)
Transaction commitment fee
expense..................... -- -- -- -- (1,000)
Loss in investment in joint
venture (1)................. (617) (643) -- -- --
Other income, etc............ 341 438 875 372 749
-------- -------- -------- -------- --------
Income before income taxes
and extraordinary income.. 6,706 4,127 13,346 25,232 11,382
Provision for income taxes... 2,882 1,718 4,784 8,383 3,956
-------- -------- -------- -------- --------
Income before extraordinary
item........................ 3,824 2,409 8,562 16,849 7,426
Loss from write-off of
deferred financing cost, net
(2)......................... -- 1,294 -- 301 187
-------- -------- -------- -------- --------
Net income................. $ 3,824 $ 1,115 $ 8,562 $ 16,548 $ 7,239
======== ======== ======== ======== ========
Other Financial Data:
Gross margin %............... 25.0% 24.3% 27.5% 32.7% 34.8%
EBITDA (3)................... $ 20,509 $ 22,480 $ 28,960 $ 42,377 43,563
EBITDA margin % (4).......... 18.2% 17.5% 19.0% 24.8% 25.5%
Depreciation and
amortization................ $ 8,228 $ 10,688 $ 9,676 $ 12,208 14,429
Capital expenditures......... $ 24,284 $ 8,640 $ 5,806 $ 17,151 35,805
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash..................................... $1,336 $3,143 $3,101 $ 1,947 $ 1,439
Working capital.......................... 9,391 5,052 4,263 19,453 20,686
Working capital as adjusted (5).......... 19,361 20,747 17,250 27,518 30,581
Property, plant and equipment, net....... 56,323 53,499 50,122 57,950 83,329
Total assets............................. 93,414 92,824 91,329 105,133 147,036
Total debt............................... 69,182 66,698 50,615 56,917 302,233
Redeemable cumulative preferred stock.... 6,466 6,466 6,466 -- --
Stockholders' equity..................... 5,298 5,563 13,594 31,109 (179,822)
</TABLE>
- --------
(1) Represents the Company's share of the operating losses incurred by a joint
venture in which the Company acquired a 40% interest in 1990. The Company
accounted for its investment in the joint venture using the equity method
of accounting.
(2) Reflects non-recurring charges related to the write-off of the unamortized
balance of deferred financing costs in the year in which the related
refinancing occurred. The amounts are shown net of applicable income tax.
(3) EBITDA represents income before interest expense (net), income taxes,
depreciation and amortization, gain or loss on disposal of assets, noncash
charges associated with net periodic postretirement benefit costs, noncash
stock-based compensation and extraordinary, unusual, non-recurring charges
consisting of (a) those referred to in footnotes (1) and (2) above, and
(b) certain non-recurring legal expenses related to environmental matters
of $454,000 in 1997 and $171,000 in 1998. EBITDA is not intended to
represent cash flow from operations or net income as defined by generally
accepted accounting principles and should not be considered as a measure
of liquidity or an alternative to, or more meaningful than, operating
income or operating cash flow as an indication of the Company's operating
performance. EBITDA is included herein because management believes that
certain investors find it a useful tool for measuring the Company's
ability to service its debt.
(4) EBITDA margin represents EBITDA as calculated in footnote (3) above as a
percentage of net sales.
(5) Working capital as adjusted represents the difference between current
assets less cash and current liabilities less the current portions of long
term debt and long term capital leases and notes payable.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's financial condition
and results of operations is qualified in its entirety by, and should be read
in conjunction with, the consolidated financial statements of the Company and
related notes thereto included herein.
General
Recapitalization
As more fully discussed in Note 1 to the Consolidated Financial Statements,
the Company entered into a recapitalization transaction obtaining additional
debt and equity whereby Code, Hennessy & Simmons III, L.P. obtained a majority
interest in Globe Holdings and certain continuing shareholders retained a
minority interest. Assets and liabilities of the Company were carried at
historical cost bases and distributions to certain Company
8
<PAGE>
shareholders were recorded as a distribution from retained earnings. The
recapitalization transaction was financed with $50 million of equity and $295
million of debt. As a result of the transaction, the aggregate indebtedness for
borrowed money and interest expense increased and shareholders' equity
decreased.
Market Conditions
The current economic crisis in Asia has resulted in a flood of fiber, fabric
and apparel into Europe from Asia, which has had a negative impact on prices
and the Company's sales in Europe. In addition, economic difficulties in Russia
have resulted in reduced demand for the Company's products.
Capacity Expansion
During 1998, the Company completed a capacity expansion of its Tuscaloosa,
Alabama fine denier spandex fiber manufacturing facility. The total project
cost was $27.3 million of which $3.4 million and $23.9 million was spent in
1997 and 1998, respectively. The Tuscaloosa plant expansion will increase fine
denier spandex capacity by 34%. The increase in capacity will shift the
Company's product mix to the faster growing, higher margin fine denier spandex
fiber.
Results of Operations
The following table sets forth for the periods indicated information derived
from the consolidated financial statements of income expressed as a percentage
of net sales. There can be no assurance that the trends in sales growth or
operating results will continue in the future.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 72.5% 67.3% 65.2%
Gross margin......................................... 27.5% 32.7% 34.8%
Selling, general and administrative expenses......... 14.2% 14.3% 13.8%
Research and development expenses.................... 1.7% 1.5% 2.5%
Operating income..................................... 11.6% 16.9% 18.5%
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales of the Company for 1998 were $171.1 million, remaining consistent
with 1997. An 8.5% increase in fine denier spandex sales ws offset by a 20.6%
decrease in latex fiber sales. Heavy denier spandex sales remained consistent
with 1997. The current economic crisis in Asia, which has resulted in an influx
of fiber, fabric and apparel into Europe from Asia, has had a negative impact
on prices and the Company's sales in Europe. In addition, economic difficulties
in Russia have resulted in reduced demand for the Company's products. Continued
economic difficulties may precipitate further downturns in spandex fiber
consumption in all of Globe's export markets.
Gross margin of the Company for 1998 increased $3.7 million, or 6.5%, to
$59.5 million from $55.8 million in 1997. The Company's gross margin as a
percentage of net sales increased to 34.8% in 1998 from 32.7% in 1997. The
increase in gross margin was primarily due to a favorable shift in product mix
toward higher margin fine denier spandex fiber products. Fine denier spandex
fiber sales represented 53.5% of total net sales in 1998 compared to 49.4% in
1997.
Selling, general and administrative expenses for the Company in 1998
decreased $0.7 million, or 3.0%, to $23.7 million from $24.4 million in 1997.
As a percentage of net sales, selling, general and administrative expenses
decreased to 13.8% in 1998 from 14.3% in 1997.
9
<PAGE>
Research and development expenses for the Company in 1998 increased $1.7
million, or 61.9%, to $4.3 million from $2.6 million in 1997. Research and
development expenses for the Company as a percentage of net sales increased to
2.5% in 1998 from 1.5% in 1997. The increase is primarily attributed to the
development of a new heavy denier spandex fiber.
Net interest expense for the Company in 1998 increased $10.2 million to
$14.2 million from $4.0 million in 1997. The increase in interest expense was
directly attributable to the recapitalization of the Company.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales of the Company for 1997 increased $18.3 million, or 12.0%, to
$170.9 million from $152.6 million in 1996. The increase in sales was
primarily due to a 5.3% increase in the Company's average fine denier spandex
fiber prices and a 17.7% increase in fine denier spandex fiber volume. The
increase in average spandex fiber prices was primarily due to stronger market
demand, improved acceptance of the Company's products in higher-priced
markets, and cost reductions related in improved efficiencies.
Gross margin of the Company for 1997 increased $13.8 million, or 32.9%, to
$55.8 million from $42.0 million in 1996. The Company's gross margin as a
percentage of net sales increased to 32.7% in 1997 from 27.5% in 1996. The
increase in gross margin reflects a reduction in fine denier spandex fiber
unit costs attributable to economies of scale created by an increase in fine
denier spandex fiber capacity at the Company's Tuscaloosa, Alabama facility,
gains in efficiencies achieved through improved production processes and a
decline in latex raw material costs. The increase in gross margin also
reflects a favorable shift in product mix toward higher margin fine denier
spandex fiber products. Fine denier spandex fiber sales represented 49.4% of
total net sales in 1997 compared to 44.2% in 1996.
Selling, general and administrative expenses for the Company in 1997
increased $2.7 million, or 12.4%, to $24.4 million from $21.7 million in 1996.
The increase in selling, general and administrative expenses was primarily
attributable to the higher level of net sales achieved in 1997. As a
percentage of net sales, selling, general and administrative expenses
increased to 14.3% in 1997 from 14.2% in 1996.
Research and development expenses for the Company in 1997 increased $0.1
million, or 4.0%, to $2.6 million from $2.5 million in 1996. Research and
development expenses for the Company as a percentage of net sales decreased to
1.5% in 1997 from 1.7% in 1996. The decrease was primarily due to the higher
level of net sales attained in 1997.
Net interest expense for the Company in 1997 decreased $1.3 million, or
24.9%, to $4.0 million from $5.3 million in 1996. The decrease in interest
expense was primarily due to a decline in interest rates and the
capitalization of $0.5 million of interest expense in 1997 in connection with
a capital expansion project.
Liquidity and Capital Resources
Cash provided by operating activities was $22.2 million in 1996, $18.6
million in 1997 and $22.2 million in 1998. The reduction in cash provided by
operating activities in 1997 was due to increases in accounts receivable,
inventory balances and deferred tax assets, and a reduction in taxes payable,
partially offset by an increase in amortization of unearned compensation. The
increase in cash provided by operating activities for 1998 was primarily due
to increases in accrued expenses, depreciation and amortization, amortization
of unearned compensation, accretion on discounted notes, and decreases in
accounts receivable and prepaid expenses, partially offset by decreases in
accounts payable, taxes payable, and an increase in inventory. The average
days' sales outstanding for accounts receivable was approximately 54, 56 and
57 days for the years ended 1996, 1997 and 1998, respectively. The increase in
average days' sales outstanding was primarily attributable to an increase in
foreign sales, which have a longer payment cycle than domestic sales as a
result of longer shipping times and extended credit terms required by foreign
competition. Foreign sales represented 27.5% and 30.9% of sales for the year
end December 31, 1997 and 1998, respectively. Management does not expect that
the increasing days sales outstanding will have a material impact on future
results of operations and liquidity.
10
<PAGE>
The Company's inventories increased from $11.8 million at December 31, 1996
to $13.8 million at December 31, 1997. This increase was primarily due to
higher fine denier production capacity and anticipated higher heavy denier
sales levels. The Company's inventories increased from $13.8 million at
December 31, 1997 to $18.4 million at December 31, 1998. This increase was
primarily due to higher fine denier production capacity which outpaced the
increase in demand.
The Company's accounts payable increased from $7.2 million at December 31,
1996 to $7.4 million at December 31, 1997. The increase in accounts payable
was attributable to capital expenditures incurred to increase fine denier
spandex fiber capacity. The Company's accounts payable decreased from $7.4
million at December 31, 1997 to $6.0 million at December 31, 1998. The
decrease was primarily due to the completion of the expansion projects.
The Company has historically financed its operations and acquisitions
through a combination of internally generated funds and borrowings under its
existing credit agreement. The Company financed the construction of the
Tuscaloosa plant, as well as the subsequent expansions of the facility, under
its existing credit facilities.
Capital expenditures, including capital leases, were $5.8 million in 1996,
$17.2 million in 1997 and $35.8 million for 1998. Capital expenditures
incurred during 1996 consisted primarily of process improvement expenditures,
and the capital expenditures incurred during 1997 and 1998 consisted primarily
of expenditures for the expansion of the Tuscaloosa facility and process
improvement expenditures. The Company estimates that based on anticipated
levels of operations its capital expenditures will be approximately $7.0
million in each of 1999 and 2000.
The Transactions
During 1998, the Company was recapitalized (the "Recapitalization"). In
connection with the Recapitalization,
. the Company transferred substantially all of its assets and liabilities
to its subsidiary, Globe Manufacturing Corp. ("Globe Manufacturing")
(the "Asset Drop Down"),
. certain investors invested $50.0 million in the Company,
. a company formed by Code, Hennessy & Simmons LLC merged with and into
the Company (the "Merger"), with the Company being the surviving
corporation,
. Globe Manufacturing entered into a new senior secured credit facility
(the "Senior Credit Facility") and repaid its debt under its existing
credit facilities,
. holders of the shares of common stock of the Company outstanding prior
to the Recapitalization received cash (including the payment by the
Company of fees and expenses on their behalf) equal to $315.0 million
less (x) the amount of the Company's outstanding indebtedness for
borrowed money and (y) the amount of the retained investment,
. the Company deposited $15.0 million into escrow to secure certain
indemnification and other obligations,
. Globe Manufacturing sold $150 million of its 10% Senior Subordinated
Notes due 2008 (the "Senior Subordinated Notes"),
. for an aggregate purchase price of $25 million, the Company sold units
consisting of $49.086 million principal amount at maturity of 14% Senior
Discount Notes due 2009 (the "Notes") and warrants to purchase shares of
its Class A Common Stock.
The Senior Credit Facility consists of a $115.0 million term loan facility,
which was fully drawn upon the consummation of the transactions described
above, and a $50.0 million revolving loan facility, $22.5 million of which was
outstanding at March 18, 1999. The revolving loan facility is available for
general corporate and working capital purposes.
11
<PAGE>
As a result of the transactions described above, the Company's total
consolidated debt significantly increased. Interest payments on the Senior
Subordinated Notes and under the Senior Credit Facility represent significant
liquidity requirements for the Company. The Senior Subordinated Notes require
semi-annual payments and interest on the loans under the Senior Credit
Facility is due at least quarterly.
Although there can be no assurance, the Company anticipates that its
consolidated cash flow generated from operations and borrowings under the
Senior Credit Facility will be sufficient to fund the Company's working
capital needs, planned capital expenditures, scheduled interest payments
(including interest payments on the Senior Subordinated Notes and amounts
outstanding under the Senior Credit Facility) and other cash needs for the
next twelve months. However, the Company may require additional funds if it
enters into strategic alliances, acquires significant assets or businesses or
makes significant investments in furtherance of its growth strategy. The
ability of the Company to satisfy its capital requirements will be dependent
upon the future financial performance of the Company, which in turn will be
subject to general economic conditions and to financial, business, and other
factors, including factors beyond the Company's control.
Instruments governing the Company's indebtedness, including the Senior
Credit Facility, the indenture governing the Senior Discount Notes and the
indenture governing the Senior Subordinated Notes, contain financial and other
covenants that restrict, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of substantially
all of the assets of the Company. Such limitations, together with the highly
leveraged nature of the Company, could limit corporate and operating
activities, including the Company's ability to respond to market conditions,
to provide for unanticipated capital investments or to take advantage of
business opportunities.
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio tests
were waived and certain covenants were amended, (ii) the interest rates on
both the term loans and revolving loans were increased and (iii) the
management fee due to an affiliate of Code Hennessy & Simmons LLC may only be
paid if certain leverage tests are met. Additionally, the Company has received
a waiver on the capital additions covenant requirement.
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
If the Company, its significant customers or suppliers fail to make
necessary modifications and conversions on a timely basis, the year 2000 issue
could have a material adverse effect on Company operations. However, the
impact cannot be quantified at this time. The Company believes that its
competitors face similar risks.
The Company has established a corporate-wide project team to identify non-
compliant software and complete the corrections required for the year 2000
issue. The Company has completed its repairs for major manufacturing systems
in all locations. The Company also completed its repair of its major financial
systems. The Company's current target is to resolve compliance issues in its
distribution systems and other ancillary systems by July 31, 1999. The Company
also has made inquiry of its major customers and suppliers to assess their
compliance. Nevertheless, there can be no absolute assurance that there will
not be a material adverse effect on the Company if third party governmental or
business entities do not convert or replace their systems in a timely manner
and in a way that is compatible with the Company's systems.
Costs related to the year 2000 issue are funded through operating cash
flows. Through December 31, 1998, the Company expended approximately $157,000
in systems development and remediation efforts, including the cost of new
software and modifying the applicable code of existing software. The Company
estimates remaining costs to be between $25,000 and $75,000. The Company
presently believes that the total cost of achieving year 2000 compliant
systems is not expected to be material to the Company's financial condition,
liquidity or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to, the
availability and cost of trained personnel, the ability to locate and correct
all relevant computer code and systems and remediation success of the
Company's customers and suppliers.
12
<PAGE>
Inflation
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
Impact 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 for Hedging Activities ("Statement 133"). Statement 133 is effective for
years beginning after June 15, 1999. Statement 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. Management does not anticipate that the adoption of
Statement 133 will have a material impact on its financial position or the
results of its operations.
This Annual Report on Form 10-K contains certain forward-looking statements,
including, without limitation, statements concerning the Company's future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (which do not apply to initial public
offerings). Forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe," "should," "plans," or "continue" or the
negative thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. These forward-looking statements are subject to a
number of risks and uncertainties, including, without limitation, those related
to the Company's substantial leverage and debt service requirements, the
Company's dependence on significant customers and on certain suppliers, the
effects of competition on the Company, the risks related to environmental,
health and safety laws and regulations, the Company's exposure to foreign sales
risk and the cyclicality of the textile industry, risks related to the year
2000 issue, and the other factors discussed in the Company's filings with the
Securities and Exchange Commission. Actual results could differ materially from
these forward-looking statements.
Item 7(a). Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk from changes in interest rates on its
senior secured credit facility. The Company uses interest rate swap agreements
to manage its exposure to interest rate movements by effectively converting a
portion of its variable rate long-term debt from floating to fixed rates. These
agreements involve the exchange of variable rate payments for fixed rate
payments without the effect of leverage and without the exchange of the
underlying principal amount. Interest rate differentials paid or received under
these swap agreements are recognized over the life of the contracts as
adjustments to interest expense. At December 31, 1998 the notional amount of
interest rate swaps outstanding was $25 million. A 10% increase in the interest
rates on the Company's variable rate debt outstanding at December 31, 1998
would approximate 80 basis points. Such an increase in interest rates would
increase the Company's interest expense by approximately $810,000.
The Company periodically enters into forward contracts with a third party to
sell Italian lire. Relative to foreign currency exposures existing at December
31, 1998, a 10% unfavorable movement in the Italian lire rate would not
significantly affect consolidated operating results, financial position or cash
flows.
13
<PAGE>
Item 8. Financial Statements.
See the attached Consolidated Financial Statements (pages F-1 through F-17)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers and directors of the Company and Globe
Manufacturing, and their ages as of March 1, 1999 are set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas A. Rodgers, Jr.... 85 Chairman
Thomas A. Rodgers, III... 53 President and Chief Executive Officer, Director
Lawrence R. Walsh........ 46 Vice President, Finance and Administration
Americo Reis............. 64 Vice President, Operations
Robert L. Bailey......... 61 Vice President, Sales and Marketing
William J. Girrier....... 42 Director of Marketing and Business Development
Kevin T. Cardullo........ 39 Director of Finance and Accounting
Richard F. Heitmiller.... 70 Director
Andrew W. Code........... 40 Director
Peter M. Gotsch.......... 34 Director
Edward M. Lhee........... 28 Director
</TABLE>
The present principal occupations and recent employment history of each of
the executive officers and directors of the Company listed above are set forth
below.
Thomas A. Rodgers, Jr., co-founded the Company in 1945. He has served as
Chairman since 1945, and served as President from 1945 to 1992.
Thomas A. Rodgers, III, is the son of Thomas A. Rodgers, Jr., and has
served as President of the Company since 1992. He served as the Executive Vice
President and Chief Operating Officer of the Company from 1985 to 1992. Mr.
Rodgers joined the Company in 1968. Mr. Rodgers has been a Director of the
Company since 1972.
Lawrence R. Walsh has served as Vice President, Finance and Administration
of the Company since 1982. From 1976 to 1982, he was employed by Smith
Precious Metals Co.
Americo Reis joined the Company in 1959, and has served as the Company's
Vice President, Operations since 1982. From 1957 to 1959, he served in the
U.S. Army and from 1954 to 1957, he was employed by Goodyear Tire & Rubber Co.
Robert L. Bailey has served as the Company's Vice President, Sales and
Marketing since he joined the Company in 1979. From 1972 to 1979, he served as
Vice President of Sales for the Yarn Division of Texfi Industries, Inc., and
from 1967 to 1972 was Vice President of Sales for Intercontinental Fibers.
William J. Girrier has been with the Company since 1990, first as Marketing
Manager and then as Director of Marketing and Business Development. From 1987
to 1990, he was an Associate Manager of The Robbins Group, a commercial real
estate development company. From 1978 to 1987, he served as a Naval Officer in
various command and staff positions at the Pentagon and onboard warships.
14
<PAGE>
Kevin T. Cardullo has served as the Company's Director of Finance and
Accounting since 1992. He is a Certified Public Accountant, and worked as a
Senior Manager with Ernst & Young from 1986 to 1992. Mr. Cardullo was with
Coopers & Lybrand from 1983 to 1986.
Dr. Richard F. Heitmiller is an industry consultant who specializes in the
elastomeric fiber, textile and chemical industries. Prior to forming his own
consulting firm, Dr. Heitmiller was a Vice President of Arthur D. Little, Inc.
He is a director of Wellman, Inc. a producer of fibers.
Andrew W. Code is a Partner of Code Hennessy & Simmons LLC ("CHS"), which
manages three private equity funds, including Code, Hennessy & Simmons III,
L.P. Since founding the first such fund in 1988, Mr. Code has been actively
involved in the investment organization and investment management activities
of CHS. Mr. Code was a Vice President with Citicorp's Leveraged Capital Group
from 1986 to 1988, and prior to 1986 he was employed by American National
Bank. He is a director of SCP Pool Corporation, a distributor of swimming pool
supplies.
Peter M. Gotsch has been a Partner of CHS since 1997, and has been employed
by CHS and its affiliates since 1989. From 1987 to 1989, Mr. Gotsch was a
Corporate Banking Officer at The First National Bank of Chicago, N.A. He is a
director of SCP Pool Corporation.
Edward M. Lhee has been an associate of CHS since 1997. From 1995 to 1997,
he attended the Kellogg Graduate School of Management. From 1992 to 1995, Mr.
Lhee was employed by Morgan Stanley & Co., where he worked as a financial
analyst in the mergers and acquisitions and corporate finance departments.
The Company's directors serve a one-year term of office. The Company's
president, treasurer and clerk serve one-year terms of office, and all of the
Company's remaining officers serve terms of one year or less (unless otherwise
provided by the directors).
Item 11. Executive Compensation.
The following table summarizes the compensation paid by Globe Holdings and
its subsidiaries to the Company's Chief Executive Officer and four other most
highly compensated executive officers at December 31, 1998 (collectively, the
"Named Executive Officers") for services rendered to the Company in 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------- ------------
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) (1) Option/SARs ($) (2)
- ------------------ ---- ------ ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Rodgers, Jr... 1998 514,237 -- -- -- --
Chairman 1997 759,668 5,000 -- -- 198,796
1996 723,502 28,125 -- -- 145,593
Thomas A. Rodgers, III.. 1998 549,042 880,000 4,731,890 -- 70,258
President 1997 549,042 197,000 -- 11,250 70,158
1996 499,122 79,375 -- 11,250 70,158
Americo Reis............ 1998 211,982 440,000 1,051,290 2,246.5 579,795
Vice President,
Operations 1997 211,982 72,500 -- 3,750 79,371
1996 196,279 33,125 -- 3,750 92,980
Lawrence R. Walsh....... 1998 218,889 440,000 1,051,290 2,246.5 29,505
Vice President, Finance 1997 218,889 72,500 -- 3,750 29,338
and Administration 1996 195,437 33,125 -- 3,750 29,338
Robert L. Bailey........ 1998 200,000 440,000 1,051,290 2,246.5 328,677
Vice President, Sales 1997 176,828 72,500 -- 3,750 25,022
and Marketing 1996 159,100 33,125 -- 3,750 25,022
</TABLE>
15
<PAGE>
- --------
(1) Other Annual Compensation reflects stock options.
(2) Reflects reimbursement of premiums for life insurance for the Named
Executive Officers and Company contributions under a 401(k) plan for the
Named Executive Officers (other than Thomas A. Rodgers, Jr.).
No options were granted in fiscal 1998 to the Named Executive Officers.
The following table sets forth information with respect to all options
exercised in fiscal 1998 and the year-end value of unexercised options held by
the Named Executive Officers.
Aggregated Option/SAR Exercises in Last Fiscal Year And
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs In-the-Money
at Options/SARs
Fiscal Year at Fiscal
End Year-End
------------- -------------
Shares Acquired Value Exercisable/ Exercisable/
on Exercise Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
- ---- --------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Thomas A. Rodgers, Jr...... -- -- --/-- --
Thomas A. Rodgers, III..... -- -- --/-- --
Americo Reis............... -- -- 2,246.5/-- $500,000
Lawrence R. Walsh.......... -- -- 2,246.5/-- $500,000
Robert L. Bailey........... -- -- 2,246.5/-- $500,000
</TABLE>
Pension Plans
Globe maintains a Non-Qualified Pension Plan and a Deferred Compensation
Plan, pursuant to which each of Thomas A. Rodgers, III, Americo Reis, Lawrence
R. Walsh and Robert L. Bailey (the "Participating Executives") will be
entitled to receive certain payments upon retirement. Under the Non-Qualified
Pension Plan, each of the Participating Executives will receive a lump sum
distribution upon retirement at age 65. The amounts payable under the Non-
Qualified Pension Plan were determined by the Company and its consultants to
approximate 50% of estimated final compensation. Pursuant to the Deferred
Compensation Plan, each Participating Executive is entitled to receive,
beginning at his retirement at age 65, an annual distribution payable for the
following 15 years. The following table shows the estimated annual benefits
payable under the Non-Qualified Pension Plan and the Deferred Compensation
Plan for each of the Participating Executives.
<TABLE>
<CAPTION>
Estimated Annual Benefit Upon
Retirement at Age 65
---------------------------------
Deferred
Non-Qualified Compensation
Name Pension Plan Plan
- ---- ------------- --------------
<S> <C> <C>
Thomas A. Rodgers, Jr. (1)................. $ -- $ --
Thomas A. Rodgers, III..................... $206,400 $90,000
Americo Reis............................... $ 86,400 $25,000
Lawrence R. Walsh.......................... $104,000 $15,000
Robert L. Bailey........................... $ 96,000 $20,000
</TABLE>
- --------
(1) Thomas A. Rodgers, Jr. does not participate in the Non-Qualified Pension
Plan or the Deferred Compensation Plan.
16
<PAGE>
Employment Agreements
Each of Messrs. Thomas A. Rodgers, III, Americo Reis, Lawrence R. Walsh and
Robert L. Bailey are parties to an Employment Agreement with the Company dated
as of December 31, 1997 (the "Employment Agreements"). The Employment
Agreements were transferred to Globe Manufacturing pursuant to the Asset Drop
Down. The Employment Agreements provide for annual base salaries for Messrs.
Rodgers, Reis, Walsh and Bailey of at least $549,000, $212,000, $219,000 and
$200,000, respectively, and provide that such executives shall generally be
entitled to participate in all bonus and benefit plans made available to
executives. The Employment Agreements have a term of three years, but may be
terminated earlier by the Company or the executive. If an executive's
employment is terminated by the Company without Cause or by the executive with
Good Reason (each as defined in the Employment Agreements), then the Company
will be required to pay the executive his base salary through December 2000 and
the maximum amount he would have been entitled to under the Company's incentive
plans for the year in which the termination occurred, and will also be required
to provide insurance benefits for three years from the date of termination,
except to the extent the executive obtains comparable benefits from a
subsequent employer.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 18, 1999
regarding the beneficial ownership of the Company's capital stock by (i) each
shareholder who beneficially owns more than 5% of the common stock of the
Company, (ii) each director and Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned
by it or him as set forth opposite its or his name. Unless otherwise noted, the
address for each director and executive officer of the Company is c/o the
Company, 456 Bedford Street, Fall River, Massachusetts 02720.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
-------------------- -----------------
Number
Name of Beneficial Owner Number (1) Percent (1) Percent
------------------------ ---------- ------- --------- -------
<S> <C> <C> <C> <C>
Code, Hennessy & Simmons III, L.P. (2).. 1,649,155.26 75.7 22,022.55 75.7
Thomas A. Rodgers, Jr. (3).............. 166,244 7.6 2,220 7.6
Thomas A. Rodgers, III.................. 89,862 4.1 1,200 4.1
Americo Reis (4)........................ 22,465 1.0 300 1.0
Lawrence R. Walsh (4)................... 22,465 1.0 300 1.0
Robert L. Bailey (4).................... 22,465 1.0 300 1.0
William J. Girrier...................... -- -- -- --
Kevin T. Cardullo....................... -- -- -- --
Andrew W. Code (5)...................... 1,649,155.26 75.7 22,022.55 75.7
Peter M. Gotsch (5)..................... 1,649,155.26 75.7 22,022.55 75.7
Edward M. Lhee.......................... 1,647.51 * 22 *
Brinson Partners, Inc. (6)(7)........... 224,655 10.3 3,000 10.3
Virginia Retirement System (7).......... 179,724 8.2 2,400 8.2
All executive officers and directors as
a group
(9 persons)............................ 1,808,059.77 80.5 24,144.55 80.5
</TABLE>
- --------
*Less than 1%
(1) Includes shares of Common Stock and Preferred Stock subject to options
which are exercisable within 60 days of March 18, 1999.
(2) The business address of Code, Hennessy & Simmons III, L.P. is 10 South
Wacker Drive, Suite 3175, Chicago, Illinois 60606.
(3) All of such shares are held of record by the Thomas A. Rodgers, Jr. Grantor
Retained Annuity Trust, of which Thomas A. Rodgers, Jr. is the sole
beneficiary.
17
<PAGE>
(4) All of the shares shown are issuable upon exercise of outstanding options.
(5) All of such shares are held of record by Code, Hennessy & Simmons III, L.P.
Messrs. Code and Gotsch are officers, directors and shareholders of the
sole general partner of Code, Hennessy & Simmons III, L.P. and share
investment and voting power with respect to the securities owned by Code,
Hennessy & Simmons III, L.P. Each of Messrs. Code and Gotsch disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. The business address of Messrs. Code and Gotsch is c/o
Code, Hennessy & Simmons III, L.P., 10 South Wacker Drive, Suite 3175,
Chicago, Illinois 60606.
(6) Brinson Partners, Inc. ("BPI") has advised the Company that it is an
Investment Adviser registered under Section 203 of the Investment Advisers
Act of 1940. Of the shares shown: (i) 38,631 shares of Common Stock and
515.87 shares of Preferred Stock are held of record by Brinson Venture
Capital Fund III, L.P., of which BPI is the general partner and (ii) 6,300
shares of Common Stock and 84.13 shares of Preferred Stock are held of
record by Brinson MAP Venture Capital Fund III, a trust of which a wholly
owned subsidiary of BPI is the sole trustee. As a result, BPI has sole
voting and dispositive power with respect to such shares. The address of
BPI is 209 South LaSalle Street, Chicago, Illinois 60604-1295.
(7) BPI serves as an Investment Adviser to Virginia Retirement System and
shares voting and dispositive power with respect to the shares held of
record by Virginia Retirement System. The address of Virginia Retirement
System is 1200 East Main Street, Richmond, Virginia 23219.
Item 13. Certain Relationships and Related Transactions.
The following summaries of the material terms of certain agreements to which
the Company is a party do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of such
agreements, including the definitions of certain terms therein and the exhibits
and schedules thereto. Copies of such agreements may be obtained from the
Company.
Recapitalization
The Recapitalization was effected pursuant to a Merger Agreement between the
Company and MergerCo, a newly formed affiliate of Code Hennessy & Simmons. In
connection with the Merger and the Recapitalization, (i) the Company
transferred substantially all of its assets and liabilities to Globe
Manufacturing pursuant to the Asset Drop Down, (ii) Code Hennessy & Simmons and
certain other investors invested approximately $42.8 million in common stock
and preferred stock of MergerCo and (iii) Code Hennessy & Simmons made a loan
to the Company in the amount of $25.0 million (the "CHS Loan"). Pursuant to the
Merger Agreement: (i) MergerCo merged with and into the Company, with the
Company being the surviving corporation; (ii) the common stock of MergerCo was
converted into common stock of the surviving corporation (the "New Common
Stock") and the preferred stock of MergerCo became preferred stock of the
surviving corporation (the "New Preferred Stock"); (iii) the CHS loan became
the obligation of the surviving corporation; (iv) certain stock and all stock
options of the Company was converted into or became exercisable for New Common
Stock and New Preferred Stock; (v) holders of the remaining stock of the
Company outstanding prior to the Merger received cash merger consideration
(including the payment by the Company of fees and expenses on their behalf) in
an aggregate amount equal to $315.0 million less (x) the amount of the Company'
outstanding indebtedness as of the date of the Merger and (y) the amount of the
retained investment; and (vi) $15.0 million was deposited into escrow as the
Escrow Amount. Following the consummation of the Recapitalization, the CHS loan
was repaid with the net proceeds to the Company from its units offering.
The Escrow Amount consisted of (a) $5.0 million to secure the obligations of
the pre-merger shareholders with respect to the post-closing adjustment of the
cash merger consideration and (b) $10.0 million to satisfy any indemnification
obligations of the pre-merger shareholders under the merger agreement. The
post-closing adjustment escrow fund was released to the pre-merger shareholders
upon the determination of the final closing date consolidated net asset value
of the Company. The indemnification escrow fund is required to be released
promptly after December 31, 2001.
18
<PAGE>
Pursuant to the Merger Agreement, the pre-merger shareholders have agreed
to indemnify the Company and certain of its related parties for all
liabilities and other losses arising from, among other things, (i) any breach
of representations, warranties or pre-closing covenants of the Company
contained in or contemplated by the Merger Agreement, (ii) the failure of any
pre-merger shareholders to have good, valid and marketable title to the shares
of common stock held by such pre-merger shareholder, (iii) the environmental
investigation relating to the Company' facility in Fall River, Massachusetts
to the extent related to activities prior to the effective time of the Merger,
(iv) the antitrust claims and investigations relating to the alleged
conspiracy by the Company's Indonesian joint venture to restrain trade in, and
fix prices of, latex thread in the United States to the extent related to
activities prior to the effective time of the Merger and (v) certain other
matters. With respect to claims based on any misrepresentation or breach of
any representation or warranty made by the Company, the pre-merger
shareholders are not required to indemnify the Company unless the aggregate of
all amounts for which indemnity would otherwise be payable exceeds $1.0
million and, in such event, the pre-merger shareholders will only be
responsible for the amount in excess of $1.0 million. In addition, the
indemnification obligations of the pre-merger shareholders are generally
limited to the amount held in the indemnification escrow fund, other than with
respect to claims based on fraud or on the failure of a pre-merger shareholder
to have good, valid and marketable title to his shares of common stock.
The Merger Agreement contains representations and warranties typical of
agreements of like nature, including, without limitation, those relating to
corporate organization and capitalization, the valid authorization, execution,
delivery and enforceability of all transaction documents, the Company'
financial statements, the absence of material adverse changes in the business,
assets, financial condition and results of operations, the absence of material
undisclosed liabilities, tax matters, the quality and title of personal and
real property, material contracts, intellectual property, employee benefits
plans, environmental matters, compliance with laws, governmental
authorizations, permits and licenses and insurance matters. Generally, the
representations and warranties of the Company expire 18 months after the
closing date of the Merger except that (i) those relating to environmental
matters remain in full force and effect until the second anniversary of the
closing date of the Merger and (ii) those relating to tax matters survive
until the expiration of the applicable statute of limitations.
Prior to the Merger, Thomas A. Rodgers, Jr. and Thomas A. Rodgers, III
beneficially owned, directly or indirectly, an aggregate of approximately 39%
of the common stock of the Company on a fully-diluted basis. In addition,
Messrs. Bailey, Reis and Walsh beneficially owned, in the aggregate,
approximately 2% of the common stock of the Company on a fully-diluted basis.
In connection with the Merger, these individuals received a pro rata portion
of the aggregate merger consideration.
Management Agreement
In connection with the Recapitalization, Globe Manufacturing entered into a
Management Agreement with CHS Management III, L.P. ("CHS Management"), an
affiliate of Code Hennessy & Simmons LLC, pursuant to which CHS Management
will provide financial and management consulting services to Globe
Manufacturing and receive a quarterly fee of $250,000, payable in arrears only
if certain leverage ratios under the Senior Credit Facility are met. In
addition, pursuant to the Management Agreement Globe Manufacturing paid to CHS
Management $3.0 million at the closing of the Transactions as compensation for
services rendered by CHS Management to Globe Manufacturing in connection with
the Transactions. The Management Agreement also provides that when and as
Globe Manufacturing consummates the acquisition of other businesses, Globe
Manufacturing will pay to CHS Management a fee equal to the greater of
$250,000 and one percent of the acquisition price of each such business as
compensation for services rendered by CHS Management to Globe Manufacturing in
connection with the consummation of such acquisition. The term of the
Management Agreement is five years, subject to automatic renewal unless either
CHS Management or Globe Manufacturing elects to terminate. Globe Manufacturing
believes that the fees to be paid to CHS Management for the professional
services to be rendered are at least as favorable to Globe Manufacturing as
those which could be negotiated with an unrelated third party. Globe
Manufacturing reimbursed CHS Management for expenses related to the
Transactions and will reimburse CHS Management for expenses incurred in
rendering services to the Company and Globe Manufacturing under the Management
Agreement.
19
<PAGE>
Securityholders Agreement
In connection with the Recapitalization, the Company' shareholders entered
into a Securityholders Agreement. This agreement provides, among other things,
for the nomination of and voting for at least five directors of the Company by
Globe Holdings' shareholders. The Securityholders Agreement also provides that
Code Hennessy & Simmons will be entitled to appoint all of the directors of
the Company. The following individuals have been designated by Code Hennessy &
Simmons to serve as directors: Thomas A. Rodgers, Jr., Thomas A. Rodgers, III,
Andrew W. Code, Peter M. Gotsch, Edward M. Lhee and Richard F. Heitmiller.
Executive Securities Agreements
In connection with the Recapitalization, each of Lawrence R. Walsh, Americo
Reis and Robert L. Bailey entered into an Executive Securities Agreement with
the Company and Code Hennessy & Simmons which provides for, among other
things, repurchase rights with respect to the Company securities held by them
upon termination of employment (other than retirement) and restrictions on
transfer of such securities.
Registration Agreement
In connection with the Recapitalization, the Company's shareholders entered
into a Registration Agreement. The Registration Agreement grants certain
demand registration rights to Code Hennessy & Simmons. An unlimited number of
such demand registrations may be requested by Code Hennessy & Simmons. In the
event that Code Hennessy & Simmons makes such a demand registration request,
all other shareholders of the Company will be entitled to participate in such
registration on a pro rata basis (based on shares held). Code Hennessy &
Simmons may request, pursuant to its demand registration rights, and each
other shareholder may request, pursuant to his or its participation rights,
that up to all of such shareholder's shares of common stock be registered by
the Company. The Company is entitled to postpone such a demand registration
for up to 180 days under certain circumstances. In addition, the parties to
the Registration Agreement are granted certain rights to have shares included
in registrations initiated by the Company or its shareholders ("piggyback
registration rights"). Expenses incurred in connection with the exercise of
such demand or piggyback registration rights shall, subject to limited
exceptions, be borne by the Company.
Executive Loan
In December 1992, the Company made a loan to Thomas A. Rodgers, III to
assist him in paying taxes incurred in a previous recapitalization of the
Company. As of June 30, 1998, the balance of such loan, including accrued
interest, was $285,397. The loan was repaid prior to the Merger.
Non-Competition Agreement
In connection with the Merger and the Recapitalization, each of the Named
Executive Officers entered into a Non-Competition Agreement with the Company
pursuant to which the Named Executive Officers agreed not to engage anywhere
in the U.S. in any business that manufactures, distributes or sells polyester
or polyester spandex fiber, latex thread or other elastomeric fiber for a
period of three years (or, in the case of Mr. Bailey, until December 31,
2000). The Named Executive Officers also agreed not to solicit employees or
customers of the Company or its subsidiaries, or to hire any person who was an
employee of the Company or any of its subsidiaries within twelve months after
such person's employment with the Company or any subsidiary is terminated. The
Named Executive Officers also agreed to maintain the confidentiality of
information regarding the business and affairs of the Company and its
subsidiaries.
Sale Bonus
In February 1998, the Company instituted a management reward program
pursuant to which each of the Named Executive Officers was entitled to receive
a cash bonus upon consummation of the Merger. The amount
20
<PAGE>
of the bonus paid was based on a percentage of the consideration paid in
connection with the Merger. Pursuant to the program, Thomas A. Rodgers, Jr.
and Thomas A. Rodgers, III received an aggregate of $825,000; and Messrs.
Reis, Walsh and Bailey each received $412,500. In addition, Messrs. Cardullo
and Girrier each received a bonus of $50,000 upon consummation of the Merger.
Investment Banking Fees
Prior to the Merger, certain affiliates of Goldman, Sachs & Co. owned an
aggregate of approximately 46% of the common stock of the Company on a fully-
diluted basis prior to the consummation of the Merger, and three members of
the Board of Directors of the Company prior to the Merger were affiliates of
Goldman, Sachs & Co. Goldman, Sachs & Co. acted as financial advisor to the
Company in connection with the Transactions, for which it received a fee.
Tax Sharing Agreement
The operations of Globe Manufacturing are included in the Federal income
tax returns filed by Globe Holdings. On July 31, 1998, Globe Manufacturing and
the Company entered into a Tax Sharing Agreement ("Tax Sharing Agreement")
pursuant to which Globe Manufacturing agreed to advance to Globe Holdings so
long as Globe Holdings files consolidated income tax returns that include
Globe Manufacturing (i) payments for Globe Manufacturing's share of income
taxes assuming Globe Manufacturing is a stand-alone entity, which in no event
may exceed the group's consolidated tax liabilities for such year, and (ii)
payments to or on behalf of Globe Holdings in respect of franchise or similar
taxes and governmental charges incurred by it relating to the business,
operations or finances of Globe Manufacturing.
Consulting Agreement
In connection with the Merger and the Recapitalization, Thomas A. Rodgers,
Jr. entered into a consulting agreement with Globe Manufacturing, pursuant to
which he will be compensated at a rate of $100,000 per annum, and agreed to
perform special projects for Globe Manufacturing and such other matters as
Globe Manufacturing's Board of Directors or officers reasonably request.
CHS Loan
In connection with the Recapitalization, Code Hennessy & Simmons extended
the CHS Loan to Globe Holdings in the principal amount of $25.0 million. The
CHS Loan was repaid with the net proceeds to Globe Holdings from the Units
Offering. The CHS Loan bore interest at a rate of 14% per annum and would have
matured on July 31, 2009.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following documents are filed as part of this report:
(a) (1) The consolidated financial statements included in Item 8 hereof
and set forth on pages F-1 through F-17.
(2) Financial Statement Schedules: Schedule I (Condensed Financial
Information of Registrant) and Schedule II (Valuation and Qualifying
Accounts). Schedules other than those listed above are omitted because they
are not required or are not applicable.
(3) The exhibits listed in the Index to the Exhibits
(b) Reports on Form 8-K.
On March 5, 1999 the Company filed a report on Form 8-K that included
certain financial information with respect to its 1998 fiscal year.
21
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S> <C>
2.1* Agreement and Plan of Merger dated as of June 23, 1998
between the Company and Globe Acquisition Company.
2.2* Asset Transfer Agreement dated as of July 29, 1998
between the Company and Globe Manufacturing.
2.3* Amendment No. 1 dated as of July 17, 1998 to the
Agreement and Plan of Merger dated as of June 23, 1998
between the Company and Globe Acquisition Company.
2.4* Amendment No. 2 dated as of July 30, 1998 to the
Agreement and Plan of Merger dated as of June 23, 1998
between the Company and Globe Acquisition Company.
2.5* Purchase Agreement dated as of July 31, 1998 by and
among Globe Acquisition Company, Code, Hennessy &
Simmons III, L.P. and certain other purchasers to
purchase shares of Globe Acquisition Company's stock.
3.1* Articles of Merger filed July 31, 1998 for the merger of
Globe Acquisition Company and the Company and amending
the Company's Restated Articles of Organization.
3.2* Articles of Amendment filed July 2, 1998 amending the
Company's Restated Articles of Organization.
3.3* Restated Articles of Organization of the Company filed
July 22, 1992.
3.4* Bylaws of the Company.
4.1* Indenture dated as of August 6, 1998 by and between the
Company and Norwest Bank Minnesota, National
Association.
4.2* Purchase Agreement dated as of August 6, 1998 by and
between the Company and BancAmerica Robertson Stephens.
4.3* Registration Rights Agreement dated as of August 6, 1998
by and between the Company and BancAmerica Robertson
Stephens.
4.4* Unit Agreement dated as of August 6, 1998 by and between
the Company and BancAmerica Robertson Stephens.
4.5* Warrant Agreement dated as of August 6, 1998 by and
between the Company and BancAmerica Robertson Stephens.
4.6* Warrant Registration Rights Agreement dated as of August
6, 1998 by and between the Company and BancAmerica
Robertson Stephens.
4.7* Securityholders Agreement dated as of July 31, 1998 by
and among the shareholders of the Company.
4.8* Registration Agreement dated as of July 31, 1998 by and
among the shareholders of the Company.
10.1* Employment Agreement dated as of December 31, 1997
between the Company and Thomas A. Rodgers, III.
10.2*+ Employment Agreement dated as of December 31, 1997
between the Company and Americo Reis.
10.3*+ Employment Agreement dated as of December 31, 1997
between the Company and Lawrence R. Walsh.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S> <C>
10.4*+ Employment Agreement dated as of December 31, 1997
between the Company and Robert L. Bailey.
10.5*+ Form of Executive Securities Agreement dated as of July
31, 1998 by and among the Company, Code Hennessy &
Simmons and each of Messrs. Walsh, Reis and Bailey.
10.6*+ Form of Non-Competition Agreement dated as of July 31,
1998 between the Company and each of Messrs. Rodgers,
III, Walsh, Reis and Bailey. Mr. Bailey's non-
competition restriction terminates on December 31, 2000,
compared to July 31, 2001 for the other executives.
10.7* Management Agreement, dated as of July 31, 1998 between
Globe Manufacturing and CHS Management III, L.P.
10.8* Tax Sharing Agreement dated as of July 31, 1998 between
the Company and Globe Manufacturing.
10.9* Credit Agreement dated as of July 31, 1998 by and among
the Company, Globe Holdings, various banks, Bank of
America National Trust and Savings Association,
BancAmerica Robertson Stephens and Merrill, Lynch,
Pierce, Fenner & Smith, Inc.
10.10* Form of First Amendment and Waiver dated as of January
28, 1999 to the Credit Agreement.
10.11* Pledge Agreement dated as of July 31, 1998 by the
Company and Globe Manufacturing in favor of Bank of
America Trust and Savings Association.
10.12* Security Agreement dated as of July 31, 1998 by the
Company and Globe Manufacturing in favor of Bank of
America National Trust and Savings Association.
10.13*+ Form of Amended and Restated Performance Option
Agreement by and between the Company and each of Messrs.
Walsh, Reis, and Bailey.
10.14*+ Globe Holdings Management Incentive Plan.
10.15*+ Consulting Agreement dated as of July 31, 1998 between
Globe Manufacturing and Thomas A. Rodgers, Jr.
21.1* Subsidiaries of the Company.
27.1 Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference to Registration Statement on Form S-4 (File number
333-64669)
+ Management contract or compensatory plan required to be filed by Item 601 of
Regulation S-K.
23
<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, on March 31, 1999.
Globe Holdings, Inc.
/s/ Thomas A. Rodgers, III
By___________________________________
Thomas A. Rodgers, III
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Thomas A. Rodgers, Jr. Chairman
___________________________________________
Thomas A. Rodgers, Jr.
/s/ Thomas A. Rodgers, III President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Thomas A. Rodgers, III
/s/ Lawrence R. Walsh Vice President, Finance and Administration
___________________________________________ (Principal Financial Officer)
Lawrence R. Walsh
/s/ Kevin T. Cardullo Director of Finance and Accounting
___________________________________________ (Principal Accounting Officer)
Kevin T. Cardullo
/s/ Richard F. Heitmiller Director
___________________________________________
Richard F. Heitmiller
/s/ Andrew W. Code Director
___________________________________________
Andrew W. Code
/s/ Peter M. Gotsch Director
___________________________________________
Peter M. Gotsch
/s/ Edward M. Lhee Director
___________________________________________
Edward M. Lhee
</TABLE>
24
<PAGE>
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act
No annual report covering the Company's last fiscal year or proxy material
has been sent to the Company's security holders. Subsequent to the filing of
this Annual Report on Form 10-K, a copy of this Annual Report on Form 10-K
will be furnished to the Company's security holders.
25
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998, 1997 and 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)........ F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Globe Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Globe
Holdings, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Globe
Holdings, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Providence, Rhode Island
March 19, 1999
F-2
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
------------------
1997 1998
-------- --------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 1,947 $ 1,439
Accounts receivable, net of allowance for doubtful accounts of
$1,870 and $2,736 at December 31, 1997 and 1998,
respectively.................................................. 24,166 22,510
Inventories (Note 2)........................................... 13,764 18,380
Prepaid expenses and other assets.............................. 484 439
Prepaid taxes.................................................. -- 5,321
Deferred income taxes (Note 9)................................. 2,449 3,092
-------- --------
Total current assets......................................... 42,810 51,181
Property, plant and equipment (Note 1):
Land and land improvements..................................... 942 942
Buildings and building improvements............................ 33,122 43,256
Manufacturing equipment........................................ 79,202 103,234
Furniture and equipment........................................ 2,087 2,166
Autos and trucks............................................... 319 319
Construction in progress....................................... 5,959 7,519
-------- --------
121,631 157,436
Less accumulated depreciation and amortization.................. (63,681) (74,107)
-------- --------
Net property, plant and equipment............................... 57,950 83,329
Deferred income taxes (Note 9).................................. 2,822 1,297
Cash surrender value of life insurance.......................... 927 1,076
Note receivable from officers................................... 278 --
Investment in Joint Venture (Note 10)........................... -- --
Deferred financing costs, net of amortization of $57 and $638 at
December 31, 1997 and 1998, respectively (Note 3).............. 346 10,153
-------- --------
Total assets................................................. $105,133 $147,036
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................... $ 7,440 $ 6,012
Accrued expenses:
Workers' compensation insurance (Note 11).................... 1,204 929
Interest..................................................... 13 7,773
Other........................................................ 3,610 4,047
Taxes payable.................................................. 1,028 --
Dividend payable............................................... 50 --
Note payable (Note 3).......................................... 2,475 11,300
Long-term debt obligations due within one year (Note 3)........ 7,500 --
Lease obligations due within one year (Note 4)................. 37 34
-------- --------
Total current liabilities.................................. 23,357 30,095
Other long-term liability....................................... -- 1,774
Long-term debt (Note 3)......................................... 46,875 115,000
Senior Subordinated Notes....................................... -- 150,000
Senior Discount Notes........................................... -- 25,855
Long-term lease obligation (Note 4)............................. 30 44
Other long-term post retirement liability (Note 8).............. 3,762 4,090
Stockholders' equity (deficit) (Note 6):
Preferred stock, Class A, $.01 par value; 40,000 shares
authorized.................................................... -- --
Common stock, Class A, voting, $.01 par value; 5,000,000
shares authorized............................................. 2 22
Common stock, Class B, nonvoting, $.01 par value; 35,000
shares authorized............................................. 16 --
Common stock, Class C, nonvoting, $.01 par value; 600,000
shares authorized............................................. -- --
Paid-in capital................................................ 10,785 44,017
Retained earnings.............................................. 56,468 (223,861)
-------- --------
67,271 (179,822)
Less treasury stock, at cost:
Common, Class A, 99,000 shares................................. (4,187) --
Common, Class B, 683,314 shares................................ (28,657) --
-------- --------
(32,844) --
Unearned compensation........................................... (3,318) --
-------- --------
Total stockholders' equity (deficit)....................... 31,109 (179,822)
-------- --------
Total liabilities and stockholders' equity (deficit)....... $105,133 $147,036
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $152,603 $170,941 $171,093
Cost of sales.................................... 110,609 115,099 111,609
-------- -------- --------
Gross margin..................................... 41,994 55,842 59,484
Selling, general and administrative expenses..... 21,705 24,381 23,656
Research and development costs................... 2,533 2,633 4,263
-------- -------- --------
Operating income................................. 17,756 28,828 31,565
Other income (expenses):
Interest, net.................................. (5,285) (3,968) (14,154)
Transaction compensation expenses.............. -- -- (5,778)
Transaction commitment fee expense............. -- -- (1,000)
Other income, net.............................. 875 372 749
-------- -------- --------
Income before income taxes and extraordinary
item............................................ 13,346 25,232 11,382
Provision for income taxes (Note 9).............. 4,784 8,383 3,956
-------- -------- --------
Income before extraordinary item................. 8,562 16,849 7,426
Extraordinary item (Note 3):
Loss from write-off of deferred financing
costs, net of tax benefit of $177 and $112 in
1997 and 1998, respectively................... -- 301 187
-------- -------- --------
Net income................................... $ 8,562 $ 16,548 $ 7,239
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Shares Outstanding
------------------------------------------
Common Common Retained
------------------------------- Preferred ----------------------- Preferred Paid-in Earnings
Class A Class B Class C Stock Class A Class B Class C Stock Capital (Deficit)
--------- -------- ---------- --------- ------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1995............ 100,000 931,404 $ 2 $ 16 $ 4,965 $ 34,054
Dividends....... (872)
Unearned
compensation
relating to the
grant of stock
options......... 735
Amortization of
unearned
compensation....
Net income...... 8,562
--------- -------- ---------- ------ --- ---- ---- ---- ------- ---------
Balances,
December 31,
1996............ 100,000 931,404 2 16 5,700 41,744
Redemption of
Series A
Cumulative
Preferred Stock. (1,534)
Dividends....... (290)
Unearned
compensation
relating to the
grant of stock
options......... 5,085
Amortization of
unearned
compensation....
Net income...... 16,548
--------- -------- ---------- ------ --- ---- ---- ---- ------- ---------
Balances,
December 31,
1997............ 100,000 931,404 2 16 10,785 56,468
Net effect of
recapitalization
transaction..... (100,000) (931,404) 2,179,150 29,100 (2) (16) 22 -- 32,895 (287,568)
Conversion of
Class C shares
to Class A
shares.......... 2,179,150 (2,179,150) 22 (22)
Tax effect of
deferred
compensation.... 337
Net income...... 7,239
--------- -------- ---------- ------ --- ---- ---- ---- ------- ---------
Balances,
December 31,
1998............ 2,179,150 -- -- 29,100 $22 $-- $-- $-- $44,017 $(223,861)
========= ======== ========== ====== === ==== ==== ==== ======= =========
<CAPTION>
Treasury Stock
------------------
Common Stock Total
------------------ Unearned Stockholders'
Class A Class B Compensation Equity (Deficit)
-------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Balances,
December 31,
1995............ $(4,187) $(28,657) $ (630) $ 5,563
Dividends....... (872)
Unearned
compensation
relating to the
grant of stock
options......... (735) --
Amortization of
unearned
compensation.... 341 341
Net income...... 8,562
-------- --------- ------------ ----------------
Balances,
December 31,
1996............ (4,187) (28,657) (1,024) 13,594
Redemption of
Series A
Cumulative
Preferred Stock. (1,534)
Dividends....... (290)
Unearned
compensation
relating to the
grant of stock
options......... (5,085) --
Amortization of
unearned
compensation.... 2,791 2,791
Net income...... 16,548
-------- --------- ------------ ----------------
Balances,
December 31,
1997............ (4,187) (28,657) (3,318) 31,109
Net effect of
recapitalization
transaction..... 4,187 28,657 3,318 (218,507)
Conversion of
Class C shares
to Class A
shares.......... --
Tax effect of
deferred
compensation.... 337
Net income...... 7,239
-------- --------- ------------ ----------------
Balances,
December 31,
1998............ $ -- $ -- $ -- $(179,822)
======== ========= ============ ================
</TABLE>
See accompanying notes.
F-5
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1996 1997 1998
--------- ------- --------
<S> <C> <C> <C>
Operating activities
Net income....................................... $ 8,562 $16,548 $ 7,239
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 9,335 9,417 11,111
Amortization of unearned compensation........... 341 2,791 3,318
Accretion on discounted note.................... -- -- 1,473
Extraordinary charge--write-off of deferred
financing costs................................ -- 478 299
Provision for losses on accounts receivable..... 1,093 691 1,393
Deferred income tax benefit..................... (958) (2,455) 882
Other postretirement benefits charge............ 652 515 600
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable............................. (6,829) (5,821) 263
Inventories..................................... 4,132 (1,952) (4,616)
Prepaid expenses and other assets............... 12 (38) 45
Refundable income taxes......................... 61 -- (4,983)
Accounts payable................................ 2,459 263 (1,428)
Accrued expenses................................ 2,203 (357) 7,922
Taxes payable................................... 1,434 (1,178) (1,028)
Other long-term postretirement liability........ (306) (274) (272)
--------- ------- --------
Net cash provided by operating activities........ 22,191 18,628 22,218
Investing activities
Capital expenditures............................. (5,806) (17,101) (33,968)
Note receivable collected from (issued to)
stockholders.................................... (14) (15) 278
--------- ------- --------
Net cash used in investing activities............ (5,820) (17,116) (33,690)
Financing activities
Net change in notes payable...................... (4,750) (275) 8,825
Borrowings on long-term debt..................... -- 15,000 119,400
Deferred financing costs......................... -- (403) (10,791)
Principal payments on long-term debt............. (11,250) (8,375) (58,775)
Principal payment on capital lease obligation.... (85) (97) (52)
Issuance of senior subordinated notes............ -- -- 150,000
Issuance of common stock......................... -- -- 14,353
Issuance of senior discount notes................ -- -- 25,000
Issuance of preferred stock...................... -- -- 21,530
Distribution to Company stockholders for
recapitalization................................ -- -- (258,327)
Redemption of preferred stock.................... -- (8,000) --
Cash surrender value of life insurance, net...... 522 596 (149)
Payment of dividends............................. (850) (1,112) (50)
--------- ------- --------
Net cash provided by (used in) financing
activities...................................... (16,413) (2,666) 10,964
--------- ------- --------
Net decrease in cash and cash equivalents........ (42) (1,154) (508)
Cash and cash equivalents at beginning of year... 3,143 3,101 1,947
--------- ------- --------
Cash and cash equivalents at end of year......... $ 3,101 $ 1,947 $ 1,439
========= ======= ========
Supplemental schedule of cash flow information:
Noncash financing activities:
Pension intangible asset....................... $ 199 $ -- $ --
========= ======= ========
Minimum pension liability...................... $ (199) $ -- $ --
========= ======= ========
Noncash investing activity:
Equipment acquired under capital leases........ $ -- $ 50 $ 1,837
========= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998
(dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Globe
Holdings, Inc. (formerly Globe Manufacturing Co.) and its wholly-owned
subsidiaries, Globe Manufacturing Corp. (formerly Globe Elastic Co.) and Globe
Manufacturing FSC, Ltd. (collectively, the Company). All significant
intercompany accounts have been eliminated.
On June 23, 1998, the Company entered into an Agreement and Plan of Merger
(the Agreement) with an affiliate of Code Hennessy & Simmons III, L.P. (CHS).
The Agreement provided for the obtaining of additional debt and equity to be
used in a recapitalization transaction whereby CHS obtained a majority
interest in the Company and certain continuing shareholders retained a
minority interest. The recapitalization transaction was financed with $50,000
of equity and $295,000 of debt. Proceeds from the recapitalization were used
to (i) pay consideration to certain shareholders of the Company, (ii) repay
certain indebtedness of the Company and (iii) pay related fees and expenses of
the recapitalization transaction and refinancing. Prior to the closing of the
merger, substantially all of the assets and liabilities of Globe Holdings,
Inc. were contributed to its wholly-owned subsidiary, Globe Elastic Co., Inc.,
which was renamed Globe Manufacturing Corp. Inasmuch as the recapitalization
transaction was among the Company's shareholders, some of whom maintained a
continuing interest in the Company, the assets and liabilities contributed to
Globe Manufacturing Corp. were carried at their respective historical cost
bases.
Cash and Cash Equivalents
The Company considers all highly-liquid, short-term investments with an
original maturity of three months or less to be cash equivalents.
Risks and Uncertainties
Concentration of Credit Risk
The Company performs credit evaluations on all new customers and requires
collateral in certain circumstances. Sales to one customer represented 9% of
total sales for the years ended December 31, 1996, 1997, and 1998. Also, for
the years ended December 31, 1996, 1997, and 1998, sales to five customers
totaled 34%, 36%, and 34%, respectively.
At December 31, 1997 and 1998, 47% and 54%, respectively, of total
receivables were from foreign customers. Balances owed from one customer
totaled 8% of total receivables at December 31, 1997 and 1998. Also at
December 31, 1997 and 1998, 39% of total receivables was from five customers.
Of these five customers, three are foreign, which represent 24% and 26% of the
total receivable balance at December 31, 1997 and 1998, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized when products are shipped to customers.
F-7
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are valued at lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method for latex and certain spandex inventories
and the first-in, first out (FIFO) method for the other inventories.
Management utilizes LIFO for those product lines that have exhibited
increasing costs to better match costs with revenues.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
using both accelerated and straight-line methods over estimated useful lives
of the assets, which range from 3 to 39.5 years. For the years ended December
31, 1996, 1997, and 1998, the Company recorded depreciation expense of $9,183,
$9,322, and $10,426, respectively. The Company capitalizes direct materials,
labor and certain overhead costs for self-constructed assets. In 1997 and
1998, the Company capitalized interest costs of $506 and $1,194, respectively,
incurred in connection with the expansion of the manufacturing plant in
Alabama. Total interest costs in 1997 and 1998 amounted to $4,573 and $15,348,
respectively.
Investment in Joint Venture
The Company accounts for its 40% investment in a joint venture using the
equity method of accounting (see Note 10).
Deferred Financing Costs
Deferred financing costs are amortized over the term of the facility using
the effective interest method beginning July 31, 1998. Prior to that date,
deferred financing costs were amortized using the straight-line method. Use of
the straight-line method to amortize deferred financing costs did not yield
results that were materially different from those that resulted from the use
of the effective interest method.
Stock Based Compensation
The Company accounts for its stock based compensation arrangements under
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.
The Company recognizes as compensation expense the excess of the deemed
fair value of the common stock issuable upon exercise of compensatory stock
options over the aggregate exercise price of such options. The expense is
amortized over the vesting period of each option.
Income Taxes
The liability method is used in accounting for income taxes. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities and are measured
using the currently enacted tax rates and laws that are in effect for the
period when the differences are expected to reverse.
F-8
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, accounts payable, long-term
debt, notes payable and other current and long-term liabilities approximate
their respective fair values.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as an interest rate charge and is recognized over the life of the
agreements (see Note 3).
Research and Development Costs
The Company expenses research and development costs as incurred.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and for Hedging Activities
(Statement 133). Statement 133 is effective for years beginning after June 15,
1999. Statement 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. Management
does not anticipate that the adoption of Statement 133 will have a material
impact on the Company's financial position or the results of its operations.
2. Inventories
At December 31, 1997 and 1998, inventories totaling approximately $6,968
and $6,530 (at their FIFO value), respectively, were valued using the LIFO
method. Had the FIFO method of inventory valuation been used, inventories and
income before taxes would have increased (decreased) by approximately $1,149
and $363 in 1996; $1,247 and $98 in 1997; and $808 and $(439) in 1998.
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- -------
<S> <C> <C>
Raw materials........................................... $ 2,460 $ 2,688
Finished goods.......................................... 12,551 16,500
------- -------
15,011 19,188
Less LIFO reserve....................................... (1,247) (808)
------- -------
$13,764 $18,380
======= =======
</TABLE>
F-9
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- --------
<S> <C> <C>
Term Loan A, principal due in variable semi-annual
installments through 2005; variable interest rates based on
the base rate (7.38%-8.00% at December 31, 1998) (See (a)
below)....................................................... $ -- $ 60,000
Term Loan B, principal due in variable semi-annual
installments through 2006; variable interest rates based on
the base rate (7.88%-8.50% at December 31, 1998) (See (a)
below)....................................................... -- 55,000
Senior Subordinated Notes, due 2008; interest at 10%.......... -- 150,000
Senior Discount Notes, due 2009; semiannual cash interest
payments at 14% beginning February 2004 (See (b) below)...... -- 25,855
Term note, principal due in variable quarterly installments
through 2003; variable interest rates based on the base rate
(7.31%-8.75% at December 31, 1997)........................... 54,375 --
------- --------
54,375 290,855
Less current maturities....................................... 7,500 --
------- --------
$46,875 $290,855
======= ========
</TABLE>
- --------
(a) In connection with the Recapitalization Transaction, the Company entered
into a new Senior Credit Facility (the Credit Facility) that provided for
two term loans to the Company in the amount of $60,000 and $55,000 (Term
Loan A and Term Loan B, respectively), as well as a revolver for up to
$50,000. The Credit Facility allows for letters of credit to the extent of
the unused portion of the working capital facility. At December 31, 1998,
the Company had $11,300 outstanding under the revolver and $1,000
outstanding under letters of credit to secure the Company's workers'
compensation self insurance program (see Note 11).
Borrowings under Term Loan A and B bear interest at either the bank's prime
rate plus a margin of 1.25% and 1.755%, respectively, or the applicable
Eurodollar rate plus a margin of 2.25% and 2.755%, respectively.
The Credit Facility contains certain covenants that limit the ability of
the Company to incur additional debt, issue capital stock, and pay
dividends. The Credit Facility also requires the maintenance of a minimum
interest coverage ratio, fixed charge coverage ratio, and maximum leverage
ratio, as defined in the Agreement. All of the Company's assets are pledged
under the Credit Facility.
The Company is a holding company with no assets other than its investment
in the stock of Globe Manufacturing. The Senior Discount Notes are direct
obligations of Globe Holdings; all other obligations are those of its
wholly-owned subsidiaries. Globe Manufacturing's debt agreements contain
significant restrictions on distributions and making of loans by Globe
Manufacturing to the Company.
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio
tests were waived and certain covenants were amended, (ii) the interest
rates on both the term loans and revolving loans were increased and (iii)
the management fee due to CHS may only be paid if certain leverage tests
are met. Additionally, the Company has received a waiver on the capital
additions covenant requirements.
(b) On August 6, 1998, the Company issued and sold 49,086 units (the "Units"),
each consisting of one 14% Senior Discount Note due 2009 (the "Notes") and
one warrant (a "Warrant") to purchase 1.4155 shares of Class A Common
Stock of the Company. Each warrant may be exercised until August 1, 2009
and the exercise price for each warrant is $.01 per share. The aggregate
purchase price of the Units was $25,000
F-10
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and the net proceeds to the Company were $24,562 after deducting
underwriting discounts and commissions and other expenses payable by the
Company. The proceeds of these Units were used to repay a $25,000 loan made
by CHS to the Company pursuant to the recapitalization transaction.
<TABLE>
<S> <C>
14% Senior Discount Notes, due 2009.............................. $49,086
Less: Discount on Notes (to reflect 14.5% interest rate)......... 23,231
-------
$25,855
=======
</TABLE>
Repayments of long-term debt are required as follows:
<TABLE>
<S> <C>
1999............................................................. $ --
2000............................................................. 5,550
2001............................................................. 7,550
2002............................................................. 10,550
2003............................................................. 12,550
2004 and beyond.................................................. 78,800
--------
$115,000
========
</TABLE>
Cash paid for interest, net of amounts capitalized amounted to $5,469,
$4,192, and $4,344 in 1996, 1997 and 1998, respectively.
In connection with various financing transactions, unamortized financing
costs of $478 and $299, relating to the previous debt agreements, was charged
to expense (net of tax) as an extraordinary item in 1997 and 1998,
respectively.
The Company uses interest-rate swap agreements to effectively convert a
portion of its floating rate debt to a fixed rate basis, thus reducing the
impact of interest-rate changes on future income. At December 31, 1998, the
Company had outstanding interest rate swap agreements with a commercial bank,
having a total notional principal amount of $25 million. These agreements
effectively change the Company's interest rate exposure on $25 million of its
variable rate term notes to a fixed rate of 5.98%. The interest rate swap
agreements in effect at December 31, 1998 mature on March 31, 2000. The
Company is obligated to maintain such agreements during the first two years
that the term note is outstanding. While the Company is exposed to credit loss
for the periodic settlement of amounts due under the agreement in the event of
nonperformance by the counter-party, the Company does not anticipate
nonperformance by this party. The fair value of these swap agreements
representing the estimated amount that the Company would pay to a third party
assuming the Company's obligations under the interest rate agreement ceased at
December 31, 1998, is approximately $280. The fair value of the agreement was
determined by independent commercial bankers and represents the fair value
based on pricing models or formulas using current assumptions.
The priority, with regard to the right of payment on the Company's debt is
that the Notes are subordinate to the Senior Subordinated Notes. Furthermore,
the Senior Subordinated Notes are subordinate to the Credit Facility. There is
no priority established for the three components (Term Loan A, Term Loan B
Revolver) of the Credit Facility.
4. Lease Commitments
The Company leases certain assets under capital leases. At December 31,
1997 and 1998, leased assets, with a cost of approximately $366 and $429,
respectively, have been included in property, plant and equipment. Accumulated
amortization of assets under capital leases was approximately $302 and $343 at
December 31, 1997 and 1998, respectively. Future minimum lease payments
relating to the equipment under the capital leases are not material.
F-11
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Redeemable Cumulative Preferred Stock and Warrants
In 1997, the Company redeemed all outstanding shares of Series A Cumulative
Preferred Stock at a price of $1,000 per share, plus unpaid dividends at the
time of redemption. In connection with the redemption, the Company terminated
any future vesting associated with its agreement to issue warrants to purchase
shares of Class B Common Stock at a price of $.01 per share. At December 31,
1997, the Company had 50 such warrants issued and outstanding. No warrants
related to the Class B Common Stock were outstanding at December 31, 1998.
During the year ended December 31, 1997, the Company paid cash dividends of
$240 on the Series A Cumulative Preferred Stock.
6. Shareholders' Equity
Common Stock
Each holder of Class A Common Stock is entitled at any time to convert into
an equal number of shares of Class C Common Stock. Each share of Class B
Common Stock converts automatically into a share of Class A if the Company
sells stock pursuant to a registered public offering. Each share of Class C
Common Stock may be converted into Class A upon the occurrence of certain
events. The Company paid cash dividends of $0.05 per share in 1997.
Preferred Stock
The liquidation value of any share of preferred stock is $1,000 per share,
subject to adjustment for stock splits, stock dividends and similar
transactions. The Preferred Stock accrues a dividend at a rate of 14% per
annum, compounded annually, on the sum of the liquidation value plus
accumulated and unpaid dividends, is not currently subject to mandatory or
optional redemption, and is not convertible into any other class of capital
stock of the Company. As of December 31, 1998, the amount of dividends in
arrears aggregated $1,698.
Stock Options
The Company has a Management Incentive Plan ("the Plan") which authorizes
the grant of incentive stock options and nonqualified stock options including
performance options based on the financial performance of the Company to
employees. A total of 102,570 shares has been reserved for issuance under the
Plan. The term of stock options granted under the plan may not exceed ten
years.
The exercise price of a stock option is $30 per share and may be exercised
at anytime.
The following table presents the activity under the Plan for the years
ended December 31, as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Per Share Per Share Per Share
Exercise Price Exercise Price Exercise Price
Options (1) Options (1) Options (1)
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January
1...................... 22,500 $3.00 22,500 $3.00 45,000 $3.00
Granted................. -- -- 22,500 3.00 -- --
Exercised............... -- -- -- -- 38,261 3.00
------ ----- ------ ----- ------ -----
Outstanding at December
31..................... 22,500 $3.00 45,000 $3.00 6,739 $3.00
====== ===== ====== ===== ====== =====
Options exercisable at
December 31............ 9,000 $3.00 22,500 $3.00 6,739 $3.00
====== ===== ====== ===== ====== =====
</TABLE>
- --------
(1) All options were granted at an exercise price of $30 per option; however,
in connection with the recapitalization transaction, the Plan was amended
as of July 31, 1998. The new performance option agreement provides for the
holder of an option the right to purchase ten shares of the Company's
Class A
F-12
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock and .13354106 shares of the Company's Class A Preferred Stock.
The table presented above has been retroactively restated to reflect this
change.
In connection with the grant of performance options, the Company recorded a
total of $5,820 of unearned compensation ($735 and $5,085 in 1996 and 1997,
respectively) of which $341 and $2,791 was earned and recognized as
compensation expense in 1996 and 1997, respectively. Approximately $3,318 was
earned and recognized as transaction compensation expense in 1998. Options
that did not vest in the years 1994 and 1995 were vested in 1997 since
cumulative five-year performance measurements were achieved for the option
granted in 1993.
The weighted average remaining contractual life of options outstanding at
December 31, 1998, is ten years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Had compensation expense for options granted in 1997 under the
Plan been determined based on the fair value at the grant date, pro forma net
income would not have differed materially from reported amounts, since the
options granted under the Plan did not vest during 1997 and thus, have no
impact on the determination of consolidated net income during 1997. During
1998, the pro forma effect of recognizing the fair value of the options which
vested in 1998 was to reduce net income by $167.
The weighted average fair value per share of options granted during 1997
and whose exercise price was less than the market price of the underlying
common stock on the grant date was $219.44. The fair value of options issued
at the date of grant were estimated using the Black-Scholes model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
Options Granted
1997
---------------
<S> <C>
Expected life (years)..................................... 5.0
Risk-free interest rate................................... 5.7%
Expected volatility....................................... 0.0%
Expected dividend yield................................... --
</TABLE>
Stock Reserved
As of December 31, 1998, a total of 69,481 shares of Class A Common Stock
are reserved for issuance under the outstanding warrant arrangements.
7. Commitments and Contingencies
The Company is a party to an agreement with a utility company, under the
terms of which, the Company is obligated to purchase power generated from a
co-generation power plant through 2006. The Company receives a portion of the
savings generated by the plant and profits on excess supply generated. The co-
generation power plant began operations in January 1991.
From time to time, the Company has been and is involved in various legal
and environmental proceedings, all of which management believes are routine in
nature and incidental to the conduct of its business. The ultimate legal and
financial liability of the Company with respect to such proceedings cannot be
estimated with certainty, but the Company believes, based on its examination
of such matters, that none of such proceedings, if determined adversely to the
Company, would have a material adverse effect on the Company's results of
operations or financial condition.
As part of the recapitalization, the Company is obligated to pay to CHS a
quarterly fee of $250 for financial and management consulting services. This
fee is payable in arrears only if certain leverage ratios under the Senior
Credit Facility are met.
F-13
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Pension and Other Benefits
The Company sponsors three noncontributory defined benefit pension plans
covering substantially all employees. The Plan assets are invested in a group
annuity contract with an insurance company and in a trust that holds a
balanced portfolio of corporate stocks and bonds, U.S. Government bonds and
money market investments. The plan covering salaried employees at the
Massachusetts, North Carolina and Alabama locations provides pension benefits
based on the employee's average monthly compensation during a defined period.
The plans covering hourly employees at the Massachusetts, North Carolina and
Alabama locations provide benefits based on years of service. The Company's
funding policy is to contribute annually the maximum deductible amount
allowable under applicable tax regulations.
The following is an analysis of the change in benefit obligation, change in
Plan assets, funded status and components of net periodic pension benefit cost
as of December 31:
<TABLE>
<CAPTION>
Pension
Benefits
--------------
1997 1998
------ ------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year....................... $6,494 $6,591
Service cost.................................................. 303 186
Interest cost................................................. 476 264
Actuarial (gain) loss......................................... (186) 549
Benefits paid................................................. (496) (204)
------ ------
Benefit obligation at end of year............................. $6,591 $7,386
====== ======
Change in plan assets
Fair value of plan assets at beginning of year................ $6,083 $6,679
Actual return on plan assets.................................. 1,092 1,001
Benefits paid................................................. (496) (204)
------ ------
Fair value of plan assets at end of year...................... $6,679 $7,476
====== ======
Funded status................................................... $ 88 $ 90
Unrecognized transition amount.................................. 49 36
Unrecognized net actuarial gain................................. (18) (185)
Unrecognized prior service cost................................. 191 176
------ ------
Prepaid benefit cost............................................ $ 310 $ 117
====== ======
</TABLE>
In 1997, certain plans had aggregate projected benefit obligations of
$4,283 which exceeded their respective plan assets of $3,981.
<TABLE>
<CAPTION>
Pension Benefits
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Components of net periodic pension benefit cost
Service cost......................................... $ 257 $ 303 $ 320
Interest cost........................................ 427 478 453
Expected return on plan assets....................... (385) (454) (554)
Amortization transition amount....................... 22 22 64
Amortization of prior service cost................... 31 26 49
----- ----- -----
Net periodic benefit cost............................ $ 352 $ 375 $ 332
===== ===== =====
</TABLE>
F-14
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Assumptions used in calculating the pension expense and the accumulated
benefit obligation, were as follows:
<TABLE>
<CAPTION>
December 31
--------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.5% 7.5% 7.0%
Rate of increase in compensation levels.................... 5.5% 5.5% 5.5%
Expected long-term rate of return on assets................ 7.5% 7.5% 7.5%
</TABLE>
The Company has instituted a tax deferred savings plan covering all
employees of the Company under Section 401(k) of the Internal Revenue Code.
Under the Plan, subject to certain limitations, each eligible employee may
contribute up to 10% of gross wages per year to the maximum amount set by law.
The Company matches one third of the first 6% of employee contributions.
Company contributions to the Plan for employees were approximately $356 in
1996; $384 in 1997; and $395 in 1998.
In addition to the Company's defined benefit plans, the Company currently
provides postretirement medical and life insurance benefits (postretirement
benefits) to eligible full-time employees. The Company is recognizing the
initial accumulated benefit obligation over a 20-year period.
The following is an analysis of change in benefit obligation, change in
Plan assets and components of net periodic postretirement benefit obligation
as of December 31:
<TABLE>
<CAPTION>
Postretirement
Benefits
----------------
1997 1998
------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................... $ 5,076 $ 5,660
Service cost............................................... 273 299
Interest cost.............................................. 365 342
Actuarial gain............................................. (129) (639)
Benefits paid.............................................. (274) (298)
Changes in assumptions..................................... 349 --
------- -------
Benefit obligation at end of year.......................... $ 5,660 $ 5,364
======= =======
Change in plan assets
Fair value of plan assets at beginning of year............. $ -- $ --
Contribution by employer................................... 274 298
Benefits paid.............................................. (274) (298)
------- -------
Fair value of plan assets at end of year................... $ -- $ --
======= =======
Funded status.............................................. $(5,660) $(5,364)
Unrecognized transition amount............................. 2,952 2,755
Unrecognized net actuarial gain............................ (1,054) (1,481)
------- -------
Prepaid (accrued) postretirement cost...................... $(3,762) $(4,090)
======= =======
</TABLE>
F-15
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Postretirement
benefits
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Components of net periodic postretirement benefit cost
Service cost............................................. $ 284 $ 273 $ 299
Interest cost............................................ 347 365 342
Amortization transition amount........................... 196 197 197
Recognized net actuarial loss............................ (175) (192) (238)
----- ----- -----
Net periodic benefit cost................................ $ 652 $ 643 $ 600
===== ===== =====
</TABLE>
The Company's policy is to fund postretirement benefits as claims are paid.
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.5% in 1997 and 7.0% in 1998, and a health care cost trend
rate of 8.5%, declining each year to 4.0% in the year 2007 and thereafter. The
effect of a 1.0% annual increase in these assumed cost trend rates would
increase the accumulated postretirement benefit obligation by approximately
$465 and the annual net periodic postretirement benefit cost by approximately
$74.
9. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
as of December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Deferred tax liabilities:
Pension.................................................. $ 126 $ 112
Depreciation............................................. 249 676
------ ------
Total deferred tax liabilities............................. 375 788
Deferred tax assets:
Other postretirement benefits............................ 1,519 1,581
Professional fees, primarily financing fees.............. 279 25
Inventories.............................................. 639 1,053
Bad debts................................................ 759 1,057
Workers' compensation accrued............................ 491 359
Deferred compensation.................................... 1,330 --
Vacation accrued......................................... 241 235
Other, net............................................... 388 867
------ ------
Total deferred tax assets.................................. 5,646 5,177
------ ------
Net deferred tax assets.................................... $5,271 $4,389
====== ======
</TABLE>
The following table sets forth selected data with respect to the Company's
provision for income taxes from continuing operations for the years ended:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- ------
<S> <C> <C> <C>
Current:
Federal......................................... $4,683 $ 9,090 $2,587
State........................................... 1,059 1,748 487
------ ------- ------
5,742 10,838 3,074
Deferred:
Federal......................................... (820) (2,034) 577
State........................................... (138) (421) 305
------ ------- ------
(958) (2,455) 882
------ ------- ------
Total......................................... $4,784 $ 8,383 $3,956
====== ======= ======
</TABLE>
F-16
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense for continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate................ $4,538 34.0% $8,831 35.0% $3,870 34.0%
State income tax expense, less
federal tax benefit................. 601 4.5 858 3.4 522 4.6
Foreign sales corporation............ (203) (1.5) (775) (3.0) (790) (6.9)
Change in valuation allowance........ -- -- (428) (1.7) -- --
Other, net........................... (152) (1.1) (103) (.4) 354 3.1
------ ---- ------ ---- ------ ----
Total............................ $4,784 35.9% $8,383 33.3% $3,956 34.8%
====== ==== ====== ==== ====== ====
</TABLE>
Cash paid for income taxes amounted to $4,247, $11,833 and $9,057 in 1996,
1997 and 1998, respectively.
10. Investment in Joint Venture
On November 23, 1990, the Company entered into a joint venture agreement
(Joint Venture) with PT Bakrie Nusantara Corporation ("Bakrie"), an Indonesian
company, to engage in the business of the manufacture of rubber thread and its
related products. On January 7, 1999, the Company terminated its Joint Venture
relationship. However, the Company continues to acquire and sell the entire
production of the Joint Venture, other than production sold in Indonesia.
During the years ended December 31, 1997 and 1998, respectively, the Company
purchased inventory totaling $9,854 and $7,251 from the Joint Venture.
11. Self-Insurance
The Company has a self-insurance program for its workers' compensation. The
plan, which is administered by an insurance company, contains certain stop
loss clauses that limit the Company's liability in the event of catastrophic
losses ($200 per incident, $580 in the aggregate per year). Claims are accrued
as incurred based on available claim information and management's estimate of
claims incurred but not yet reported.
At December 31, 1997 and 1998, the Company had outstanding letters of
credit of $1,000 to secure the Company's workers' compensation self-insurance
program.
12. Segment Information
The Company operates in one industry segment encompassing the manufacture
and sale of elastomeric fibers. These fibers, which consist of spandex fibers
and latex thread, are sold to customers in the textile and apparel industries
that are geographically diversified throughout the United States and in
various foreign countries. The Company's manufacturing facilities are located
in the United States. The following is a summary by geographic area of
revenues from customers. Revenues are attributed to each geographic location
based upon the location of the Company's customers.
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
United States................................. $111,400 $123,077 $118,225
Europe........................................ 11,598 23,590 29,257
Asia.......................................... 13,276 6,838 5,646
Central and South America..................... 5,189 3,590 4,620
Other......................................... 11,140 13,846 13,345
-------- -------- --------
Total sales................................... $152,603 $170,941 $171,093
======== ======== ========
</TABLE>
F-17
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GLOBE HOLDINGS, INC.
(Parent Company)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
--------------
ASSETS 1998
------ --------------
(In thousands)
<S> <C>
Current assets
Prepaid taxes.................................................. $ 11
---------
Total current assets......................................... 11
Deferred income taxes.......................................... 478
Deferred financing costs, net of amortization.................. 721
---------
Total Assets................................................. $ 1,210
=========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C>
Net equity of wholly-owned subsidiaries.......................... $ 155,177
Senior discount notes............................................ 25,855
Shareholders' equity
Preferred stock................................................ --
Common stock................................................... 22
Paid-in capital................................................ 44,017
Retained earnings (deficit).................................... (223,861)
---------
Total shareholders' equity (deficit)......................... (179,822)
---------
Total liabilities and shareholders' equity (deficit)......... $ 1,210
=========
</TABLE>
See accompanying notes.
F-18
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED
GLOBE HOLDINGS, INC.
(Parent Company)
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period From
July 31, 1998 to
December 31, 1998
-----------------
(In thousands)
<S> <C>
Interest expense.............................................. $(1,489)
-------
Loss before income taxes...................................... (1,489)
Benefit for income taxes...................................... (489)
-------
Net loss...................................................... $(1,000)
=======
</TABLE>
F-19
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--Continued
GLOBE HOLDINGS, INC.
(Parent Company)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
July 31, 1998 to
December 31,
1998
----------------
(In thousands)
<S> <C>
Net cash from operating activities............................. $ 0
Financing activities
Issuance of senior discount note............................... $ 25,000
Deferred financing costs....................................... $ (737)
Issuance of common stock....................................... $ 14,353
Issuance of preferred stock.................................... $ 21,530
Distribution to company stockholders........................... $(60,146)
--------
Increase (decrease) in cash.................................... $ 0
========
</TABLE>
F-20
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED
GLOBE HOLDINGS, INC.
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
In the parent company-only financial statements, the company's net equity
of wholly-owned subsidiaries is stated at cost plus (less) equity in
undistributed earnings (losses) of subsidiaries since date of acquisition. The
company's share of net income (loss) of its unconsolidated subsidiaries is
included in consolidated income using the equity method. Parent-company-only
financial statements should be read in conjunction with the Company's
consolidated financial statements.
The financial statements of the parent company presented represent the
period since the Recapitalization Transaction (July 31, 1998) to December 31,
1998. Prior to July 31, 1998, parent company financial statements are not
applicable.
2. Deferred Financing Costs
Deferred financing costs are amortized over the term of the facility using
the effective interest method of amortization.
3. Long-Term Debt
On August 6, 1998, the company issued and sold 49,086 units (the "Units"),
each consisting of one 14% Senior discount Note due 2009 (the "Notes") and one
warrant to purchase 1.4155 shares of Class A Common Stock, $.01 par value, of
the Company. The aggregate purchase price of the Units was $25,000 and the net
proceeds to the Company were $24,562 after deducting underwriting discounts
and commissions and other expenses payable by the Company. The proceeds of
these Units were used to repay a $25,000 loan made to the Company pursuant to
the Recapitalization Transaction.
<TABLE>
<S> <C>
14% Senior discount Notes, due 2009.............................. $49,086
Less: discount on Notes.......................................... 23,231
-------
$25,855
=======
</TABLE>
4. Income Taxes
The Company expects to utilize the deferred tax asset through the income
recognized in its wholly-owned subsidiaries.
F-21
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
GLOBE HOLDINGS, INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ --------- ----------------- ----------- -------
Additions
-----------------
Balance Charged Charged Balance
at to Costs to Other at end
Beginning and Accounts Deductions- of
Description of period Expenses Describe Describe Period
----------- --------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $1,870 $1,393 $527(1) $2,736
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $1,346 $ 691 $167(1) $1,870
YEAR ENDED DECEMBER 31, 1996
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $ 416 $1,093 $163(1) $1,346
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
F-22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF GLODE HOLDINGS, INC. FOR THE YEAR ENDED DECEMBER 31,
1997 AND THE QUARTER ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 1,947 1,439
<SECURITIES> 0 0
<RECEIVABLES> 25,822 25,246
<ALLOWANCES> 1,870 2,736
<INVENTORY> 13,764 18,380
<CURRENT-ASSETS> 42,810 51,181
<PP&E> 121,631 157,436
<DEPRECIATION> 63,681 74,107
<TOTAL-ASSETS> 105,133 147,036
<CURRENT-LIABILITIES> 23,357 30,095
<BONDS> 56,917 304,007
0 0
0 0
<COMMON> 18 22
<OTHER-SE> 67,253 (179,844)
<TOTAL-LIABILITY-AND-EQUITY> 105,133 147,036
<SALES> 170,941 171,093
<TOTAL-REVENUES> 170,941 171,093
<CGS> 115,099 111,609
<TOTAL-COSTS> 142,113 139,528
<OTHER-EXPENSES> 372 6,029
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,968 14,154
<INCOME-PRETAX> 25,232 11,382
<INCOME-TAX> 8,383 3,956
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 301 187
<CHANGES> 0 0
<NET-INCOME> 16,548 7,239
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
