GUILFORD MILLS INC - 10-K Annual Report

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Delaware		13-1995928
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6001 West Market Street Greensboro, North Carolina		27409 (Zip Code)
(Address of principal executive offices)

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value

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 twelve (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.

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 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. þ

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at March 29, 2003, computed by the last reported trading price on the Over-the-Counter Bulletin Board ($4.00) of the Registrant’s Common Stock on such date: $14,059,200. (Solely for the purposes of the foregoing calculation, affiliates are considered to be Directors, Officers and greater than 10% beneficial owners of the Registrant’s common equity.)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Number of shares of the Registrant’s New Common Stock, par value $.01 per share, outstanding as of December 22, 2003: 5,501,053.

Readers should consider the following information as they review this Form 10-K:

In connection with the Company’s bankruptcy reorganization in 2002, the Company has applied Fresh Start Reporting (as defined herein) to its consolidated balance sheet as of September 29, 2002 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” as promulgated by the AICPA. (Reference Item 1 in the Business section for information regarding the Company’s bankruptcy reorganization). Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors (as defined herein) emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date. As a result of the application of Fresh Start Reporting, the financial statements of the Successor Company (as defined herein) are not comparable to the Predecessor Company’s (as defined herein) financial statements.

From time to time, the Company may publish forward-looking statements relative to such matters, including, without limitation, anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “forecast,” “budget,” “goal” or other words that convey the uncertainty of future events or outcomes.

Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements speak only as of the date of this report; the Company disclaims any obligation to update these statements and cautions against any undue reliance on them. These forward-looking statements are based on current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control.

Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include:

•

general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns

•

the overall level of automotive production and the production of specific car models

•

cost and availability of raw materials, labor and natural and other resources

•

changes in purchasing practices of automotive customers, including price pressures and sourcing of products in Asia

•

inability to successfully effect any necessary restructuring while preserving customer relationships

•

inability to maintain sufficient liquidity to finance the Company’s operations

The Company’s fiscal year ends on the Sunday nearest to September 30. Fiscal year 2003 ended September 28, 2003, fiscal year 2002 ended September 29, 2002 and fiscal year 2001 ended September 30, 2001. Each year includes the results of operations for 52 weeks.

Guilford Mills, Inc. was incorporated under the laws of Delaware in August 1971, and is the successor by merger to businesses previously conducted since 1946. Guilford Mills, Inc. and its subsidiaries are referred to as the “Company” or “Guilford”, unless the context indicates otherwise.

Historically, Guilford operated as a diversified textile manufacturer and participated in a broad range of markets and segments. During 2001 and 2002, the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company currently participates in the following segments: Automotive, Industrial and Apparel.

Fabrics produced in the Automotive segment are sold to suppliers of original equipment manufacturers (“OEMs”). These fabrics are then used in the production of seats and headliners and other interior components of passenger cars, sports utility vehicles, conversion vans and light and heavy trucks. Guilford is a major producer and supplier of bodycloth and headliner fabric in the United States and Europe and continues to be the leading headliner fabric manufacturer in both markets.

Fabrics produced in the Industrial segment are sold for use in window fashions and in a broad range of specialty applications, including geotextiles, medical and water filtration systems. The Company’s fiber operation, which manufactures and supplies fibers internally and to other external textile manufacturers, is included in this segment.

The Apparel segment fabrics have historically been used predominantly in women’s intimate apparel, ready-to-wear, swimwear garments, team sportswear and linings. Since the fourth quarter of fiscal 2000, the Company has effected the strategic realignment of its apparel operations resulting in the closing of facilities and a substantial decrease in manufacturing capacity. The current focus of this segment is on team sportswear, cap and gown and performance activewear.

The Company previously participated in the Direct-to-Retail Home Fashions market and produced window curtains, knit and/or lace comforters, sheets, shower curtains, pillowcases and bedskirts sold directly to department stores, discount retailers and catalog houses. The Company also produced upholstery fabrics for use in office and residential furniture. The Company no longer manufactures or distributes products in this line of business.

Until the first quarter of the 2004 fiscal year, the Company maintained Automotive and Apparel segment operations in Mexico City, Mexico through certain majority owned Mexican subsidiaries (such companies collectively, the “American Textil Group”). In December 2003, the Company sold all of its capital stock in the American Textil Group to a company (“AT Acquisition”) controlled by the general manager of the American Textil Group (the “General Manager”) and by a person who had been a minority stockholder of a certain American Textil Group company (the “Minority Stockholder”) (the General Manager and the Minority Stockholder collectively referred to as the “Principals”). The terms of such transaction were determined through extensive arm’s length negotiations among the parties. The consideration for the sale of the American Textil Group capital stock consisted of the execution and delivery of certain agreements among the parties, including supply and non-competition agreements as described below, and the release by the Principals of certain claims each had against the Company, including a release (i) by the Minority Stockholder of a claim against the Company arising from his fiscal 2003 exercise of a put right relating to his previously held minority interest in a predecessor to one of the American Textil Group companies and (ii) by the General Manager of claims to certain benefits under Company sponsored employee benefit plans. As part of the American Textil Group sale, the Company purchased from an American Textil Group company certain Automotive segment accounts receivable, with full recourse against the American Textil Group, and certain Automotive segment inventory. Simultaneously with the closing of the sale of the American Textil Group, the Company entered into a supply agreement with the American Textil Group, pursuant to which (i) the Company or one of its subsidiaries will become the vendor of record for virtually all Mexican Automotive segment programs which the American Textil Group had supplied prior to the sale of the American Textil Group and (ii) an American Textil Group company will supply the Company or one of its subsidiaries with certain fabrics to service such programs. Also in connection with the closing of the sale of the American Textil Group, the parties entered into a non-competition agreement pursuant to which the American Textil Group, AT Acquisition and the Principals, on the one hand, and the Company, on the other hand, agreed to refrain from competing with one another in certain Apparel markets for a period of up to two years; the non-competition agreement also prohibits the American Textil Group, AT Acquisition and the Principals from competing with the Company in the Automotive segment anywhere in the world for at least a one year period.

In October 2003, the Company announced that it retained Goldman, Sachs & Co. as its financial advisor to assist with the exploration of, among other things, a possible sale of Guilford. As of December 22, 2003, the Company has received preliminary indications of interest from several third parties who are currently conducting due diligence reviews of the Company. There is no assurance as to whether this process will result in a sale of the Company or as to the timing of any sale.

Reference is made to Notes 22 and 23 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this Report, for certain financial information regarding the Company’s segments and the geographic areas in which the Company conducts business.

On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274 million senior indebtedness. To conclude the restructuring as quickly as possible, the Company and its domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) on March 13, 2002 (the “Filing Date”). The Chapter 11 cases were jointly administered under case no. 02-40667 (BRL) and, pursuant to the Bankruptcy Court’s approval of the Plan as defined below, were substantively consolidated for the purpose of consummating the Plan. During the period from the Filing Date until October 4, 2002 (the “Effective Date”), the Debtors operated their business as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

As a result of these Chapter 11 filings, actions to collect pre-petition indebtedness were stayed. In addition, under the Bankruptcy Code, the Debtors had the right to assume or reject executory contracts, including real estate leases, employment contracts, personal property leases, service contracts and other unexpired, executory pre-petition contracts, subject to Bankruptcy Court approval. Parties affected by these rejections were permitted to file claims with the Bankruptcy Court in accordance with the Bankruptcy Code. The Company estimated the aggregate amount of the liability that may result from the filing of claims for certain contracts that were rejected and reflected such amount in its fiscal 2002 financial statements.

The Company’s amended joint plan of reorganization dated August 15, 2002, (the “Plan”), was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002, the Debtors emerged from their bankruptcy proceedings.

The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

All of the Company’s old common stock was cancelled and replaced with 5,501,053 shares of new common stock. Of these new shares, approximately 90% (4,950,000 shares) were issued to the Company’s senior lenders as partial consideration for the debt reduction described above. The remaining shares were issued to the holders of the Company’s old common stock in a ratio of one new share for every 34.776338 old shares, subject to rounding.

The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

The Company’s $30 million Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a $25 million revolving credit facility.

The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

The Company has applied Fresh Start Reporting to its consolidated balance sheet as of September 29, 2002 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“Fresh Start Reporting” or “SOP 90-7”) as promulgated by the AICPA. Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date.

Working closely with its customers, the Company conducts research and development in the U.S. and U.K. Such activities involve approximately 75 associates who are primarily responsible for the creation of new fabrics and styles. Sample machinery and equipment are used to develop new fabrics which can be placed into production after customer acceptance. Total expenditures for research and development for fiscal years 2003, 2002 and 2001 were approximately $11.7 million, $9.9 million and $11.5 million, or 2.6%, 1.9% and 1.8% of sales, respectively.

The Company has numerous trademarks, trade names and patents that it uses in connection with the advertising and promotion of its products across segments. Management believes that the loss or expiration of such patents, trademarks and trade names would not have a material adverse effect on the Company’s operations.

The Company generally knits, dyes and finishes fabric based on customer orders and, therefore, significant amounts of finished goods inventory are not needed to meet rapid delivery to the Company’s customers or to assure a continuous allotment of goods from suppliers. Customers are permitted to return or request allowances for goods that are off-quality. To minimize the credit risk on such accounts and to obtain larger credit lines for many customers, the Company maintains credit insurance covering $35.6 million of certain outstanding accounts receivable as of September 28, 2003. In addition, as of that date, approximately 6% of accounts receivable were factored without recourse. The Company has the ability to borrow against such factored receivables (subject to certain limitations), and did not borrow against them during fiscal 2003 but did borrow against them during fiscal 2002. The Company generally takes advantage of discounts offered by vendors.

The Company has a large number of customers. During fiscal 2003, two of the Company’s automotive customers, Johnson Controls, Inc. and Lear Corporation, each of which are suppliers to OEMs, accounted for 20.0% and 10.8% of the Company’s sales, respectively. During fiscal 2002, Johnson Controls, Inc. and Lear Corporation accounted for 14.1% and 10.3% of the Company’s sales, respectively. No customer accounted for 10% or more of total net sales during fiscal 2001. The Company’s net sales reflect substantial indirect sales to certain OEMs. In the Automotive segment, the Company’s direct and indirect customers generally provide regular release information which the Company uses to purchase raw materials and plan its manufacturing process.

The following data summarizes the Company’s fiscal 2002 and 2003 net direct and indirect sales to OEMs (amounts in thousands of dollars):


Manufacturer	2002 Sales		2003 Sales

Ford	$	108,797	$	90,628
General Motors		65,724		66,940
Honda		32,207		56,219
Toyota		29,980		27,153
Nissan		26,760		25,586
Daimler Chrysler		14,065		21,631
All Other		60,552		63,759

Total	$	338,085	$	351,916

The backlog of orders believed to be firm as of the end of the current and preceding fiscal years is not considered by management to be material for an understanding of the Company’s business as most orders are deliverable within a few weeks.

U.S. export sales, as a percentage of total worldwide sales of the Company, were approximately 4.7% in fiscal 2003, 1.9% in fiscal 2002 and 4.4% in fiscal 2001.

Fabrics in all of the Company’s segments are constructed primarily of synthetic yarns: nylon and polyester, the prices of which are generally sensitive to changes in petroleum prices. In fiscal 2003, the Company internally produced approximately 15% to 20% of all yarns used. The Company purchases its remaining yarns from several fiber producers. In fiscal 2003 all yarns were readily available throughout the year and either were or could be purchased from numerous sources. Management believes that an adequate supply of yarns is available to meet the Company’s requirements.

The chemicals and dyes used in the dyeing and finishing processes in all segments are available in large quantities from various suppliers. The foam backing used in the automotive fabric lamination process is purchased from three suppliers in the United States and three suppliers in Europe. During fiscal 2003, there was an adequate supply of foam. Management believes that an adequate supply of chemicals and dyes and foam are available to meet the Company’s requirements.

The production processes, particularly dyeing and finishing operations, involve the use and discharge of certain chemicals and dyes into the air and sewage disposal systems. The Company installs pollution control devices as necessary to meet existing and anticipated national, state and local pollution control regulations. The Company, including its non-U.S. subsidiaries, does not anticipate that compliance with national, state, local and other provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material adverse effect upon its future results of operations and financial position.

Reference is made to Note 16 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document, for information regarding certain other environmental matters.

In all of the Company’s segments, the principal methods of competition are pricing, styling and design, customer service and quality. In the Automotive segment, the Company has four major competitors in the North American market and certain other smaller competitors. Guilford’s automotive subsidiary in Europe competes with seven warp knitters in Europe. It also competes with many producers of circular knit and flat woven fabrics. The Industrial fabrics market is highly fragmented, with many textile manufacturers selling products to meet individual customer specifications. None of the Company’s competitors is deemed to be dominant with respect to its markets. In the past few years, the Apparel segment has been significantly impacted by imports of garments.

As of December 19, 2003, the Company employed approximately 2,600 full-time employees worldwide. Approximately 545 employees (including 203 in the U.S. and 342 in Europe) are represented by collective bargaining agreements.

Set forth below is a listing of facilities owned and leased by the Company as of December 15, 2003:


Facility	Location	Segment(s)	Leased/Owned (A)

Sales and Administrative Offices	Michigan (1)	Automotive	Leased
	North Carolina (2)	Apparel, Automotive, Industrial	Owned (1), Leased (1)
	Germany (1)	Automotive	Leased
	France (1)	Automotive	Leased
	Spain (1)	Automotive	Leased
	Mexico (1)	Automotive	Leased
Manufacturing	North Carolina (5)	Automotive, Industrial	Owned (3), Leased (2)
	Pennsylvania (2)	Apparel, Automotive, Industrial	Owned
	United Kingdom (3)	Automotive	Owned

(A) Substantially all of the above owned domestic properties have been mortgaged to secure the Company’s obligations under its loan agreements. See Note 12 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document. Properties listed do not include assets in the Altamira Trust. Reference is made to Note 1 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this Report, for certain information regarding the Altamira Trust.

Management believes the facilities and manufacturing equipment are in generally good condition, well maintained, suitable and adequate for present production, based on the Company’s previously announced restructuring actions. Reference is made to Note 5 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document for information regarding the restructuring actions. Some of the Company’s manufacturing facilities are utilized by more than one segment. Utilization of the facilities fluctuates from time to time due to the seasonal nature of operations and market conditions. The Company defines full utilization primarily as seven-day, three-shift production. On that basis, the manufacturing facilities are generally utilized approximately 80%.

From time to time and currently, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company maintains insurance coverage against certain potential third-party claims in amounts that the Company believes to be adequate. As a result of the bankruptcy proceedings described above, holders of claims that were asserted or could be asserted in any action commenced prior to March 13, 2002 retain all rights to proceed against the Company, but only to the extent and limit of applicable insurance coverage. Such claim holders have no direct claim against the Company post-confirmation of bankruptcy including any deductible under an insurance policy or any excess over the policy coverage limits. Although the final outcome of these legal and environmental matters cannot be determined, and therefore no assurances can be given, based on the facts presently known, it is management’s opinion that the final resolution of these matters will not have a material adverse effect on the Company’s financial position or future results of operations. Reference is made to Note 16 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document for information regarding contingencies including environmental matters.

No matters were submitted to a vote of security holders during the fourth quarter for the fiscal year ended September 28, 2003.

On December 21, 2001, the Company announced that the New York Stock Exchange (the “NYSE”), which was the principal market for the Company’s old common stock, par value $.02 per share (the “Old Common Stock”), which was cancelled upon the Effective Date, had informed the Company that the Company was not in compliance with certain NYSE continued listing standards. Specifically, the average closing price of the Company’s Old Common Stock, which was traded under the ticker symbol “GFD”, had fallen below $1.00 per share, and the Company’s market capitalization had fallen below $15 million, over a consecutive 30-trading day period.

On February 11, 2002, as a result of the continuation of such non-compliance, the NYSE suspended trading of the Company’s Old Common Stock. Prices for the Company’s Old Common Stock commenced quotation on February 14, 2002 on the Over-the-Counter Bulletin Board (“OTCBB”), under the ticker symbol “GFDM”. Such over the counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

On September 20, 2002, the Bankruptcy Court confirmed the Plan. On September 24, 2002 the Company’s ticker symbol was temporarily changed to “GFDMQ”. On October 4, 2002, the Company emerged from bankruptcy and issued new common stock, par value $.01 per share (the “New Common Stock”). The ticker symbol for the New Common Stock, the prices for which are quoted on the OCTBB, is “GMIL”.

The following table contains information about the (i) high and low per share bid price of the New Common Stock which was issued on October 4, 2002 and (ii) high and low per share sales price of the Old Common Stock (during the period that the stock was listed on the NYSE) or per share bid price (during the time the Old Common Stock was listed on the OTCBB) before the Old Common Stock was cancelled effective October 4, 2002. On September 28, 2003 there were 549 record holders of New Common Stock.


New Common Stock	Fiscal 2003

Quarter	High		Low

First	$	8.00	$	2.50
Second		4.60		3.50
Third		10.00		2.25
Fourth		12.00		6.95
Year	$	12.00	$	2.25


Old Common Stock	Fiscal 2002

Quarter	High		Low

First	$	0.80	$	0.32
Second		0.68		0.10
Third		0.28		0.16
Fourth		0.35		0.14
Year	$	0.80	$	0.10

The Company currently does not anticipate paying dividends on its New Common Stock. The covenants in its senior debt agreements prohibit, without the consent of the lenders, the payment of dividends on the Company’s New Common Stock. Unless the Company prepays borrowings under its senior debt, it will have borrowings outstanding under such debt instruments until October 4, 2005. Any determination to declare or pay dividends out of funds legally available for that purpose after termination, expiration or modification of the senior secured debt will be at the discretion of the board of directors and will depend on future earnings, results of operations, financial condition, capital requirements, future contractual restrictions and other factors the board of directors deems relevant. No cash dividends have been declared or paid during the three most recent fiscal years.

The following selected consolidated financial information is derived from the Company’s Consolidated Financial Statements for periods both before and after emerging from bankruptcy protection on October 4, 2002. For accounting purposes, the financial statements reflect the reorganization as if it was consummated on September 29, 2002. Therefore, the consolidated balance sheet data and related information at September 28, 2003 and September 29, 2002 and results of operations for the fiscal year ended September 28, 2003 are referred to as “Successor Company” and reflect the effects of the reorganization and the principles of Fresh Start Reporting. Periods presented prior to September 29, 2002 have been designated “Predecessor Company.” Note 3 to the Consolidated Financial Statements under Item 8 “Financial Statements and Supplementary Data” of this document, provides a reconciliation of the Predecessor Company’s consolidated balance sheet as of September 29, 2002 to that of the Successor Company which presents the adjustments that give effect to the reorganization and Fresh Start Reporting. The data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s Consolidated Financial Statements and Notes thereto. Certain amounts have been reclassified in prior years to conform to the current year presentation.

The consolidated balance sheet information at September 29, 2002 reflects the financial position after the effect of the Plan and the application of the principles of Fresh Start Reporting in accordance with the provisions of SOP 90-7. Accordingly, such financial information at September 29, 2002 and subsequent fiscal year is not comparable to the historical financial information before September 29, 2002.


		Successor
		Company			Predecessor Company

		Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
(In thousands except per share data)		2003			2002			2001			2000			1999

Results of Operations
Net sales		$	445,971		$	513,173		$	643,519		$	814,226		$	856,838
Net (loss) income			(8,606	)		(123,313	)		(160,757	)		(20,974	)		10,230
Per Share Data
Net (loss) income
	Basic		(1.56	)		(6.66	)		(8.48	)		(1.11	)		0.47
	Diluted		(1.56	)		(6.66	)		(8.48	)		(1.11	)		0.47
Cash dividends			0.00			0.00			0.00			0.33			0.44


	Successor Company				Predecessor Company

	Fiscal		Fiscal		Fiscal			Fiscal		Fiscal
	2003		2002		2001			2000		1999

Balance Sheet Data
Working capital		114,983	$	112,805	$	(150,451	)⁽¹⁾	$	213,110	$	127,660
Total assets		303,688		339,497		541,849			724,212		753,431
Long-term debt		135,000		136,939		1,542	⁽¹⁾		262,845		146,137
Stockholders’ investment		49,615		55,000		141,509			309,772		340,945

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements of the Company for the years ended September 28, 2003, September 29, 2002 and September 30, 2001 and the related Notes to Consolidated Financial Statements herein.

On March 5, 2002, the Company reached an agreement in principle with its senior lenders on a restructuring of the Company’s approximately $274 million senior indebtedness. To conclude the restructuring as quickly as possible, the Debtors filed voluntary petitions under the Bankruptcy Code with the Bankruptcy Court on the Filing Date. The Chapter 11 cases were jointly administered under case no. 02-40667 (BRL) and, pursuant to the Bankruptcy Court’s approval of the Plan, were substantively consolidated for the purpose of consummating the Plan. During the period from the Filing Date until the Effective Date, the Debtors operated their business as debtors-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s non-U.S. subsidiaries did not file voluntary petitions and were, therefore, not Debtors.

The Plan was confirmed by the Bankruptcy Court on September 20, 2002, and on October 4, 2002, the Debtors emerged from their bankruptcy proceedings.

The Company’s senior secured debt of approximately $274 million was discharged, and was replaced with new senior secured notes, due October 4, 2005, totaling $135 million.

The Company transferred approximately $70 million in cash and property to trusts and its senior lenders, as partial consideration for the debt reduction described above.

The Company’s $30 million Debtor-In-Possession Credit Agreement, dated as of March 13, 2002, with Wachovia Bank was cancelled and the Company entered into a $25 million revolving credit facility.

The Company began paying in cash approximately $15.6 million in pre-petition liabilities to its vendors, payment of which had been stayed during the bankruptcy proceedings.

The Company has applied Fresh Start Reporting to its consolidated balance sheet as of September 29, 2002 in accordance with SOP 90-7. Under Fresh Start Reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date Fresh Start Reporting is applied. On October 4, 2002, the Debtors emerged from bankruptcy. For financial reporting purposes, September 29, 2002 was considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if it occurred on that date.

The effect of the reorganization and the implementation of Fresh Start Reporting on the Company’s consolidated balance sheet as of September 29, 2002 are discussed in detail in “Item 8 — Financial Statements and Supplementary Data”. As a result of the implementation of Fresh Start Reporting, the financial statements of the Successor Company are not comparable to the Predecessor Company financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require the Company to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from the estimates. Such differences could be material to the financial statements. A critical accounting policy is one which is both important to the portrayal of the Company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:

Fresh Start Reporting - Upon emerging from Chapter 11 proceedings, the Company adopted Fresh Start Reporting in accordance with SOP 90-7. In adopting the requirements of Fresh Start Reporting as of September 29, 2002, the Company was required to value its assets and liabilities at fair value as of September 29, 2002. The reorganization value of the Company’s new common equity of approximately $55 million was determined based on an independent valuation by financial specialists after consideration of several factors and by using various valuation methods including appraisals, cash flow multiples, price/earnings ratios and other relevant industry information. The reorganization value of the Company has been allocated to various asset categories pursuant to Fresh Start Reporting principles.

The Company’s reorganization value of its new equity of $55 million was approximately $16 million less than the fair value of the net assets. In accordance with the purchase method of accounting, the excess of the revalued net assets over the reorganization value was allocated to reduce proportionately the value assigned to applicable noncurrent assets. The calculated reorganization value of the Company was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic and competitive uncertainties beyond the Company’s control.

The determination of fair value of assets and liabilities required significant estimates and judgments made by management, particularly as it related to the fair market value of inventory and property. The fair value of inventory was estimated based on selling price less costs to complete, cost of disposal and a reasonable profit margin. The fair value of property was determined based on current market rates and building values with the assistance of outside valuation experts. Results may differ under different assumptions or conditions.

Revenue Recognition - Revenue is recognized at the time goods are shipped in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” Sales returns and allowances, a component of net sales, are recorded in the period in which the related sales are recorded. A reserve of $1.8 million has been recorded as of September 28, 2003 for such returns and allowances.

Benefit Plans - The Company has pension costs and obligations which are dependent on assumptions used by actuaries in calculating such amounts. These assumptions include discount rates, inflation, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. While the Company believes that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect its pension costs and obligations.

Income Taxes - The Company is subject to the tax laws of many jurisdictions. The Company is subject to tax audits in each of these jurisdictions, which could result in changes in income taxes. For financial statement purposes, the income tax benefit of net operating loss and credit carryforwards is recognized as a deferred tax asset, subject to appropriate valuation allowances when it is determined that recovery of the deferred tax asset does not meet a “more likely than not” criteria. The Company evaluates the tax benefits of net operating loss and credit carryforwards on an ongoing basis. These assumptions could be affected by changes in future taxable income and its sources and changes in U.S. and non-U.S. tax laws and rates. The effective tax rate of the Company could be impacted by changes in these assumptions.

Inventory Reserves - The Company maintains reserves for inventories valued using the first in, first out (FIFO) method. Such reserves for inventories can be specific to certain inventory or general based on judgements about the overall condition of the inventory. General reserves are established based on percentage markdowns applied to inventories aged for certain time periods. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through expected sales prices, less selling costs. Estimating sales prices, establishing markdown percentages and evaluating the condition of the inventories require judgements and estimates, which may impact the ending inventory valuation and gross margins.

The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. Reference is made to Item 8 “Financial Statements and Supplementary Data” of this Report which contain accounting policies and other disclosures required by generally accepted accounting principles.

Historically, Guilford operated as a diversified textile manufacturer and participated in a broad range of markets and segments. Commencing in July 2000 the Company restructured and reorganized its operations, exiting many markets and concentrating its resources and energies in areas which it believes are stable and provide opportunities for profitable growth. As a result, Guilford is now primarily a supplier of automotive textile products. The Company currently participates in the following segments: Automotive, Industrial and Apparel.

Guilford’s business has undergone significant changes over the last decade and, in particular, over the last five years. Guilford had for many years been known primarily as a producer of fabrics for apparel applications. While Guilford had diversified into automotive fabrics in the 1970s, sales of apparel fabrics remained dominant through most of the 1990s. Guilford, along with substantially all other domestic textile manufacturers, was dramatically impacted by staggering increases in imported apparel fabrics and garments during the late 1990s.

In July 2000, the Company announced a strategic realignment of its apparel operations designed to improve the Company’s cost structure and increase profitability. As conditions worsened, the Company expanded and accelerated its apparel realignment plan in fiscal 2001. By the end of fiscal 2001, the Company had closed or committed to close all but one of its domestic apparel dyeing and finishing facilities. The Company further de-emphasized its apparel business in 2002, closing its Altamira manufacturing facility in Mexico and another in the U.S. The Company has continued to participate in the apparel segment, but on a much smaller scale.

Early in 2002, it became necessary for the Company to exit the Direct-to-Retail Home Fashions business as a result of continued weakness in sales and declining margins and the Company announced its intent to sell certain of its assets and its business. As the impact of all these factors accumulated, it became clear that the Company needed to undergo a significant financial restructuring, and on March 13, 2002, the Company and its domestic subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code and emerged therefrom on October 4, 2002. The bankruptcy proceedings are discussed in greater detail elsewhere herein.

For fiscal 2003, approximately 68%, 23% and 9% of the Company’s net sales originated from the United States, Europe and Mexico, respectively. Guilford’s non-U.S. operations are subject to fluctuations in foreign exchange rates that affect the Company’s operating results and financial position due to translation gains and losses recognized in converting such activity to local currency and to U.S. dollars.

The Successor Company expects to continue to allocate its resources primarily to its Automotive business. This business, because of its highly technical specifications, research and development requirements and critical logistics, is believed by management to be less susceptible to competition from foreign imports than apparel and home fashions fabrics, although there can be no assurance that such business segment will not be negatively impacted from such imports in the future.

As a result of the application of Fresh Start Reporting, the financial statements of the Successor Company are not comparable to the financial statements of the Predecessor Company.

The following table sets forth the results of operations for the fiscal year ended September 29, 2002 compared to September 28, 2003 (dollars in thousands):


		Predecessor		Successor					Percentage
		Company		Company		Increase				Increase
		2002		2003		(Decrease)				(Decrease)

Net Sales		$	513,173	$	445,971	$	(67,202	)			(13.1	)%
Cost of goods sold			487,114		378,665		(108,449	)			(22.3	)

	Gross profit		26,059		67,306		41,247				158.3
Selling and administrative expenses			65,380		43,665		(21,715	)			(33.2	)
Restructuring charges			71,050		16,599		(54,451	)			(76.6	)
Reorganization costs			14,350		1,326


IMPORTANT INFORMATION REGARDING THIS FORM 10-K
PART I
PART II
STATEMENT OF MANAGEMENT’S RESPONSIBILITY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SCHEDULE II
PART III
PART IV
EXHIBIT INDEX
SIGNATURES
EX-4.(B) AMENDMENT NO. 1 TO NOTE AGREEMENT
EX-10.(M) SALARY CONTINUATION AGREEMENT
EX-10.(N) SALARY CONTINUATION AGREEMENT
EX-10.(T) 2003 STOCK OPTION PLAN
EX-10.(U) FORM OF STOCK OPTION AGREEMENT
EX-10.(V) SHORT TERM INCENTIVE PLAN
EX-10.(X) EXCLUSIVE SUPPLY AGREEMENT
EX-10.(C)(C) AMENDMENT NO. 1 TO CREDIT AGMT
EX-21 SUBSIDIARIES OF REGISTRANT
EX-23.(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
EX-23.(B) NOTICE REGARDING CONSENT
EX-31.(A) SECTION 302 CERTIFICATION OF CEO
EX-31.(B) SECTION 302 CERTIFICATION OF CFO
EX-32.(A) SECTION 906 CERTIFICATION OF CEO
EX-32.(B) SECTION 906 CERTIFICATION OF CFO

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 28, 2003

For the transition period from __________ to __________


Item 4.		Submission of Matters to a Vote of Security Holders


Item 5.		Market for the Registrant’s Common Equity and Related Stockholder Matters


Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations


Item 1.		Business


Item 2.		Properties


Item 3.		Legal Proceedings


Item 6.		Selected Financial Data