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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
[_] 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
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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: 14% Senior
Discount Notes due 2009, Series B
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. [X]
As of March 25, 2000, all of the aggregate market value of voting stock was
held by affiliates of the registrant.
As of March 25, 2000, the Registrant had 2,179,150 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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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.................................................................. 13
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.. 13
PART III
Item 10. Directors and Executive Officers...................................................... 14
Item 11. Executive Compensation................................................................ 16
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 18
Item 13. Certain Relationships and Related Transactions........................................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 22
Consolidated Financial Statements.............................................................. F-1
</TABLE>
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PART I
Item 1. Business
Globe Holdings, Inc. (together with its wholly owned subsidiaries, 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 Lexington Elastic (formerly 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 25% of total revenue during the 1999 fiscal year.
Spandex fiber, which accounted for 86.5% of the Company's 1999 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. See also Products
section for details on the Company's impending sale of its Latex thread
operation.
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 $114.9 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.
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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. See also Products section for
details on the Company's impending sale of its Latex thread operation.
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 86.5% of the Company's
sales in 1999, and latex thread accounted for the remaining 13.5%.
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.
In February 2000, the Company entered into an agreement with North American
Rubber Thread Company to sell its Latex thread operation. 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. See additional disclosures in Note 13 to the Consolidated Financial
Statements.
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 sells products to the stretch
woven market for use in suiting fabrics and outerwear linings.
Fine denier spandex fiber accounted for approximately 58.5% of the
Company's total 1999 sales, up from 34.8% in 1995. 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.
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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 Lexington Elastic (formerly 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 50.6% of 1999 sales, with sales to CKM
Industries, Inc., a manufacturer of circular knit fabrics, accounting for
11.3% of 1999 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 8.8% of 1999 sales. Export sales represented approximately 35.5%
of the Company's total sales in 1999. 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
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the Company's competitors have substantially greater financial, marketing,
manufacturing, distribution, sales and support resources, market share and
brand awareness than the Company.
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 1999, raw materials represented 38.4% of the Company's total cost of
sales and 25.6% 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 94.0% of its
total raw material purchases and 36.1% of its total cost of sales in 1999,
with BASF, Polyurethane Specialties Corp. and Ennar Latex, Inc. accounting for
49.9%, 19.7% and 7.3% 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 accomplished by vertical
spinning of the polymer from the top of a production cell to the bottom, where
the
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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. See also Products
section for details on the Company's impending sale of its Latex thread
operation.
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, that would have a material adverse effect on
the Company's operations, financial condition or competitive position.
During 1998 and 1999, respectively, the Company spent approximately $2.9
million and $2.7 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
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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 Transactions). This
indemnity expires on December 31, 2001.
Employees
As of March 25, 2000, the Company had approximately 768 employees. Of
these, approximately 152 are salaried employees and 616 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
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<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 (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 1998
and 1999, the Company purchased approximately $7.3 million and $1.7 million,
respectively, of latex thread from the Joint Venture for resale in the North
American market.
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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 25, 2000, 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,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales.................... $128,319 $152,603 $170,941 $171,093 $173,933
Cost of sales................ 97,182 110,609 115,099 111,609 116,111
-------- -------- -------- -------- --------
Gross margin............... 31,137 41,994 55,842 59,484 57,822
Selling, general and
administrative expenses..... 18,515 21,705 24,381 23,656 25,878
Research and development
costs....................... 2,260 2,533 2,633 4,263 3,748
-------- -------- -------- -------- --------
Operating income........... 10,362 17,756 28,828 31,565 28,196
Other income (expenses):
Interest, net................ (6,030) (5,285) (3,968) (14,154) (32,179)
Transaction compensation
expense..................... -- -- -- (5,778) --
Transaction commitment fee
expense..................... -- -- -- (1,000) --
Loss in investment in joint
venture (1)................. (643) -- -- -- --
Other income, etc............ 438 875 372 749 765
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
income.................... 4,127 13,346 25,232 11,382 (3,218)
Provision for income taxes... 1,718 4,784 8,383 3,956 3,193
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item.......... 2,409 8,562 16,849 7,426 (6,411)
Loss from write-off of
deferred financing cost, net
(2)......................... 1,294 -- 301 187 --
-------- -------- -------- -------- --------
Net income (loss).......... $ 1,115 $ 8,562 $ 16,548 $ 7,239 $ (6,411)
======== ======== ======== ======== ========
Other Financial Data:
Gross margin %............... 24.3% 27.5% 32.7% 34.8% 33.2%
EBITDA (3)................... $ 22,480 $ 28,960 $ 42,377 $ 43,563 $ 40,543
EBITDA margin % (4).......... 17.5% 19.0% 24.8% 25.5% 23.3%
Depreciation and
amortization................ $ 10,688 $ 9,676 $ 12,208 $ 14,429 $ 11,219
Capital expenditures......... $ 8,640 $ 5,806 $ 17,151 $ 35,805 $ 11,174
</TABLE>
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<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash................................. $3,143 $3,101 $ 1,947 $ 1,439 $ 3,564
Working capital (deficit)............ 5,052 4,263 19,453 20,686 (274,859)
Working capital as adjusted (5)...... 20,747 17,250 27,518 30,581 37,679
Property, plant and equipment, net... 53,499 50,122 57,950 83,329 84,775
Total assets......................... 92,824 91,329 105,133 147,036 156,346
Total debt........................... 66,698 50,615 56,917 302,233 318,271
Redeemable cumulative preferred
stock............................... 6,466 6,466 -- -- --
Stockholders' equity (deficit)....... 5,563 13,594 31,109 (179,822) (186,233)
</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 deferred 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.
During 1999 the spandex industry experienced increased pricing pressure due
to capacity increases and continued oversupply of fabric in the apparel
industry related to Asian economic difficulties that began in 1998. As a
result of these factors, 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
8
<PAGE>
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 Company is
negotiating to the specific terms of the forbearance agreement with its
lenders. The Company expects that the forbearance agreement would last until
May 31, 2000, and would preclude it from borrowing on its credit facility and
require interest and fees to be paid monthly.
As a result of the Company's default under its bank credit agreement, the
Company's auditors have included a going concern paragraph in their audit
opinion accompanying the 1999 financial statements. This "going concern"
paragraph indicates that the Company's financial statements have been prepared
assuming the Company will continue as a going concern and 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.
Results of Operations
The following table sets forth for the periods indicated information
derived from the consolidated 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,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 67.3% 65.2% 66.8%
Gross margin......................................... 32.7% 34.8% 33.2%
Selling, general and administrative expenses......... 14.3% 13.8% 14.9%
Research and development expenses.................... 1.5% 2.5% 2.1%
Operating income..................................... 16.9% 18.5% 16.2%
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales of the Company for 1999 were $173.9 million and $171.1 million
for 1998, representing an increase of 1.7%. An overall increase of 11.2% in
fine denier spandex sales was the result of a 25.4% increase in units combined
with an 11.3% decrease in price. Heavy denier spandex sales decreased by 7.0%,
with both volume and price down from last year. Latex sales decreased by 13.9%
with both volume and price down from last year. 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.
Gross margin for 1999 decreased $1.7 million, or 2.8%, to $57.8 million
from $59.5 million in 1998. The Company's gross margin as a percentage of net
sales decreased to 33.2% in 1999 from 34.8% in 1998. The decrease in gross
margin was primarily due to a decrease in pricing on fine denier spandex.
Selling, general and administrative expenses for the Company in 1999
increased $2.2 million, or 9.4%, to $25.9 million from $23.7 million in 1998.
As a percentage of net sales, selling, general and administrative expenses
increased to 14.9% in 1999 from 13.8% in 1998. The increase was primarily due
to increases in wages and property taxes related to the expansion of its fine
denier Spandex facility. Also, during 1998 the Company capitalized certain
selling, general and administrative expenses related to the above expansion.
Research and development expenses for the Company decreased $0.5 million,
or 12.1%, to $3.7 million from $4.3 million in 1998. Research and development
expenses for the Company as a percentage of net sales decreased to 2.1% in
1999 from 2.5% in 1998. The decrease is attributable to the Company refocusing
and
9
<PAGE>
streamlining its research and development efforts. The Company 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 Company in 1999 increased $18.0 million to
$32.2 million from $14.2 million in 1998. The increase in interest expense was
directly attributable to the recapitalization of the Company, which occurred
in the second quarter of 1998.
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 was 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.
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.
Liquidity and capital resources
Cash provided by operating activities was $18.6 million in 1997, $22.2
million in 1998 and $3.7 million in 1999. The increase in cash provided by
operating activities in 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 reduction in cash
provided by operating activities in 1999 was due to an increase in accounts
receivable offset by increases in accretion on discounted notes, deferred
income taxes, accounts payable and decreases in inventories, prepaid taxes and
prepaid expenses.
The average days sales outstanding for accounts receivable was
approximately 56, 57 and 82 days for the year ended 1997, 1998 and 1999,
respectively. The increase in days sales outstanding is due to increases 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 30.9% and 35.5% of total sales for the
year ended December 31, 1998 and 1999, respectively. Management has
established a plan to reduce the average days sales outstanding during 2000.
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 out paced demand. The Company's
inventories decreased from $18.4 million at December 31, 1998 to $17.8 million
at December 31, 1999. The decrease can be attributed to the increase in unit
sales volume of fine denier spandex over the prior year. For the year ended
December 31, 1999 unit sales volume of fine denier spandex increased by 25.4%
from the year ended December 31, 1998.
10
<PAGE>
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 project to increase fine denier spandex
capacity. The Company's accounts payable increased from $6.0 million at
December 31, 1998 to $6.3 million at December 31, 1999.
The Company's note payable increased $8.8 million from $2.5 million at
December 31, 1997 to $11.3 million at December 31, 1998. The increase was in
connection with the recapitalization transaction. The Company's note payable
increased $8.7 million from $11.3 million at December 31, 1998 to $20 million
at December 31, 1999. The increase was primarily due to interest payments due
on the senior subordinated notes and working capital needs.
Capital expenditures, including capital leases, were $17.2 million in 1997,
$35.8 million in 1998 and $11.1 million for 1999. Capital expenditures
incurred during 1997 and 1998 consisted primarily of expenditures for the
expansion of the Tuscaloosa facility and process improvements. Capital
expenditures incurred during 1999 consisted primarily of expenditures for a
new computerized information system. The Company estimates that based on
anticipated levels of operations its capital expenditures will be
approximately $7.0 million in each 2000 and 2001.
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, $25.9 million of which was
outstanding at March 25, 2000. The revolving loan facility is available for
general corporate and working capital purposes. As of December 31, 1999, the
Company was not in compliance with its Senior Credit Facility. The lenders
have agreed to enter into a forbearance agreement for the credit facility. The
Company is negotiating to the specific terms of the forbearance agreement with
its lenders. The Company expects that the forbearance agreement would last
until May 31, 2000, and would preclude it from borrowing on its credit
facility and require interest and bank fees to be paid monthly.
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
11
<PAGE>
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.
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.
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
Company is negotiating to the specific terms of the forbearance agreement with
its lenders. The Company expects that the forbearance agreement would last
until May 31, 2000, and would preclude it from borrowing on its credit
facility and require interest and bank fees to be paid monthly. As a result of
the Company's default under its bank credit agreement, the Company's auditors
have included a going concern paragraph in their audit opinion accompanying
the 1999 financial statements.
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 $29.7 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 could suffer
substantial impairment in a restructuring.
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 25, 2000, the Company has not
experienced any significant problems related to the Y2K issue.
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, 2000. 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 ability to restructure its debt, 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, 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, 1999 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,
1999 would approximate 98 basis points. Such an increase in interest rates
would increase the Company's interest expense by approximately $1.1 million.
The Company periodically enters into forward contracts with a third party
to sell Italian lire and Euro. Relative to foreign currency exposures existing
at December 31, 1999, a 10% unfavorable movement in the Italian lire and the
Euro rate would not significantly affect consolidated operating results,
financial position or cash flows.
Item 8. Financial Statements
See the attached Consolidated Financial Statements (pages F-1 through F-19)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
13
<PAGE>
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 25, 2000 are set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas A. Rodgers, III.. 54 Chairman
Richard F. Heitmiller... 71 Vice-Chairman, Acting Chief Executive Officer, Director
Horst Hesshaus.......... 55 Vice President, Operations
Lawrence R. Walsh....... 47 Vice President, Finance and Administration
Robert L. Bailey........ 62 Vice President, Sales and Marketing
Robert F. Rebello....... 31 Vice President, Technical Operations
William J. Girrier...... 43 Assistant Vice President of Marketing
Kevin T. Cardullo....... 40 Assistant Vice President of Finance and Accounting
Andrew W. Code.......... 41 Director
Peter M. Gotsch......... 35 Director
Edward M. Lhee.......... 29 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 served as
Chairman since 1945, and served as president from 1945 to 1992. On January 1,
2000, Thomas A. Rodgers, Jr. stepped down as Chairman and retired from the
Company.
Thomas A. Rodgers, III, was appointed Chairman on January 1, 2000. He
served as President of the Company from 1992 to 1999. 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.
Dr. Richard F. Heitmiller was appointed to Vice-Chairman, and Acting Chief
Executive Officer on January 1, 2000. Dr. 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.
Horst Hesshaus joined the Company in 1999 as the Company's Vice President
of Operations. From 1997 to 1998 he served as Director of Knitting at Malden
Mills. From 1994 to 1997 he served as Vice President of Operations at
Carapace, a Subsidiary of Lohman.
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.
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.
Robert F. Rebello was appointed to Vice President, Technical Operations on
December 7, 1999. Mr. Rebello joined the Company in 1992 and has served as a
Process Development Engineer, Process Development Manager, and Technical
Director. From 1991 to 1992, he worked as a Technical Sales Representative for
Exxon Company USA. Mr. Rebello has a BS in Chemical Engineering and an MBA
from Northeastern University.
14
<PAGE>
William J. Girrier has been appointed to Assistant Vice President of
Marketing in July 1999. Mr. Girrier has been with the Company since 1990 and
has served as Marketing Manager and 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.
Kevin T. Cardullo has been appointed to Assistant Vice President of Finance
and Accounting in July 1999. From 1992 to 1999 Mr. Cardullo has served as the
Company's Director of Finance and Accounting. 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.
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).
15
<PAGE>
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, 1999 (collectively, the
"Named Executive Officers") for services rendered to the Company in 1999.
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 ($) ($) (1) Option/SARs ($)
- ------------------ ---- ------- ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Rodgers, Jr.
(2).................... 1999 -- -- -- -- 93,500
Chairman 1998 514,237 -- -- -- --
1997 759,668 5,000 -- -- 198,796
Thomas A. Rodgers, III
(3).................... 1999 549,042 -- -- -- 70,258
President 1998 549,042 880,000 4,731,890 -- 70,258
1997 549,042 197,000 -- 11,250 70,158
Horst Hesshaus (4)...... 1999 106,510 -- -- -- --
Vice President,
Operations
Americo Reis (5)........ 1999 126,374 -- -- -- 580,195
Vice President,
Operations 1998 211,982 440,000 1,051,290 2,246.5 579,795
(Retired) 1997 211,982 72,500 -- 3,750 79,371
Lawrence R. Walsh (6)... 1999 218,889 -- -- -- 29,505
Vice President, Finance 1998 218,889 440,000 1,081,290 2,246.5 29,505
and Administration 1997 218,889 72,500 -- 3,750 29,338
Robert L. Bailey (7).... 1999 200,000 -- -- -- 328,677
Vice President, Sales 1998 200,000 440,000 1,051,290 2,246.5 328,677
and Marketing 1997 176,828 72,500 -- 3,750 25,022
</TABLE>
- --------
(1) Other Annual Compensation reflects the difference between exercised price
and fair market value of stock options.
(2) Thomas A. Rodgers, Jr. retired on January 1, 2000. All other compensation
reflects payments for consulting services in 1999 and reimbursement of
premiums for life insurance in 1997.
(3) All other compensation reflects reimbursement of premiums for life
insurance and Company contributions under a 401(k) plan.
(4) Joined the Company in February 1999.
(5) Retired in July 1999. All other compensation reflects reimbursement of
premiums for life insurance and Company contributions under a 401(k) plan.
(6) All other compensation reflects reimbursement of premiums for life
insurance and Company contributions under a 401(k) plan.
(7) All other compensation reflects reimbursement of premiums for life
insurance and Company contributions under a 401(k) plan.
No options were granted in fiscal 1999 to the Named Executive Officers.
16
<PAGE>
The following table sets forth information with respect to all options
exercised in fiscal 1999 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..... -- -- --/-- --
Horst Hesshaus............. -- -- --/-- --
Americo Reis............... -- -- 2,246.5/-- $400,000
Lawrence R. Walsh.......... -- -- 2,246.5/-- $400,000
Robert L. Bailey........... -- -- 2,246.5/-- $400,000
</TABLE>
Pension Plans
Globe maintains a Non-Qualified Pension Plan and a Deferred Compensation
Plan, pursuant to which each of Thomas A. Rodgers, III, 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
Horst Hesshaus............................. $ -- $ --
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.
Employment Agreements
Each of Messrs. Thomas A. Rodgers, III, 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
17
<PAGE>
least $549,000, $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 25, 2000
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
Horst Hesshaus.......................... -- -- -- --
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
Robert Rebello.......................... -- -- -- --
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
(11 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.
(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.
18
<PAGE>
(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.
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
19
<PAGE>
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. During 1999 and 1998 no
management fee was required to be paid to CHS. 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.
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
20
<PAGE>
Code Hennessy & Simmons will be entitled to appoint all of the directors of
the Company. The following individuals were 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.
Effective January 1, 2000 Thomas A. Rodgers Jr. resigned as a director.
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.
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.
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
21
<PAGE>
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.
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-19.
(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.
None.
22
<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>
23
<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.
10.16** Form of Second Amendment dated as of May 24, 1999 to the
Credit Agreement.
10.17** Form of Third Amendment and Waiver dated as of October
20, 1999 to the Credit Agreement.
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)
** Incorporated by reference to the quarterly report on Form 10-Q of Globe
Holdings Corp. filed on November 15, 1999.
+ Management contract or compensatory plan required to be filed by Item 601 of
Regulation S-K.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 14, 2000.
Globe Holdings, Inc.
/s/ Richard F. Heitmiller
By___________________________________
Richard F. Heitmiller
Vice-Chairman,
Acting 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 April 14, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Thomas A. Rodgers, III Chairman
___________________________________________
Thomas A. Rodgers, III
/s/ Richard F. Heitmiller Vice-Chairman, Acting Chief Executive
___________________________________________ Officer
Richard F. Heitmiller and Director
/s/ Lawrence R. Walsh Vice President, Finance and Administration
___________________________________________ (Principal Financial Officer)
Lawrence R. Walsh
/s/ Kevin T. Cardullo Assistant Vice President of Finance and
___________________________________________ Accounting (Principal Accounting Officer)
Kevin T. Cardullo
Andrew W. Code Director
___________________________________________
Andrew W. Code
/s/ Peter M. Gotsch Director
___________________________________________
Peter M. Gotsch
/s/ Edward M. Lhee Director
___________________________________________
Edward M. Lhee
</TABLE>
25
<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.
26
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... 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, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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.
The accompanying financial statements have been prepared assuming that
Globe Holdings, Inc. will continue as a going concern. As more fully described
in Note 2, the Company has not complied, and is not expected to be able to
comply in the future, with certain covenants of loan agreements and has a
working capital deficiency. Those conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments to reflect the possible future effects of the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
Ernst & Young LLP
Providence, Rhode Island
March 17, 2000, except for
Note 2, as to which the
date is April 5, 2000
F-2
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
--------------------
1998 1999
--------- ---------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 1,439 $ 3,564
Accounts receivable, net of allowance for doubtful accounts
of $2,736 and $3,482 at December 31, 1998 and 1999,
respectively................................................ 22,510 37,136
Inventories (Note 3)......................................... 18,380 17,791
Prepaid expenses and other assets............................ 439 251
Prepaid taxes................................................ 5,321 2,303
Deferred income taxes (Note 9)............................... 3,092 --
--------- ---------
Total current assets....................................... 51,181 61,045
Property, plant and equipment (Note 1):
Land and land improvements................................... 942 942
Buildings and building improvements.......................... 43,256 44,329
Manufacturing equipment...................................... 103,234 111,689
Furniture and equipment...................................... 2,166 7,092
Autos and trucks............................................. 319 319
Construction in progress..................................... 7,519 4,239
--------- ---------
157,436 168,610
Less accumulated depreciation and amortization................ (74,107) (83,836)
--------- ---------
Net property, plant and equipment............................. 83,329 84,774
Deferred income taxes (Note 9)................................ 1,297 --
Cash surrender value of life insurance........................ 1,076 913
Deferred financing costs, net of amortization of $638 and
$2,128 at December 31, 1998 and 1999, respectively (Note 4).. 10,153 9,613
--------- ---------
Total assets............................................... $ 147,036 $ 156,345
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 6,012 $ 6,278
Accrued expenses:
Workers' compensation insurance (Note 10).................. 929 505
Interest................................................... 7,773 8,029
Other...................................................... 4,047 4,990
Lease obligations due within one year (Note 5)............... 34 1,364
Note payable (Note 4)........................................ 11,300 20,000
Long-term debt obligations due within one year (Note 4)...... -- 115,000
Senior subordinated notes.................................... -- 150,000
Senior discount notes........................................ -- 29,738
--------- ---------
Total current liabilities................................ 30,095 335,904
Other long-term liability..................................... 1,774 --
Long-term debt (Note 4)....................................... 115,000 --
Senior Subordinated Notes..................................... 150,000 --
Senior Discount Notes......................................... 25,855 --
Long-term lease obligation (Note 5)........................... 44 2,169
Other long-term post retirement liability (Note 8)............ 4,090 4,505
Stockholders' 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........................................... 22 22
Paid-in capital.............................................. 44,017 44,017
Retained deficit............................................. (223,861) (230,272)
--------- ---------
Total stockholders' deficit.............................. (179,822) (186,233)
--------- ---------
Total liabilities and stockholders' deficit.............. $ 147,036 $ 156,345
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $170,941 $171,093 $173,933
Cost of sales.................................... 115,099 111,609 116,111
-------- -------- --------
Gross margin..................................... 55,842 59,484 57,822
Selling, general and administrative expenses..... 24,381 23,656 25,878
Research and development expenses................ 2,633 4,263 3,748
-------- -------- --------
Operating income................................. 28,828 31,565 28,196
Other income (expense):
Interest, net.................................. (3,968) (14,154) (32,179)
Transaction compensation expense............... -- (5,778) --
Transaction commitment fee expense............. -- (1,000) --
Other income, net.............................. 372 749 765
-------- -------- --------
Income (loss) before income taxes and
extraordinary item.............................. 25,232 11,382 (3,218)
Provision for income taxes (Note 9).............. 8,383 3,956 3,193
-------- -------- --------
Income (loss) before extraordinary item.......... 16,849 7,426 (6,411)
Extraordinary item (Note 4):
Loss from write-off of deferred financing cost,
net of tax benefit of $177 and $112 in 1997
and 1998, respectively........................ 301 187 --
-------- -------- --------
Net income (loss)............................ $ 16,548 $ 7,239 $(6,411)
======== ======== ========
</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,
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)
Net loss........ (6,411)
--------- -------- ----------- ------ --- ----- ----- ----- ------- ---------
Balances,
December 31,
1999............ 2,179,150 -- -- 29,100 $22 $ -- $ -- $ -- $44,017 $(230,272)
========= ======== =========== ====== === ===== ===== ===== ======= =========
<CAPTION>
Treasury Stock
------------------
Common Stock Total
------------------ Unearned Stockholders'
Class A Class B Compensation Equity (Deficit)
-------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
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)
Net loss........ (6,411)
-------- --------- ------------ ----------------
Balances,
December 31,
1999............ $ -- $ -- $ -- $(186,233)
======== ========= ============ ================
</TABLE>
See accompanying notes.
F-5
<PAGE>
GLOBE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Operating Activities
Net income (loss)............................... $ 16,548 $ 7,239 $ (6,411)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 9,417 11,111 11,219
Amortization of unearned compensation.......... 2,791 3,318 --
Accretion on discounted note................... -- 1,473 3,883
Extraordinary charge--write-off of deferred
finance cost.................................. 478 299 --
Provision for losses on accounts receivable.... 691 1,393 1,116
Deferred income tax provision (benefit)........ (2,455) 882 4,389
Other post-retirement benefits charge.......... 515 600 415
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable............................ (5,821) 263 (15,701)
Inventories.................................... (1,952) (4,616) 589
Prepaid expenses and other assets.............. (38) 45 188
Refundable income taxes........................ -- (4,983) --
Accounts payable............................... 263 (1,428) 266
Accrued expenses............................... (357) 7,922 734
Taxes (payable) receivable..................... (1,178) (1,028) 3,018
Other long-term postretirement liability....... (274) (272) --
-------- --------- --------
Net cash provided by operating activities....... 18,628 22,218 3,705
Investing Activities
Capital expenditures............................ (17,101) (33,968) (8,757)
Note receivable collected from (issued to)
stockholders................................... (15) 278 --
-------- --------- --------
Net cash used in investing activities........... (17,116) (33,690) (8,757)
Financing Activities
Net change in note payable...................... (275) 8,825 8,700
Borrowing on long-term debt..................... 15,000 119,400 --
Deferred financing costs........................ (403) (10,791) (950)
Principal payments on long-term debt............ (8,375) (58,775) --
Principal payments on capital lease obligation.. (97) (52) (736)
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 ......... 596 (149) 163
Payment of dividends............................ (1,112) (50) --
-------- --------- --------
Net cash provided by (used in) financing
activities..................................... (2,666) 10,964 7,177
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (1,154) (508) 2,125
Cash and cash equivalents at beginning of year.. 3,101 1,947 1,439
-------- --------- --------
Cash and cash equivalents at end of year........ $ 1,947 $ 1,439 $ 3,564
======== ========= ========
Supplemental schedule of cash flow information:
Noncash investing activities:
Equipment acquired under capital leases....... $ 50 $ 1,837 $ 2,417
======== ========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
(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%, 9%,
and 11% respectively, of total sales for the year ended December 31, 1997,
1998, and 1999. Also, for the years ended December 31, 1997, 1998, and 1999,
sales to five customers totaled 36%, 34%, and 39%, respectively.
At December 31, 1998 and 1999, 54% and 58%, respectively, of total
receivables were from foreign customers. Balances owed from one customer
totaled 8% and 15%, respectively, of total receivables at December 31, 1998
and 1999. Also at December 31, 1998 and 1999, 39% and 47% respectively, of
total receivables was from five customers. Of these five customers, three are
foreign, which represent 26% and 30% of the total receivables balance at
December 31, 1998 and 1999, 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, 1997, 1998 and 1999, the Company recorded depreciation expense of $9,322,
$10,426, and $9,729, respectively. The Company capitalizes direct materials,
labor and certain overhead costs for self-constructed assets. In 1997, 1998,
and 1999, the Company capitalized interest costs of $506, $1,194 and $839,
respectively. Total interest costs in 1997, 1998 and 1999 amounted to $4,573,
$15,348, and $33,018, respectively.
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. Deferred tax assets may
be reduced by a valuation allowance to reflect the uncertainty associated with
the realization of such assets.
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, accounts payable, long-term
debt, notes payable, interest rate swap agreements 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 4).
F-8
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Exchange Contracts
Foreign currency exchange contracts are used to minimize exposure on
certain foreign currency denominated assets. Gains and losses from currency
rate changes on these contracts are recorded currently in income and generally
offset gains and losses on the foreign currency denominated assets (see Note
4).
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,
2000. 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. Going Concern
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 5, 2000, the Company was notified by its senior lenders that they
intended to issue a 60-day forbearance notice (subject to final documentation)
indicating that the creditors will not exercise their right to call the debt
until May 31, 2000. As a result of these violations 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 April
5, 2000, the Company has $5.4 million of cash on hand and has been meeting its
normal cash needs. In addition, management expects the Company to generate
sufficient cash to meet its cash requirements 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 arrangements could be obtained or negotiated or of
the terms there of.
F-9
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying 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.
3. Inventories
At December 31, 1998 and 1999, inventories totaling approximately $6,530
and $7,711 (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 $1,247
and $98 in 1997; $808 and $(439) in 1998 and $436 and $(372) in 1999.
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
----------------
1998 1999
------- -------
<S> <C> <C>
Raw materials........................................... $ 2,688 $ 3,282
Finished goods.......................................... 16,500 14,945
------- -------
19,188 18,227
Less LIFO reserve....................................... (808) (436)
------- -------
$18,380 $17,791
======= =======
</TABLE>
4. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
----------------
1998 1999
-------- -------
<S> <C> <C>
Term Loan A, principal due in variable semi-annual
installments through 2005; variable interest rates based on
the base rate (9.07%-9.57% at December 31, 1999) (See (a)
below)....................................................... $ 60,000 $60,000
Term Loan B, principal due in variable semi-annual
installments through 2006; variable interest rates based on
the base rate (9.57%-10.07% at December 31, 1999) (See (a)
below)....................................................... 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 (See (b) below)...... 25,855 29,738
-------- -------
290,855 294,738
Less current maturities....................................... -- 294,738
-------- -------
$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 (subject to certain leverage requirements). The Credit Facility
allows for letters of credit to the extent of the unused portion of the
working capital facility. At December 31, 1999 the Company had $2,000
outstanding under letters of credit. Of the $2,000 outstanding under
letters of credit, $1,000 is to secure the Company's workers' compensation
self insurance program (see Note 10), and $1,000 is to secure a lease
obligation (see Note 5).
F-10
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Borrowings under Term Loan A and B bear interest at either the bank's prime
rate plus a margin of 2.25% and 2.75%, respectively, or the applicable
Eurodollar rate plus a margin of 3.25% and 3.75%, 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.
(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 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)......... 19,348
-------
$29,738
=======
</TABLE>
Cash paid for interest, net of amounts capitalized amounted to $4,192,
$4,344, and $27,301 in 1997,1998, and 1999, 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, 1999, 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, 1999 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.
From time to time, the Company enters into foreign currency exchange
contracts to reduce the exposure associated with certain foreign currency
transactions. These contracts generally have maturities of twelve months or
less, and are regularly renewed to provide continuing coverage throughout the
year. The Company does not engage in currency speculation. Foreign exchange
gains and losses included in income have not been material.
The amount of outstanding foreign exchange contracts was approximately
$7,677 and $2,169 at December 31, 1999 and 1998, respectively.
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
F-11
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Facility. There is no priority established for the three components (Term Loan
A, Term Loan B and Revolver) of the Credit Facility.
5. Lease Commitments
The Company leases certain assets under capital leases. At December 31,
1998 and 1999, leased assets with a cost of approximately $429 and $4,620,
respectively, have been included in property, plant and equipment. Accumulated
amortization of assets under capital leases was approximately $343 and $623 at
December 31, 1998 and 1999, respectively. Future minimum lease payments
relating to the equipment under the capital leases are $1,655, $1,633, and
$710 for the years 2000, 2001, and 2002, respectively. Interest imputed in
these future minimum lease payments amounted to $465 at December 31, 1999.
At December 31, 1999 the Company had outstanding letters of credit of
$1,000 to secure the Company's lease obligation.
6. Stockholders' 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.
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, and 1999 the amount of
dividends in arrears aggregated $1,698, and $6,010, respectively.
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.
F-12
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the activity under the Plan for the years
ended December 31, as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- ---------------------- ----------------------
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 45,000 $3.00 6,739 $3.00
Granted................. 22,500 3.00 0 0 0 0
Exercised............... 0 0 38,261 3.00 0 0
------ ----- ------ ----- ----- -----
Outstanding at December
31..................... 45,000 $3.00 6,739 $3.00 6,739 $3.00
====== ===== ====== ===== ===== =====
Options exercisable at
December 31............ 22,500 $3.00 6,739 $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 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 $5,085 of unearned compensation in 1997 of which $2,791 was earned
and recognized as compensation expense in 1997. 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, 1999, is eight 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 1999, there was no
impact on the determination of consolidated net income during these years.
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>
F-13
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Reserved
As of December 31, 1999, 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. 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.
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. During 1998 and 1999 the Company did not meet the
leverage ratio criteria. Accordingly, no management fee was required to be
paid to CHS.
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.
F-14
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
--------------
1998 1999
------ ------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year....................... $6,591 $7,386
Service cost.................................................. 186 355
Interest cost................................................. 264 442
Actuarial (gain) loss......................................... 549 (435)
Benefits paid................................................. (204) (149)
Effect of distributions (1)................................... -- (1,050)
------ ------
Benefit obligation at end of year............................. $7,386 $6,549
====== ======
Change in Plan Assets
Fair value of plan assets at beginning of year................ $6,679 $7,476
Actual return on plan assets.................................. 1,001 1,252
Employer contribution......................................... -- 2
Benefits paid................................................. (204) (149)
Effect of distributions (1)................................... -- (1,001)
------ ------
Fair value of plan assets at end of year...................... $7,476 $7,580
====== ======
Funded status................................................... $ 90 $1,031
Unrecognized transition amount.................................. 36 11
Unrecognized net actuarial gain................................. (185) (1,022)
Unrecognized prior service cost................................. 176 138
------ ------
Prepaid pension cost............................................ $ 117 $ 158
====== ======
</TABLE>
- --------
(1) During 1999, 26 eligible plan participants elected to receive full
distribution payments as permitted under the Company's pension plans.
<TABLE>
<CAPTION>
Pension
Benefits
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Components of net periodic pension benefit cost
Service cost............................................ $303 $320 $355
Interest cost on PBO.................................... 478 453 442
Actual return on assets................................. (454) (554) (543)
Amortization transition amount.......................... 22 64 23
Amortization of prior service cost...................... 26 49 27
---- ---- ----
Net periodic benefit cost............................... $375 $332 $304
==== ==== ====
</TABLE>
Assumptions used in calculating the pension expense and the accumulated
benefit obligation, were as follows:
<TABLE>
<CAPTION>
December 31
---------------
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Discount rate............................................. 7.5% 7.0% 6.75%
Rate of increase in compensation levels................... 5.5% 5.5% 5.0%
Expected long-term rate of return on assets............... 7.5% 7.5% 7.5%
</TABLE>
F-15
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $384 in
1997; $395 in 1998, and $405 in 1999.
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 cost as of
December 31:
<TABLE>
<CAPTION>
Postretirement
Benefits
----------------
1998 1999
------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $ 5,660 $ 5,364
Service cost................................................ 299 330
Interest cost............................................... 342 364
Actuarial gain.............................................. (639) (72)
Benefits paid............................................... (298) (250)
Changes in assumptions...................................... -- (122)
------- -------
Benefit obligation at end of year........................... $ 5,364 $ 5,614
======= =======
Change in plan assets
Fair value of plan assets at beginning of year.............. $ -- $ --
Contribution by employer.................................... 298 251
Benefits paid............................................... (298) (251)
------- -------
Fair value of plan assets at end of year.................... $ -- $ --
======= =======
Funded status............................................... $(5,364) $(5,614)
Unrecognized transition amount.............................. 2,755 2,558
Unrecognized net actuarial gain............................. (1,481) (1,449)
------- -------
Accrued postretirement cost................................. $(4,090) $(4,505)
======= =======
</TABLE>
<TABLE>
<CAPTION>
Postretirement
benefits
-------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Components of net periodic postretirement benefit cost
Service cost............................................. $ 273 $ 299 $ 330
Interest cost............................................ 365 342 364
Amortization transition amount........................... 197 197 197
Recognized net actuarial gain............................ (192) (238) (200)
----- ----- -----
Net periodic benefit cost................................ $ 643 $ 600 $ 691
===== ===== =====
</TABLE>
The Company's policy is to fund postretirement benefit as claims are paid.
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.0% in 1998 and 8.0% in 1999, and a health care cost trend
rate of 9.0%, declining each year to 5.0% 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
$479 and the annual net periodic postretirement benefit cost by approximately
$84.
F-16
<PAGE>
GLOBE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1999
------ ------ -------
<S> <C> <C> <C>
Deferred tax liabilities:
Pension.......................................... $ 126 $ 112 $ 59
Depreciation..................................... 249 676 3,857
------ ------ -------
Total deferred tax liabilities................. 375 788 3,916
Deferred tax assets:
Other postretirement benefits.................... 1,519 1,581 1,694
Inventories...................................... 639 1,053 1,774
Bad debts........................................ 759 1,057 1,309
Deferred compensation............................ 1,330 -- 263
Accrued liabilities.............................. 732 594 323
Interest......................................... -- 483 1,627
Other, net....................................... 667 409 625
------ ------ -------
Total deferred tax assets...................... 5,646 5,177 7,615
Valuation allowance.......................... -- -- (3,699)
------ ------ -------
Net deferred tax assets............................ $5,271 $4,389 $ 0
====== ====== =======
</TABLE>
The company established a valuation allowance of $3,699 during 1999 to
reflect the uncertainty associated with the realization of deferred tax
assets.
The following table sets forth selected data with respect to the Company's
provision for income taxes (excluding extraordinary items) for the years
ended:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Current:
Federal........................................ $ 9,090 $2,587 $(1,268)
State.......................................... 1,748 487 72
------- ------ -------
10,838 3,074 (1,196)
Deferred:
Federal........................................ (2,034) 577 3,753
State.......................................... (421) 305 636
------- ------ -------
(2,455) 882 4,389
------- ------ -------
Total........................................ $ 8,383 $3,956 $ 3,193
======= ====== =======
</TABLE>
F-17
<PAGE>
GLOBE HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense (excluding extraordinary items) is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ---------------
Amount % Amount % Amount %
------ ---- ------ ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate............ $8,831 35.0% $3,870 34.0% $(1,094) 34.0%
State income tax expense, less
federal tax benefit............. 858 3.4 522 4.6 110 (3.4)
Foreign sales corporation........ (775) (3.0) (790) (6.9) (145) 4.5
Disqualified original issue
discount........................ -- -- 93 0.8 245 (7.7)
Change in valuation allowance.... (428) (1.7) -- -- 3,699 (115.0)
Other, net....................... (103) (0.4) 261 2.3 378 (11.7)
------ ---- ------ ---- ------- ------
Total........................ $8,383 33.3% $3,956 34.8% $ 3,193 (99.3)%
====== ==== ====== ==== ======= ======
</TABLE>
Cash paid for income taxes amounted to $11,833, $9,057, and $449 in 1997,
1998 and 1999, respectively.
10. 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, 1998 and 1999, the Company had outstanding letters of
credit of $1,000 to secure the Company's workers' compensation self-insurance
program.
11. 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, 1998 and 1999, respectively, the Company
purchased inventory totaling $7,251 and $1,724 from the Joint Venture.
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>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
United States................................. $123,077 $118,225 $112,260
Europe........................................ 23,590 29,257 34,155
Asia.......................................... 6,838 5,646 11,259
Central and South America..................... 3,590 4,620 4,439
Other......................................... 13,846 13,345 11,820
-------- -------- --------
Total sales................................... $170,941 $171,093 $173,933
======== ======== ========
</TABLE>
F-18
<PAGE>
GLOBE HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Subsequent Event
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 $3,000, 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 $1,000. 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 expects to incur a one
time charge of $1,900, excluding the effects of the early retirement program,
in the first quarter for the work force reduction.
F-19
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GLOBE HOLDINGS, INC.
(Parent Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-------------------
ASSETS 1998 1999
------ --------- --------
(In thousands)
<S> <C> <C> <C>
Current assets
Prepaid taxes........................................ $ 11 33
--------- --------
Total current assets............................... 11 33
Deferred income taxes................................ 478 --
Deferred financing costs, net of amortization........ 721 677
--------- --------
Total Assets....................................... $ 1,210 710
========= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C>
Net deficit of wholly-owned subsidiaries............... $ 155,177 157,205
Senior discount notes.................................. 25,855 29,738
Stockholders' equity
Preferred stock...................................... -- --
Common stock......................................... 22 22
Paid-in capital...................................... 44,017 44,017
Retained deficit..................................... (223,861) (230,272)
--------- --------
Total stockholders' deficit........................ (179,822) (186,233)
--------- --------
Total liabilities and stockholders' deficit........ $ 1,210 710
========= ========
</TABLE>
See accompanying notes.
F-20
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED
GLOBE HOLDINGS, INC.
(Parent Company)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
July 31, 1998 to
December 31, 1998
(Restated) 1999
----------------- -------
(In thousands)
<S> <C> <C>
Interest expense.................................... $(1,489) $(3,928)
------- -------
Loss before income taxes and equity in net loss of
Globe Manufacturing Corp........................... (1,489) (3,928)
Expense (benefit) for income taxes.................. (489) 455
------- -------
(1,000) (4,383)
Equity in net loss of Globe Manufacturing Corp...... (3,331) (2,028)
------- -------
Net loss............................................ $(4,331) $(6,411)
======= =======
</TABLE>
See accompanying notes.
F-21
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--Continued
GLOBE HOLDINGS, INC.
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
July 31, 1998 to
December 31,
1998 1999
---------------- ----
(In thousands)
<S> <C> <C>
Net cash from operating activities....................... $ -- $--
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.............................. $ -- $--
======== ====
</TABLE>
See accompanying notes.
F-22
<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 deficit
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. The 1998 condensed
statements of operations has been restated to include the loss of the
Company's unconsolidated subsidiaries. Parent-company-only financial
statements should be read in conjunction with the Company's consolidated
financial statements.
The financial statements of the parent company represent the period since
the Recapitalization Transaction (July 31, 1998) to December 31, 1998 and the
year 1999. 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.......................................... 19,348
-------
$29,738
=======
</TABLE>
4. Income Taxes
The Company established a valuation allowance of $1,627 during 1999 to
reflect the uncertainty associated with the realization of deferred tax
assets.
F-23
<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, 1999
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $2,736 $1,107 $361(1) $3,482
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
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
F-24
<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,
1998 AND DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,439 3,564
<SECURITIES> 0 0
<RECEIVABLES> 25,246 40,618
<ALLOWANCES> 2,736 3,482
<INVENTORY> 18,380 17,791
<CURRENT-ASSETS> 51,181 61,045
<PP&E> 157,436 168,610
<DEPRECIATION> 74,107 83,836
<TOTAL-ASSETS> 147,036 156,345
<CURRENT-LIABILITIES> 30,095 335,904
<BONDS> 304,007 318,271
0 0
0 0
<COMMON> 22 22
<OTHER-SE> (179,844) (186,255)
<TOTAL-LIABILITY-AND-EQUITY> 147,036 156,345
<SALES> 171,093 173,933
<TOTAL-REVENUES> 171,093 173,933
<CGS> 111,609 116,111
<TOTAL-COSTS> 139,528 145,737
<OTHER-EXPENSES> 6,029 (765)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,154 32,179
<INCOME-PRETAX> 11,382 (3,218)
<INCOME-TAX> 3,956 3,193
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 187 0
<CHANGES> 0 0
<NET-INCOME> 7,239 (6,411)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
