<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD YEAR ENDED
MARCH 31, 2000 OR
[_] 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
incorporation or organization) Identification No.)
456 Bedford Street, Fall River, Massachusetts 02720
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 508/674-3585
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of March 31, 2000, the Registrant had 2,179,150 shares of
Common Stock outstanding.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000 (Unaudited)
and December 31, 1999.....................................................1
Condensed Consolidated Statements of Income (Unaudited) -
Three Months Ended March 31, 2000 and March 31, 1999......................2
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2000 and March 31, 1999......................3
Notes to Condensed Consolidated Financial Statements (Unaudited) -
March 31, 2000............................................................4
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations..................................................6
Item 3. Quantitative and Qualitative Disclosure about Market Risk..............8
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................................8
Item 2. Changes in Securities and Use of Proceeds..............................9
Item 3. Defaults Upon Senior Securities........................................9
Item 4. Submission of Matters to a Vote of Security Holders....................9
Item 5. Other Information......................................................9
Item 6. Exhibits and Reports on Form 8-K.......................................9
<PAGE>
PART I
------
GLOBE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Note A)
March 31 December 31
2000 1999
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,261 $ 3,564
Accounts receivable, net 37,806 37,136
Inventories 15,414 17,791
Prepaid taxes and other assets 4,336 2,554
--------- ---------
Total current assets 60,817 61,045
Property, plant and equipment 169,391 168,610
Less accumulated depreciation and amortization (85,766) (83,836)
--------- ---------
Net property, plant and equipment 83,625 84,774
Other assets 10,157 10,526
--------- ---------
Total assets $ 154,599 $ 156,345
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 6,295 $ 6,278
Accrued interest 4,707 8,029
Other current liabilities 7,387 6,859
Note payable 25,900 20,000
Long-term debt obligations due within one year 112,225 115,000
Senior Subordinated Notes 150,000 150,000
Senior Discount Notes 30,804 29,738
--------- ---------
Total current liabilities 337,318 335,904
Other long-term liabilities 6,435 6,674
Stockholders' deficit:
Common stock, Class A, voting, $.01 par value;
5,000,000 shares authorized 22 22
Paid in capital 44,017 44,017
Retained earnings (233,193) (230,272)
--------- ---------
Total stockholders' deficit (189,154) (186,233)
--------- ---------
Total liabilities and stockholders' deficit $ 154,599 $ 156,345
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBE HOLDINGS, INC.
Condensed Consolidated Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31 March 31
2000 1999
--------- ---------
<S> <C> <C>
Net Sales $ 41,480 $ 43,584
Cost of sales 28,799 29,929
--------- ---------
Gross Margin 12,681 13,655
Selling, general and administrative expenses 6,309 6,170
Research and development expenses 709 1,155
Restructuring costs 2,206 --
--------- ---------
Operating income 3,457 6,330
Interest, net 8,564 7,837
Miscellaneous (186) (50)
--------- ---------
Loss before income taxes (4,921) (1,457)
Benefit for income taxes (2,000) (507)
--------- ---------
Net loss $ (2,921) $ (950)
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBE HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending
--------------------------
(Unaudited) (Unaudited)
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
Net cash used by operating activities $ (2,208) $(9,178)
Investing Activities
Capital expenditures (780) (2,450)
Financing Activities
Net change in note payable 5,900 11,200
Principal payments on long-term debt (2,775) -
Other (440) (110)
-------- -------
2,685 11,090
-------- -------
Net decrease in cash and cash equivalents (303) (538)
Cash and cash equivalents at beginning of year 3,564 1,439
-------- -------
Cash and cash equivalents at end of period $ 3,261 $ 901
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Globe Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands)
March 31, 2000
Note A. Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 1999.
Note B. Going Concern and Forbearance Agreement
In response to lower than expected earnings in 1999, the Company and its lenders
amended certain covenant requirements under its various credit agreements.
Specifically, as of January 28, 1999, 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 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 received a waiver on the
capital expenditures covenant requirements from 1998. On October 20, 1999, the
Senior Credit Facility was again amended such that i) the revolving loan
permitted borrowings were limited by the Company's leverage ratio, ii) the
interest rates on both term loans and the revolving loan were increased and iii)
certain covenant ratio requirements were amended.
At December 31, 1999, the Company was in violation of the capital expenditures
covenant which has not been waived. Accordingly, the Company has been in default
of its credit agreement since December 31, 1999. Additionally, the Company is
expecting to be in default of various covenant requirements throughout 2000
based on the Company's current forecast and existing covenant requirements.
Accordingly, the Company's debt has been classified as short-term.
On April 12, 2000, the Company entered into a forbearance agreement with its
senior lenders in which they agreed to not exercise their right to call the debt
until May 31, 2000. The Company is in negotiations to extend the forbearance
agreement. As a result of this agreement, the Company has no availability under
its revolving loan under the Credit Agreement. The Company is exploring various
alternatives to restructure its indebtedness. As of May 8, 2000, the Company has
$2,300 of cash on hand and has been paying suppliers and employees in the
ordinary course. In addition, management expects the Company to generate
sufficient cash to pay suppliers and employees in the ordinary course in 2000 by
reducing accounts receivable and inventory levels, as well as by enforcing
strict cash management procedures. The Company believes that the refinancing of
its capital and debt structure in 2000, the availability of adequate liquidity
throughout the year, as well as any possible future lenders, and finalizing and
complying with the terms of the forbearance agreement will be necessary for the
Company to continue as a going concern. However, it is not possible to predict
whether any such arrangement could be obtained or negotiated or of the terms
there of.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
Note C. Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31 December 31,
-------- ------------
2000 1999
-------- ------------
<S> <C> <C>
Raw materials $ 3,635 $ 3,282
Finished goods 12,215 14,945
------- -------
$15,850 $18,227
Less LIFO reserve (436) (436)
------- -------
$15,414 $17,791
</TABLE>
<PAGE>
Note D. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
-------- -----------
2000 1999
-------- -----------
<S> <C> <C>
Term loan A, principal due in variable semi-annual
installments through 2005; variable rate interest $ 60,000 $ 60,000
Term loan B, principal due in variable semi-annual
installments through 2006; variable rate interest 55,000 55,000
Senior Subordinated Notes, due 2008; interest at 10% 150,000 150,000
Senior Discount Notes, due 2009; semiannual cash interest
payments at 14% beginning February 2004, less original issue
discount of $18,282 and $19,348 30,804 29,738
-------- --------
295,804 294,738
-------- --------
Less current maturities 295,804 294,738
-------- --------
$ -- $ --
</TABLE>
Note E. 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. Currently the Company
is attempting to terminate this agreement. As a result the utility company has
filed suit, however, the suit is in the discovery stages. Accordingly no
determination regarding the outcome of this suit can be made at this time.
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.
Note F. Restructuring Costs
In February, 2000 the Company entered into an agreement with North American
Rubber Thread Company to sell its Latex thread operation. In connection with
this proposed sale and other reorganization efforts the Company has reduced its
work force by 248 employees and has offered an early retirement program. The
early retirement program reduces the number of employees accumulating benefits
under the plan, resulting in a reduction of the projected benefit obligation of
$1,406. The Company has incurred a one time charge of $2,200, of which includes
$2,000 of severance cost and a net curtailment loss of $200 resulting from the
early retirement program. As of March 31, 2000, the Company has paid $871 of
severance cost.
Note G. Income Taxes
The Company's tax provision (benefit) for the quarter ended March 31, 2000
differs from the statutory rate, primarily as a result of a decrease in the
valuation allowance, the result of which is partially offset by disqualified
original issue discount and state taxes.
The Company's tax provision (benefit) for the quarter ended March 31, 2000
differs from the statutory rate, primarily as a result of the Company's Foreign
Sales Corporation, the result of which is partially offset by disqualified
original issue discount and state taxes.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's operating results in 1999 were not sufficient to meet certain
financial covenants under its bank credit facility. The credit agreement was
amended in January and October 1999 to reset certain covenants at levels the
Company believed it could achieve. These covenants governed the Consolidated
Leverage Ratio, the Consolidated Interest Coverage Ratio, and Minimum EBITDA. In
addition, revolving loan borrowings were conditioned on meeting a specified
Consolidated Leverage ratio. As part of these amendments, the interest rates
payable on term loan and revolving loan borrowings was increased and the payment
of the management fee due to Code, Hennessy & Simmons was conditioned on
satisfaction of certain leverage tests, which were not met in 1999. As of
December 31, 1999, the Company was not in compliance with the Capital
Expenditures covenant in its bank credit agreement, and the Company expects that
it will not be able to meet the Consolidated Interest Coverage Ratio,
Consolidated Fixed Charge Coverage Ratio, Maximum Leverage Ratio, and Minimum
EBITDA covenant in the bank credit agreement during 2000. To date, the lenders
under the bank credit agreement have not accelerated the Company's debt under
the credit agreement, and the Company is not in payment default. The lenders
have agreed to enter into a forbearance agreement for the credit facility. The
forbearance agreement expires on May 31, 2000, and would preclude it from
borrowing on its credit facility and require interest and bank fees to be paid
monthly. The Company is in negotiations to extend the forbearance agreement.
As long as the lenders forbear from accelerating the Company's obligations
under the bank credit facility, the Company expects that it would continue to
operate in default for the near term. Acceleration of obligations under the bank
credit facility would result in a default in the Company's $150 million 10%
Senior Subordinated Notes due 2008 and the $30.8 million 14% Senior Discount
Notes due 2009. The Company expects that it will be required to restructure its
outstanding debt and financing arrangements, in any case. There can be no
assurances the Company will be able to restructure its debt, or of the terms on
which any such restructuring may occur. The Company's senior subordinated
debentures and senior discount notes would suffer substantial impairment in a
restructuring.
In February 2000, the Company entered into an agreement with North American
Rubber Thread Company to sell its Latex thread operation. The agreement provides
for a selling price of $3.0 million, payable in a combination of cash and notes
to be determined before the close of the transaction. The estimated gain from
the sale will be approximately $1.0 million. The closing of the transaction is
expected to take place during the second quarter of 2000, with the final selling
price being subject to certain adjustments stated in the agreement. In
connection with the proposed sale of the Latex operation and other
reorganization efforts the Company has reduced its work force and has offered an
early retirement program to employees. The Company has incurred a one time
charge of $2.2 million in the first quarter for the work force reduction.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Net sales for the three months ended March 31, 2000 decreased $2.1 million,
or 4.8%, to $41.5 million from $43.6 million in the comparable prior year
period. The decrease is primarily related to a decrease in heavy denier spandex
sales and latex fiber sales offset by a slight increase in fine denier spandex
sales.
Gross margin for the three months ended March 31, 2000 decreased $1.0
million, or 7.1%, to $12.7 million from $13.7 million in the comparable prior
year period. The Company's gross margin as a percentage of net sales decreased
to 30.6% from 31.3%. The decrease in gross margin was primarily due to a
decrease in selling price of both fine and heavy denier spandex. The overall
downward trend in selling price in the fiber industry is related to several
factors. The oversupply of fabric in the apparel industry, that was originally
caused by the Asian economic crisis in 1998, continued to exist in 1999 and
resulted in price pressure from apparel manufactures. In addition over the past
several years the elastomeric fiber industry has increased production capacity
of Spandex and such increase has out paced demand.
Selling, general and administrative expenses for the three months ended
March 31, 2000 increased $0.1 million, or 2.3%, to $6.3 million from $6.2
million in the comparable prior year period. The expenses have remained
consistent in nature with the prior year.
Research and development expenses for the three months ended March 21, 2000
decreased $0.5 million, or 38.6%, to $0.7 from $1.2 million in the comparable
prior year period. Research and development expenses as a percentage of net
sales decreased to 1.7% from 2.7%. The decrease is attributed to the Company
refocusing and streamlining its research and development efforts. The Company
<PAGE>
has concentrated on projects that have a higher probability of success and will
result in new advances in chemistry and process capability.
Net interest expense for the three months ended March 31, 2000 increased
$0.7 million to $8.6 million from $7.8 million for the comparable prior year
period. The increase in interest expense was directly attributable to an
increase in the level of outstanding debt and interest rates from the comparable
prior year period.
Liquidity and Capital Resources
Cash used by operating activities was $2.2 million for the three months
ended March 31, 2000 as compared to $9.2 million for the comparable prior year
period. The reduction in cash used by operating activities for the three months
ended March 31, 2000 was due to increases in accounts payable, accretion on
discount notes, provision for losses on accounts receivables and decreases in,
inventory balances, prepaid taxes, the increase in accounts receivable from the
comparable prior year period. This reduction was partially offset by an
increase in operating losses, prepaid expenses, and decreases in depreciation,
the increase in accrued expenses from the comparable prior year period.
The average days sales outstanding for accounts receivable was
approximately 83 days for the three months ended March 31, 2000 compared to 63
days for the comparable prior year period. The increase in days sales
outstanding is due to increases in export sales which had extended payment
terms. Export sales represented 36.7% and 31.1% of total sales for the three
months ended March 31, 2000 and 1999, respectively.
Inventory balances decreased $2.4 million from December 31, 1999, primarily
due to an increase in units sold for fine denier spandex and latex. The note
payable increased $5.9 million from December 31, 1999, primarily due to an
interest payment due on the senior subordinated notes and working capital needs.
Capital expenditures were $0.8 million for the three months ended March 31, 2000
compared to $2.5 million in the comparable prior year period. Capital
expenditures for the three months ended March 31, 2000 consisted primarily of
operational expenditures.
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. Computer equipment and
software and devices with embedded technology that are time-sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
During the last several years, the Company has spent approximately $0.3
million to address issues related to the Y2K problem. All of these costs were
expensed as incurred and were funded by cash flow from operations. In 1999, the
Company installed a new computerized information system which was Y2K compliant
and did not require any significant additional costs attributable to the Y2K
issue. As of December 31, 1999, the Company had completed all aspects of its Y2K
readiness program and, through March 31, 2000, the Company has not experienced
any significant problems related to the Y2K issue.
<PAGE>
Forward-Looking Information
This Quarterly Report on Form 10-Q 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 need to restructure and refinance it's debt, 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 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's market risk disclosure set forth in the Company's Annual
Report on Form 10-K have not changed significantly through the three months
ended March 31, 2000.
Part II Other Information
Item 1. 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 (as discussed in
Item 7). 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 1999, the
Company purchased approximately $1.7 million of latex thread from the Joint
Venture for resale in the North American market.
<PAGE>
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
See Note B to the Financial Statements included herein for a discussion of
defaults under the Company's bank credit facility and forbearance
agreement.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 12, 2000 the Company filed a Form 8-K disclosing certain changes
in management effective as of January 1, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBE HOLDINGS, INC.
Date: May 12, 2000 By: /s/ LAWRENCE R. WALSH
--------------------------------
Lawrence R. Walsh
Vice President, Finance and
Administration and duly
authorized signatory on
behalf of the Registrant
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF GLODE HOLDINGS, INC. FOR THE QUARTER ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,261
<SECURITIES> 0
<RECEIVABLES> 40,828
<ALLOWANCES> 3,022
<INVENTORY> 15,414
<CURRENT-ASSETS> 60,817
<PP&E> 169,391
<DEPRECIATION> 85,766
<TOTAL-ASSETS> 154,599
<CURRENT-LIABILITIES> 337,318
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> (189,154)
<TOTAL-LIABILITY-AND-EQUITY> 154,599
<SALES> 41,480
<TOTAL-REVENUES> 41,480
<CGS> 28,799
<TOTAL-COSTS> 38,023
<OTHER-EXPENSES> (186)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,564
<INCOME-PRETAX> (4,921)
<INCOME-TAX> (2,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,921)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
