-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TzNevPHdw4EExcG6YyCqU1RRjvx35QLV72HVEfmAaVoJRYmGulMp84kfKYHN5bOV j5EGW/WrINf21YBhtE+68A== 0000950131-99-003151.txt : 19990517 0000950131-99-003151.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950131-99-003151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBE HOLDINGS INC CENTRAL INDEX KEY: 0000866395 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 042017769 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-64669 FILM NUMBER: 99624216 BUSINESS ADDRESS: STREET 1: 456 BEDFORD STREET CITY: FALL RIVER STATE: MA ZIP: 02720 BUSINESS PHONE: 5086743585 MAIL ADDRESS: STREET 1: 456 BEDFORD STREET CITY: FALL RIVER STATE: MA ZIP: 02720 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD YEAR ENDED MARCH 31, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ________________. Commission file number 333-64669 GLOBE HOLDINGS, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2017769 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 456 Bedford Street, Fall River, Massachusetts 02720 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 508/674-3585 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of March 31, 1999, the Registrant had 2,179,150 shares of Common Stock outstanding. TABLE OF CONTENTS PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1999 (Unaudited) and December 31, 1998.....................................................1 Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 1999 and March 31, 1998......................2 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1999 and March 31, 1998......................3 Notes to Condensed Consolidated Financial Statements (Unaudited) - March 31, 1999............................................................4 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations..................................................6 Item 3. Quantitative and Qualitative Disclosure about Market Risk..............8 PART II OTHER INFORMATION Item 1. Legal Proceedings......................................................8 Item 2. Changes in Securities and Use of Proceeds..............................9 Item 3. Defaults Upon Senior Securities........................................9 Item 4. Submission of Matters to a Vote of Security Holders....................9 Item 5. Other Information......................................................9 Item 6. Exhibits and Reports on Form 8-K.......................................9 PART I ------ GLOBE HOLDINGS, INC Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited) (Note A) March 31, December 31, 1999 1998 --------- ------------ Assets Current assets: Cash and cash equivalents $ 901 $ 1,439 Accounts receivable, net 31,195 22,510 Inventories 16,405 18,380 Prepaid taxes and other assets 9,340 8,852 --------- --------- Total current assets 57,841 51,181 Property, plant and equipment 161,035 157,436 Less accumulated depreciation (76,716) (74,107) --------- --------- Net property, plant and equipment 84,319 83,329 Other assets 12,268 12,526 --------- --------- Total assets $ 154,428 $ 147,036 ========= ========= Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable $ 4,521 $ 6,012 Accrued interest expense 3,925 7,773 Other current liabilities 8,099 5,010 Note payable 22,500 11,300 --------- --------- Total current liabilities 39,045 30,095 Other long-term liabilities 7,149 5,908 Long-term debt 112,225 115,000 Senior subordinated notes 150,000 150,000 Senior discount notes 26,781 25,855 Stockholders' equity (deficit) Common stock, Class A, voting, $.01 par value 5,000,000 shares authorized 22 22 Paid in capital 44,017 44,017 Retained earnings (224,811) (223,861) --------- --------- Total stockholders' equity (deficit) (180,772) (179,821) --------- --------- Total liabilities and stockholders' equity (deficit) $ 154,428 $ 147,036 ========= =========
See notes to condensed consolidated financial statements. -1- GLOBE HOLDINGS, INC Condensed Consolidated Statements of Income (Dollars in thousands)
(Unaudited) (Unaudited) March 31, March 31, 1999 1998 --------- --------- Net Sales $ 43,584 $ 46,424 Cost and expenses: Cost of sales 29,929 30,064 Selling, general & administrative expenses 6,170 6,251 Research & development expenses 1,155 1,070 Interest, net 7,837 928 Miscellaneous (50) (639) --------- --------- 45,041 37,674 --------- --------- Income (loss) before incomes taxes (1,457) 8,750 Provision (benefit) for income taxes (507) 3,282 --------- --------- Net income/(loss) $ (950) $ 5,468 ========= =========
See notes to condensed consolidated financial statements. -2- GLOBE HOLDINGS, INC Condensed Consolidated Statements of Cash Flows (Dollars in thousands)
Three Months Ending -------------------------- (Unaudited) (Unaudited) March 31, March 31, 1999 1998 ----------- ----------- Cash from (used in) operations ($9,178) $10,851 Investing Activities Capital expenditures (2,450) (7,107) Financing Activities Net change in note payable 11,200 (2,475) Principal payments on long-term debt - (1,875) Other (110) (66) -------- ------- 11,090 (4,416) -------- ------- Net decrease in cash and cash equivalents (538) (672) Cash and cash equivalents at beginning of year 1,439 1,947 -------- ------- Cash and cash equivalents at end of period $ 901 $ 1,275 ======== =======
See notes to condensed consolidated financial statements. -3- Globe Holdings, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Dollars in thousands) March 31, 1999 Note A. Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1998. Note B. Inventories The components of inventory consist of the following:
March 31 December 31, -------- ------------ 1999 1998 -------- ------------ Raw materials $ 2,813 $ 2,688 Finished goods 14,400 16,500 ------- ------- $17,213 $19,118 Less LIFO reserve (808) (808) ------- ------- $16,405 $18,380
-4- Note C. Debt Long-term debt consists of the following:
March 31 December 31 -------- ----------- 1999 1998 -------- ----------- Term loan A, principal due in variable semi-annual installments through 2005; variable rate interest $ 60,000 $ 60,000 Term loan B, principal due in variable semi-annual installments through 2006; variable rate interest 55,000 55,000 Senior Subordinated Notes, due 2008; interest at 10% 150,000 150,000 Senior Discount Notes, due 2009; semiannual cash interest payments at 14% beginning February 2004, less original issue discount of $23,231 and $22,305 26,781 25,855 -------- -------- Less current maturities 291,781 290,855 2,775 - -------- -------- $289,006 $290,855
On March 23, 1999 the Company exchanged all of its outstanding 14% Senior Discount Notes due 2009 for an equal amount of its Series B 14% Senior Discount Notes due 2009. On March 23, 1999 the Company's wholly-owned subsidiary, Globe Manufacturing Corp., exchanged all of its outstanding 10% Senior Subordinated Notes due 2008 for an equal amount of its Series B 10% Senior Subordinated Notes due 2008. Note D. Segment Information Globe Holdings, Inc., together with its subsidiaries (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.
March 31 March 31, -------- --------- 1999 1998 -------- --------- United States................. $30,405 $32,425 Europe........................ 7,472 8,308 Asia.......................... $ 2,749 $ 1,612 Central and South America..... 553 865 Other......................... 2,405 3,214 ------- ------- Total Sales................... $43,584 $46,424 ======= =======
-5- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In 1998, the Company entered into a recapitalization transaction obtaining additional debt and equity whereby Code, Hennessy & Simmons III, L.P. obtained a majority interest in the Company and certain continuing shareholders retained a minority interest. Assets and liabilities of the Company were carried at historical cost bases and distributions to certain Company shareholders were recorded as a distribution from retained earnings. The recapitalization transaction was financed with $50 million of equity and $295 million of debt. As a result of the transaction, the aggregate indebtedness for borrowed money and interest expense increased and shareholders' equity decreased. Results of Operations Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Net sales for the three months ended March 31, 1999 decreased $2.8 million, or 6.1%, to $43.6 million from $46.4 million in the comparable prior year period. The decrease is primarily related to a decrease in latex fiber sales, while fine denier and heavy denier spandex sales had slight decreases and increases, respectively, that offset each other. Gross margin for the three months ended March 31, 1999 decreased $2.7 million, or 16.5%, to $13.7 million from $16.4 million in the comparable prior year period. The Company's gross margin as a percentage of net sales decreased to 31.3% from 35.2%. The decrease in gross margin was primarily due to foreign pricing pressure on fine denier spandex and a decrease in latex fiber sales volume. Selling, general and administrative expenses for the three months ended March 31, 1999 decreased $0.1 million, or 1.3%, to $6.2 million from $6.3 million in the comparable prior year period. As a percentage of net sales, selling, general and administrative expenses increased to 14.2% from 13.5%. Research and development expenses for the three months ended March 31, 1999 increased $0.1 million, or 7.9%, to $1.2 from $1.1 million. Research and development expenses as a percentage of net sales increased to 2.7% from 2.3%. The increase is attributed to the development of a new heavy denier spandex fiber. Net interest expense for the three months ended March 31, 1999 increased $6.9 million to $7.8 million from $0.9 million for the comparable prior year period. The increase in interest expense was directly attributable to the recapitalization of the Company. Liquidity and Capital Resources Cash used by operating activities was $9.2 million for the three months ended March 31, 1999 as compared to cash provided by operating activities of $10.9 million for the comparable prior year period. The reduction in cash provided by operating activities for the three months ended March 31, 1999 was due to increases in interest expense, accounts receivable, prepaid expenses, prepaid taxes, and a decrease in accounts payable and accrued expenses. This reduction was partially offset by a decrease in inventory balances, and increases in the note payable, accretion on discounted notes and depreciation and amortization. -6- The average days sales outstanding for accounts receivable was approximately 63 days for the three months ended March 31, 1999 compared to 55 days for the comparable prior year period. The increase in days sales outstanding is due to increases in export sales which had extended payment terms. Inventory balances decreased $2.0 million from December 31, 1998, primarily due to a 15.4% increase in net sales for the three months ended March 31, 1999 compared to the three months ended December 31, 1998. The note payable increased $11.2 million primarily due to an interest payment due on the senior subordinated notes. Capital expenditures, including capital leases, were $2.5 million for the three months ended March 31, 1999 compared to $7.1 million the comparable prior year period. Capital expenditures for the three months ended March 31, 1999 consisted primarily of expenditures for the expansion of the Tuscaloosa facility. As part of the recapitalization transaction, the Company entered into a Senior Credit Facility consisting of a $115.0 million term loan facility, which was fully drawn upon the consummation of the transaction and a $50.0 million revolving loan facility. The revolving loan facility is available for general corporate and working capital purposes. Impact of the Year 2000 Issue The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If the Company, its significant customers or suppliers fail to make necessary modifications and conversions on a timely basis, the year 2000 issue could have a material adverse effect on Company operations. However, the impact cannot be quantified at this time. The Company believes that its competitors face similar risks. The Company has established a corporate-wide project team to identify non- compliant software and complete the corrections required for the year 2000 issue. The Company has completed its repairs for major manufacturing systems in all locations. The Company also completed its repair of its major financial systems. The Company's current target is to resolve compliance issues in its distribution systems and other ancillary systems by July 31, 1999. The Company also has made inquiry of its major customers and suppliers to assess their compliance. There can be no assurance that there will not be a material adverse effect on the Company if third party governmental or business entities do not convert or replace their systems in a timely manner and in a way that is compatible with the Company's systems. Costs related to the year 2000 issue are funded through operating cash flows. Through March 31, 1999, the Company expended approximately $200,000 in systems development and remediation efforts, including the cost of new software and modifying the applicable code of existing software. The Company estimates remaining costs to be between $25,000 and $75,000. The Company presently believes that the total cost of achieving year 2000 compliant systems will not be material to the Company's financial condition, liquidity or results of operations. -7- Time and cost estimates are based on currently available information. Developments that could affect estimates include, but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code and systems and remediation success of the Company's customers and suppliers. Forward-Looking Information This Quarterly Report on Form 10-Q contains certain forward-looking statements, including, without limitation, statements concerning the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (which do not apply to initial public offerings). Forward- looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "plans," or "continue" or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, those related to the Company's substantial leverage and debt service requirements, the Company's dependence on significant customers and on certain suppliers, the effects of competition on the Company, the risks related to environmental, health and safety laws and regulations, the Company's exposure to foreign sales risk and the cyclicality of the textile industry, risks related to the year 2000 issue, and the other factors discussed in the Company's filings with the Securities and Exchange Commission. Actual results could differ materially from these forward-looking statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Company's market risk disclosure set forth in the Company's Annual Report on Form 10-K have not changed significantly through the three months ended March 31, 1999. Part II Other Information Item 1. Legal Proceedings In April 1997 two domestic purchasers of extruded latex thread filed a complaint against a number of foreign manufacturers and distributors of such thread, including an Indonesian limited liability company in which Globe Holdings then owned a 40% interest (the "Joint Venture"). The complaint alleged an international conspiracy to restrain trade in, and fix prices of, the thread in the U.S. The Company was not named as a defendant in the case. The Joint Venture alleged in its motion to dismiss that not all parties to the conspiracy had been joined. There can be no assurance that the Company will not be named in the future. The Company is entitled to indemnification from, among other items, any liabilities arising out of any criminal or civil antitrust claims or investigations resulting from the above-described proceedings to the extent related to the Company's activities prior to the recapitalization transaction in 1998. This indemnity expires on December 31, 2001. -8- The U.S. Department of Commerce has imposed anti-dumping duties on Indonesian extruded latex producers. Additional duties of 28.29% have been levied on extruded latex thread imported from Indonesia from May 1999 going forward. 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 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K On March 5, 1999 the Company filed a Form 8-K disclosing certain financial information for the year ended December 31, 1998. -9- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLOBE HOLDINGS, INC. Date: May 11, 1999 By: /s/ LAWRENCE R. WALSH -------------------------------- Lawrence R. Walsh Vice President, Finance and Administration and duly authorized signatory on behalf of the Registrant EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GLODE HOLDINGS, INC. FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 901 0 33,628 2,433 16,405 57,841 161,035 76,716 154,428 39,045 291,851 0 0 22 (180,794) 154,428 43,584 43,584 29,929 37,254 (50) 0 7,837 (1,457) (507) 0 0 0 0 (950) 0 0
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