##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    
    
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)þ
    
    OF THE SECURITIES EXCHANGE ACT OF 1934
    
    o
    
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended September 28, 2003
    
    
    
    For the transition period from __________  to __________


Commission File No. 000-50025

GUILFORD MILLS, INC.

(Exact name of Registrant as specified in its charter)


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)


Registrants telephone number, including area code: (336) 316-4000

Securities registered pursuant to Section 12(b) of the Act: None

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.





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TABLE OF CONTENTS



|                                                   |  |  |  |  |  |  |  | 
|-------------------------------------------------- |  |  |  |  |  |  |  | 
|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        



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IMPORTANT INFORMATION REGARDING THIS FORM 10-K

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

Fresh Start Accounting

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.

Safe Harbor-Forward-Looking 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
|- |  | ------------------------------------------------------------------------------------



| |  | information and technological advances
|- |  | --------------------------------------



| |  | cost and availability of raw materials, labor and natural and other resources
|- |  | -----------------------------------------------------------------------------



| |  | domestic and foreign competition
|- |  | --------------------------------



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



| |  | domestic and foreign governmental regulations and trade policies
|- |  | ----------------------------------------------------------------



| |  | reliance on major customers and suppliers
|- |  | -----------------------------------------



| |  | inability to successfully effect any necessary restructuring while preserving customer relationships
|- |  | ----------------------------------------------------------------------------------------------------



| |  | inability to maintain sufficient liquidity to finance the Companys operations
|- |  | ------------------------------------------------------------------------------

Fiscal Year End

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.

2



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PART I



|        |  |         
|------- |  | --------
|Item 1. |  | Business

General

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.

3



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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.

Bankruptcy Reorganization

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.

On or about the Effective Date, the following transactions or events occurred:



|1. |  | 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | 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.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | 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.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The new members of the board of directors began serving as directors.
|-- |  | ---------------------------------------------------------------------

Fresh Start Reporting

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.

4



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Product Development

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.

Working Capital Practices

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

Export Sales

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.

Raw Materials

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.

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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.

Environmental Matters

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.

Competition

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.

Employees

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.



|        |  |           
|------- |  | ----------
|Item 2. |  | Properties

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
    
    LeasedNorth Carolina (2)
    
    Apparel, Automotive, Industrial
    
    Owned (1), Leased (1)Germany (1)
    
    Automotive
    
    LeasedFrance (1)
    
    Automotive
    
    LeasedSpain (1)
    
    Automotive
    
    LeasedMexico (1)
    
    Automotive
    
    LeasedManufacturing
    
    North Carolina (5)
    
    Automotive, Industrial
    
    Owned (3), Leased (2)Pennsylvania (2)
    
    Apparel, Automotive, Industrial
    
    OwnedUnited 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%.

6



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##### Table of Contents





|        |  |                  
|------- |  | -----------------
|Item 3. |  | Legal Proceedings

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.



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

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




PART II



|        |  |                                                                          
|------- |  | -------------------------------------------------------------------------
|Item 5. |  | Market for the Registrants Common Equity and Related Stockholder Matters

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.

7



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##### Table of Contents



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 2003Quarter
    
    High
    
    LowFirst
    
    $
    8.00
    
    
    $
    2.50Second
    
    
    4.60
    
    
    
    3.50Third
    
    
    10.00
    
    
    
    2.25Fourth
    
    
    12.00
    
    
    
    6.95Year
    
    $
    12.00
    
    
    $
    2.25


Old Common Stock
    
    Fiscal 2002Quarter
    
    High
    
    LowFirst
    
    $
    0.80
    
    
    $
    0.32Second
    
    
    0.68
    
    
    
    0.10Third
    
    
    0.28
    
    
    
    0.16Fourth
    
    
    0.35
    
    
    
    0.14Year
    
    $
    0.80
    
    
    $
    0.10


Dividend Policy

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.

8



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##### Table of Contents





|        |  |                        
|------- |  | -----------------------
|Item 6. |  | Selected Financial Data

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.

SuccessorCompany
    

    Predecessor CompanyFiscal
    

    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal(In thousands except per share data)
    
    2003
    

    2002
    
    2001
    
    2000
    
    1999Results of OperationsNet sales
    
    $
    445,971
    
    
    
    $
    513,173
    
    
    $
    643,519
    
    
    $
    814,226
    
    
    $
    856,838Net (loss) income
    
    
    (8,606
    )
    

    
    (123,313
    )
    
    
    (160,757
    )
    
    
    (20,974
    )
    
    
    10,230Per Share DataNet (loss) incomeBasic
    
    
    (1.56
    )
    

    
    (6.66
    )
    
    
    (8.48
    )
    
    
    (1.11
    )
    
    
    0.47Diluted
    
    
    (1.56
    )
    

    
    (6.66
    )
    
    
    (8.48
    )
    
    
    (1.11
    )
    
    
    0.47Cash dividends
    
    
    0.00
    
    

    
    0.00
    
    
    
    0.00
    
    
    
    0.33
    
    
    
    0.44


Successor Company
    

    Predecessor CompanyFiscal
    
    Fiscal
    

    Fiscal
    
    Fiscal
    
    Fiscal2003
    
    2002
    

    2001
    
    2000
    
    1999Balance Sheet DataWorking capital
    
    
    114,983
    
    
    $
    112,805
    
    

    $
    (150,451
    )(1)
    
    $
    213,110
    
    
    $
    127,660Total assets
    
    
    303,688
    
    
    
    339,497
    
    

    
    541,849
    
    
    
    724,212
    
    
    
    753,431Long-term debt
    
    
    135,000
    
    
    
    136,939
    
    

    
    1,542
    (1)
    
    
    262,845
    
    
    
    146,137Stockholders investment
    
    
    49,615
    
    
    
    55,000
    
    

    
    141,509
    
    
    
    309,772
    
    
    
    340,945




---

|(1) |  | Long-term debt of $239,842 was classified as current liabilities in
fiscal 2001.
|--- |  | --------------------------------------------------------------------------------

9



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##### Table of Contents





|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 7. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations

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.

Bankruptcy Reorganization

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.

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

On or about the Effective Date, the following transactions or events occurred:



|1. |  | 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | 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.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | 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.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The new members of the board of directors began serving as directors.
|-- |  | ---------------------------------------------------------------------

Fresh Start Reporting

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.

10



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##### Table of Contents



Critical Accounting Policies

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.

11



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##### Table of Contents



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.

GENERAL

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.

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.

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.

12



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##### Table of Contents



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.

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.

RESULTS OF OPERATIONS

2003 Compared to 2002

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.

13



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##### Table of Contents



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
    
    
    
    
    PercentageCompany
    
    
    Company
    
    Increase
    
    Increase2002
    
    
    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
    
    
    
    158.3Selling 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
    
    
    
    (13,024
    )
    
    
    (90.8
    )Operating income (loss)
    
    
    (124,721
    )
    
    
    
    5,716
    
    
    
    130,437
    
    
    
    104.6Interest expense
    
    
    14,080
    
    
    
    
    15,612
    
    
    
    1,532
    
    
    
    10.9Fresh start adjustments
    
    
    16,393
    
    
    
    
    
    
    
    
    (16,393
    )
    
    
    N/AGain on debt restructuring
    
    
    (20,588
    )
    
    
    
    
    
    
    
    20,588
    
    
    
    N/AImpaired investments
    
    
    8,063
    
    
    
    
    
    
    
    
    (8,063
    )
    
    
    N/AOther expense (income), net
    
    
    (2,963
    )
    
    
    
    (120
    )
    
    
    2,843
    
    
    
    96.0Loss before income taxes
    
    
    (139,706
    )
    
    
    
    (9,776
    )
    
    
    129,930
    
    
    
    93.0Income taxes
    
    
    (16,393
    )
    
    
    
    (1,170
    )
    
    
    15,223
    
    
    
    92.9Net loss
    
    $
    (123,313
    )
    
    
    $
    (8,606
    )
    
    
    114,707
    
    
    
    93.0


Net sales for fiscal 2003 were $446.0 million, a decrease of $67.2 million, or
13.1% from net sales of $513.2 million for fiscal 2002. Sales decline in the
apparel and direct-to-retail home fashion segments accounted for the majority
of this decline as the Company chose to exit a significant portion of these
businesses during fiscal 2002. Sales from exited businesses represented $72.9
million of the $513.2 million in sales for fiscal 2002.

Automotive segment sales, which comprised 81.8% of consolidated sales,
increased 2.9% in fiscal 2003 to $364.8 million as compared to $354.7 million
in fiscal 2002. The increase was primarily related to increased headliner
market share in Europe associated with new business awards from BMW,
Volkswagen and NissanRenault. Sales of headliner fabric in the U.S. declined
due mostly to a 2.9% reduction in the North American car build rates while
sales of bodycloth fabric increased as a result of new business awards from
Honda. North American car build decreased approximately 2.5% during fiscal 2003
to approximately 15.9 million units compared to the car build during fiscal
2002 of approximately 16.3 million units. Automotive fabric sales in Mexico
City operations declined due to program losses and an overall reduction in
Mexican car build rates.

Fiscal 2003 sales in the Industrial segment, which comprised 11.9% of
consolidated sales, increased 1.2% to $53.0 million as compared to $52.4
million in fiscal 2002. Sales of industrial fabric products declined 5.3% from
the prior fiscal year due to the adverse effects of the general economy on the
particular markets, primarily window fashions. External fiber sales and
commission processing increased approximately 24% due to focused marketing
efforts aimed at utilizing available capacity.

Sales in the Apparel segment for fiscal 2003 which comprised 6.3% of
consolidated sales, declined 61.3% to $28.2 million from $72.8 million in
fiscal 2002. The decrease is attributed to the Companys reduced participation
in this segment in connection with its apparel restructuring plan and lower
sales volumes in the Mexico City operations.

During fiscal 2002, the Company recorded $33.3 million of sales in its
Direct-to-Retail Home Fashions segment. As described elsewhere herein, the
Company exited this business during fiscal 2002, and the Company had no sales
in this business during fiscal 2003.

Gross profit for fiscal 2003 increased to $67.3 million or 15.1% of net sales,
from $26.1 million or 5.1% of net sales for fiscal 2002. The impact of higher
sales revenue in Europe and operating improvements in the U.S. operations
favorably impacted results. The Companys Mexico City operations performed
poorly throughout the year in all areas and offset some of the improvements
achieved elsewhere in the Company. In fiscal 2003, gross profit increased from
fiscal 2002 as a result of a reduction in depreciation expense of approximately
$18.6 million as a result of Fresh Start Reporting. In
addition, fiscal 2002 results were affected by $21.2 million in inventory
impairment charges and other costs related to plant closings.

14



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##### Table of Contents



For fiscal 2003, selling and administrative expenses were $43.7 million or 9.8%
of net sales, compared to $65.4 million or 12.7% of net sales, for fiscal 2002.
The decrease from the prior year was due primarily to reduced selling and
administrative staffing levels, as a result of the Companys exit from the
Direct-to-Retail Home Fashions business and its significant decrease in
participation in the Apparel segment. In addition, the Company also reduced
its professional fee expenses, as the fiscal 2002 amount included fees for
financial advisors and other professionals retained to assist the Company in
restructuring its debt. In fiscal 2003, the Company benefited from lower bad
debt expense as a result of improved collection experience as compared to the
prior year that included $5.0 million of bad debt expense mostly related to the
planned shutdown of the Companys plant in Altamira, Mexico.

Restructuring and impaired asset charges for fiscal 2003 were approximately
$16.6 million compared to $71.0 million for fiscal 2002. The fiscal 2003
charges consisted primarily of fixed asset impairments and other costs related
to the planned sale of the Mexico City operations in early fiscal 2004. The
fiscal 2002 charges consisted primarily of fixed asset impairments and
severance costs related to the shutdown of the apparel plant in Altamira,
Mexico and its associated knitting plant in Lumberton, North Carolina, and the
exit of the Direct-to-Retail Home Fashions business in Herkimer, New York.

During fiscal 2003, the Company incurred reorganization costs of $1.3 million,
consisting primarily of professional fees related to the Companys emergence
from bankruptcy. During fiscal 2002, the Company recognized reorganization
costs of $14.4 million.

Operating income in fiscal 2003 improved $130.4 million to $5.7 million compared
to an operating loss of $124.7 million in fiscal 2002. Fiscal 2003
depreciation expense declined $20.8 million from fiscal 2002 as a result of
Fresh Start Reporting. In the Automotive segment, fiscal 2003 operating income
improved $16.3 million to $22.4 million compared to $6.1 million in fiscal 2002.
In fiscal 2003, the Companys U.S. automotive operations improved
manufacturing and operating efficiencies, whereas in Europe, higher sales
volume contributed to the improvement. The Mexico City automotive business
results, which included lost programs and reserves for inventory impairments,
offset some of this improvement. Fiscal 2002 also included the losses reported
in Brazil because of the plant shutdown. Operating income in the Industrial
segment increased $3.3 million to $1.3 million in fiscal 2003 compared to a
$2.0 million loss in fiscal 2002. The Industrial segment benefited from lower
depreciation expense in fiscal 2003 of $5.5 million and improved capacity
utilization at its fiber operations that was partially offset by lower fabric
sales in window fashions. Operating income in the Apparel segment improved
$49.7 million to a loss of $16.6 million in fiscal 2003 from a loss of $66.3
million in fiscal 2002. Fiscal 2002 included restructuring charges of $44.2
million compared to $9.7 million in fiscal 2003. In addition, fiscal 2002
included significant shutdown costs related to the closure of the Altamira,
Mexico plant and other apparel businesses. The Mexico City operations also
negatively impacted fiscal 2003 results. The Direct-to-Retail Home Fashions
operating loss was $48.2 million in fiscal 2002. The Company did not
participate in this segment in fiscal 2003. See Note 22 to the Consolidated
Financial Statements under Item 8 Financial Statements and Supplementary Data
of this document for a reconciliation of segment measures to consolidated
amounts.

Interest expense in fiscal 2003 was $15.6 million compared to $14.1 million for
fiscal 2002. The change in interest expense in fiscal 2003 compared with fiscal
2002 is attributable to significantly decreased debt levels, as the Predecessor
Companys senior secured debt of approximately $274 million was replaced with
$135 million of new debt upon the Companys emergence from bankruptcy, offset
by the Predecessor Company not incurring interest expense during fiscal 2002 on
the senior secured debt after its March 2002 bankruptcy filing.

Other income in fiscal 2003 was $0.1 million compared to $3.0 million in fiscal
2002. Other income in fiscal 2002 included $3.8 million of income related to
death benefits from life insurance polices that the Company received covering
certain key associates who died during the year, partially offset by other
losses of $0.8 million.

The effective tax rate for fiscal 2003 was 12.0% or a $1.2 million benefit
compared to 11.7% or a $16.4 million benefit for fiscal 2002. The low
effective rates are the result of recording valuation allowances that were
necessary because the Company has net operating loss and tax credit
carryforwards that, due to restructuring actions and other factors, could
expire unused. For fiscal 2003, the Company recorded a $2.4 million income tax
benefit to reverse deferred tax liabilities as a result of restructuring Mexico
City operations. In fiscal 2002, as a result of a change in the U.S. tax laws,
the Company carried back net operating losses to prior years, generating
refunds of approximately $15.8 million.

For fiscal 2003, net loss was $8.6 million, or $1.56 per diluted share,
compared to a net loss of $123.3 million, or $6.66 per diluted share, for
fiscal 2002.

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2002 Compared to 2001

The following table sets forth the results of operations for the fiscal year
ended September 30, 2001 compared to September 29, 2002 (dollars in thousands):

Predecessor
    
    Predecessor
    
    
    
    
    
    PercentageCompany
    
    Company
    
    Increase
    
    Increase2001
    
    2002
    
    (Decrease)
    
    (Decrease)Net Sales
    
    $
    643,519
    
    
    $
    513,173
    
    
    $
    (130,346
    )
    
    
    (20.3
    )%Cost of goods sold
    
    
    612,707
    
    
    
    487,114
    
    
    
    (125,593
    )
    
    
    (20.5
    )Gross profit
    
    
    30,812
    
    
    
    26,059
    
    
    
    (4,753
    )
    
    
    (15.4
    )Selling and administrative
expenses
    
    
    82,274
    
    
    
    65,380
    
    
    
    (16,894
    )
    
    
    (20.5
    )Restructuring charges
    
    
    71,375
    
    
    
    71,050
    
    
    
    (325
    )
    
    
    (0.5
    )Reorganization costs
    
    
    
    
    
    
    14,350
    
    
    
    14,350
    
    
    
    N/AOperating loss
    
    
    (122,837
    )
    
    
    (124,721
    )
    
    
    (1,884
    )
    
    
    (1.5
    )Interest expense
    
    
    25,292
    
    
    
    14,080
    
    
    
    (11,212
    )
    
    
    (44.3
    )Fresh start adjustments
    
    
    
    
    
    
    16,393
    
    
    
    16,393
    
    
    
    N/AGain on debt restructuring
    
    
    4,725
    
    
    
    (20,588
    )
    
    
    (25,313
    )
    
    
    (535.7
    )Impaired investments
    
    
    11,451
    
    
    
    8,063
    
    
    
    (3,388
    )
    
    
    (29.6
    )Other expense (income), net
    
    
    911
    
    
    
    (2,963
    )
    
    
    (3,874
    )
    
    
    (425.3
    )Loss before income taxes
    
    
    (165,216
    )
    
    
    (139,706
    )
    
    
    25,510
    
    
    
    15.4Income taxes
    
    
    (4,459
    )
    
    
    (16,393
    )
    
    
    (11,934
    )
    
    
    (267.6
    )Net loss
    
    $
    (160,757
    )
    
    $
    (123,313
    )
    
    
    37,444
    
    
    
    23.3


Consolidated net sales for fiscal 2002 were $513.2 million, a decrease of 20.2%
from net sales in fiscal 2001 of $643.5 million. Sales declines in the Apparel
and Direct-to-Retail Home Fashions segments accounted for the largest amount of
the decrease.

The Automotive segment represented 69.1% of consolidated net sales in fiscal
2002, an increase from 51.8% in fiscal 2001. Automotive segment sales were
$354.7 million in fiscal 2002 and increased 6.4% from $333.5 million in fiscal
2001. This primarily resulted from a 10.0% increase in sales by the Companys
U.S. automotive operation. North American car build increased approximately
3.8% during fiscal 2002 to approximately 16.3 million units compared to car
build during fiscal 2001 of approximately 15.7 million units. The Company also
improved its market share of both headliner and bodycloth fabric. Sales volume
in Europe grew 7.0% in fiscal 2002 compared to fiscal 2001 due to new program
rollouts at two major auto manufacturers. Automotive fabric sales in Mexico
decreased by approximately $3.6 million primarily due to the loss of certain
programs during fiscal 2002. Sales in Brazil comprised only 1.3% of Guilfords
Automotive segment sales in fiscal 2002 and declined over 40% compared to 2001,
as a result of the Companys decision to cease production in Brazil.

Sales in the Apparel segment decreased 61.8% to $72.8 million in fiscal 2002
from $190.6 million in fiscal 2001 and accounted for 14.2% of consolidated net
sales in fiscal 2002. As a result of the continued declines in this segment
and the Predecessor Companys financial difficulties, the Company has
substantially exited the production of apparel fabrics in the United States.
The Company has closed all but one of its apparel facilities in the U.S., and
has also closed its dyeing and finishing plant in Altamira, Mexico.

Sales in the Industrial segment fell 13.1% to $52.4 million in fiscal 2002 from
$60.3 million in fiscal 2001. The Industrial segment represented 10.2% of
consolidated net sales in fiscal 2002. Higher sales of the Companys
industrial fabrics used in air and water filtration processes were more than
offset by declines in other industrial products sales, which were negatively
impacted by the slowing economy.

The Direct-to-Retail Home Fashions segment accounted for 6.5% of consolidated
net sales in fiscal 2002 and sales decreased 43.7% from fiscal 2001. Sales for
fiscal 2002 were $33.3 million versus $59.1 million in fiscal 2001. During
fiscal 2002, the Company decided to exit this business and sold all of its
direct-to-retail operations.

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Gross profit decreased by $4.7 million to $26.1 million or 5.1% of net sales in
fiscal 2002, from $30.8 million, or 4.8% of net sales in fiscal 2001. The
Company has exited the Direct-to-Retail Home Fashions segment and significantly
decreased its participation in the Apparel segment, incurring approximately
$21.2 million for inventory impairment and other charges related to plant
closings. These declines were partially offset by improved margins in both the
U.S. and European automotive businesses, primarily as a result of increased
sales. The industrial fabrics business also improved its margin in fiscal 2002
with increased capacity utilization.

Selling and administrative expenses decreased 20.5% to $65.4 million, or 12.7%
of sales, in fiscal 2002 from $82.3 million, or 12.8% of sales, in fiscal 2001.
The decrease from fiscal 2001 was due primarily to headcount reductions in
apparel and at corporate. The Company further reduced the number of selling
and administrative employees by more than 70 during fiscal 2002.

As described in greater detail in Note 5 to the Consolidated Financial
Statements, the Company closed its manufacturing facilities in Altamira, Mexico
and in Brazil, and sold its operations in Herkimer, New York and Portugal. The
Company recorded $71.0 million in restructuring costs, consisting primarily of
asset impairments. In addition, the Company recorded $15.5 million of
inventory impairments related to these actions in fiscal 2002. The Company
filed for and subsequently emerged from Chapter 11 bankruptcy protection during
fiscal 2002, as described in greater detail elsewhere herein. The Company
retained the services of attorneys, financial advisers and other professionals
to assist with the bankruptcy process. The Company incurred $14.4 million,
primarily related to fees for those professionals, as reorganization costs
during fiscal 2002.

The Companys operating loss was $124.7 million in fiscal 2002 compared to
$122.8 million in fiscal 2001. The change of $1.9 million consisted of selling
and administrative expense decreases of $16.9 million, partially offset by
lower gross margin of $4.7 million in fiscal 2002 and the inclusion in fiscal
2002 of $14.4 million of reorganization costs. Operating income in the
Automotive segment declined to $6.1 million in fiscal 2002 from $13.2 million
in fiscal 2001 as a result of a $4.8 million increase in restructuring expenses
in fiscal 2002. Included in such restructuring expenses in fiscal 2002 were
losses and asset impairments associated with the closure and sale of the
Companys automotive operations in Brazil and Portugal, respectively.
Operating profit declined as a result of price reductions granted to automotive
customers and excess freight costs, offset by margin on the increased level of
sales. The Apparel segment experienced an operating loss of $66.3 million in
fiscal 2002 compared to a loss of $119.6 million in fiscal 2001. The majority
of fiscal 2002 loss was the result of the Companys restructuring actions, as
well as decreased sales and soft pricing. Operating loss in the
Direct-to-Retail Home Fashions segment rose to a loss of $48.2 million in
fiscal 2002, compared with a fiscal 2001 loss of $7.9 million due primarily to
$18.8 million of restructuring charges in fiscal 2002. This decline was due to
the lower fabric sales volume, weak pricing, and the effect of the decision to
exit this business. The Industrial segments operating loss was $2.0 million
in fiscal 2002, compared to the $8.5 million loss in the previous year. This
improvement is the result of the reorganization and downsizing of the Pine
Grove facility, and improved efficiencies in the Companys fiber operations.
See Note 22 to the Consolidated Financial Statements under Item 8 Financial
Statements and Supplementary Data of this document for a reconciliation of
segment measures to consolidated amounts.

Interest expense decreased $11.2 million to $14.1 million in fiscal 2002 from
$25.3 million in fiscal 2001. In connection with the Companys bankruptcy
reorganization, the Company was not required to pay the interest on the senior
debt during the period that the Company was under Chapter 11 protection. The
average per annum short-term interest rate was approximately 8% in fiscal 2002
and 9% in fiscal 2001. In addition, the average debt outstanding decreased to
$281.3 million in fiscal 2002 from $283.3 million in fiscal 2001.

Other income was $3.0 million in fiscal 2002 compared to $0.9 million of
expense in fiscal 2001. Fiscal 2002 included $3.8 million of income related to
death benefits from life insurance policies that the Company received covering
associates who died during the year, partially offset by other losses of $0.8
million. Fiscal 2001 included $2.8 million in equity investee losses,
partially offset by a $1.2 million gain from shares returned to the Company
related to a 1996 acquisition of a business and $0.7 million of casualty
insurance proceeds.

The effective income tax rate for fiscal 2002 was 11.7% compared to 2.7% for
fiscal 2001. These low effective rates are the result of valuation allowances
recorded in fiscal 2001 and fiscal 2002. These valuation allowances were
necessary because the Company has net operating loss and tax credit
carryforwards that, due to restructuring actions and other factors, could
expire unused. Managements assessment is that the character and nature of
future taxable income may not allow the Company to realize certain tax benefits
of net operating losses and tax credits within the prescribed carryforward
period. In addition, as a result of a change in the tax laws during 2002, the
Company carried back net operating losses to prior years, generating refunds of
approximately $15.8 million in fiscal 2002.

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Net loss in fiscal 2002 was $123.3 million or 24.0% of sales, compared to
fiscal 2001s net loss of $160.8 million or 25.0% of sales. Loss per share was
$6.66 and $8.48 per basic and diluted share for fiscal years 2002 and 2001,
respectively. Average shares outstanding remained essentially unchanged from
fiscal 2001 to fiscal 2002.

Liquidity and Capital Resources

The Companys principal sources of liquidity for operations and expansion are
funds generated internally and borrowings under its Revolving Credit Facility,
as defined herein. In connection with the reorganization, on October 4, 2002,
the Company entered into a new Credit, Security, Guaranty and Pledge Agreement,
which expires October 4, 2005, with a group of lenders. The new facility
provides for a revolving credit loan facility and letters of credit (the
Revolving Credit Facility) in a maximum principal amount equal to the lesser
of (a) $25 million or (b) a specified borrowing base, which is based upon
eligible receivables and eligible inventory. The Revolving Credit Facility
restricts investments (including investments in non-U.S. subsidiaries), capital
expenditures, acquisitions, dividends and the incurrence of additional debt.
The Revolving Credit Facility contains customary financial covenants relating
to minimum levels of EBITDA, minimum net worth, minimum fixed charge coverage
ratios and a maximum leverage ratio, all as defined therein. The Revolving
Credit Facility is secured by a first lien on substantially all of the assets
of the Company and its domestic subsidiaries, as well as on the stock of all of
the Companys subsidiaries (with the latter, in the case of the Companys
non-U.S. subsidiaries, being limited to 65% of the capital stock)
(collectively, the Collateral). Upon the Companys receipt of proceeds from
certain transactions, such as certain asset sales (including net cash proceeds
arising from the Companys beneficial interest in the Altamira Trust), the
Company is required to prepay with such proceeds any loans then outstanding
under the Revolving Credit Facility. The Company is currently in compliance
with all of the restrictions and covenants of its new Revolving Credit
Facility, as amended. All loans outstanding under the Revolving Credit Facility
bear interest at the Base Rate plus applicable interest margin or the LIBOR
rate plus an applicable interest margin based upon the Companys debt to EBITDA
ratio. As of September 28, 2003, the Company had no outstanding borrowings and
had approximately $18.8 million available for borrowing under the Revolving
Credit Facility.

The Companys U.K. operation has a separate secured bank and credit arrangement
which is available to finance operations at that location. This agreement,
which expires on December 31, 2004, generally provides for the borrowing of up
to approximately $5.1 million in local currencies at variable interest rates
that, for fiscal 2003, averaged 7.75%. As of September 28, 2003, the Company
had no outstanding borrowings under that facility. The credit facility is
considered by management to be adequate.

Cash provided by operations totaled $11.3 million in fiscal 2003, compared to
$41.7 million in fiscal 2002. Fiscal 2003 was negatively affected by the
payments of pre-petition liabilities pursuant to the Plan. In fiscal 2002, cash
was generated through reductions of receivables and inventory, although the
Company sustained significant losses.

Working capital was $115.0 million at September 28, 2003 compared to working
capital of $112.8 million at September 29, 2002. The increase in working
capital in fiscal 2003 was the result of an overall reduction in accounts
payable offset by the writedown of the Mexico City net assets. In addition,
the Company increased cash and cash equivalents by $14.1 million during fiscal
2003.

Cash provided by investing activities totaled $6.1 million in fiscal 2003,
compared to cash provided by investing activities of $36.0 million in fiscal
2002. Capital expenditures increased to $10.8 million in fiscal 2003 from $7.3
million in fiscal 2002. Proceeds from dispositions of assets totaled $0.6
million during fiscal 2003, compared to $29.0 million in fiscal 2002. Fiscal
2002 included dispositions primarily from the sale of idle plant and machinery
from closed facilities. Fiscal 2003 also included proceeds from the surrender
of life insurance policies of $18.1 million compared to $12.0 million in fiscal
2002.

Cash used in financing activities totaled $3.4 million in fiscal 2003, compared
to cash used in financing activities of $58.1 million in fiscal 2002. During
fiscal 2003, the Company paid $2.5 million on long term debt. In fiscal 2003,
the Mexico City operations converted approximately $6.2 million of its
short-term debt to long term. The Company repaid short-term borrowings of
$27.3 million during fiscal 2002 and, in connection with the bankruptcy
reorganization, paid $32.3 million in cash to the Companys senior lenders.

Based upon the ability to generate working capital through its operations, cash
on hand and its Revolving Credit Facility, the Company believes that it has the
financial resources necessary to implement its business plan, make all
necessary contributions to its defined benefit retirement plans, which
contributions are expected to be approximately $4.2 million in
fiscal 2004, and fund its
capital expenditures, which are primarily for process improvement, cost
reduction and maintenance and are expected to be approximately $12.0 million in
fiscal 2004.

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Inflation

The Company believes that the relatively moderate inflation rate of the past
decade has not significantly impacted its operations. Monetary assets (such as
cash and cash equivalents) lose purchasing power as a result of inflation,
while monetary liabilities (such as accounts payable and indebtedness) can be
settled with dollars of diminished purchasing power. The Companys monetary
liabilities exceed its monetary assets, which provides a hedge against the
effects of future inflation. While the Company is exposed to future inflation,
the degree of impact, if any, cannot be predicted.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, which was effective for business combinations initiated after
June 30, 2001. The Company did not acquire any entity subsequent to June 2001,
however, the principles of SFAS No. 141 were applied in accordance with Fresh
Start Reporting.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 provides for cessation of amortization of goodwill and
other intangibles considered to have indefinite lives and includes requirements
for periodic tests of goodwill and indefinitely lived intangible assets for
impairment. The Company adopted SFAS 142 as part of its Fresh Start Reporting.
The impact of adopting this pronouncement was not material to the Companys
financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 requires that one accounting model
be used for impairments of long-lived assets which are to be either used in a
business or disposed of by sale, and broadens the presentation of discontinued
operations to encompass more discrete components of a business enterprise than
were included under previous standards. The Company adopted SFAS No.144 as part
of its Fresh Start Reporting. The impact of adopting this pronouncement was not
material to the Companys financial statements.

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44
and 64, Amendment to FASB Statement 13, and Technical Corrections. One of the
major changes of this statement is to change the accounting for the
classification of gains and losses from the extinguishment of debt.
Accordingly, the Company will follow APB 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions in
determining whether such extinguishment of debt may be classified as
extraordinary. The Company adopted SFAS No. 145 as part of its Fresh Start
Reporting. As a result, the Company has classified gains and losses from debt
restructuring as a component of other expense. Reference is made to Item 8 -
Financial Statements and Supplementary Data  Consolidated Statements of
Operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, effective for exit or disposal activities
that are initiated after December 31, 2002, with early adoption encouraged.
SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that were previously accounted
for pursuant to the guidance that the Emerging Issues Task Force (EITF) has
set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs incurred in a Restructuring). A fundamental conclusion reached by the
Board in this Statement is that an entitys commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. Therefore, this SFAS eliminates the definition and requirements for
recognition of exit costs in EITF Issue No. 94-3. This statement also
establishes that fair value is the objective for initial measurement of the
liability. The scope of SFAS No. 146 also includes (1) costs related to
terminating a contract that is not a capital lease and (2) termination benefits
that employees who are involuntarily terminated receive under the terms of a
one-time benefit arrangement or an individual deferred-compensation contract.
The Company implemented the provisions of this accounting pronouncement
connected with the restructuring of its operations in fiscal 2003, as described
in Note 5 to the Consolidated Financial Statements under Item 8 Financial
Statements and Supplementary Data of this document.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. This Statement, which is effective
for fiscal years ending after December 15, 2002, amends SFAS No. 123,
Accounting for Stock-Based Compensation, and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 regardless of the accounting method used to
account for stock-based compensation. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. The Company implemented the
enhanced disclosure provisions as defined by Statement No. 148 during the
second quarter of fiscal 2003.

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In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. The Statement is primarily
effective for transactions occurring after June 30, 2003. The Company adopted
this Statement in the fourth quarter of fiscal 2003, and such adoption did not
have a material effect on the Companys results of operations and financial
position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted this Statement in its fourth
quarter of fiscal 2003, and such adoption did not have an effect on the
Companys financial position or results of operations.

In November 2002, the FASBs EITF reached consensus on EITF No. 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. EITF No. 00-21
addresses the accounting treatment for arrangements that provide the delivery
or performance of multiple products or services where the delivery of a
product, system or performance of services may occur at different points in
time or over different periods of time. EITF No. 00-21 is applicable to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company adopted this Statement in its fourth quarter of fiscal 2003, and such
adoption did not have an effect on the Companys financial position or results
of operations.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN No. 45
clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies relating to the guarantors accounting for, and disclosure of,
the issuance of certain types of guarantees. For guarantees that fall within
the scope of FIN No. 45, the Interpretation requires that guarantors recognize
a liability equal to the fair value of the guarantee upon its issuance. The
disclosure provisions of the Interpretation are effective for financial
statements of interim or annual periods that end after December 15, 2002.
However, the provisions for initial recognition and measurement are effective
on a prospective basis for guarantees that are issued or modified after
December 31, 2002, irrespective of a guarantors year-end. The Company is not a
party to any guarantees that fall within the scope of FIN No. 45.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities, to expand upon and strengthen existing accounting guidance that
addresses when a company should include in its financial statements the assets,
liabilities and activities of another entity. Until now, one company generally
has included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. FIN No. 46 changes that by
requiring a variable interest entity, as defined, to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. FIN No. 46 also requires disclosures about
variable interest entities that the company is not required to consolidate but
in which it has a significant variable interest. In October 2003, the FASB
issued Proposed Interpretation of FIN No. 46, which would require consolidation
of variable interest entities created before February 1, 2003 for financial
statements issued for the first reporting period ending after December 15,
2003. Certain of the disclosure requirements apply in all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. The Company does not currently believe that the implementation
of FIN No. 46 will have a material effect on its future results of operations
or its financial position.

Contingencies

The Company is involved in various litigation and environmental matters arising
in the ordinary course of business. These are discussed in Note 16 to the
Consolidated Financial Statements which are included herein under Item 8
Financial Statements and Supplementary Data of this document. The Company
maintains insurance coverage against certain potential 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, 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.

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Outlook

Readers should review the Important Information Regarding this Form 10-K -
Safe Harbor-Forward Looking Statements at the beginning of this document.

The Company has undergone substantial changes over the last two years, exiting
or downsizing its unprofitable lines of business, including Direct-to-Retail
Home Fashions and Apparel, culminating in the financial reorganization in
bankruptcy which resulted in a more viable capital structure.

Guilford is, and plans to continue to be, a company focused on serving its
primary customer base, the automotive industry. While participation in the
industrial and apparel markets is important to balance manufacturing capacity
and to generate positive earnings, the Company plans to dedicate substantially
all of its efforts and resources towards its Automotive segment.

A key component in the continued profitability of the Automotive segment will
be the number of vehicles built by auto manufacturers in Guilfords markets
(North America and Europe). Many analysts project North American and Western
Europe car build rates to increase slightly in 2004 and 2005 compared with
2003. The Company expects continued sales growth in headliner fabric in Europe
based upon booked business with BMW and Volkswagen while sales of headliner
fabric in North America are expected to increase based on higher value added
products and slight increases in build rates. The Company expects that it will
continue to experience pressure from its customers for reductions in selling
prices. The Company has generally been successful in protecting its margins
through cost reduction efforts and anticipates it will be able to do so in the
foreseeable future.

The Companys Automotive segment has historically not seen significant
competitive threats from foreign textile manufacturers. Auto manufacturers and
their suppliers have typically desired that their sources of supply be locally
situated in order to have greater confidence in the supply chain and to avoid
the complexities and issues associated with importing fabrics or components
from foreign countries. However, during 2003, one major auto manufacturer
chose to import fabric from Asia for one of its programs previously supplied by
Guilford. There is indication that this manufacturer and others are evaluating
Asian sourcing in an effort to reduce costs. The Company has maintained and
protected its position on other fabric programs with these auto manufacturers,
although at lower initial margins, and has not lost additional programs to
Asian suppliers. The impact of the actions to date is not expected to have a
material impact on the financial position or future results of operations. It
is currently unclear whether the significant logistical problems associated
with sourcing fabric in Asia can be economically resolved by the auto
manufacturers. If, however, importation of fabric or components were to become
a trend among auto manufacturers, such a trend could materially adversely
impact the Companys business, and the Company would need to determine how to
respond to this new competitive threat.

Because the Companys reorganization in bankruptcy was completed relatively
quickly, Guilford believes it was generally able to preserve its strong
customer and supplier relationships. Guilford is a well-established, key
supplier to the automotive industry with substantial market share, and expects
to continue to grow and improve its profitability in the future.

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.



|         |  |                                                           
|-------- |  | ----------------------------------------------------------
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk for changes in interest rates and foreign
currency exchange rates and has exposure to commodity price risk, including
prices of primary raw materials, fiber and foam. The Company does not hold or
issue any financial instruments for trading or other speculative purposes.

Interest Rate Risk: The Companys obligations under the Revolving Credit
Facility bear interest at floating rates and therefore, the Company is impacted
by changes in prevailing interest rates. However, the senior notes bear fixed
interest coupons and therefore are not subject to the risk of interest rate
fluctuations. A 10% change in market interest rates that affect the Companys
financial instruments would impact earnings during fiscal 2004 by less than
$0.1 million before taxes.

21



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Foreign Currency Risk: The Company is subject to foreign currency risk
primarily related to sales and expenditures and other transactions denominated
in foreign currencies and investments in non-U.S. subsidiaries. The Company
manages the exposure related to certain of these risks through forward foreign
exchange contracts with durations generally less than 12 months. The changes
in the market value of such contracts have a high correlation to the price
changes in the currency of the related hedged transactions. The Company enters
into forward foreign currency exchange contracts in the normal course of
business to manage exposure related to anticipated sales denominated in foreign
currencies and against fluctuations in the purchase price of capital equipment
and other transactions having firm commitments. On September 28, 2003, the
Company held foreign currency forward contracts with a fair value of $45.9
million and a notional value of $45.4 million that expire in less than one
year. The Company did not enter into any forward exchange contracts in fiscal
2001 and 2002.

22



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##### Table of Contents





|        |  |                                            
|------- |  | -------------------------------------------
|Item 8. |  | Financial Statements and Supplementary Data

GUILFORD MILLS, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
As of September 28, 2003 and September 29, 2002 and for the
fiscal years ended
September 28, 2003, September 29, 2002 and September 30, 2001.

PageStatement of Managements Responsibility
    
    
    24Reports of Independent Public Accountants
    
    
    25Consolidated Balance Sheets
    
    
    28Consolidated Statements of Operations
    
    
    29Consolidated Statements of Stockholders Investment
    
    
    30Consolidated Statements of Cash Flows
    
    
    31Notes to the Consolidated Financial Statements
    
    
    32Quarterly Information (Unaudited)
    
    
    60Schedule II  Analysis of Valuation and Qualifying Accounts
    
    
    61


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STATEMENT OF MANAGEMENTS RESPONSIBILITY

The management of Guilford Mills, Inc. has the responsibility for the
preparation and integrity of all information contained in the Annual Report.
The accompanying financial statements, including footnotes, have been prepared
in accordance with accounting principles generally accepted in the United
States of America and include amounts that are based on managements best
estimates and judgments.

The Company maintains an internal accounting control system designed to provide
reasonable assurance of the safeguarding and accountability of Company assets,
and to ensure that its financial records provide a reliable basis for the
preparation of financial statements and other data. The system includes an
appropriate division of responsibility and is documented by written policies
and procedures that are communicated to employees with significant roles in the
financial reporting process and updated as necessary. In addition, the
achievement of effective operations is promoted by this system. There are
limits inherent in all systems of internal control based on the recognition
that the cost of such systems should not exceed the benefits derived and the
likelihood of achievement of objectives can be affected by human judgment,
failure or circumvention. Management believes the Companys system of internal
controls provides an appropriate balance.

The control environment is complemented by an internal auditing program,
comprised of internal and external business advisors who independently assess
the effectiveness of the internal controls and report findings to management
throughout the year. The group delivers increased value by aligning with the
business objectives to reduce risk and create cost efficiencies. The Companys
accompanying financial statements have been audited by independent public
accountants who have expressed their opinion with respect to the fairness of
the presentation of these statements in conformity with accounting principles
generally accepted in the United States of America. They objectively and
independently review the performance of management in carrying out its
responsibility for reporting operating results and financial condition. Their
opinion is based on procedures which they believe to be sufficient to provide
reasonable assurances that the financial statements contain no material errors.
Management has made available to the independent public accountants all of the
Companys financial records and related data, as well as the minutes of the
stockholders and directors meetings. Recommendations by both internal and
external auditors concerning internal control deficiencies are considered and
are implemented with an appropriate urgency by management.

The Audit Committee of the Board of Directors, which is formally chartered, is
comprised solely of non-employee directors who meet periodically with the
independent auditors, management and the Companys internal auditors to review
the work of each and to evaluate the accounting, auditing, internal controls
and financial reporting matters. The independent auditors and the Companys
internal auditors have free access to the Audit Committee, without the presence
of management.

/s/ David H. Taylor

David H. Taylor
Chief Financial Officer

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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors
Guilford Mills, Inc.:

We have audited the accompanying consolidated balance sheets of Guilford Mills,
Inc. (a Delaware corporation) and subsidiaries as of September 28, 2003
(Successor Company) and September 29, 2002 (Successor Company) and the related
consolidated statements of operations, stockholders investment and cash flows
for the years ended September 28, 2003 (Successor Company) and September 29,
2002 (Predecessor Company). These financial statements and the schedule
referred to below are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. The consolidated financial statements of Guilford
Mills, Inc. and subsidiaries for the year ended September 30, 2001
(Predecessor Company) were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those
Predecessor Company financial statements in their report dated January 14,
2002. Their report also included an explanatory paragraph that the Predecessor
Companys substantial losses from operations in fiscal 2001 and debt covenant
violations raised substantial doubt about the Predecessor Companys ability to
continue as a going concern.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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.

As discussed in Notes 1 and 3 to the Consolidated Financial Statements, on
March 13, 2002, Guilford Mills, Inc. and its domestic subsidiaries filed
voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in New York.
On September 20, 2002, the Bankruptcy Court entered an order confirming the
plan of reorganization, which became effective on October 4, 2002. The plan
was deemed to be effective as of September 29, 2002 for financial reporting
purposes. Accordingly, the Company changed its basis of financial statement
presentation to reflect the adoption of fresh start reporting in accordance
with American Institute of Certified Public Accountants Statement of Position
90-7, Financial Reporting for Entities in Reorganization Under the Bankruptcy
Code. As a result, the consolidated financial statements for periods
subsequent to the reorganization (Successor Company financial statements) are
not comparable to the consolidated financial statements for the prior periods
(Predecessor Company financial statements).

In our opinion, the consolidated balance sheets present fairly, in all material
respects, the financial position of Guilford Mills, Inc. and subsidiaries as of
September 28, 2003 (Successor Company) and September 29, 2002 (Successor
Company) in conformity with accounting principles generally accepted in the
United States of America. Further, in our opinion, the consolidated financial
statements for the years ended September 28, 2003 (Successor Company) and
September 29, 2002 (Predecessor Company) present fairly, in all material
respects, the results of the Successor Companys operations and its cash flows
for the year ended September 29, 2003 and Predecessor Companys operations and
its cash flows for the year ended September 29, 2002, in conformity with
accounting principles generally accepted in the United States of America.

As discussed above, the consolidated financial statements of Guilford Mills,
Inc. and subsidiaries for the year ended September 30, 2001 were audited by
other auditors who have ceased operations. As described in Note 2, the loss
from debt restructuring originally presented as an Extraordinary Item has been
presented as a component of Other Expense in the fiscal 2001 Predecessor
Company consolidated financial statements in connection with the Companys
adoption of Statement of Financial Accounting Standards (SFAS) No. 145,
Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections. Also, as described in Note 2, the Company
changed the composition of its reportable segments in fiscal 2002, and the
amounts in the fiscal 2001 (Predecessor Company) consolidated financial
statements relating to reportable segments have been restated to conform to the
fiscal 2003 and 2002 composition of reportable segments. We audited the
adjustments described in Note 2 that were applied to reclassify the loss from
debt restructuring in the fiscal 2001 Predecessor Company consolidated
financial statements, and we audited the adjustments described in Note 2 that
were applied to restate the disclosures for reportable segments reflected in
the fiscal 2001 Predecessor Company consolidated financial statements. In our
opinion, such adjustments are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
fiscal 2001 Predecessor Company consolidated financial statements of the
Company other than with respect to such adjustments and, accordingly, we do not
express an opinion or any other form of assurance on the fiscal 2001
Predecessor Company consolidated financial statements taken as a whole.

25



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##### Table of Contents



Our audit was made for the purpose of forming an opinion on the fiscal 2003
and fiscal 2002 consolidated financial statements taken as a whole. The
schedule listed in Item 15(a)(2) of this form 10-K is the responsibility of
the Companys management and is presented for the purposes of complying with
the Securities and Exchange Commissions rules and is not part of the basic
financial statements. The information included in this schedule for the years
ended September 28, 2003 and September 29, 2002 has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole. The financial statement schedule for the year ended
September 30, 2001 was audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on the financial statement
schedule in their report dated January 14, 2002.



| | /s/ GRANT THORNTON LLP
| | ----------------------

Greensboro, North Carolina
December 5, 2003

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##### Table of Contents



THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY
ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. See
Exhibit23(b)for further discussion.




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Guilford Mills, Inc.:

We have audited the accompanying consolidated balance sheets of Guilford Mills,
Inc. (a Delaware corporation) and subsidiaries as of September 30, 2001 and
October 1, 2000, and the related consolidated statements of operations,
stockholders investment and cash flows for each of the three years in the
period ended September 30, 2001. These financial statements and the schedule
referred to below are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 financial position of Guilford Mills, Inc. and
subsidiaries as of September 30, 2001 and October 1, 2000 and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered substantial losses from
operations, its lenders have waived covenant violations only through January
18, 2002 and it is uncertain if they will continue to waive their right to
accelerate the due date of the debt or enter into a new long-term debt
agreement. These facts 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 that might result from the outcome of this uncertainty.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule titled Schedule II -
Analysis of Valuation and Qualifying Accounts in Item 8 is presented for
purposes of complying with the Securities and Exchange Commissions rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.



| | /s/ ARTHUR ANDERSEN LLP
| | -----------------------

Arthur Andersen LLP
Greensboro, North Carolina
January 14, 2002

27



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##### Table of Contents



GUILFORD MILLS, INC.
CONSOLIDATED BALANCE SHEETS
September 29, 2002 and September 28, 2003
(In thousands)

Successor
    
    SuccessorCompany
    
    Company2002
    
    2003AssetsCash and cash equivalents
    
    $
    25,074
    
    
    $
    39,151Receivables, net
    
    
    91,614
    
    
    
    59,083Inventories
    
    
    62,341
    
    
    
    51,353Assets held for sale
    
    
    
    
    
    
    18,620Other current assets
    
    
    13,169
    
    
    
    5,473Total current assets
    
    
    192,198
    
    
    
    173,680Property, net
    
    
    114,981
    
    
    
    98,203Altamira trust assets
    
    
    22,000
    
    
    
    20,800Other assets
    
    
    10,318
    
    
    
    11,005Total assets
    
    $
    339,497
    
    
    $
    303,688LiabilitiesShort-term borrowings
    
    $
    6,199
    
    
    $
    Current maturities of long-term debt
    
    
    417
    
    
    
    319Accounts payable
    
    
    41,952
    
    
    
    21,190Accrued payroll and related benefits
    
    
    14,701
    
    
    
    11,471Deferred income taxes
    
    
    1,210
    
    
    
    139Liabilities held for sale
    
    
    
    
    
    
    18,620Other current liabilities
    
    
    14,914
    
    
    
    6,958Total current liabilities
    
    
    79,393
    
    
    
    58,697Long-term debt to related parties
    
    
    135,000
    
    
    
    135,000Other long-term debt
    
    
    1,939
    
    
    
    Altamira trust notes
    
    
    22,000
    
    
    
    20,800Deferred income taxes
    
    
    1,247
    
    
    
    33Other liabilities
    
    
    44,918
    
    
    
    39,543Total long-term liabilities
    
    
    205,104
    
    
    
    195,376Commitments and Contingencies (Notes 16 & 18)Stockholders InvestmentCommon stock, including capital in excess of par
(5,501,053 shares issued and outstanding at
September 29, 2002 and September 28, 2003)
    
    
    55,000
    
    
    
    56,381Accumulated deficit
    
    
    
    
    
    
    (8,606
    )Unamortized stock compensation
    
    
    
    
    
    
    (430
    )Accumulated other comprehensive income
    
    
    
    
    
    
    2,270Total stockholders investment
    
    
    55,000
    
    
    
    49,615Total liabilities and stockholders investment
    
    $
    339,497
    
    
    $
    303,688


The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.

28



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##### Table of Contents



GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Fiscal Years ended September 30, 2001, September 29, 2002 and September 28, 2003
(In thousands except per share data)

SuccessorPredecessor Company
    

    Company2001
    
    2002
    


    2003Net Sales
    
    $
    643,519
    
    
    $
    513,173
    
    


    $
    445,971Cost of goods sold
    
    
    612,707
    
    
    
    487,114
    
    


    
    378,665Gross Profit
    
    
    30,812
    
    
    
    26,059
    
    


    
    67,306Selling and administrative
    
    
    82,274
    
    
    
    65,380
    
    


    
    43,665Reorganization costs
    
    
    
    
    
    
    14,350
    
    


    
    1,326Restructuring and impaired asset charges
    
    
    71,375
    
    
    
    71,050
    
    


    
    16,599Operating income (loss)
    
    
    (122,837
    )
    
    
    (124,721
    )
    


    
    5,716Interest expense
    
    
    25,292
    
    
    
    14,080
    
    


    
    15,612Fresh start adjustments
    
    
    
    
    
    
    16,393
    
    


    
    (Gain) loss on debt restructuring
    
    
    4,725
    
    
    
    (20,588
    )
    


    
    Impaired investments
    
    
    11,451
    
    
    
    8,063
    
    


    
    Other expense (income), net
    
    
    911
    
    
    
    (2,963
    )
    


    
    (120
    )Loss Before Income Tax Benefit
    
    
    (165,216
    )
    
    
    (139,706
    )
    


    
    (9,776
    )Income Tax Benefit
    
    
    (4,459
    )
    
    
    (16,393
    )
    


    
    (1,170
    )Net Loss
    
    $
    (160,757
    )
    
    $
    (123,313
    )
    


    $
    (8,606
    )Net Loss Per Share:Basic
    
    $
    (8.48
    )
    
    $
    (6.66
    )
    


    $
    (1.56
    )Diluted
    
    
    (8.48
    )
    
    
    (6.66
    )
    


    
    (1.56
    )


The accompanying notes to consolidated financial statements are an integral part of these statements

29



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##### Table of Contents



GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS INVESTMENT

For the Fiscal Years ended September 30, 2001, September 29, 2002 and September 28, 2003
(in thousands)

Retained
    
    AccumulatedCurrent Year
    
    Common Stock
    
    Capital in
    
    Earnings
    
    Other
    
    Unamortized
    
    Treasury Stock
    
    TotalComprehensive
    
    
    
    Excess of
    
    (Accumulated
    
    Comprehensive
    
    Stock
    
    
    
    Stockholders'Income (Loss)
    
    Shares
    
    $ Amount
    
    Par
    
    Deficit)
    
    Income (Loss)
    
    Compensation
    
    Shares
    
    $ Amount
    
    InvestmentPredecessor Company Balance, October 1, 2000
    
    
    
    
    
    
    32,750
    
    
    $
    655
    
    
    $
    120,371
    
    
    $
    336,505
    
    
    $
    (17,164
    )
    
    $
    (2,084
    )
    
    
    13,556
    
    
    $
    (128,511
    )
    
    $
    309,772Comprehensive income:Net Loss
    
    $
    (160,757
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160,757
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160,757
    )Other comprehensive loss, net of tax:Foreign currency translation loss
    
    
    (2,251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )Pension equity adjustment
    
    
    (5,133
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,133
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,133
    )Total comprehensive loss
    
    $
    (168,141
    )Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients individual tax obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    (25
    )
    
    
    (25
    )Compensation under restricted stock plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,136
    
    
    
    
    
    
    
    
    
    
    
    1,136Cancellation of grants of shares under the
Restricted stock plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    20
    
    
    
    (108
    )
    
    
    U.S. income tax expense from restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123
    )Return of shares by former owner
of Hofmann Laces
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573
    
    
    
    (1,232
    )
    
    
    (1,232
    )Issuance of treasury stock to retiring members of
the Board of Directors under phantom stock plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (229
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    351
    
    
    
    122Predecessor Company Balance, September 30, 2001
    
    
    
    
    
    
    32,750
    
    
    
    655
    
    
    
    119,984
    
    
    
    175,748
    
    
    
    (24,548
    )
    
    
    (805
    )
    
    
    14,123
    
    
    
    (129,525
    )
    
    
    141,509Comprehensive income:Net Loss
    
    $
    (123,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123,313
    )Other comprehensive loss, net of tax:Foreign currency translation gain
    
    
    3,451
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,451
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,451Pension equity adjustment
    
    
    (16,657
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,657
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,657
    )Total comprehensive loss
    
    $
    (136,519
    )Cancellation of grants of shares under the
Restricted stock plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    6
    
    
    
    (125
    )
    
    
    (92
    )Compensation under restricted stock plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    604
    
    
    
    
    
    
    
    
    
    
    
    604Effect of Reorganization:Cancellation of old common stock
    
    
    
    
    
    
    (32,750
    )
    
    
    (655
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,129
    )
    
    
    129,650
    
    
    
    128,995Fresh start adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119,984
    )
    
    
    (52,435
    )
    
    
    37,754
    
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    (134,497
    )New common stock issued in reorganization
    
    
    
    
    
    
    5,501
    
    
    
    55
    
    
    
    54,945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,000Successor Company Balance, September 29, 2002
    
    
    
    
    
    
    5,501
    
    
    
    55
    
    
    
    54,945
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,000Comprehensive income:Net Loss
    
    $
    (8,606
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,606
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,606
    )Other comprehensive loss, net of tax:Foreign currency translation gain
    
    
    2,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,066Pension equity adjustment
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )Forward foreign currency exchange contracts
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324Total comprehensive loss
    
    $
    (6,336
    )Issuance of employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    510
    
    
    
    
    
    
    
    
    
    
    
    (510
    )
    
    
    
    
    
    
    
    
    
    
    Compensation under stock option plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    80Reversal of tax valuation allowances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    871Successor Company Balance, September 28, 2003
    
    
    
    
    
    
    5,501
    
    
    $
    55
    
    
    $
    56,326
    
    
    $
    (8,606
    )
    
    $
    2,270
    
    
    $
    (430
    )
    
    
    
    
    
    $
    
    
    
    $
    49,615


The accompanying notes to consolidated financial statements are an integral part of these statements.

30



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##### Table of Contents



GUILFORD MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years ended September 30, 2001, September 29, 2002, and September 28, 2003
(in thousands)

Predecessor
    
    
    
    
    

    SuccessorCompany
    

    Company2001
    
    
    
    
    
    2002
    

    2003OPERATING ACTIVITIESNet loss
    
    $
    (160,757
    )
    
    
    
    
    
    $
    (123,313
    )
    

    $
    (8,606
    )Adjustments required to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    56,636
    
    
    
    
    
    
    
    38,129
    
    

    
    15,452Unexpended restructuring costs
    
    
    57,947
    
    
    
    
    
    
    
    65,725
    
    

    
    15,883Fresh start adjustments
    
    
    
    
    
    
    
    
    
    
    16,393
    
    

    
    Non-cash reorganization items
    
    
    
    
    
    
    
    
    
    
    3,351
    
    

    
    Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    (776
    )
    

    
    Loss on equity method investments
    
    
    14,286
    
    
    
    
    
    
    
    9,595
    
    

    
    73Gain on return of shares
    
    
    (1,232
    )
    
    
    
    
    
    
    
    
    

    
    Gain (loss) on debt extinguishments
    
    
    4,725
    
    
    
    
    
    
    
    (20,588
    )
    

    
    Gain (loss) on disposition of property
    
    
    (2,144
    )
    
    
    
    
    
    
    (9,027
    )
    

    
    56Provision for bad debts
    
    
    1,299
    
    
    
    
    
    
    
    5,848
    
    

    
    (1,378
    )Minority interest in net loss
    
    
    (172
    )
    
    
    
    
    
    
    96
    
    

    
    (143
    )Deferred income taxes
    
    
    (1,149
    )
    
    
    
    
    
    
    (1,209
    )
    

    
    (1,580
    )Increase in cash surrender value of life insurance
    
    
    (2,810
    )
    
    
    
    
    
    
    (1,602
    )
    

    
    (294
    )Compensation earned under equity stock plan
    
    
    1,279
    
    
    
    
    
    
    
    637
    
    

    
    80Changes in assets and liabilities:Receivables
    
    
    38,246
    
    
    
    
    
    
    
    17,028
    
    

    
    6,389Inventories
    
    
    35,645
    
    
    
    
    
    
    
    42,260
    
    

    
    2,570Other current assets
    
    
    193
    
    
    
    
    
    
    
    431
    
    

    
    8,252Accounts payable
    
    
    (12,670
    )
    
    
    
    
    
    
    (345
    )
    

    
    (12,792
    )Accrued liabilities
    
    
    (17,072
    )
    
    
    
    
    
    
    9,052
    
    

    
    (10,014
    )Other assets and liabilities
    
    
    (5,010
    )
    
    
    
    
    
    
    (10,026
    )
    

    
    (2,635
    )Net cash provided by operating activities
    
    
    7,240
    
    
    
    
    
    
    
    41,659
    
    

    
    11,313INVESTING ACTIVITIESAdditions to property
    
    
    (53,163
    )
    
    
    
    
    
    
    (7,271
    )
    

    
    (10,760
    )Proceeds from dispositions of property and other assets
    
    
    2,666
    
    
    
    
    
    
    
    29,046
    
    

    
    600Proceeds from life insurance policies
    
    
    11,652
    
    
    
    
    
    
    
    11,957
    
    

    
    18,136Proceeds from sale of investments
    
    
    
    
    
    
    
    
    
    
    2,680
    
    

    
    Investment in equity investee
    
    
    (4,874
    )
    
    
    
    
    
    
    (397
    )
    

    
    (1,855
    )Net cash (used in) provided by investing activities
    
    
    (43,719
    )
    
    
    
    
    
    
    36,015
    
    

    
    6,121FINANCING ACTIVITIESShort-term borrowings (repayments), net
    
    
    22,134
    
    
    
    
    
    
    
    (27,297
    )
    

    
    (7,869
    )Payments of long-term debt
    
    
    (113,751
    )
    
    
    
    
    
    
    (36,576
    )
    

    
    (2,543
    )Proceeds from issuance of long-term debt, net of deferred financing costs paid
    
    
    110,029
    
    
    
    
    
    
    
    38,000
    
    

    
    7,024Payment to senior secured lenders in reorganization
    
    
    
    
    
    
    
    
    
    
    (32,273
    )
    

    
    Net cash provided by (used in) financing activities
    
    
    18,412
    
    
    
    
    
    
    
    (58,146
    )
    

    
    (3,388
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (162
    )
    
    
    
    
    
    
    (99
    )
    

    
    31Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (18,229
    )
    
    
    
    
    
    
    19,429
    
    

    
    14,077Beginning Cash and Cash Equivalents
    
    
    23,874
    
    
    
    
    
    
    
    5,645
    
    

    
    25,074Ending Cash and Cash Equivalents
    
    $
    5,645
    
    
    
    
    
    
    $
    25,074
    
    

    $
    39,151Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    26,550
    
    
    
    
    
    
    $
    4,100
    
    

    $
    10,888Cash received for income taxes, net
    
    
    (3,209
    )
    
    
    
    
    
    
    (14,799
    )
    

    
    (3,682
    )


The accompanying notes to consolidated financial statements are an integral part of these statements.

31



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##### Table of Contents



Notes to Consolidated Financial Statements
(In thousands except share and per share data)

1.     Description of Business and Basis of Presentation:

Description of Business- Historically, Guilford Mills, Inc. (Guilford or
the Company) 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.

Basis of Presentation- On March 5, 2002, the Company reached an agreement in
principle with its senior lenders on a restructuring of the Companys
approximately $274,000 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.

On or about the Effective Date, the following transactions or events occurred:



|1. |  | The Companys senior secured debt of approximately $274,000 was
discharged, and was replaced with new senior secured notes, due October 4,
2005, totaling $135,000.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | The Company transferred approximately $70,000 in cash and property to
trusts and its senior lenders, as partial consideration for the debt
reduction described above.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The Companys $30,000 Debtor-In-Possession Credit Agreement, dated as of
March 13, 2002, with Wachovia Bank was cancelled and the Company entered
into a $25,000 revolving credit facility.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The Company began paying in cash approximately $15,600 in pre-petition
liabilities to its vendors, payment of which had been stayed during the
bankruptcy proceedings.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The new members of the board of directors began serving as directors.
|-- |  | ---------------------------------------------------------------------

Upon emergence from Chapter 11, the Company adopted the provisions of 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. Accordingly, all assets and liabilities have been restated to
reflect their reorganization value, which approximates their fair value at the
Effective Date. The Company recorded the effects of the Plan and Fresh Start
Reporting as of September 29, 2002. The consolidated balance sheet and related
information at September 29, 2002 and financial statements as of September 28,
2003 and for the fiscal year then ended are referred to as Successor Company,
and reflect the effects of the reorganization and the principles of Fresh Start
Reporting. Financial statement amounts prior to September 29, 2002, including
the results of operations and cash flows for the year ended September 29, 2002,
reflect operations prior to the Companys emergence from Chapter 11
proceedings, and are referred to as Predecessor

32Table of Contents

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Company. 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.

The reorganization value of the Companys new common equity of $55,000 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 fiscal 2002 and 2003 consolidated statements of operations reflect certain
restructuring fees and expenses including professional fees and expenses
directly related to the reorganization. Interest expense in fiscal 2002 on the
Companys senior secured debt has been reported to the Filing Date. Such
interest expense was not reported subsequent to the Filing Date through the
Effective Date because it was not required to be paid. The difference between
reported interest expense and stated contractual interest expense of the
Predecessor Company was approximately $12,600 during the period March 13, 2002
to September 29, 2002.

In fiscal 2002, as a result of the consummation of the Plan, the Company
recognized a gain on reorganization of $20,588. This gain reflects the
forgiveness of debt and interest of $273,870, in consideration of new senior
secured notes of $135,000, new common stock valued at $49,500, cash of $32,273
and other assets of $36,509 conveyed into two trusts as described below.

Pursuant to the Plan, on the Effective Date, the Company transferred to a newly
created trust certain assets relating to the Companys discontinued operations
located in Altamira, Mexico (the Altamira Trust). Such assets, which had an
estimated fair market value of $22,000 at the time the Altamira Trust was
established, include (among other items) the Companys 50% equity interest in a
joint venture which owns certain infrastructure assets in an Altamira
industrial park as well as stock of the Companys wholly-owned Mexican
subsidiaries which (until the fourth quarter of the Companys 2002 fiscal year)
had operated in such park. The Altamira Trust issued notes to the secured
lenders in the aggregate principal amount of $22,000 (the Altamira Trust
Notes) in connection with the implementation of the Plan and in partial
satisfaction of such lenders pre-petition claim against the Company. The
Altamira Trust Notes are secured by liens on all of the Altamira Trust assets,
bear interest at the annual rate of 10%, are payable on October 4, 2005, and
are payable only from the Altamira Trust assets. The trustee of the Altamira
Trust is required to pay all liabilities and obligations of the Altamira Trust
from the Altamira Trust assets. The Company is not a guarantor of, nor
otherwise responsible for, the payment of the Altamira Trust Notes or other
liabilities of the Altamira Trust. The Company is, however, the sole
beneficiary of the Altamira Trust and, therefore, is entitled to receive the
Altamira Trust assets remaining, if any, after the payment in full of the
Altamira Trust Notes and of all other liabilities and obligations of the
Altamira Trust. Under the provisions of SFAS No. 140 Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities  A
Restatement of FASB Statement No. 125 (SFAS No. 140), the Company has
recognized the assets and liabilities of the Altamira Trust in its consolidated
financial statements.

During fiscal 2003, the Altamira Trust paid $1,200 in partial satisfaction of
the Altamira Trust Notes. The trustee of the Altamira Trust continues to
liquidate assets to satisfy the Altamira Trust Notes and other liabilities and
obligations of the Altamira Trust. While the Company is sole beneficiary of
the Altamira Trust, all Altamira Trust Notes and other liabilities and
obligations of the Altamira Trust must be paid in full before the Company can
receive any benefit. The Company has recorded no benefit as of September 28,
2003 related to the Altamira Trust as none is currently anticipated. The
Companys receipt of any net cash proceeds relating to the Companys beneficial
interest in the Altamira Trust will trigger prepayment obligations under the
Companys senior loan agreements.

On the Effective Date, the Company also transferred pursuant to the Plan
certain assets relating to certain domestic operations to a separate, newly
created trust, the sole beneficiaries of which are the secured lenders (the
Discontinued Operations Trust). Such assets include real and personal
property which had an estimated fair value of $16,300 at that time. The
Discontinued Operations Trust issued notes to the secured lenders in the
aggregate principal amount of approximately $16,300 (the Discontinued
Operations Trust Notes) in connection with the implementation of the Plan and
in partial satisfaction of such lenders pre-petition claim against the
Company. (The Company also distributed to the secured lenders on the Effective
Date cash in the aggregate amount of $32,207, an amount representing proceeds
from the sale of certain other discontinued assets consummated prior to the
Effective Date.) The Discontinued Operations Trust Notes are secured by liens
on all of the Discontinued Operations Trust assets, bear interest at the annual
rate of 10%, are payable on October 4, 2005, and are payable only from the
Discontinued Operations Trust assets. The trustee

33Table of Contents

Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

of the Discontinued Operations Trust is required to pay all liabilities and
obligations of the Discontinued Operations Trust from Discontinued Operations
Trust assets. The Company is not a guarantor of, nor otherwise responsible
for, the payment of the Discontinued Operations Trust Notes or other
liabilities of the Discontinued Operations Trust. The Company retains no
beneficial interest in the Discontinued Operations Trust or in any assets held
by the Discontinued Operations Trust.

2.     Summary of Significant Accounting Policies

Principles of Consolidation- The Consolidated Financial Statements include the
accounts of Guilford Mills, Inc. and its majority-owned and controlled
subsidiaries and, as described in Note 1, the assets and liabilities of the
Altamira Trust. All significant intercompany accounts and transactions have
been eliminated in consolidation.

Fiscal Year End- 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.

Use of Estimates- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of revenues and
expenses. Actual results may differ from those estimates.

Reclassifications- For comparative purposes, certain amounts in the 2002 and
2001 financial statements have been reclassified to conform to the 2003
presentation. Certain amounts were reclassified in fiscal 2002 relating to the
loss from debt restructuring in fiscal 2001 and certain segment reporting
information due to changes in the composition of reportable segments.

Cash Equivalents- All highly liquid investments with an original maturity of
three months or less are considered to be cash equivalents.

Accounts Receivable and Concentration of Credit Risk- The Company performs
ongoing credit evaluations of the financial condition of all its customers that
are provided credit on open account. Allowances for doubtful accounts are
provided based on historical experience and past due amounts as well as overall
economic conditions. The Company evaluates delinquency of accounts on a
specific review basis and charges off trade receivables when deemed
uncollectible. The Company maintains credit insurance and uses factors as a
means to reduce credit risk. As of September 28, 2003, credit insurance
covering $35,600 of certain outstanding accounts receivable was maintained.
The Company factors a portion of its trade accounts receivable to a factor,
which provides credit approval on a non-recourse basis. As of September 28,
2003 and September 29, 2002, approximately 6% and 20%, respectively, of the
Companys trade accounts receivable were factored. The factoring agreement
allows the Company to borrow against the factored receivables using negotiated
interest rates. The Successor Company had borrowing availability of $2,995 as
of September 28, 2003, but had no borrowings outstanding as of that date. The
Successor Companys new credit agreement restricts levels of factored
receivables to $10,000 at all times after the Effective Date.

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 original equipment manufacturers (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.

Receivables allowances were $2,993 and $7,842 at September 28, 2003 and
September 29, 2002, respectively. The Company maintains fully reserved
receivables for accounts which are either in bankruptcy or have been turned
over to a collection agency and also reserves for sales returns and allowances
and customer chargebacks. Net receivables at September 29, 2002 approximated
fair value for purposes of Fresh Start Reporting (See Note 3).

Minority Interest- Minority interest represents the minority stockholders
proportionate share of the equity of a certain American Textil Group company
(as defined in Note 5) based in Mexico City. In fiscal 2002, this amount was
included in other long-term liabilities in the accompanying consolidated
balance sheets. In fiscal 2003, minority interest is included in liabilities
held for sale in the accompanying consolidated balance sheets (see Note 5).

34



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##### Table of Contents



Notes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)

Inventories- Inventories of the Company are carried at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO) method for all
inventories in fiscal 2003. Inventory at September 29, 2002 was revalued
pursuant to Fresh Start Reporting (See Note 3). The Predecessor Company valued
its inventories utilizing the last in, first out (LIFO) method for certain
inventories in fiscal 2002 and 2001.

Property, Plant and Equipment- Property is carried at cost, and depreciation
is provided for financial reporting purposes primarily on the straight-line
method. Accelerated methods are used for income tax reporting purposes.
Depreciation rates are reviewed annually and revised, if necessary, to reflect
estimated remaining useful lives, which range from three to thirty-five years.
Labor and interest costs for the purchase and construction of qualifying fixed
assets are capitalized and are amortized over the related assets estimated
useful lives. Certain property whose value has been determined to be impaired
has been written down to fair market value (See Note 5). Property, plant and
equipment at September 29, 2002 was revalued pursuant to Fresh Start Reporting
(See Note 3).

Investment in Affiliated Companies- The equity method of accounting is used
for investments in which the Company has significant influence. Generally this
represents common stock ownership or partnership equity of at least 20% and not
more than 50%. For equity method investments that have been reduced to $0
through equity method losses, additional equity losses incurred have been used
to reduce loans to and investment in other securities or assets of the
investees. The cost method of accounting is used for investments in which the
Company does not have significant influence. Generally this represents common
stock ownership or partnership equity of less than 20%. These investments were
revalued at September 29, 2002 pursuant to Fresh Start Reporting (See Note 3).

Goodwill and Intangible Assets- Prior to the Companys emergence from
bankruptcy and application of Fresh Start Reporting, goodwill had been
amortized using the straight-line method over periods ranging from twenty to
forty years. Goodwill amortization was $0, $584 and $1,916 in fiscal 2003,
2002 and 2001, respectively. Under the terms of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
recognized goodwill impairments totaling $9,012 in fiscal 2002, as a result of
closures or exits from certain of the Companys acquired businesses. Upon
emergence from bankruptcy, the Company wrote off all remaining goodwill
pursuant to Fresh Start Reporting (See Note 3).

Restricted Cash- As a part of the Plan, the Company established a segregated
account with $3,022 in cash to be utilized only to make payments to certain
participants in certain non-qualified benefit plans. Restricted cash is
included in Other Assets.

Long-lived Assets- Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the asset
or its disposition. Measurement of an impairment loss for long-lived assets
that management expects to hold and use are based on the fair value of the
asset. Long-lived assets to be disposed of are reported at the lower of
carrying amount or net realizable value. See Note 5 for discussion of asset
impairment charges recorded in fiscal 2003, fiscal 2002 and fiscal 2001.

Income Taxes- Deferred or prepaid income taxes are provided for differences in
timing of expense and income recognition between income tax and financial
reporting in accordance with SFAS No. 109, Accounting for Income Taxes.
United States income taxes are not provided on the earnings of non-U.S.
operations as those are intended to be permanently reinvested. In the event
earnings are repatriated, credits received in the United States for non-U.S.
income taxes previously paid will be available to substantially reduce the
United States tax liability. Undistributed earnings of non-U.S. operations
were $1,980 at September 28, 2003 and $0 at September 29, 2002.

Foreign Currency Translation- The financial statements of certain
majority-owned non-U.S. subsidiaries are translated into U.S. dollars at the
year-end rate of exchange for asset and liability accounts and the average rate
of exchange for income statement accounts. The effects of translating the
Companys non-U.S. subsidiaries financial statements are recorded as a
component of other accumulated comprehensive income (loss) in stockholders
investment.

Revenue Recognition- The Company recognizes a sale when goods are shipped in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements. The

35Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)Company estimates and records provisions for sales returns and allowances in
the period that the sale is reported based on its historical experience or
contractual agreements.Shipping and Handling Costs- The Company includes a majority of its costs
associated with shipping and handling products within selling, general and
administrative. Such costs were $2,877, $4,009 and $1,904 in fiscal 2003, 2002
and 2001, respectively.Research and Development- The Company expenses research and development costs
as incurred. Such costs were $11,746, $9,931 and $11,499 in fiscal 2003, 2002
and 2001, respectively.Per Share Information- Basic loss per share information has been determined by
dividing the respective net loss amounts by the weighted average number of
shares of common stock outstanding during the periods. Diluted loss per share
information also considers an additional dilutive effect of stock options and
shares issued under the restricted stock plan, when applicable.All of the
common stock of the Predecessor Company was cancelled upon emergence from
bankruptcy.Financial Instruments and Derivatives- The Company periodically uses
derivative financial instruments for the purposes of reducing its exposure to
fluctuations in interest rates and foreign currency exchange rates. Gains and
losses on hedges of existing assets and liabilities are included in the
carrying amounts of those assets or liabilities and are ultimately recognized
in income. Gains and losses related to qualifying hedges of firm commitments
or anticipated transactions are deferred and are recognized in income or as
adjustments to carrying amounts when the hedged transaction occurs.The Company does not currently hold or issue any financial instruments for
trading or other speculative purposes. The Company enters into forward foreign
currency exchange contracts in the normal course of business to manage exposure
related to anticipated sales denominated in foreign currencies and against
fluctuations in the purchase price of capital equipment and other transactions
having firm commitments. On September 28, 2003, the Company held foreign
currency forward contracts with a fair value of $45,900 and a notional value of
$45,400 that expire in less than one year. For fiscal 2002 and fiscal 2001,
the Company determined that its anticipated sales in the Euro were naturally
hedged by anticipated Euro payables and therefore, no forward foreign currency
exchange contracts were purchased.Stock-Based Compensation- The Company measured compensation expense for its
stock-based employee compensation plans in accordance with SFAS No. 123,
Stock-Based Compensation, using the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion No. 25 Accounting for Stock Issued
to Employees.The following table illustrates the effect on net loss and net loss per share
if the Company had applied the fair value recognition provisions of SFAS No.
123, Accounting for Stock-Based Compensation, to stock-based compensation
expense (dollars in thousands except per share data):Predecessor
    
    Predecessor
    
    SuccessorCompany
    
    Company
    
    Company2001
    
    2002
    
    2003Net loss, as reported
    
    $
    (160,757
    )
    
    $
    (123,313
    )
    
    $
    (8,606
    )Deduct: Total stock-based compensation expense
determined under fair value based method, net of tax
effects
    
    
    534
    
    
    
    
    
    
    
    13Pro forma net loss
    
    $
    (161,291
    )
    
    $
    (123,313
    )
    
    $
    (8,619
    )Net loss per share:Basic and Diluted  as reported
    
    $
    (8.48
    )
    
    $
    (6.66
    )
    
    $
    (1.56
    )Basic and Diluted  pro forma
    
    $
    (8.51
    )
    
    $
    (6.66
    )
    
    $
    (1.57
    )

For the above information, the fair value of each option grant for the
Predecessor Company was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants in fiscal
2001: (i) expected volatility ranging from 20% to 48%, (ii) expected lives
ranging from 4 to 7 years, (iii) risk free interest rates ranging from 4.3% to
6.6% and (iv) an expected dividend yield of 0.0% to 5.0%. The weighted average
calculated value in excess of the grant value of an option granted during
fiscal 2001 under the Black-Scholes model was $0.72. There were no options
granted during fiscal 2002. For the above information, the fair value of each
option grant for the Successor Company in fiscal 2003 was estimated on the date
of grant also using the Black-Scholes option pricing model36Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)with the following assumptions: (i) expected volatility ranging from 30% to
40%, (ii) expected lives ranging from 1 to 5 years, (iii) risk free interest
rate of 3.0% and (iv) an expected dividend yield of 0.0%. The weighted average
grant date fair value of options granted in fiscal 2003 based upon the
Black-Scholes model was $4.04.Recent Accounting Pronouncements- In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, which was effective for business
combinations initiated after June 30, 2001. The Company did not acquire any
entity subsequent to June 2001, however, the principles of SFAS No. 141 were
applied in accordance with Fresh Start Reporting (See Note 3).In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 provides for cessation of amortization of goodwill and
other intangibles considered to have indefinite lives and includes requirements
for periodic tests of goodwill and indefinitely lived intangible assets for
impairment. The Company adopted SFAS 142 as part of its Fresh Start Reporting
(See Note 3). The impact of adopting this pronouncement was not material to the
Companys financial statements.In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 requires that one accounting model
be used for impairments of long-lived assets which are to be either used in a
business or disposed of by sale, and broadens the presentation of discontinued
operations to encompass more discrete components of a business enterprise than
were included under previous standards. The Company adopted SFAS No.144 as part
of its Fresh Start Reporting (See Note 3). The impact of adopting this
pronouncement was not material to the Companys financial statements.In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44
and 64, Amendment to FASB Statement 13, and Technical Corrections. One of the
major changes of this statement is to change the accounting for the
classification of gains and losses from the extinguishment of debt.
Accordingly, the Company will follow APB 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions in
determining whether such extinguishment of debt may be classified as
extraordinary. The provisions of this statement related to the rescission of
FASB Statement 4 shall be applied in fiscal years beginning after May 15, 2002
with early application encouraged. The Company adopted SFAS No. 145 as part of
its Fresh Start Reporting (See Note 3). As a result, the Company has classified
gains and losses from debt restructuring as a component of other expense in the
accompanying consolidated statements of operations.In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, effective for exit or disposal activities
that are initiated after December 31, 2002, with early adoption encouraged.
SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that were previously accounted
for pursuant to the guidance that the Emerging Issues Task Force (EITF) has
set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs incurred in a Restructuring). A fundamental conclusion reached by the
Board in this Statement is that an entitys commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. Therefore, this SFAS eliminates the definition and requirements for
recognition of exit costs in EITF Issue No. 94-3. This statement also
establishes that fair value is the objective for initial measurement of the
liability. The scope of SFAS No. 146 also includes (1) costs related to
terminating a contract that is not a capital lease and (2) termination benefits
that employees who are involuntarily terminated receive under the terms of a
one-time benefit arrangement or an individual deferred-compensation contract.
The Company implemented the provisions of this accounting pronouncement
connected with the restructuring of its operations in fiscal 2003, as described
in Note 5.In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. This Statement, which is effective
for fiscal years ending after December 15, 2002, amends SFAS No. 123,
Accounting for Stock-Based Compensation, and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 regardless of the accounting method used to
account for stock-based compensation. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. The Company implemented the
enhanced disclosure provisions as defined by Statement No. 148 during the
second quarter of fiscal 2003.37Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. The Statement is primarily
effective for transactions occurring after June 30, 2003. The Company adopted
this Statement in the fourth quarter of fiscal 2003, and such adoption did not
have a material effect on the Companys results of operations and financial
position.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted this Statement in its fourth
quarter of fiscal 2003, and such adoption did not have an effect on the
Companys financial position or results of operations.In November 2002, the FASBs EITF reached consensus on EITF No. 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. EITF No. 00-21
addresses the accounting treatment for arrangements that provide the delivery
or performance of multiple products or services where the delivery of a
product, system or performance of services may occur at different points in
time or over different periods of time. EITF No. 00-21 is applicable to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company adopted this Statement in its fourth quarter of fiscal 2003, and such
adoption did not have an effect on the Companys financial position or results
of operations.In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN No. 45
clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies relating to the guarantors accounting for, and disclosure of,
the issuance of certain types of guarantees. For guarantees that fall within
the scope of FIN No. 45, the Interpretation requires that guarantors recognize
a liability equal to the fair value of the guarantee upon its issuance. The
disclosure provisions of the Interpretation are effective for financial
statements of interim or annual periods that end after December 15, 2002.
However, the provisions for initial recognition and measurement are effective
on a prospective basis for guarantees that are issued or modified after
December 31, 2002, irrespective of a guarantors year-end. The Company is not a
party to any guarantees that fall within the scope of FIN No. 45.In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities, to expand upon and strengthen existing accounting guidance that
addresses when a company should include in its financial statements the assets,
liabilities and activities of another entity. Until now, one company generally
has included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. FIN No. 46 changes that by
requiring a variable interest entity, as defined, to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. FIN No. 46 also requires disclosures about
variable interest entities that the company is not required to consolidate but
in which it has a significant variable interest. In October 2003, the FASB
issued Proposed Interpretation of FIN No. 46, which would require
consolidation of variable interest entities created before February 1, 2003 for
financial statements issued for the first reporting period ending after
December 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not currently
believe that the implementation of FIN No. 46 will have a material effect on
its future results of operations or its financial position.3.    Bankruptcy Reorganization and Fresh Start Reporting:As discussed above, the Companys Plan was confirmed on September 20, 2002 and
the Company emerged from Chapter 11 on October 4, 2002. Pursuant to SOP 90-7,
the Company adopted Fresh Start Reporting in the accompanying consolidated
balance sheet as of September 29, 2002 to give effect to the reorganization as
of such date. 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 similar to the procedures specified in accordance with
SFAS No. 141. Each liability existing on the emergence date, other than
deferred taxes, is stated at the present value of the amounts to be paid. The
Companys reorganization value of its new equity of $55,000 was less than the
fair value of net assets. In accordance with the terms of SOP 90-7, the excess
of the revalued net assets over the reorganization value of $16,461 was
allocated to reduce proportionately the value assigned to applicable noncurrent
assets.38Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)The calculated reorganization value 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 control of management. Net deferred tax assets were
not recorded in the accompanying financial statements due to the uncertainty
regarding future operating results. Finally, all accounting principle changes
required to be adopted in the financial statements within the twelve months
following the adoption of Fresh Start Reporting were adopted at the time Fresh
Start Reporting was adopted. Adjustments to the Predecessor Companys
consolidated balance sheet as of September 29, 2002 to reflect the forgiveness
of debt, change in equity structure and Fresh Start Reporting adjustments are
presented in the following table (dollars in thousands):Predecessor
    
    Reorganization
    
    
    
    
    
    Fresh Start
    
    
    
    
    
    SuccessorCompany
    
    Adjustments
    
    A
    
    Adjustments
    
    
    
    
    
    CompanyAssetsCash and cash equivalents
    
    $
    11,826
    
    
    $
    
    
    
    
    
    
    
    $
    13,248
    
    
    
    F
    
    
    $
    25,074Restricted cash
    
    
    48,821
    
    
    
    (35,573
    )
    
    viii
    
    
    (13,248
    )
    
    
    F
    
    
    
    Accounts receivable, net
    
    
    94,180
    
    
    
    (2,816
    )
    
    iv
    
    
    250
    
    
    
    C
    
    
    
    91,614Inventories
    
    
    48,156
    
    
    
    
    
    
    
    
    
    
    
    14,185
    
    
    
    E
    
    
    
    62,341Assets held for sale
    
    
    33,693
    
    
    
    (33,693
    )
    
    
    v
    
    
    
    
    
    
    
    
    
    
    
    Other current assets
    
    
    13,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,169Total current assets
    
    
    249,845
    
    
    
    (72,082
    )
    
    
    
    
    
    
    14,435
    
    
    
    
    
    
    
    192,198Property, net
    
    
    133,351
    
    
    
    
    
    
    
    
    
    
    
    (18,370
    )
    
    
    B
    
    
    
    114,981Goodwill
    
    
    7,943
    
    
    
    
    
    
    
    
    
    
    
    (7,943
    )
    
    
    C
    
    
    
    Altamira trust assets
    
    
    
    
    
    
    22,000
    
    
    ix
    
    
    
    
    
    
    
    
    
    
    22,000Other assets
    
    
    7,290
    
    
    
    3,300
    
    
    vii
    
    
    (272
    )
    
    
    C
    
    
    
    10,318Total assets
    
    $
    398,429
    
    
    $
    (46,782
    )
    
    
    
    
    
    $
    (12,150
    )
    
    
    
    
    
    $
    339,497LiabilitiesShort-term borrowings
    
    $
    246,041
    
    
    $
    (239,842
    )
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    6,199Current maturities of long-term
debt
    
    
    23,579
    
    
    
    (23,162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417Accounts payable
    
    
    41,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,952Other current liabilities
    
    
    41,441
    
    
    
    (10,866
    )
    
    
    
    
    
    
    250
    
    
    
    C
    
    
    
    30,825Total current liabilities
    
    
    353,013
    
    
    
    (273,870
    )
    
    
    i
    
    
    
    250
    
    
    
    
    
    
    
    79,393Long-term debt
    
    
    1,939
    
    
    
    135,000
    
    
    ii
    
    
    
    
    
    
    
    
    
    
    136,939Altamira trust notes
    
    
    
    
    
    
    22,000
    
    
    ix
    
    
    
    
    
    
    
    
    
    
    22,000Deferred income taxes
    
    
    1,247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,247Other liabilities
    
    
    40,925
    
    
    
    
    
    
    
    
    
    
    
    3,993
    
    
    
    C
    
    
    
    44,918Total long-term liabilities
    
    
    44,111
    
    
    
    157,000
    
    
    
    
    
    
    
    3,993
    
    
    
    
    
    
    
    205,104Stockholders InvestmentCommon stock, old
    
    
    655
    
    
    
    
    
    
    
    
    
    
    
    (655
    )
    
    
    D
    
    
    
    Common stock, new
    
    
    
    
    
    
    55
    
    
    iii
    
    
    
    
    
    
    
    
    
    
    55Capital in excess of par
    
    
    119,984
    
    
    
    49,445
    
    
    iii
    
    
    (114,484
    )
    
    
    D
    
    
    
    54,945Retained earnings
    
    
    48,238
    
    
    
    20,588
    
    
    vi
    
    
    (68,826
    )
    
    
    D
    
    
    
    Accumulated other
comprehensive loss
    
    
    (37,754
    )
    
    
    
    
    
    
    
    
    
    
    37,754
    
    
    
    D
    
    
    
    Unamortized stock compensation
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    168
    
    
    
    D
    
    
    
    Treasury stock, at cost
    
    
    (129,650
    )
    
    
    
    
    
    
    
    
    
    
    129,650
    
    
    
    D
    
    
    
    Total stockholders investment
    
    
    1,305
    
    
    
    70,088
    
    
    
    
    
    
    
    (16,393
    )
    
    
    
    
    
    
    55,000Total liabilities and
stockholders investment
    
    $
    398,429
    
    
    $
    (46,782
    )
    
    
    
    
    
    $
    (12,150
    )
    
    
    
    
    
    $
    339,497

39Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)A.
 
 As a result of the consummation of the Plan, the Company recognized a
gain on the reorganization as follows (dollars in thousands):AmountSenior lenders debt discharged in bankruptcy:Senior secured notes
    
    $
    144,842Revolving line of credit
    
    
    118,162Accrued interest
    
    
    10,866Total
    
    
    273,870
    
    
    
    iLess distributions to senior lenders:New senior secured notes
    
    
    135,000
    
    
    iiSuccessor company common stock
    
    
    49,500
    
    
    iiiCash
    
    
    32,273Accounts receivable
    
    
    2,816
    
    
    ivAssets held for sale
    
    
    33,693
    
    
    
    vGain on debt restructuring
    
    $
    20,588
    
    
    viCash associated with the reorganization is as follows:Cash distributed to senior lenders
    
    $
    32,273Debt fees
    
    
    300
    
    
    viiRestricted cash in segregated account
    
    
    3,000
    
    
    vii$
    35,573
    
    
    viiiAssets transferred to Altamira Trust and Altamira Trust Notes
    
    $
    22,000
    
    
    ix

B.
 
 Reflects the revaluation of property to estimated fair value as of
September 29, 2002C.
 
 Reflects fair value adjustment as of September 29, 2002 in accordance with
Fresh Start ReportingD.
 
 Reflects the cancellation of the Old Common Stock and the elimination of
retained earningsE.
 
 Finished goods and work in process inventories have been valued based on
their estimated net selling price less cost
to complete, costs of disposal and reasonable profit marginF.
 
 Reclass restricted cash to cashReorganization Items  The Company incurred the following items directly
associated with the Chapter 11 reorganization proceedings (dollars in
thousands):2002
    
    2003Professional Fees
    
    $
    9,542
    
    
    $
    1,209Unamortized deferred loan costs expensed
    
    
    2,417
    
    
    
    Bonuses for retention of key employees
    
    
    1,415
    
    
    
    Lease termination costs
    
    
    934
    
    
    
    Other
    
    
    42
    
    
    
    117Total
    
    $
    14,350
    
    
    $
    1,326

4.    Acquisitions:In 1996, the Company acquired Hofmann Laces, Ltd. and affiliates (collectively,
Hofmann). As part of the original 1996 purchase agreement between the
Company and the former owner of Hofmann, the Company agreed to pay additional
consideration based upon the Companys price-earnings multiple and Hofmanns
performance through the end of calendar year 2000. The purchase agreement was
amended in fiscal year 1998 to fix the amount of the additional payment. A
$17,000 payment of the acquisition price was made during fiscal 1998 and a
final cash payment of $17,283 was made during fiscal 1999 in lieu of the
originally agreed upon contingent payment formula. During fiscal 2001, the
former owner of Hofmann transferred 573,150 shares of Old Common Stock, valued
at $1,232, to the Company. Of the 573,150 shares of the Old Common Stock that
were transferred, 300,000 were originally acquired as part of the 1996 purchase
agreement, while the remaining 273,150 had been acquired in open market
transactions. The return of shares was recorded as other income in the
accompanying fiscal 2001 consolidated statement of operations.40Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)5.    Restructuring and Impaired Asset Charges:The Company announced several restructuring actions during fiscal 2001, 2002
and 2003.Fiscal 2001Throughout fiscal 2001, the Company recorded additional restructuring charges
related to the fiscal 2000-announced closings of two apparel facilities in
North Carolina. These charges consisted primarily of equipment relocation
charges, severance costs, and additional impairment of fixed assets, as
business conditions further impacted the realizable value of certain assets.
The Company recorded total restructuring charges of $19,768 during fiscal 2001
relating to the fiscal 2000 realignment activities.On August 15, 2001, the Company announced that it would cease production of
apparel and home fashions fabrics in its Pine Grove, Pennsylvania operation.
The facility was downsized and was retained as an industrial fabrics operation.
These actions resulted in a headcount reduction of approximately 275 associates
from both manufacturing and selling and administrative areas. Restructuring
costs of $927, which relate to the write-down of knitting equipment to the
lower of carrying value or fair value, were recorded in the fourth quarter of
fiscal 2001. The Company currently uses excess capacity in the Pine Grove
plant for automotive and apparel production.On September 10, 2001, the Company announced its intention to exit the
production of stretch knit intimate apparel and swimwear fabrics and lace as
well as home fashions lace in the Cobleskill, New York operation. The Company
operated the facility through December 21, 2001 to service remaining orders and
assist in transitioning its customers to new suppliers. The Cobleskill
facility employed approximately 500 associates. The Company recorded a fiscal
2001 fourth quarter pretax restructuring charge of $50,680 associated with the
action, which primarily relates to fixed asset and goodwill impairment charges.During the fourth quarter of fiscal 2001, the Company determined that its
investment in certain equity method investees was impaired, as deteriorating
business conditions impacted these investees operations and the overall
sustainability of these parties was uncertain. One of these businesses was
based in the U.S. (which investment was sold in fiscal 2002) and one was based
in Europe. As a result, the Company recorded related investment and receivable
impairment charges of $11,451 during the fourth quarter as other expense in the
accompanying consolidated statement of operations for fiscal 2001.The following summarizes the fiscal 2001 restructuring and asset and investment
impairment actions (dollars in thousands):Predecessor CompanyOctober 1,
    
    
    
    
    
    Write-down of
    
    
    
    
    
    September2000
    
    Fiscal
    
    assets to net
    
    
    
    
    
    30, 2001reserve
    
    2001
    
    realizable
    
    Reserves
    
    reservebalance
    
    charges
    
    value
    
    utilized
    
    balanceNon-cash write-downs of property and
equipment to net realizable value
    
    $
    
    
    
    $
    27,883
    
    
    $
    27,883
    
    
    $
    
    
    
    $
    Severance and related employee benefit
costs
    
    
    8,670
    
    
    
    3,391
    
    
    
    
    
    
    
    10,353
    
    
    
    1,708Goodwill impairment
    
    
    
    
    
    
    28,989
    
    
    
    28,989
    
    
    
    
    
    
    
    Equipment relocation and other costs
    
    
    598
    
    
    
    11,112
    
    
    
    
    
    
    
    11,464
    
    
    
    246Total restructuring and asset impairment
    
    
    9,268
    
    
    
    71,375
    
    
    
    56,872
    
    
    
    21,817
    
    
    
    1,954Impaired investments
    
    
    
    
    
    
    11,451
    
    
    
    
    
    
    
    11,451
    
    
    
    Total
    
    $
    9,268
    
    
    $
    82,826
    
    
    $
    56,872
    
    
    $
    33,268
    
    
    $
    1,954

As a result of the fiscal 2001 restructuring actions, the Company also incurred
run-out inefficiencies of $3,391 and impairments of obsolete inventory of
$8,960. These amounts are included in cost of goods sold.41Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)Fiscal 2002During fiscal 2002, the Company undertook additional restructuring actions and
substantially completed its previous restructuring actions. The Company
recorded additional restructuring charges and impaired asset charges of $71,050
and impaired investment charges of $8,063 during fiscal 2002.On February 18, 2002, the Company announced an agreement in principle to sell
certain assets of its Direct-to-Retail Home Fashions segment to a third party.
As a result of the sale, the Company recorded goodwill and fixed asset
impairments and severance costs totaling $18,748. Fixed assets, consisting
primarily of buildings and machinery and equipment used to cut and sew fabric,
were written down to the lower of carrying value or fair market value, as
determined by outside appraisers.During the second quarter of fiscal 2002, the Company decided to exit the
production of Automotive fabrics in its plant in Pouso Alegre, Brazil. As a
result of this action the Company recorded fixed asset impairments, severance
costs, currency translation losses and other expenses totaling $3,900.On April 22, 2002, the Company announced that it would close its apparel plant
in Altamira, Mexico, and its associated knitting plant in Lumberton, North
Carolina. The Company operated the facilities until the fourth fiscal quarter
of 2002, and worked with its customers to identify alternative supply sources.
Approximately 180 associates in Mexico and 100 in North Carolina were affected
by the plant closures. As a result of these closures, the Company recorded
fixed asset impairments and other expense of $35,549 and investment impairments
of $9,327. Fixed assets, consisting primarily of buildings and machinery and
equipment used in knitting, dyeing and finishing, were valued at the lower of
carrying value or fair market value, as determined by outside appraisers.On May 10, 2002, the Company sold the business and certain assets of Twin
Rivers Textile Printing and Finishing (located in Schenectady, New York) to a
third party which assumed operations at that printing facility. As a result of
the sale, the Company recorded fixed asset and goodwill impairments of $3,732.During the third quarter of fiscal 2002, the Company determined that further
impairment to the value of its closed facility in Cobleskill, New York had
occurred. As a result, the Company recorded a restructuring charge of $2,106
for fixed asset impairments at this facility.During the fourth quarter of fiscal 2002, the Company sold its operations and
its facility located in Portugal. Fixed asset impairments and other expenses
totaling $3,596 were recorded as a result of this action. In addition, the
Company incurred additional impaired investment charges of $314 related to an
investment carried at cost and also recognized income of $1,578 on the sale of
an investment that was previously impaired in a prior year.The Company recorded further fixed asset impairment severance charges and other
restructuring costs for plants which had been closed in prior quarters,
totaling $3,419.In all of the impaired fixed asset charges discussed above, determination of
fair market value was based upon: (1) external appraisals, (2) in-house
engineering estimates utilizing prices for currently available new and used
equipment, (3) real property tax values, (4) contract selling price, and/or (5)
zero where intent was to scrap.42Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)The following summarizes the fiscal 2002 restructuring and asset and investment
impairment actions (dollars in thousands):SuccessorPredecessor Company
    
    CompanySeptember
    
    
    
    
    
    Write-down of
    
    
    
    
    
    September30, 2001
    
    Fiscal
    
    assets to net
    
    
    
    
    
    29, 2002Reserve
    
    2002
    
    realizable
    
    Reserves
    
    reservebalance
    
    charges
    
    value
    
    utilized
    
    balanceNon-cash write-downs of property and
equipment to net realizable value
    
    $
    
    
    
    $
    53,906
    
    
    $
    53,906
    
    
    $
    
    
    
    $
    Severance and related employee benefit
costs
    
    
    1,708
    
    
    
    4,123
    
    
    
    
    
    
    
    4,488
    
    
    
    1,343Goodwill impairment
    
    
    
    
    
    
    9,012
    
    
    
    9,012
    
    
    
    
    
    
    
    Equipment relocation and other costs
    
    
    246
    
    
    
    4,009
    
    
    
    
    
    
    
    4,255
    
    
    
    Total restructuring and asset impairment
    
    
    1,954
    
    
    
    71,050
    
    
    
    62,918
    
    
    
    8,743
    
    
    
    1,343Impaired investments
    
    
    
    
    
    
    8,063
    
    
    
    
    
    
    
    8,063
    
    
    
    Total
    
    $
    1,954
    
    
    $
    79,113
    
    
    $
    62,918
    
    
    $
    16,806
    
    
    $
    1,343

Fiscal 2003In fiscal 2003, the Company implemented a plan to realign its domestic
automotive and Mexican operations. As a result, the Company recorded severance
and related employee benefit costs of $662.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 accordance with the provisions of SFAS No. 144, the Company evaluated the
net realizable value of its long-term assets to be disposed of by sale. The
Company has determined the fair value of the American Textil Group based upon
the terms of the sale and accordingly has recorded an impairment charge of
$15,937, inclusive of the foreign currency translation loss amount of
approximately $1,800. Because the Company anticipates having continued
significant involvement with customers historically served by the American
Textil Group, the Company determined that discontinued operations treatment
would not be appropriate under SFAS No. 144.43Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)The table below summarizes the restructuring accrual as of September 28, 2003
(dollars in thousands):Successor CompanySeptember
    
    
    
    
    
    Write-down of
    
    
    
    
    
    September29, 2002
    
    Fiscal
    
    assets to net
    
    
    
    
    
    28, 2003reserve
    
    2003
    
    realizable
    
    Reserves
    
    reservebalance
    
    charges
    
    value
    
    utilized
    
    balanceNon-cash write-downs of net assets
    
    $
    
    
    
    $
    15,937
    
    
    $
    15,937
    
    
    $
    
    
    
    $
    Severance and related employee benefit
costs
    
    
    1,343
    
    
    
    662
    
    
    
    
    
    
    
    1,648
    
    
    
    357Total
    
    $
    1,343
    
    
    $
    16,599
    
    
    $
    15,937
    
    
    $
    1,648
    
    
    $
    357

6.  Receivables:Receivables at September 29, 2002 and September 28, 2003 consisted of the
following (dollars in thousands):Successor
    SuccessorCompany
    
    Company2002
    
    2003Trade accounts receivable
    
    $
    80,744
    
    
    $
    61,859Insurance receivables
    
    
    17,887
    
    
    
    167Other
    
    
    825
    
    
    
    5099,456
    
    
    
    62,076Less  Allowances
    
    
    7,842
    
    
    
    2,993Receivables, net
    
    $
    91,614
    
    
    $
    59,083

Insurance receivables at September 28, 2003 consisted of cash surrender value
proceeds. At September 29, 2002 insurance receivables also included death
benefits from life insurance policies in addition to cash surrender value
proceeds receivable. Receivables, net at September 29, 2002 approximated fair
value for purposes of Fresh Start Reporting.7.  Inventories:Inventories at September 29, 2002 and September 28, 2003 consisted of the
following (dollars in thousands) :Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Finished goods
    
    $
    24,080
    
    
    $
    19,795Raw materials and work in process
    
    
    32,933
    
    
    
    26,505Manufacturing supplies
    
    
    5,328
    
    
    
    5,053Total inventories
    
    $
    62,341
    
    
    $
    51,353

During fiscal 2002, the Predecessor Company liquidated certain LIFO inventories
that were carried at costs lower than the applicable then current costs. The
effect of these inventory decreases was to lower cost of goods sold from
current costs by approximately $1,526 in fiscal 2002.In connection with the application of Fresh Start Reporting, the Company
revalued its inventories as of September 29, 2002 to their fair values
(estimated selling prices less costs to complete, cost of disposal and a
reasonable profit margin), resulting in an increase in carrying value of
$14,185.44Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)8.  Property:As of September 29, 2002 and September 28, 2003, property and equipment
consisted of the following (dollars in thousands):Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Land
    
    $
    12,655
    
    
    $
    9,754Buildings
    
    
    34,531
    
    
    
    30,836Machinery and equipment
    
    
    63,961
    
    
    
    63,889Construction in progress
    
    
    3,834
    
    
    
    7,250114,981
    
    
    
    111,729Less  Accumulated depreciation
    
    
    
    
    
    
    13,526Property, net
    
    $
    114,981
    
    
    $
    98,203

As of the Effective Date, the Successor Company adjusted its property, plant
and equipment to estimated fair value in conjunction with the implementation of
Fresh Start Reporting. Depreciation expense was $52,620, $35,732 and $14,899
in fiscal 2001, 2002 and 2003, respectively. The Company has entered into
commitments with third party vendors to purchase approximately $2,900 in
machinery and equipment.9.  Other Assets:Other assets at September 29, 2002 and September 28, 2003 consisted of the
following (dollars in thousands)Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Cash surrender value of life insurance
    
    $
    3,400
    
    
    $
    3,357Restricted cash
    
    
    3,000
    
    
    
    3,022Investments
    
    
    1,111
    
    
    
    2,475Other
    
    
    2,807
    
    
    
    2,151Total other assets
    
    $
    10,318
    
    
    $
    11,005

During fiscal 2002 and 2003, the Company surrendered certain life insurance
policies. Proceeds from the policies surrendered totaled $11,652, $29,844 and
$249 during fiscal 2001, 2002 and 2003, respectively.10.  Other Current Liabilities:Other current liabilities at September 29, 2002 and September 28, 2003
consisted of the following (dollars in thousands):Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Accrued restructuring costs
    
    $
    1,343
    
    
    $
    357Accrued reorganization costs
    
    
    3,782
    
    
    
    Accrued interest
    
    
    
    
    
    
    3,443Accrued property taxes
    
    
    1,288
    
    
    
    805Accrued legal and professional fees
    
    
    2,286
    
    
    
    337Other
    
    
    6,215
    
    
    
    2,016Total other current liabilities
    
    $
    14,914
    
    
    $
    6,958

11.  Short-Term Borrowings:The Company has used short-term bank borrowings with terms of six months or
less to meet seasonal working capital needs. The maximum short-term borrowings
during fiscal 2001, 2002 and 2003 were $163,285, $153,649 and $7,837
respectively; the average borrowings were $138,476, $136,444 and $3,344
respectively; and the weighted average interest rates were 9%, 8% and 9% (9%,
8% and 7% for U.S. borrowings), respectively.45Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)12.  Long-Term Debt:Long-term debt at September 29, 2002 and September 28, 2003 consisted of the
following (dollars in thousands):Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Senior, secured notes with related parties, due in
October 2005, interest at 9.89%
    
    $
    135,000
    
    
    $
    135,000Revolving line of credit, due in October 2005
    
    
    
    
    
    
    Foreign subsidiary term loan with a Portuguese bank
With various due dates and a variable interest rate
(Repaid October 2002)
    
    
    2,084
    
    
    
    Other
    
    
    272
    
    
    
    319Total
    
    
    137,356
    
    
    
    135,319Less   Current maturities
    
    
    417
    
    
    
    319Total long-term debt
    
    $
    136,939
    
    
    $
    135,000

Successor CompanyIn connection with the bankruptcy reorganization, on October 4, 2002, the
Company entered into a new Credit, Security, Guaranty and Pledge Agreement,
which expires October 4, 2005, with a group of lenders. The new facility
provides for a revolving credit loan facility and letters of credit (as
amended, the Revolving Credit Facility) in a maximum principal amount equal
to the lesser of (a) $25,000 or (b) a specified borrowing base, which is based
upon eligible receivables and eligible inventory. The Revolving Credit Facility
restricts investments (including investments in non-U.S. subsidiaries), capital
expenditures, acquisitions, dividends and the incurrence of additional debt.
The Revolving Credit Facility contains customary financial covenants relating
to minimum levels of EBITDA, minimum net worth, minimum fixed charge coverage
ratios and a maximum leverage ratio, all as defined therein. The Revolving
Credit Facility is secured by a first lien on substantially all of the assets
of the Company and its domestic subsidiaries, as well as on the stock of all of
the Companys subsidiaries (with the latter, in the case of the Companys
non-U.S. subsidiaries, being limited to 65% of the capital stock)
(collectively, the Collateral). Upon the Companys receipt of proceeds from
certain transactions, such as certain asset sales (including net cash proceeds,
if any, arising from the Companys beneficial interest in the Altamira Trust),
the Company is required to prepay with such proceeds any loans then outstanding
under the Revolving Credit Facility. The Company is currently in compliance
with all of the financial restrictions and financial covenants of its new
Revolving Credit Facility. All loans outstanding under the Revolving Credit
Facility bear interest at the Base Rate plus an applicable interest margin or
the LIBOR rate plus an applicable interest margin based upon the Companys debt
to EBITDA ratio, and the Company pays a commitment fee of 0.50% on unused
amounts thereunder. As of September 28, 2003, the Company had no outstanding
loans, outstanding letters of credit of $6,202 and had approximately $18,800
available for borrowing under the Revolving Credit Facility.Pursuant to the Plan, the Company issued to the secured lenders on the
Effective Date term notes in the aggregate principal amount of $135,000 (the
Notes) in partial satisfaction of the lenders pre-petition claim against the
Company. The Notes bear interest at the annual rate of 9.89% and mature on
October 4, 2005. The Notes are secured by a second lien on the Collateral.
The Company has the option of prepaying the Notes in whole or in part prior to
their maturity date, subject to the additional payment to the Note holders of a
yield-maintenance amount and subject otherwise to the terms and provisions of
the Note agreement. Upon the Companys receipt of proceeds from certain
transactions, such as certain asset sales (including net cash proceeds, if any,
arising from the Companys beneficial interest in the Altamira Trust), the
Company is required to prepay the Notes with such proceeds (to the extent not
used to make prepayments under the Revolving Credit Facility) and to make a
yield-maintenance payment to the Note holders. Upon the occurrence of a change
in control and certain other conditions, all as defined in the Note agreement,
the Company is required to make an offer to the Note holders to prepay the
Notes, with any such prepayment to include payment of a yield-maintenance
amount. Like the Revolving Credit Facility, the Note agreement contains
customary financial covenants relating to minimum EBITDA, minimum net worth,
minimum fixed charge coverage ratios and maximum leverage ratios. The Note
agreement also restricts investments, capital expenditures, acquisitions,
dividends and the incurrence of additional debt. The Company is currently in
compliance with all of the financial covenants set forth in the Note agreement,
as amended.46Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)Annual scheduled maturities of long-term debt for the next five fiscal years
are as follows (dollars in thousands):Fiscal year
    
    Amount2004
    
    $
    3192005
    
    
    2006
    
    
    135,0002007
    
    
    2008
    
    
    Total
    
    $
    135,319

Predecessor CompanyOn May 26, 2000, the Company entered into a new $130,000 revolving credit
facility, replacing a $150,000 revolving credit facility. The new revolving
credit facility was secured by substantially all of the Companys assets and
was scheduled to mature on May 26, 2003. The interest rate on the revolving
credit facility was variable, based on prime plus 1.25%, or based on LIBOR plus
1.25% to 4.25%, depending on the Companys leverage ratio, plus as of May 16,
2001, an additional 1.75% payment in kind if the Company failed to meet certain
financial ratios. At the same time the Company entered into the new revolving
credit facility, its Senior Notes due 2008 became ratably secured with the bank
facility. Proceeds from this revolving credit facility were used to repay
borrowings on uncommitted lines of credit and the previous credit facility.The revolving credit facility and the notes were amended several times
beginning in November 2000 due to covenant non-compliance. The amendments,
among other things, increased the interest rates on the notes to 11.0%, added
the 1.75% payment in kind provision to the revolving credit facility as noted
above, established mandatory reductions to the amounts available under the
revolving credit facility and revised restrictive covenants. The May 16, 2001
amendment represented a significant modification as defined in Emerging
Issues Task Force Issue No. 96-19, and as a result, the modification was
treated as an extinguishment of the existing notes and issuance of new notes
for financial reporting purposes. This extinguishment resulted in no change to
the outstanding principal amount of the notes, but required the write-off of
previously unamortized deferred loan costs. Accordingly, a loss from the debt
restructuring of $4,725 has been recorded in the accompanying 2001 consolidated
statement of operations. In previously filed reports, this loss from debt
restructuring was classified as an Extraordinary Item in accordance with FASB
Statement 4. As part of Fresh Start Reporting, the Company adopted SFAS No.
145 and in connection therewith has reclassified this loss from debt
restructuring to Other Expense in the fiscal 2001 financial statement presented
herein.From the second quarter of fiscal 2001 through the Companys bankruptcy filing
on March 13, 2002, the Company was not in compliance with certain terms of its
senior debt agreements on several occasions. In each instance, the Companys
senior lenders issued waivers for such non-compliance.Interest costs of $2,773, $697 and $0 for fiscal 2001, 2002 and 2003,
respectively, were capitalized to property, plant and equipment.13.  Financial Instruments:The Companys financial instruments include cash, accounts receivable, accounts
payable, short-term borrowings, and foreign currency exchange contracts.
Because of their short maturity, the carrying amount of cash, accounts
receivable and accounts payable approximates fair value. Fair value of
short-term borrowings is estimated based on current rates offered for similar
debt. At September 28, 2003, the carrying amount of short-term borrowings
approximates fair value. On September 28, 2003, the Company held foreign
currency forward contracts with a fair value of $45,900 and a notional value of
$45,400 that expire in less than one year. The Company had no foreign currency
forward agreements at September 29, 2002.47Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)14.  Income Taxes:The net deferred income tax liability at September 29, 2002 and September 28,
2003 was comprised of the following (dollars in thousands):Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Assets
    
    $
    89,100
    
    
    $
    98,085Liabilities
    
    
    (91,557
    )
    
    
    (98,257
    )Total
    
    $
    (2,457
    )
    
    $
    (172
    )

Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of September 29, 2002 and September 28, 2003
were as follows (dollars in thousands):Successor
    
    SuccessorCompany
    
    Company2002
    
    2003Current deferred income taxes:Inventory valuation differences
    
    $
    (3,835
    )
    
    $
    4,408Allowances for doubtful accounts
    
    
    1,661
    
    
    
    209Accrued expenses and reserves
not currently deductible for tax
    
    
    6,991
    
    
    
    3,959Restructuring reserves
    
    
    170
    
    
    
    61Other, net
    
    
    277
    
    
    
    (166
    )Subtotal
    
    
    5,264
    
    
    
    8,471Valuation allowance
    
    
    (6,474
    )
    
    
    (8,610
    )Total current deferred income taxes
    
    $
    (1,210
    )
    
    $
    (139
    )Long-term deferred income taxes:Property
    
    $
    (13,121
    )
    
    $
    (10,333
    )Income tax credit carryforwards (expire
2004-2021)
    
    
    22,628
    
    
    
    19,431Federal net operating loss carryforward
(expires 2022)
    
    
    3,261
    
    
    
    16,318Accrued pension and other employee
benefits
    
    
    7,353
    
    
    
    11,895Alternative minimum and other tax credit
carryforwards (no expiration)
    
    
    11,783
    
    
    
    15,477State and non-U.S. net operating loss
carryforwards (expire 2005-2018)
    
    
    28,016
    
    
    
    26,327Investments in limited partnerships
    
    
    (4,580
    )
    
    
    (4,831
    )Goodwill amortization
    
    
    6,271
    
    
    
    Other, net
    
    
    (1,064
    )
    
    
    Subtotal
    
    
    60,547
    
    
    
    74,284Valuation allowance
    
    
    (61,794
    )
    
    
    (74,317
    )Total long-term deferred income taxes
    
    $
    (1,247
    )
    
    $
    (33
    )

The domestic and non-U.S. components of loss before income taxes were as
follows (dollars in thousands):Predecessor Company
    
    SuccessorCompany2001
    
    2002
    
    2003Domestic
    
    $
    (122,746
    )
    
    $
    (75,560
    )
    
    $
    13,280Non-U.S
    
    
    (42,470
    )
    
    
    (64,146
    )
    
    
    (23,056
    )Total
    
    $
    (165,216
    )
    
    $
    (139,706
    )
    
    $
    (9,776
    )

48Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)The income tax (benefit) provision consisted of the following elements (dollars
in thousands):Predecessor Company
    
    SuccessorCompany2001
    
    2002
    
    2003Current (benefit) provision:U.S. Federal
    
    $
    (5,163
    )
    
    $
    (15,295
    )
    
    $
    (13
    )State
    
    
    (16
    )
    
    
    111
    
    
    
    391Non-U.S
    
    
    
    
    
    
    
    
    
    
    32Deferred (benefit) provision:U.S. Federal
    
    
    (240
    )
    
    
    (577
    )
    
    
    State
    
    
    (30
    )
    
    
    (75
    )
    
    
    Non-U.S
    
    
    990
    
    
    
    (557
    )
    
    
    (1,580
    )Total
    
    $
    (4,459
    )
    
    $
    (16,393
    )
    
    $
    (1,170
    )

The income tax benefit as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:Predecessor Company
    
    SuccessorCompany2001
    
    2002
    
    2003Statutory U.S. federal
income tax rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%State income taxes, net of federal
income tax reduction
    
    
    (2.2
    )
    
    
    0.1
    
    
    
    2.6Non-U.S. taxes
    
    
    0.5
    
    
    
    (1.1
    )
    
    
    66.7Tax credits
    
    
    (0.3
    )
    
    
    
    
    
    
    Non-deductible goodwill
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    Changes in valuation allowance
and deferred taxes
    
    
    35.2
    
    
    
    23.8
    
    
    
    (47.1
    )Other
    
    
    (0.8
    )
    
    
    0.2
    
    
    
    0.8Effective income tax rate
    
    
    (2.7
    )%
    
    
    (11.7
    )%
    
    
    (12.0
    )%

Realization of the tax loss and credit carryforwards is contingent on future
taxable earnings in the appropriate jurisdictions. Valuation allowances have
been recorded for items which may not be realized. Each carryforward item is
reviewed for expected utilization, using a more likely than not approach,
based on the character of the carryforward item (credit, loss, etc.), the
associated taxing jurisdiction (U.S., state and local, non-U.S.), the relevant
history for the particular item, the applicable expiration dates, operating
projects that would impact utilization, and identified actions under the
control of the Company in realizing the associated carryforward benefits.
Additionally, the Companys utilization of U.S. and non-U.S. tax credit and
state investment credit carryforwards is critically dependent on related
statutory limitations that involve numerous factors beyond overall positive
earnings, all of which must be taken into account by the Company in its
evaluation. The Company assesses the available positive and negative evidence
surrounding the recoverability of the deferred tax assets and applies its
judgement in estimating the amount of valuation allowance necessary under the
circumstances. The Company continues to assess and evaluate strategies that
may enable the carryforwards, or portions thereof, to be utilized, and will
reduce the valuation allowance appropriately for each item at such time when it
is determined the more likely than not approach is satisfied.The change in valuation allowance in 2003 primarily relates to net operating
loss and tax credit carryforwards that, due to restructuring actions taken
during the current and prior years, and other factors, could expire unused.
Managements assessment is that the character and nature of future taxable
income as well as potential limitations on their use due to the change in
ownership that occurred in connection with the bankruptcy reorganization, may
not allow the Company to realize certain tax benefits of net operating losses
and tax credits within the prescribed carryforward period. Accordingly, an
appropriate valuation allowance has been made.In fiscal 2003, an income tax benefit of $871 was realized with respect to
certain non-U.S. net operating loss carryforwards that existed as of the
Effective Date. Pursuant to SOP 90-7, this benefit was reported as a direct
addition to capital in excess of par, as will the income tax benefit, if any, of future
realization of remaining net operating loss carryforwards, tax credit
carryforwards and other deductible temporary differences that existed as of the
Effective Date.49Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)15.  Benefit Plans:Guilford Mills, Inc. has a non-contributory defined benefit plan for the
majority of its hourly employees (the Guilford Plan). Gold Mills, Inc., a
wholly-owned subsidiary, also has a non-contributory defined benefit plan (the
Gold Plan) and a multi-employer pension plan, which plans together cover the
majority of its employees. Guilford Europe Limited, a wholly-owned subsidiary,
has a defined benefit pension plan covering the majority of its salaried
employees (the Guilford Europe Plan). The funded status of defined benefit
plans at the measurement dates for fiscal 2002 and fiscal 2003 were (dollars in
thousands):2002
    
    2003Projected benefit obligation:Beginning of year
    
    $
    53,424
    
    
    $
    63,807Service cost
    
    
    1,770
    
    
    
    1,931Interest cost
    
    
    3,574
    
    
    
    3,814Plan participants contributions
    
    
    227
    
    
    
    234Assumption changes
    
    
    4,421
    
    
    
    1,538Plan amendments
    
    
    172
    
    
    
    Actuarial loss
    
    
    2,360
    
    
    
    544Benefit payments
    
    
    (3,769
    )
    
    
    (3,058
    )Foreign currency adjustment
    
    
    1,628
    
    
    
    1,658End of year
    
    $
    63,807
    
    
    $
    70,468Fair value of plan assets:Beginning of year
    
    $
    43,342
    
    
    $
    41,725Actual return on plan assets
    
    
    (2,625
    )
    
    
    5,325Employer contributions
    
    
    3,076
    
    
    
    3,051Plan participant contributions
    
    
    227
    
    
    
    234Benefit payments
    
    
    (3,769
    )
    
    
    (3,058
    )Foreign currency adjustment
    
    
    1,474
    
    
    
    1,267End of year
    
    $
    41,725
    
    
    $
    48,544Reconciliation of funded status to net amount
recognized:Funded status
    
    $
    (22,082
    )
    
    
    (21,924
    )Unrecognized (gain) loss
    
    
    
    
    
    
    (110
    )Net amount recognized
    
    $
    (22,082
    )
    
    $
    (22,034
    )Successor
    
    SuccessorCompany
    
    Company2002
    
    
    
    2003Amounts recognized in the Consolidated
Balance Sheets:Accrued payroll and related benefits
    
    $
    (2,703
    )
    
    $
    (4,168
    )Other non-current liabilities
    
    
    (19,379
    )
    
    
    (17,986
    )Accumulated other comprehensive income
    
    
    
    
    
    
    120Net amount recognized
    
    $
    (22,082
    )
    
    $
    (22,034
    )

The effect of assumption changes is primarily comprised of changes in the
discount rate used to calculate the projected benefit obligation.50Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)The Guilford Mills, Inc. Plan, the Gold Mills Plan and the Guilford Europe Plan
were under-funded as of September 29, 2002 and September 28, 2003. The
following relates to those plans as of September 29, 2002 and September 28,
2003 (dollars in thousands):2002
    
    2003Guilford planProjected benefit obligation
    
    $
    36,587
    
    
    $
    40,279Accumulated benefit obligation
    
    
    36,051
    
    
    
    39,708Fair value of net assets
    
    
    22,427
    
    
    
    26,260Gold planProjected benefit obligation
    
    
    3,209
    
    
    
    3,501Accumulated benefit obligation
    
    
    2,274
    
    
    
    2,624Fair value of net assets
    
    
    1,567
    
    
    
    1,350Guilford Europe planProjected benefit obligation
    
    
    24,011
    
    
    
    26,688Accumulated benefit obligation
    
    
    22,616
    
    
    
    25,257Fair value of net assets
    
    
    17,731
    
    
    
    20,934

Funded status is determined using assumptions as of the end of each year. Net
pension expense is determined using assumptions as of the beginning of each
year. The weighted average assumptions at the respective measurement dates
were:2002
    
    2003Discount rate
    
    
    6.03
    %
    
    
    5.97
    %Long-term rate of return on plan assets
    
    
    8.06
    %
    
    
    7.74
    %Long-term rate of salary progression
    
    
    3.72
    %
    
    
    3.79
    %

The components of the defined benefit plan expenses were (dollars in
thousands):Predecessor
    
    Predecessor
    
    SuccessorCompany
    
    Company
    
    Company2001
    
    2002
    
    2003Defined benefit plans:Service cost
    
    $
    1,973
    
    
    $
    1,770
    
    
    $
    1,931Interest cost
    
    
    3,415
    
    
    
    3,574
    
    
    
    3,814Expected return on
plan assets
    
    
    (4,181
    )
    
    
    (3,660
    )
    
    
    (3,235
    )Amortization of:Transition asset
    
    
    (187
    )
    
    
    (187
    )
    
    
    Prior service cost
    
    
    (5
    )
    
    
    (6
    )
    
    
    Loss
    
    
    42
    
    
    
    663
    
    
    
    Net periodic pension cost
    
    
    1,057
    
    
    
    2,154
    
    
    
    2,510Settlement Loss
    
    
    
    
    
    
    
    
    
    
    60Domestic multi-Employer plan
    
    
    285
    
    
    
    139
    
    
    
    202Total
    
    $
    1,342
    
    
    $
    2,293
    
    
    $
    2,772

The Company maintains defined contribution plans for certain officers and
salaried employees. The Board of Directors determines contributions under
these plans. The Company also maintains a 401(k) plan for its domestic
associates. For fiscal 2001, 2002 and 2003, the provisions under these plans
were $2,356, $(48) and $1,784 respectively. Fiscal 2002 expense was reduced by
changes in estimated contributions from the prior fiscal year.The Company also maintains deferred compensation plans for certain officers and
salaried employees which provide post-retirement cash payments for various
specified periods and amounts. During fiscal 2001, 2002 and 2003, the
provisions under these plans were $1,773, $1,083 and $1,327, respectively. The
liability for deferred compensation was $16,500 at September 29, 2002 and
$15,857 at September 28, 2003 and is included in other long-term liabilities in
the accompanying consolidated balance sheets. The Company adjusted its
liability as of September 29, 2002 to estimated fair value in conjunction with
the implementation of Fresh Start Reporting.51Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)16.    Commitments and Contingencies:The Company leases certain of its manufacturing and office facilities and
equipment under non-cancelable operating leases with remaining terms of up to
16 years. Rent expense under these leases was $5,358 in 2001, $5,027 in 2002
and, $3,973 in 2003. At September 28, 2003, future minimum rental payments
applicable to these leases are $2,388 in 2004, $2,361 in 2005, $2,300 in 2006,
$1,978 in 2007, $1,227 in 2008, and $9,956 thereafter.Since January 1992, the Company has been involved in discussions with the
United States Environmental Protection Agency (EPA) regarding remedial
actions at its Gold Mills, Inc. (Gold) facility in Pine Grove, Pennsylvania
which was acquired in October 1986. Between 1988 and 1990, the Company
implemented a number of corrective measures at the facility in conjunction with
the Pennsylvania Department of Environmental Resource. Subsequently, through
negotiations with the EPA, Gold entered into a Final Administrative Consent
Order with the EPA, effective October 14, 1992. Pursuant to such order, Gold
has performed (i) certain measures designed to prevent any potential threats to
the environment at the facility, (ii) an investigation to fully determine
the nature of any release of hazardous substances at the facility and
(iii) a study to determine the appropriate corrective measures
to be taken to address the existing contamination (the
Corrective Measures Study Report). On August
21, 2003, the EPA approved Golds Corrective Measures Study Report. Gold is
currently in the process of implementing the corrective action measures set
forth in such report. This work will effectively satisfy the requirements of
the consent order. The failure of Gold to comply with the terms of the consent
order may result in the imposition of monetary penalties against the Company.In September 2001 the North Carolina Department of Environmental and Natural
Resources (DENR) notified the Company that its facility in Fuquay-Varina,
North Carolina had been placed on the state list of Inactive Hazardous Waste
Sites. That State notice raised concerns about past waste handling practices
at the facility. In response to the listing, the Company conducted certain
investigations and assessments, the results of which revealed groundwater
contamination on and off the Fuquay-Varina facility site (such areas of
contamination, collectively the Site). The Company submitted the report of
its investigations and assessments to the DENR in November 2003. DENR has
neither issued to the Company a Notice of Violation nor threatened any
enforcement action against the Company with respect to the contamination at the
Site. Future costs associated with Site contamination cannot be determined
with any certainty until DENR reviews the findings and determines what, if any,
further investigation or remediation it will require. For planning purposes,
the Company obtained an estimate of the potential costs from an independent
environmental consultant. The consultants report identified a range of
possible investigation and remediation scenarios, with costs ranging from $170
to $1,425, which could be incurred, depending on the remediation plan, over a
period of several years. Future costs may be higher or lower than the
estimated range because investigation and remediation actions ultimately
required by DENR may not be represented in the scenarios or cost estimates in
the consultants report. The Company also is not able to estimate at this time
whether any potential future costs would be recoverable from insurance or from
the prior owners of the facility, which the Company acquired in 1986. The
results of the preliminary investigation suggest that the contamination arose
from operations predating the Companys operations at the facility.The Company is implementing operational and capital improvements to the
wastewater treatment plant at its facility in Kenansville, North Carolina,
begun under a Special Order by Consent (SOC) with the North Carolina Division
of Water Quality (DWQ), that expired on June 1, 2003. Prior to such date,
the Company applied to the DWQ for an extension of the SOC. The Company
expects such request to be approved by DWQ. The failure of the Company to
achieve compliance with National Pollution Discharge Elimination System permit
effluent limitations as specified in any extension of the SOC or, if the SOC
extension is not obtained, the limitations as specified in the applicable North
Carolina law, may result in the imposition of monetary penalties against the
Company.At September 28, 2003, environmental accruals were $1,612 of which $1,168 is
non-current. At September 29, 2002, environmental accruals were $1,800 of
which $1,470 is non-current. The non-current environmental accrual amounts were
included in other long-term liabilities in the accompanying balance sheet.In the ordinary course of its business, the Company imports into the United
States a variety of products in connection with its manufacturing operations.
During fiscal 2002, primarily in order to supplement its domestic production of
two automotive fabric styles, the Company imported into the United States from
its wholly-owned subsidiary in the United Kingdom, a limited amount of fabrics
which are identical to styles that are produced in the Companys U.S.
facilities. Upon importation of this merchandise, the Company paid all
applicable customs duties, taxes, and fees. After the end of the 2002 fiscal
year, however, Company management became aware that these U.K. imports had not
been properly marked and certified as to country of origin, as required by U.S.
customs laws. The Company has disclosed this matter to the U.S. Customs
Service, in accordance with applicable procedures, and paid approximately $150
in additional marking duties in52Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)March 2003. This amount was reflected in the consolidated statement of
operations for the fourth quarter of fiscal 2002. U.S. Customs could also seek
penalties from the Company as a result of the improper markings and
certifications; however, the Company believes that even if such penalties were
imposed, they would not have a material impact on the
Companys financial position or future results of operations. The Company may
be required to reimburse certain of its customers for the amount of customs
duties that may be assessed by non-U.S. customs authorities on the merchandise.
An estimated amount of reimbursements was reflected in the consolidated
statement of operations for the fourth quarter of fiscal 2002, and such amount
was adjusted in fiscal 2003. The Company does not believe that any such
reimbursements will have a material impact on the Companys financial position
or future results of operations.The Company is also involved in various litigation, including the matters
described above, arising out of the ordinary course of business. 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, 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.17.  Capital Stock:The Predecessor Companys authorized capital stock at September 30, 2001
consisted of 1,000,000 shares of preferred stock, par value $1 per share, and
65,000,000 shares of common stock, par value $.02 per share (Old Common
Stock). No preferred stock was issued or outstanding, while 32,750,094 shares
of Old Common Stock were issued and 18,627,076 shares were outstanding. The
Company held 14,123,018 shares of treasury stock at September 30, 2001. The
Old Common Stock was cancelled as part of the Plan and replaced with common
stock, par value $.01 (New Common Stock). After the Plan, the Successor
Companys authorized New Common Stock is 11,000,000 shares, all with equal
voting rights. 5,501,053 shares of New Common Stock were issued and outstanding
at September 29, 2002 and September 28, 2003. The Successor Company has no
authorized preferred stock.18.  Stock Compensation:The Predecessor Company had a stock option plan for key employees and
directors. Options granted were either incentive stock options or
non-qualified options. The Compensation Committee of the Predecessor Companys
Board of Directors determined the purchase price of shares subject to each
non-qualified option. Options granted to directors under the formula provision
of the plan vested or became exercisable in equal annual one-third increments
commencing on the grant date. Options granted to employee participants
(pursuant to individual agreements) vested according to various schedules. The
options had a life of either five or ten years from the grant date. The plan
and all outstanding options were cancelled on the Effective Date, in
conjunction with the Companys emergence from bankruptcy and cancellation of
all previously outstanding Old Common Stock. The Successor Company had no
outstanding options at September 29, 2002.The Successor Company has a stock option plan for non-employee directors,
pursuant to which 60,000 shares of New Common Stock have been authorized, and a
stock option plan for certain employees, pursuant to which 550,000 shares of
New Common Stock have been authorized. In December 2002, the Successor Company
issued stock options covering 36,000 shares to non-employee directors of the
Company. Under the terms of the plan, the purchase price of shares subject to
the option granted was the fair market value at the date of grant. Options
granted to directors under the formula provision of the plan vest or become
exercisable in equal annual one-third increments commencing on the first
anniversary of the grant date and such options have a 10 year term.Also, in June 2003, the Successor Company issued stock options covering 111,000
shares to certain employees of the Company. The purchase price of shares
subject to the employee options granted was $4.00, while the fair market value
of the stock at the date of grant was $8.60. Options granted to employees
under the plan vest or become exercisable in equal annual one-third increments
commencing on the first anniversary of the grant date and such options have a
10 year term. The Company is accordingly recognizing compensation expense over
the vesting period of the grant for the difference in the exercise price and
fair market price of the stock at the date of grant. Compensation
expense associated with stock based benefit plans in fiscal 2003 was approximately $80.53Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)Option activity under the plans was as follows:Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted AverageShares
    
    Exercise Price
    
    Exercise PriceUnder Option
    
    Per Share
    
    Per ShareBalance, October 1, 2000 (Predecessor Company)
    
    
    1,676,308
    
    
    $
    2.03
    
    
    to
    
    $
    27.59
    
    
    $
    17.19Granted
    
    
    681,000
    
    
    
    1.72
    
    
    to
    
    
    1.80
    
    
    
    1.73Exercised
    
    
    
    
    
    
    
    
    
    to
    
    
    
    
    
    
    Forfeited
    
    
    (693,166
    )
    
    
    1.72
    
    
    to
    
    
    23.70
    
    
    
    14.40Balance, September 30, 2001 (Predecessor Company)
    
    
    1,664,142
    
    
    
    1.72
    
    
    to
    
    
    27.59
    
    
    
    11.90Granted
    
    
    
    
    
    
    
    
    
    to
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    to
    
    
    
    
    
    
    Forfeited
    
    
    (351,279
    )
    
    
    1.72
    
    
    to
    
    
    27.59
    
    
    
    7.40Cancelled pursuant to Plan of Reorganization
    
    
    (1,312,863
    )
    
    
    1.72
    
    
    to
    
    
    27.59
    
    
    
    13.10Balance, September 29, 2002 (Successor Company)
    
    
    
    
    
    
    
    
    
    to
    
    
    
    
    
    
    Granted
    
    
    147,000
    
    
    
    4.00
    
    
    to
    
    
    4.00
    
    
    
    4.00Exercised
    
    
    
    
    
    
    
    
    
    to
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    to
    
    
    
    
    
    
    Balance, September 28, 2003 (Successor Company)
    
    
    147,000
    
    
    
    4.00
    
    
    to
    
    
    4.00
    
    
    
    4.00

Options exercisable were 933,237 at September 30, 2001 and 0 at September 29,
2002 and September 28, 2003. The weighted average exercise price of the
options exercisable was $17.67 on September 30, 2001. The weighted average fair
market value of the Companys common stock at the date of grant was $1.73 for
grants made in fiscal 2001 and $7.47 for grants made in fiscal 2003.
The weighted average remaining contractual life of the options
outstanding at the end of fiscal 2003 was approximately
9.6 years.The Predecessor Company authorized 2,250,000 shares of Old Common Stock for the
1989 Restricted Stock Plan, which covered certain key salaried associates.
This plan expired in June 1999, but allowed the vesting of shares that were
outstanding (held in trust) under the plan at the time the plan expired by its
terms. As of September 30, 2001, there were 142,800 shares outstanding. These
shares carried voting and dividend rights; however, sale of the shares was
restricted prior to vesting. Of these shares, 6,300 were forfeited during
fiscal 2002, and the remainder vested either during fiscal 2002 or were
accelerated to vest on or about October 4, 2002, in connection with the
Companys emergence from bankruptcy. The accrual for shares issued under the
plan was recorded at fair market value on the date of grant with a
corresponding charge to stockholders investment representing the unearned
portion of the award. The unearned portion was amortized as compensation
expense on a straight-line basis over the related vesting period. Compensation
expense associated with stock based benefit plans in fiscal 2001 and 2002 was $1,279 and $637, respectively.The Predecessor Company had an employee stock ownership plan, which covered the
majority of U.S. full-time associates who had completed one year of service.
There was no compensation expense for the plan for fiscal 2001, 2002 and 2003.
The Company merged this plan with and into a 401(k) defined contribution plan
in fiscal 2001. As of September 29, 2002, the 401(k) plan held 597,674 shares
of Old Common Stock. Following the reorganization, the plan held 17,186 shares
of New Common Stock. These shares are considered outstanding and are included
in the basic and diluted earnings per share calculations. The 401(k) plan does
not allow new contributions to be invested in Company stock.54Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)19.    Other Expense (Income), Net:Other expense (income), net, for each of the fiscal years indicated was
comprised of the following (dollars in thousands):SuccessorPredecessor Company
    
    Company2001
    
    2002
    
    2003Minority interest
    
    $
    (172
    )
    
    $
    96
    
    
    $
    (143
    )Foreign currency transaction losses
    
    
    573
    
    
    
    826
    
    
    
    111Life insurance death benefits
    
    
    
    
    
    
    (3,755
    )
    
    
    (72
    )Loss on equity method investments
    
    
    2,835
    
    
    
    268
    
    
    
    73Insurance demutualization
    
    
    
    
    
    
    (776
    )
    
    
    Insurance claim received
    
    
    (700
    )
    
    
    
    
    
    
    Return of shares from Hofmann acquisition
    
    
    (1,232
    )
    
    
    
    
    
    
    Other
    
    
    (393
    )
    
    
    378
    
    
    
    (89
    )Total other expense (income), net
    
    $
    911
    
    
    $
    (2,963
    )
    
    $
    (120
    )

20.    Accumulated Other Comprehensive Loss:The accumulated balances and activity for each component of Accumulated Other
Comprehensive Income (Loss) are as follows (dollars in thousands):Forward Foreign
    
    AccumulatedForeign Currency
    
    
    
    
    
    Currency
    
    OtherTranslation
    
    Pension Equity
    
    Exchange
    
    ComprehensiveAdjustment
    
    Adjustment
    
    Contracts
    
    LossBalance at October 2, 2000 (Predecessor)
    
    $
    (16,887
    )
    
    $
    (277
    )
    
    $
    
    
    
    $
    (17,164
    )Change in balance
    
    
    (2,251
    )
    
    
    (5,133
    )
    
    
    
    
    
    
    (7,384
    )Balance at September 30, 2001 (Predecessor)
    
    
    (19,138
    )
    
    
    (5,410
    )
    
    
    
    
    
    
    (24,548
    )Change in balance
    
    
    3,451
    
    
    
    (16,657
    )
    
    
    
    
    
    
    (13,206
    )Fresh start adjustments
    
    
    15,687
    
    
    
    22,067
    
    
    
    
    
    
    
    37,754Balance at September 29, 2002 (Successor)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in balance
    
    
    2,066
    
    
    
    (120
    )
    
    
    324
    
    
    
    2,270Balance at September 28, 2003 (Successor)
    
    $
    2,066
    
    
    $
    (120
    )
    
    $
    324
    
    
    $
    2,270

The income tax provision for the currency hedging agreements in fiscal 2003 was
$139. The income tax benefit for the pension equity adjustments in fiscal 2001
was $3,066. No income taxes have been provided for the foreign currency
translation adjustments.55Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)21.  Earnings Per Share:The following table reconciles basic and diluted earnings per share (dollars in
thousands):Net LossShares
    
    Net Loss
    
    per share2001: Predecessor CompanyBasic EPS
    
    
    18,961,000
    
    
    $
    (160,757
    )
    
    $
    (8.48
    )Dilutive Securities:Options and Restricted Stock
    
    
    
    
    
    
    Diluted EPS
    
    
    18,961,000
    
    
    $
    (160,757
    )
    
    $
    (8.48
    )2002: Predecessor CompanyBasic EPS
    
    
    18,512,000
    
    
    $
    (123,313
    )
    
    $
    (6.66
    )Dilutive Securities:Options and Restricted Stock
    
    
    
    
    
    
    Diluted EPS
    
    
    18,512,000
    
    
    $
    (123,313
    )
    
    $
    (6.66
    )2003: Successor CompanyBasic EPS
    
    
    5,501,000
    
    
    $
    (8,606
    )
    
    $
    (1.56
    )Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    
    5,501,000
    
    
    $
    (8,606
    )
    
    $
    (1.56
    )

The number of outstanding stock options considered antidilutive for either part
or all of the fiscal year and not included in the calculation of diluted net
income per share for the fiscal years ended 2001, 2002 and 2003 were 1,664,142,
1,327,613, and 147,000 respectively. The stock options outstanding at the end
of fiscal year 2002 were cancelled as part of the Companys emergence from
bankruptcy on the Effective Date.22.    Segment Information:For Fiscal 2003, the Company has identified three reportable segments based on
market sectors: Automotive, Industrial and Apparel. During fiscal 2002 and
2001, the Company also participated in the Direct-to-Retail Home Fashions
segment.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. Guilford also operated an automotive fabric operation in
Mexico which it sold subsequent to the fiscal 2003 year end.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 also 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.56Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
accounts for intersegment sales and transfers as if the sales or transfers were
to third parties at current market prices. For comparative purposes, certain
amounts have been reclassified to conform with fiscal 2003 presentation. The
Company neither allocates to the segments nor bases segment decisions on the
following:
 
 Interest expense
 
 Other income and expense
 
 Income tax expense or benefit
 
 Reorganization costs
 
 Fresh start adjustmentsSome of the Companys assets are used by multiple segments. While certain
assets are identifiable by segment, an allocation of the substantial remaining
assets is not meaningful.Direct-to-Retail
    
    
    
    
    
    Unallocated(dollars in thousands)
    
    Automotive
    
    Apparel
    
    Home Fashions
    
    Industrial
    
    Items
    
    Total2001: Predecessor CompanyExternal sales
    
    $
    333,481
    
    
    $
    190,636
    
    
    $
    59,071
    
    
    $
    60,331
    
    
    $
    
    
    
    $
    643,519Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,196
    
    
    
    69,196Restructuring expense
    
    
    (2,946
    )
    
    
    (68,286
    )
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    (71,375
    )Operating (Loss) Profit
(including restructuring)
    
    
    13,158
    
    
    
    (119,639
    )
    
    
    (7,863
    )
    
    
    (8,493
    )
    
    
    
    
    
    
    (122,837
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,292
    
    
    
    25,292Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    911
    
    
    
    911Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165,216
    )Depreciation expense
    
    
    16,056
    
    
    
    18,954
    
    
    
    3,882
    
    
    
    13,728
    
    
    
    
    
    
    
    52,6202002: Predecessor CompanyExternal sales
    
    $
    354,701
    
    
    $
    72,827
    
    
    $
    33,272
    
    
    $
    52,373
    
    
    $
    
    
    
    $
    513,173Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,357
    
    
    
    60,357Restructuring expense
    
    
    (7,698
    )
    
    
    (44,207
    )
    
    
    (18,747
    )
    
    
    (398
    )
    
    
    
    
    
    
    (71,050
    )Reorganization costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,350
    )
    
    
    (14,350
    )Operating (Loss) Profit
(including restructuring)
    
    
    6,108
    
    
    
    (66,268
    )
    
    
    (48,245
    )
    
    
    (1,966
    )
    
    
    (14,350
    )
    
    
    (124,721
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,080
    
    
    
    14,080Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,963
    )
    
    
    (2,963
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139,706
    )Depreciation expense
    
    
    15,080
    
    
    
    6,568
    
    
    
    2,257
    
    
    
    11,827
    
    
    
    
    
    
    
    35,7322003: Successor CompanyExternal sales
    
    $
    364,815
    
    
    $
    28,178
    
    
    $
    
    
    
    $
    52,978
    
    
    $
    
    
    
    $
    445,971Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,597
    
    
    
    52,597Restructuring expense
    
    
    (6,902
    )
    
    
    (9,691
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (16,599
    )Reorganization costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,326
    )
    
    
    (1,326
    )Operating (Loss) Profit
(including restructuring)
    
    
    22,356
    
    
    
    (16,596
    )
    
    
    
    
    
    
    1,282
    
    
    
    (1,326
    )
    
    
    5,716Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,612
    
    
    
    15,612Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    (120
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,776
    )Depreciation expense
    
    
    7,780
    
    
    
    829
    
    
    
    
    
    
    
    6,290
    
    
    
    
    
    
    
    14,899

57Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)23.    Geographic Information:The accompanying financial statements include the following amounts related to
the operations of the Companys subsidiaries in United Kingdom, Brazil and
Mexico (dollars in thousands):SuccessorPredecessor Company
    
    Company2001
    
    2002
    
    2003Net sales to unaffiliated customers by the
Companys operations in:United Kingdom
    
    $
    74,729
    
    
    $
    78,214
    
    
    $
    102,010Mexico
    
    
    60,303
    
    
    
    70,430
    
    
    
    39,615Brazil
    
    
    8,085
    
    
    
    4,603
    
    
    
    Total sales of non-U.S. operations
    
    
    143,117
    
    
    
    153,247
    
    
    
    141,625United States
    
    
    500,402
    
    
    
    359,926
    
    
    
    304,346Total net sales
    
    $
    643,519
    
    
    $
    513,173
    
    
    $
    445,971

Successor Company2002
    
    2003Long-lived assets:United Kingdom
    
    $
    19,690
    
    
    $
    22,901Mexico
    
    
    14,415
    
    
    
    Brazil
    
    
    
    
    
    
    Total long-lived assets of non-U.S. operations
    
    
    34,105
    
    
    
    22,901United States
    
    
    84,794
    
    
    
    79,928Total long-lived assets
    
    $
    118,899
    
    
    $
    102,829

24.    Condensed Combined Financial Statements of Entities in BankruptcyThe following condensed combined financial statements of the Predecessor
Company are presented in accordance with SOP 90-7:Condensed Combined Consolidating Statement of Operations
Fiscal Year Ended September 29, 2002 (dollars in thousands)Entities in
    
    Entities not inReorganization
    
    Reorganization
    
    
    
    
    
    ConsolidatedProceedings
    
    Proceedings
    
    Eliminations
    
    TotalNet Sales
    
    $
    359,929
    
    
    $
    155,621
    
    
    $
    (2,377
    )
    
    $
    513,173Costs and Expenses
    
    
    430,541
    
    
    
    209,559
    
    
    
    (2,206
    )
    
    
    637,894Operating Loss
    
    
    (70,612
    )
    
    
    (53,938
    )
    
    
    (171
    )
    
    
    (124,721
    )Other expenses
    
    
    4,777
    
    
    
    10,208
    
    
    
    
    
    
    
    14,985Loss before income tax
    
    
    (75,389
    )
    
    
    (64,146
    )
    
    
    (171
    )
    
    
    (139,706
    )Income tax benefit
    
    
    (15,838
    )
    
    
    (555
    )
    
    
    
    
    
    
    (16,393
    )Net Loss
    
    $
    (59,551
    )
    
    $
    (63,591
    )
    
    $
    (171
    )
    
    $
    (123,313
    )

58Table of ContentsNotes to Consolidated Financial Statements (continued)
(In thousands except share and per share data)Condensed Combined Consolidating Statement of Cash Flows
Fiscal Year Ended September 29, 2002
(dollars in thousands)Entities in
    
    Entities not inReorganization
    
    Reorganization
    
    Consolidatedproceedings
    
    Proceedings
    
    TotalNet cash provided by operations
    
    $
    40,059
    
    
    $
    1,600
    
    
    $
    41,659Cash flows from investing activities:Additions to property
    
    
    (4,689
    )
    
    
    (2,582
    )
    
    
    (7,271
    )Proceeds from dispositions of property
    
    
    27,544
    
    
    
    1,502
    
    
    
    29,046Liquidation of life insurance policies
    
    
    11,957
    
    
    
    
    
    
    
    11,957Other
    
    
    2,680
    
    
    
    (397
    )
    
    
    2,283Net cash provided by (used in) investing activities
    
    
    37,492
    
    
    
    (1,477
    )
    
    
    36,015Cash flows from financing activities:Short-term borrowings (repayments), net
    
    
    (28,851
    )
    
    
    1,554
    
    
    
    (27,297
    )Payments of long-term debt
    
    
    (36,576
    )
    
    
    
    
    
    
    (36,576
    )Proceeds from issuance of long-term debt
    
    
    37,331
    
    
    
    669
    
    
    
    38,000Payments to senior secured lenders in
Reorganization
    
    
    (32,273
    )
    
    
    
    
    
    
    (32,273
    )Net cash provided by (used in) financing activities
    
    
    (60,369
    )
    
    
    2,223
    
    
    
    (58,146
    )Effect of exchange rate changes on cash and cash
Equivalents
    
    
    
    
    
    
    (99
    )
    
    
    (99
    )Net increase in cash and cash equivalents
    
    
    17,182
    
    
    
    2,247
    
    
    
    19,429Beginning cash and cash equivalents
    
    
    3,821
    
    
    
    1,824
    
    
    
    5,645Ending cash and cash equivalents
    
    $
    21,003
    
    
    $
    4,071
    
    
    $
    25,074

59Table of ContentsQUARTERLY INFORMATION (UNAUDITED)
(in thousands except share and per share data)The following summarizes the unaudited quarterly results of operations for the
fiscal years ended September 29, 2002 and September 28, 2003 (dollars in
thousands):Predecessor Company:Fiscal 2002 Quarter:
    
    First
    
    Second
    
    Third
    
    FourthNet sales
    
    $
    137,568
    
    
    $
    129,674
    
    
    $
    133,555
    
    
    $
    112,376Gross profit (loss)
    
    
    10,838
    
    
    
    (14,544
    )
    
    
    13,887
    
    
    
    15,878Net (loss) income
    
    
    (15,081
    )
    
    
    (99,344
    )
    
    
    (15,361
    )
    
    
    6,473Net (loss) income per share:Basic
    
    
    (.82
    )
    
    
    (5.37
    )
    
    
    (.83
    )
    
    
    .35Diluted
    
    
    (.82
    )
    
    
    (5.37
    )
    
    
    (.83
    )
    
    
    .35

Successor Company:Fiscal 2003 Quarter:
    
    First
    
    Second
    
    Third
    
    FourthNet sales
    
    $
    111,241
    
    
    $
    114,671
    
    
    $
    113,494
    
    
    $
    106,565Gross profit
    
    
    17,233
    
    
    
    15,559
    
    
    
    16,923
    
    
    
    17,591Net income (loss)
    
    
    101
    
    
    
    784
    
    
    
    1,467
    
    
    
    (10,958
    )Net income (loss) per share:Basic
    
    
    .02
    
    
    
    .14
    
    
    
    .27
    
    
    
    (1.99
    )Diluted
    
    
    .02
    
    
    
    .14
    
    
    
    .27
    
    
    
    (1.99
    )

60Table of ContentsGuilford Mills, Inc.
SCHEDULE II
Analysis of Valuation and Qualifying AccountsFor the Years Ended September 30, 2001, September 29, 2002 and September 28, 2003
(dollars in thousands)AdditionsBalance
    
    Charged to
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    Cost and
    
    
    
    
    
    
    
    
    
    Endof Period
    
    Expenses
    
    Deductions
    
    Other
    
    of Period(1)
    
    (2)For the Year Ended September 30, 2001:Reserve deducted from assets to
which it applies -
Receivables allowances
    
    $
    11,080
    
    
    $
    18,261
    
    
    $
    (18,336
    )
    
    $
    (38
    )
    
    $
    10,967Restructuring reserve
    
    $
    9,268
    
    
    $
    14,503
    
    
    $
    (21,817
    )
    
    $
    
    
    
    $
    1,954For the Year Ended September 29, 2002:Reserve deducted from assets to
which it applies -
Receivables allowances
    
    $
    10,967
    
    
    $
    23,998
    
    
    $
    (27,106
    )
    
    $
    (17
    )
    
    $
    7,842Restructuring reserve
    
    $
    1,954
    
    
    $
    8,132
    
    
    $
    (8,743
    )
    
    $
    
    
    
    $
    1,343For the Year Ended September 28, 2003:Reserve deducted from assets to
which it applies -
Receivables allowances
    
    $
    7,842
    
    
    $
    11,188
    
    
    $
    (16,027
    )
    
    $
    (10
    )
    
    $
    2,993Restructuring reserve
    
    $
    1,343
    
    
    $
    662
    
    
    $
    (1,648
    )
    
    $
    
    
    
    $
    357

(1)
    
    Deductions are for the purpose for which the reserve was created.(2)
    
    Other amounts represent the effect of exchange rate fluctuations.Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial DisclosureOn August 5, 2002, the Company terminated the engagement of its independent
certified public accountants, Arthur Andersen LLP (Andersen), and engaged the
services of Grant Thornton LLP (Grant Thornton) as its new independent
auditors for 2002, effective immediately. The decision to terminate Andersen
and retain Grant Thornton was approved by the Companys Board of Directors upon
the recommendation of its Audit Committee.61Table of ContentsItem 9A.    Controls and ProceduresThe Companys management evaluated, with the participation of the Companys
principal executive and principal financial officers (the Evaluation), the
effectiveness of the Companys disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)), as of September 28, 2003.The Companys management, including its Chief Executive Officer and Chief
Financial Officer, does not expect that the disclosure controls and procedures
will prevent all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. The inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the controls. The design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with its policies or procedures.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.Based on their Evaluation, the Companys principal executive and principal
financial officers concluded that the Companys disclosure controls and
procedures were effective as of September 28, 2003 to provide reasonable
assurance that material information relating to the Company and the Companys
consolidated subsidiaries would be made known to them by others within those
entities to allow timely decisions regarding required disclosures.There has been no change in the Companys internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Companys fiscal quarter ended September 28, 2003,
that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.62Table of Contents
PART IIIItem 10.    Directors and Executive Officers of the RegistrantDirectors of the Registrant (as of December 14, 2003)The Companys Board of Directors (the Board) is currently comprised of seven
persons. The Companys By-Laws provide that the directors are elected at the
annual meeting of stockholders and hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal. The By-Laws also generally provide that any vacancy on the Board may
be filled by the affirmative vote of a majority of the directors then in
office. Under the Plan, the initial Board after the Effective Date consists of
seven persons  John A. Emrich, the Companys President and Chief Executive
Officer and a director prior to the Effective Date, and six persons designated
by the Companys senior secured lenders. The following table sets forth certain
information with respect to each director. Except as otherwise indicated, each
such person has held his present principal occupation for the past five years
and references to executive offices held are with the Company:Name
    
    Age (1)
    
    Principal Occupation and Business Experience
    
    Director SinceDavid G. Elkins (2)
    
    
    61
    
    
    Director of The Houston Exploration
Company, a natural gas E&P company (since
1999); Director, President and Co-Chief
Executive Officer of Sterling Chemicals,
Inc., a manufacturer of petrochemicals
(from 2001 to 2003), and as its Executive
Vice President and General Counsel (from
1998 to 2001); senior partner at Andrews &
Kurth L.L.P., a law firm (from 1974 until
1998)
    
    
    2002John A. Emrich
    
    
    59
    
    
    President and Chief Executive Officer
(since 2000); President and Chief Operating
Officer (from 1995 to 1999); Senior Vice
President and President/Automotive Business
Unit (from 1993 to 1995); Vice
President/Planning and Vice
President/Operations for the Apparel and
Home Fashions Business Unit (from 1991 to
1993)
    
    
    1995Kevin M. McShea
    
    
    49
    
    
    Director of Magnatrax, Inc., a manufacturer
of prefabricated steel buildings (since
2003); Director of All Star Gas, Inc., a
distributor of propane gas (since 2003);
Director of IMS, Inc., a metal fabrication
and machinery company (since 2000);
President and Chief Executive Officer of
Xpectra, Inc., a plastic injection molding
manufacturer (from 2000 to 2003); President
and Chief Executive Officer of E-M
Solutions, Inc., a contract manufacturer
(from 1996 to 1999); Chief Financial
Officer of Budget Rent a Car, Inc., a
travel and transportation company
(1990-1995)
    
    
    2002Michael T. Monahan
    
    
    64
    
    
    President of Monahan Enterprises, LLC, a
consulting firm (since 1999); Chairman of
Munder Capital Management, an investment
Management firm (from 1999 to 2001), and as
its Chief Executive Officer (from 1999 to
2000); President of Comerica Bank, a
commercial banking firm (from 1992 to
1999), and Comerica Incorporated, a
financial services holding firm (from 1993
to 1999); Director of Munder Funds, Inc. a
mutual fund firm (since 1999), Director of
CMS Energy, Inc., an integrated energy
company (since 2002)
    
    
    2002


63Table of ContentsName
    
    Age (1)
    
    Principal Occupation and Business Experience
    
    Director SinceCharles M. Price
    
    
    58
    
    
    President and Chief Executive Officer of
Horizon Management, Inc., an interim
management turnaround firm (since May
2002); Chief Executive Officer of Johnson
Rubber Company (since 2003); President and
Chief Executive Officer of ELM Packaging
LLP (from 2001 to 2002); President and
Chief Executive Officer of Southland
Technologies, Inc., an OEM automotive parts
supplier (from 1999 to 2000); President of
Brazos Sportswear (from 1998 to 1999);
President and Chief Executive Officer of
Wembley Neckwear (from 1997 to 1998);
Director of Breed Technologies and Unique
Fabricating, both automotive parts
suppliers (from 2001 to 2003)
    
    
    2002Todd A. Robinson
    
    
    56
    
    
    President and Chief Executive Officer of
Southwood Group, LLC, a manufacturer of
commercial construction products (since
1984); Director of McKenzie Forest Products
LLC (since 1998), Steelox Building Systems,
LLC (since 2002) and Wilkinson Hi-Rise,
LLC (from 2002 to 2003), all manufacturers
of construction products; Director of All
Star Gas, Inc., a distributor of propane
gas (since 2003)
    
    
    2002Ronald M. Ruzic
    
    
    64
    
    
    Director of AG Kühnle, Kopp & Kausch, a
manufacturer of compressors, turbines and
fans (since 1997); Director of Magmeti
Marelli, a subsidiary of Fiat SpA. (since
2003); Executive Vice President of
Borg-Warner Corporation and Group President
of Morse Tec and Turbosystems, an OEM
automotive supplier of engine and
transmission components and systems (from
1991 to 2003); for more than five years
prior thereto, the holder of various
domestic and international management
positions with Borg Warner Corporation
    
    
    2002

(1)
    
    Age as of December 14, 2003(2)
    
    Sterling Chemicals, Inc. filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code on July 16, 2001 and emerged from
bankruptcy proceedings on December 19, 2002.The Board has determined that Kevin M. McShea, the Chairman of the Boards
Audit Committee, is an audit committee financial expert, as such term is
defined pursuant to SEC rules. The Board has also determined that Mr. McShea
is independent of the Company, within the meaning of applicable SEC rules.64Table of ContentsExecutive Officers of the Registrant (as of December 14, 2003)The following table sets forth certain information with regard to the executive
officers of the Company (other than John A. Emrich, who also serves as a
director of the Company and whose information is set forth above).Name
    
    Age (1)
    
    Office or Business ExperienceRobert A. Emken, Jr.
    
    
    40
    
    
    General Counsel and Secretary (since 1999);
Associate Counsel (from 1991 to 1999);
Associate, Womble Carlyle Sandridge & Rice,
PLLC (from 1988 to 1991)Alan R. Mackinnon
    
    
    62
    
    
    Vice President, Sales/Automotive (since
2002); Automotive Business Unit Vice
President of European Sales and Marketing
(from 2001 to 2002); Automotive Business Unit
Vice President of Global Sales to Ford (from
1999 to 2001); Automotive Business Unit Vice
President of European Sales and Marketing
(from 1994 to 1999)Robert W. Nolan
    
    
    65
    
    
    Executive Vice President/Operations (since
2002); Automotive Business Unit Executive
Vice President (from 1996 to 2002);
Automotive Business Unit Vice President of
Worldwide Marketing (from 1993 to 1996)Richard E. Novak
    
    
    60
    
    
    Vice President/Human Resources (since 1996);
Principal of Nova Consulting Group (from 1994
to 1996); Senior Vice President/Human
Resources of Joseph Horne Company, Inc. (from
1987 to 1994)David B. Schweibold (2)
    
    
    53
    
    
    Vice President/Information Systems (since
2000); Vice President and Chief Information
Officer, Celotex Corp. (from 1997 to 2000);
Director of Information Systems, Raytheon
Corp. (from 1995 to 1997)David H. Taylor
    
    
    48
    
    
    Chief Financial Officer (since 2002); Senior
Vice President-Finance, Heafner Tire Group
(now known as American Tire Distributors)
(from 1999 to 2001); Chief Operating Officer,
CBoard USA (from 1998 to 1999); Executive
Vice President-Finance, Secretary and
Director, JPS Textile Group, Inc. (now known
as JPS Industries) (from 1988 to 1998)

(1)
    
    Age as of December 14, 2003(2)
    
    Mr. Schweibold has resigned
from the Company, such resignation to become
effective in January 2004.No family relationships exist between any executive officers of the Company.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Companys directors and executive officers, and any persons holding more than
10% of the Companys equity securities, to file with the Securities and
Exchange Commission (the SEC) reports disclosing their initial ownership of
the Companys equity securities, as well as subsequent reports disclosing
changes in such ownership. To the Companys knowledge, based solely on a review
of such reports furnished to it and written representations by certain
reporting persons that no other reports were required, during the 2003 fiscal
year, the Companys directors, executive officers and greater than 10%
beneficial owners complied with all Section 16(a) filing requirements.Finance Code of EthicsThe Board has approved the adoption of a code of ethics (the Code of Ethics),
within the meaning of 17 CFR § 229.406, that applies to the Companys Chief
Executive Officer, Chief Financial Officer, Chief Accounting Officer,
Controller and Director of Internal Audit. Any person who desires a copy of
the Code of Ethics may obtain a copy without charge by addressing a request to
the Companys Secretary, Guilford Mills, Inc., P.O. Box 26969, Greensboro, NC
27419-6969. If the Company makes an amendment to the Code of Ethics, or grants
a waiver from a provision of the Code of Ethics to the Chief Executive Officer,
Chief Financial Officer, Chief Accounting Officer, Controller or Director of
Internal Audit, then the Company will make any required disclosure of such
amendment or waiver on the Companys website (www.guilfordmills.com) or in a current report
on Form 8-K filed with the SEC.65Table of ContentsItem 11.    Executive CompensationSummary of Cash and Certain Other CompensationThe following table shows for the fiscal years ended September 28, 2003,
September 29, 2002 and September 30, 2001 the cash compensation paid by the
Company (and its subsidiaries), as well as certain other compensation paid or
accrued for those periods, to the Companys Chief Executive Officer, and to
the Companys four most highly compensated executive officers (other than the
Chief Executive Officer) (collectively, the Named Executive Officers).SUMMARY COMPENSATION TABLELong-TermCompensationAnnual Compensation
    
    AwardsSecuritiesUnderlying
    
    All OtherFiscal
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Options
    
    CompensationName and Principal Position
    
    Year
    
    Salary ($)
    
    Bonus ($)
    

Compensation ($)
    
    (#)(1)
    
    ($)(2)John A. Emrich, President and
    
    
    2003
    
    
    
    675,000
    
    
    
    150,000
    
    
    
    
    
    
    
    25,000
    
    
    
    58,805Chief Executive Officer
    
    
    2002
    
    
    
    675,000
    
    
    
    604,693
    
    
    
    
    
    
    
    0
    
    
    
    41,3672001
    
    
    
    675,000
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    17,688David H. Taylor, Chief Financial
    
    
    2003
    
    
    
    340,000
    
    
    
    93,323
    
    
    
    
    
    
    
    15,000
    
    
    
    7,500Officer (3)
    
    
    2002
    
    
    
    262,500
    
    
    
    205,000
    
    
    
    
    
    
    
    0
    
    
    
    0Robert W. Nolan, Executive
    
    
    2003
    
    
    
    241,250
    
    
    
    60,038
    
    
    
    
    
    
    
    15,000
    
    
    
    23,602Vice President/Operations
    
    
    2002
    
    
    
    235,001
    
    
    
    141,074
    
    
    
    
    
    
    
    0
    
    
    
    21,1822001
    
    
    
    217,750
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    11,429Alan R. Mackinnon, Vice
    
    
    2003
    
    
    
    218,633
    
    
    
    36,997
    
    
    
    75,960
    (5)
    
    
    15,000
    
    
    
    7,325President, Sales/Automotive (4)
    
    
    2002
    
    
    
    193,987
    
    
    
    106,364
    
    
    
    
    
    
    
    0
    
    
    
    14,6782001
    
    
    
    160,387
    
    
    
    0
    
    
    
    17,700
    (5)
    
    
    0
    
    
    
    0Richard E. Novak, Vice
    
    
    2003
    
    
    
    195,000
    
    
    
    31,649
    
    
    
    
    
    
    
    4,000
    
    
    
    23,665President/Human Resources
    
    
    2002
    
    
    
    195,000
    
    
    
    99,983
    
    
    
    
    
    
    
    0
    
    
    
    21,4922001
    
    
    
    185,250
    
    
    
    0
    
    
    
    
    
    
    
    30,000
    
    
    
    13,536


(1) Pursuant to the Plan, all options outstanding on the Effective Date to
acquire shares of Old Common Stock (including the options granted to Mr. Novak
during fiscal 2001) were cancelled. The options granted to the Named Executive
Officers during the 2003 fiscal year represent options, granted under the
Companys 2003 Stock Option Plan (the Employee Plan), to acquire shares of
New Common Stock.
(2) The components of the amounts shown in this column for the 2003 fiscal
year consist of the following:(i) Contributions of $10,000, $7,500, $10,000 and $10,000 to the accounts
of Messrs. Emrich, Taylor, Nolan and Novak, respectively, pursuant to the
Companys qualified profit-sharing plan.(ii) Contributions of $2,314 and $2,706 to the accounts of Messrs. Nolan
and Novak, respectively, pursuant to the Companys 401(k) plan.(iii) Contributions of $47,734, $7,647 and $3,530 to the accounts of
Messrs. Emrich, Nolan and Novak, respectively, pursuant to the Companys excess
benefit plan which is designed to supplement the Companys qualified
profit-sharing plan.66Table of Contents(iv) With respect to Messrs. Emrich, Nolan and Novak, the value of
benefits under the Companys Senior Managers Life Insurance Plan, a split
dollar plan (the Insurance Plan). During the 2003 fiscal year, each of
Messrs. Emrich, Nolan and Novak paid the amount of the premium associated with the term life
component of his split dollar life insurance coverage. The Company expects to
recover the premiums it pays pursuant to the Insurance Plan. The following
amounts reflect the benefits related to the non-term portion of the premiums to
be paid by the Company under the insurance policies purchased on the lives of
the Named Executive Officers who participate in the Insurance Plan, in each
case with the non-term portion of the premium being treated as the present
value of an interest-free loan to age 65 in the case of Messrs. Emrich and
Novak, and to age 67 in the case of Mr. Nolan: Mr. Emrich  $1,071; Mr. Nolan -
$3,641; and Mr. Novak  $7,429.(v) With respect to Mr. Mackinnon (who does not participate in any of the
benefit plans identified in clauses (i)-(iv) above), the amount of
contributions paid, to Mr. Mackinnons participant directed investment account,
on certain compensation which is not subject to the Guilford Europe Pension
Scheme. See Other Benefit Plans and Agreements  Pension Plan below.(3) Mr. Taylor, who joined the Company in February, 2002 as interim Chief
Financial Officer, began serving the
Company as an independent contractor, receiving a monthly fee of $35,000, but
not participating in the Companys employee benefit plans other than in certain
cash bonus plans. Commencing February, 2003, Mr. Taylor shifted from an
independent contractor to an employee of the Company and, therefore, became
eligible to participate in certain other Company employee benefit plans.(4) The dollar amounts reflected in the above table for Mr. Mackinnon
(other than the amounts shown in the Other Annual Compensation column, which
amounts were paid in U.S. Dollars) represent the value of Mr. Mackinnons
compensation converted from British Pounds Sterling into U.S. Dollars.(5) Represents certain tax reimbursements made to Mr. Mackinnon.Stock Option GrantsThe table below provides information regarding stock options granted to the
Named Executive Officers during the Companys 2003 fiscal year.OPTION GRANTS IN LAST FISCAL YEARNumber of
    
    Percent ofSecurities
    
    Total OptionsUnderlying
    
    Granted to
    
    Exercise
    
    
    
    
    
    Grant DateOptions
    
    Employees in
    
    or Base
    
    Expiration
    
    Present ValueName
    
    Granted (#)
    
    Fiscal Year
    
    Price ($)
    
    Date (1)
    
    ($)(2)John A. Emrich
    
    
    25,000
    
    
    
    22.5
    
    
    
    4.00
    
    
    
    6/24/13
    
    
    
    123,500David H. Taylor
    
    
    15,000
    
    
    
    13.5
    
    
    
    4.00
    
    
    
    6/24/13
    
    
    
    74,100Robert W. Nolan
    
    
    15,000
    
    
    
    13.5
    
    
    
    4.00
    
    
    
    6/24/13
    
    
    
    74,100Alan R. Mackinnon
    
    
    15,000
    
    
    
    13.5
    
    
    
    4.00
    
    
    
    6/24/13
    
    
    
    74,100Richard E. Novak
    
    
    4,000
    
    
    
    3.6
    
    
    
    4.00
    
    
    
    6/24/13
    
    
    
    19,760

(1) The options vest, or become exercisable, in equal, annual one-third
increments commencing on the first anniversary of the grant date. Any
exercisable portion of an option that is not exercised will be carried forward
through the ten year term of the grant. Notwithstanding the foregoing, upon
certain types of termination of employment occurring within 13 months after a
change in control of the Company, as such term is defined in the option plan,
all then outstanding options will immediately become exercisable. Pursuant to
the terms of the option plan, the Compensation Committee may, in its
discretion, elect to cancel any options outstanding upon a change in control
and pay each option holder a cash amount equal to the excess of the fair market
value of the underlying New Common Stock immediately prior to the change in
control over the exercise price of the option.
(2) The values in this column represent the grant date present value of
the options based upon application of the Black-Scholes option pricing model.
The material assumptions and adjustments used in estimating the present value
pursuant to such model are: (i) a volatility factor of 40%; (ii) a dividend
yield of 0%; (iii) a risk-free rate of return of 3%;
and (iv) an expected option life of 1 to 3 years. The actual value an
executive officer receives from a stock option is dependent on future market
conditions, and there can be no assurance that the value ultimately realized by
the executive will not be more or less than the amount reflected in the Grant
Date Present Value column.67Table of ContentsStock Option Exercises and Fiscal Year-End Option ValuesThe table below shows the value of the options held by the Named Executive
Officers at the end of the 2003 fiscal year. None of such persons exercised
any stock options during the 2003 fiscal year.AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUESNumber of Securities Underlying Unexercised
    
    Value of Unexercised In-the-MoneyName
    
    Options at Fiscal Year-End (#)
    
    Options at Fiscal Year-End ($)(1)Exercisable/Unexercisable
    
    Exercisable/UnexercisableJohn A. Emrich
    
    
    0/25,000
    
    
    
    0/156,250David H. Taylor
    
    
    0/15,000
    
    
    
    0/93,750Robert W. Nolan
    
    
    0/15,000
    
    
    
    0/93,750Alan R. Mackinnon
    
    
    0/15,000
    
    
    
    0/93,750Richard E. Novak
    
    
    0/4,000
    
    
    
    0/25,000

(1) The values in this column represent the product of the number of options
and the excess of $10.25, the per share closing price of the underlying New
Common Stock on September 26, 2003 (the last business day of the 2003 fiscal
year), over the option exercise price.
Other Benefit Plans and AgreementsPension Plan.Mr. Mackinnon, who does not participate in any of the Companys
benefit plans for U.S. based employees (other than in the annual cash bonus
plan), is the only Named Executive Officer who is a participant in the Guilford
Europe Pension Scheme, a pension plan offered to employees, such as Mr.
Mackinnon, of Guilford Europe Limited, the Companys wholly owned United
Kingdom subsidiary (the Pension Plan). Pursuant to the Pension Plan, a
participant is entitled to receive upon normal retirement age (age 65) an
annual pension benefit, payable in monthly installments, in an amount
determined in accordance with the following formula: 1/60 multiplied by Final
Pensionable Salary (as defined herein) multiplied by years of service. The
term Final Pensionable Salary means the average of the highest three
consecutive annual base salaries (after deducting the amount payable to a
participant pursuant to a government sponsored pension program) in the ten
years immediately before retirement. Each year, a participant contributes to
the Pension Plan an amount equal to 5.5% of his annual base salary (less the
amount payable to the participant pursuant to the government sponsored pension
program). The following table shows the annual retirement benefits that would
be payable, upon normal retirement age, for various rates of Final Pensionable
Salary (the benefits in the table below include the amounts attributable to
participant contributions):Years of ServiceRemuneration
    
    10
    
    15
    
    20
    
    25
    
    30$
    125,000
    
    $
    20,833
    
    
    $
    31,250
    
    
    $
    41,667
    
    
    $
    52,083
    
    
    $
    62,500150,000
    
    
    25,000
    
    
    
    37,500
    
    
    
    50,000
    
    
    
    62,500
    
    
    
    75,000175,000
    
    
    29,167
    
    
    
    43,750
    
    
    
    58,333
    
    
    
    72,917
    
    
    
    87,500200,000
    
    
    33,333
    
    
    
    50,000
    
    
    
    66,667
    
    
    
    83,333
    
    
    
    100,000225,000
    
    
    37,500
    
    
    
    56,250
    
    
    
    75,000
    
    
    
    93,750
    
    
    
    112,500250,000
    
    
    41,667
    
    
    
    62,500
    
    
    
    83,333
    
    
    
    104,167
    
    
    
    125,000300,000
    
    
    50,000
    
    
    
    75,000
    
    
    
    100,000
    
    
    
    125,000
    
    
    
    150,000

As of December 15, 2003, Mr. Mackinnon has 9 years of credited services
for purposes of the Pension Plan.68Table of ContentsSupplemental Retirement Plan. In 1992, the Company adopted the Senior Managers
Supplemental Retirement Plan (the Existing SERP) which provides for
retirement and death benefits to a select group of senior managers. The
Existing SERP provides that upon retirement from the Company after attaining
age 65, and after at least 60 months of service with the Company, participants
will be entitled to receive a specified dollar amount for a period of ten years
following retirement (Ten Year Payments). If the participant dies prior to
the termination of his or her employment or during the period while the Ten
Year Payments are being made, the full amount of the Ten Year Payments or the
unpaid portion thereof, as the case may be, will be paid according to the
installment schedule to the participants designated beneficiary.The Existing SERP also provides that if the participants employment with the
Company is terminated for any reason other than his or her death or disability
(prior to the participant attaining age 65) and the participant has been
employed by the Company for at least 60 months, the participant will be
entitled to a reduced retirement benefit commencing at age 65. Such reduced
benefit will be based upon the participants total months of employment with
the Company as compared with the total months of employment the participant
would have had with the Company if he or she had remained in the employ of the
Company until age 65. If, at the time of his or her termination of employment
with the Company for any reason other than death or disability, the participant
has been employed by the Company for less than 60 months and if
the Company has not terminated the plan, he or she will not be entitled to any
retirement benefits and his or her beneficiaries will not be entitled to any
death benefits. If a participant becomes disabled prior to attaining age 65 and
such disability continues until age 65, the participant will be entitled to
receive the full amount of the Ten Year Payments commencing at age 65,
regardless of whether he or she has completed 60 months of service with the
Company.The following table sets forth the Ten Year Payments for each of the Named
Executive Officers who participate in the Existing SERP.Ten Year PaymentsName of Individual
    
    (Per Annum) (1)John A. Emrich
    
    $
    300,000David H. Taylor
    
    
    100,000Robert W. Nolan
    
    
    125,000Richard E. Novak
    
    
    100,000

(1)
    
    The amounts in this column represent the full annual amount of a
participants Ten Year Payments if he becomes fully vested in his Existing
SERP benefits.During the first quarter of the 2004 fiscal year, the Board approved certain
amendments to the Existing SERP (the Existing SERP as so amended, the New
SERP). Each participant will have the option of remaining as a participant in
the Existing SERP or becoming a participant in the New SERP. Pursuant to the
New SERP, the terms of which have not yet been formally documented, a
participants Ten Year Payments will be equal to 60% of the product of (i) the
quotient (which will not be greater than one) arrived at by dividing (A) the
sum of a participants age and the greater of five and one plus the
participants years of service with the Company and its subsidiaries by (B) 75
and (ii) the participants current maximum Ten Year Payments under the Existing
SERP (the resulting amount, the New SERP Benefit). Depending upon the
individual, the New SERP Benefit will be either greater than or equal to the
current vested amount of a participants Ten Year Payments under the Existing
SERP. Unlike the Existing SERP benefit, the amount of the New SERP Benefit
will remain fixed and will not increase with a participants continued service
with the Company. The New SERP Benefit will be subject to forfeiture if a
participant violates the terms of a covenant prohibiting certain competitive
activity against the Company. The New SERP Benefits will be paid from a
welfare benefits trust to be established by the Company (the Benefits Trust).
After obtaining certain necessary third party consents, the Company intends to
initially fund the Benefits Trust primarily with certain life insurance
policies on the lives of participants. The Benefits Trust will also provide
Existing SERP participants with life insurance benefits in lieu of split-dollar
life insurance benefits the Company currently provides to such persons (such
split-dollar life insurance program described in greater detail in footnote 2
to the Summary Compensation Table above). After the initial funding of the
Benefits Trust, the Company will have no further obligation to fund or
otherwise make payments with respect to the New SERP or such life insurance
program.Salary Continuation Agreements. The Company has entered into salary
continuation agreements with certain key managers, including the Named
Executive Officers. Each salary continuation agreement provides that after
certain terminations of a participants employment, the Company will pay, among
other benefits, a participants base salary (Base Salary Payments) for a
period of either one year or two years (depending upon the participant and,
with respect to certain participants, when the termination of employment
occurs). Any Base Salary Payments for Messrs. Emrich, Taylor69Table of Contentsand Novak are payable for two years after an eligible termination of employment
and any Base Salary Payments for Messrs. Nolan and Mackinnon are payable for
one year after an eligible termination of employment. The Base Salary Payments
are payable in monthly installments and, after the payment of the first half of
such amounts, are subject to reduction to the extent the employee finds new
employment elsewhere. The term of each salary continuation agreement continues
until the Company provides at least six months notice of termination, which
notice cannot be furnished prior to November 12, 2004.Director CompensationA non-employee director serving as Chairman of the Board receives an annual
retainer of $45,000, and other non-employee directors receive an annual
retainer of $25,000. A non-employee director serving as Chairman of a standing
Board committee receives a supplemental annual retainer as follows: $10,000
for service as Audit Committee Chairman, $7,500 for service as Compensation
Committee Chairman and $5,000 for service as Nominating and Corporate
Governance Committee Chairman. All annual retainers are payable in equal,
quarterly installments. Members of the Companys ad hoc Special Committee,
established during the 2003 fiscal year for purposes of assisting in the
evaluation of the Companys strategic alternatives, are entitled to receive a
one time payment of $25,000, in the case of the Committee Chairman, and
$15,000, in the case of the other members of the Committee. Only non-employee
directors serve on Board committees. Each non-employee director receives $1,500
for each in-person Board meeting attended and $750 for each telephonic Board
meeting attended. Each non-employee director receives $1,000 for each in-person
Board committee meeting attended and $500 for each telephonic Board committee
meeting attended.During the 2003 fiscal year, the Company paid consulting fees to a company with
which Charles M. Price, a director, is affiliated (see Item 13 Certain
Relationships and Related Transactions below).The Board has adopted a stock option plan for non-employee directors (the
Director Plan). Pursuant to the Director Plan, each non-employee director
was granted during the 2003 fiscal year an option, having a ten year term, to
acquire 6,000 shares of New Common Stock. In addition, on October 4, 2003,
each non-employee director was granted a ten year option to acquire 4,000
shares of New Common Stock, with a non-employee directors receipt of such
grant having been contingent on his attending at least 75% of the meetings of
the Board and of the Board committees on which he serves. The purchase price of
the shares of New Common Stock covered by the options granted under the
Director Plan is the fair market value of the shares as of the date of grant.
The options vest, or become exercisable, in equal, annual one-third increments
commencing on the first anniversary of the grant date. Any exercisable portion
of an option that is not exercised will be carried forward through the term of
the grant. Notwithstanding the foregoing, in the event of a change in
control of the Company, as such term is defined in the Director Plan, all then
outstanding options will immediately become exercisable.Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersUnder rules issued by the SEC, a beneficial owner of a security includes any
person who directly or indirectly has or shares voting power and/or investment
power with respect to such security or has the right to obtain such voting
power and/or investment power within 60 days. Except as otherwise noted, each
beneficial owner identified in the tables below has sole voting power and
investment power with respect to the shares beneficially owned by such person.70Table of ContentsSecurity Ownership of Certain Beneficial OwnersThe following table sets forth information with respect to each person who is
known by the management of the Company to be the beneficial owner of more than
5% of the New Common Stock:Amount and Nature ofName and Address of Beneficial Owner
    
    Beneficial Ownership
    
    Percent of ClassPrudential Financial, Inc.
    
    
    2,066,002
    (1)
    
    
    37.5751 Broad Street
Newark, New Jersey 07102-3777Wachovia Bank, National Association
    
    
    868,466
    (2)
    
    
    15.8301 S. College Street
Charlotte, NC 28288Carl Marks Management Company, L.P.
    
    
    575,613
    (3)
    
    
    10.4135 East 57th Street
New York, NY 10022Bank One, NA
    
    
    516,682
    (4)
    
    
    9.41717 Main Street, 4th Floor
Dallas, TX 75201PW Willow Fund LLC
    
    
    416,501
    (5)
    
    
    7.5c/o Bond Street Capital
700 Palisade Avenue
Englewood Cliffs, New Jersey 07632GE Capital CFE, Inc.
    
    
    406,736
    (6)
    
    
    7.4201 High Ridge Road
Stamford, CT 06927


(1) Based upon information, as of December 4, 2003, furnished to the Company by
the beneficial owner.
(2) Based upon information as of December 5, 2003, furnished to the Company by
the beneficial owner.(3) Based upon a Schedule 13G jointly filed in December, 2002 by Carl Marks
Strategic Investments, L.P. (CMSI), Carl Marks Management Company, L.P. , the
sole general partner of CMSI (CMMC), and the three individual general
partners of CMMC- Andrew M. Boas, Robert C. Ruocco and James F. Wilson (and
information furnished to the Company on behalf of CMMC on November 24, 2003),
and reflecting share ownership of the same shares of New Common Stock. CMMC
has sole voting and investment power over all of the shares shown above, CMSI
has sole voting and investment power over 518,052 shares shown above, and each
of the three individual general partners of CMMC has shared voting and
investment power over all of the shares shown above.(4) Based upon information furnished to the Company by the beneficial owner on
November 14, 2003.(5) Based upon information, as of September 28, 2003, furnished to the Company
by the beneficial owner.(6) Based upon information, as of December 4, 2003, furnished to the Company by
the beneficial owner.71Table of ContentsSecurity Ownership of ManagementThe following table sets forth certain information, as of December 14, 2003,
with respect to New Common Stock beneficially owned by each director of the
Company, each of the Named Executive Officers and all directors and executive
officers as a group:Amount and Nature ofName of Beneficial Owner
    
    Beneficial Ownership
    
    Percent of ClassDirectors (1)David G. Elkins
    
    
    2,000
    
    
    
    *John A. Emrich
    
    
    4,277
    
    
    
    *Kevin M. McShea
    
    
    2,000
    
    
    
    *Michael T. Monahan
    
    
    2,000
    
    
    
    *Charles M. Price
    
    
    2,000
    
    
    
    *Todd A. Robinson
    
    
    2,000
    
    
    
    *Ronald M. Ruzic
    
    
    2,000
    
    
    
    *Non-Director Executive OfficersDavid H. Taylor
    
    
    0
    
    
    
    *Robert W. Nolan
    
    
    357
    
    
    
    *Alan R. Mackinnon
    
    
    14
    
    
    
    *Richard E. Novak
    
    
    2
    
    
    
    *All directors and executive
officers as a group
(consisting of 13 persons)
    
    
    16,719
    
    
    
    *

*  Less than one percent
(1) The shares beneficially owned by all directors, other than Mr. Emrich,
represent shares of New Common Stock subject
to options granted under the Director Plan.Equity Compensation Plan InformationThe following table sets forth certain information, as of September 28, 2003
(the last day of the Companys 2003 fiscal year), regarding the Employee Plan
and Director Plan, the Companys two compensation plans under which the New
Common Stock are authorized for issuance (1).Plan category
    
    Number of
    
    Weighted-
    
    Number of securitiessecurities to be
    
    average
    
    remaining available forissued upon
    
    exercise
    
    future issuance underexercise of
    
    price of
    
    equity compensationoutstanding
    
    outstanding
    
    plans (excludingoptions,
    
    options,
    
    securities reflected inwarrants
    
    warrants and
    
    column (a))and rights
    
    rights(a)
    
    (b)
    
    (c)Equity compensation plans
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Equity compensation plans
not approved by security
holders
    
    
    147,000
    
    
    
    4.00
    
    
    
    463,000Total
    
    
    147,000
    
    
    
    
    
    
    
    463,000

(1) The principal terms of each of the Employee Plan and Director Plan are
described in Note 18 to the Consolidated Financial Statements.
72Table of ContentsItem 13.    Certain Relationships and Related TransactionsDuring the 2003 fiscal year, the Company paid $231,356 in consulting fees to
Horizon Management, Inc., of which Charles M. Price, a director of the Company, is the President, Chief Executive
Officer and controlling stockholder.In connection with the implementation of the Plan, the Company entered into
several transactions with the institutions which are listed in the table in
Security Ownership of Certain Beneficial Owners above. Pursuant to the Plan,
each such institution or its affiliate acquired shares of New Common Stock,
Notes (as described in note 12 to the Consolidated Financial Statements
included elsewhere in this Report), Altamira Trust Notes and Discontinued
Operations Trust Notes (as described in note 1 to the Consolidated Financial
Statements), and distributions of cash (as described in note 3 to the
Consolidated Financial Statements). In addition, Guilfords Revolving Credit
Facility (described in note 12 to the Consolidated Financial Statements) is
provided by certain of the institutions listed in Security Ownership of
Certain Beneficial Owners (or affiliates of such institutions) as follows:
Wachovia Bank, National Association; Bank One, NA; General Electric Capital
Corporation (an affiliate of GE Capital CFE, Inc.); and The Prudential
Insurance Company of America (an affiliate of Prudential Financial, Inc.).Item 14.   
Principal Accounting Fees and ServicesNot applicable to the report.73Table of Contents
PART IVItem 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K(a)  Documents filed as a part of this report:1.
       
       Financial StatementsSee Item 8 of Part II2.
       
       Financial Statement SchedulesSee Item 8 of Part II3.
       
       Exhibits
EXHIBIT INDEXExhibit No.
    
    Description of Exhibit(2) (a)
    
    Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code, dated August 15, 2002,
as filed with the U.S. Bankruptcy Court for the Southern District of New York (incorporated by reference
to Exhibit 2.1 to the Companys Current Report on Form 8-K filed with the SEC on October 4, 2002 (the
10/4/02 8-K)).(2) (b)
    
    Amended Disclosure Statement to Amended Joint Plan of Reorganization dated August 15, 2002 (incorporated by
reference to Exhibit 2.2 to the 10/4/02 8-K).(2) (c)
    
    Bankruptcy Court Order, dated September 20, 2002, confirming the Amended Joint Plan of Reorganization under
Chapter 11 of the U.S. Bankruptcy Code (incorporated by
reference to Exhibit 2.3 to the 10/4/02 8-K).(3) (a)
    
    Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Companys 10/4/02 8-K).(3) (b)
    
    Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Companys
10/4//02 8-K).(4) (a)
    
    Note Agreement, dated October 1, 2002, entered into by and between the Company and each of the purchasers
named in the purchasers schedule thereto (the Note Agreement) (incorporated by reference to Exhibit
(4)(a) to the Companys Annual Report on Form 10-K for the fiscal year ended September 29, 2002 (the 2002
Annual Report)).(4) (b)
    
    Amendment No. 1 to Note Agreement, dated December 17, 2003.(4) (c)
    
    Registration Rights Agreement, dated October 1, 2002, by and among the Company and the Investors named
therein (incorporated by reference to Exhibit (4)(b) to the 2002
Annual Report).(10) (a)*
    
    Guilford Mills, Inc. Non-Qualified Profit Sharing Plan for Certain of its Executive Officers and Key
Employees, effective July 1, 1989 (incorporated by reference to Exhibit (10) (a) (7) to the Companys
Annual Report on Form 10-K for the fiscal year ended
July 1, 1990 (the 1990 Annual Report)).(10) (b)*
    
    First Amendment, dated September 1, 1993, to the Guilford Mills, Inc. Non-Qualified Profit-Sharing Plan
(incorporated by reference to Exhibit (10)(b) to the Companys Annual Report on Form 10-K for the fiscal
year ended September 28, 1997 (the 1997 Annual
Report)).(10)(c)*
    
    Second Amendment, dated November 1, 1996, to the
Guilford Mills, Inc. Non-Qualified Profit-Sharing
Plan (incorporated by reference to Exhibit (10)(c) to
the 1997 Annual Report).

74Table of Contents(10) (d)*
    
    Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit (10) (a) to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 29, 1996).(10) (e)*
    
    First Amendment to the Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit (10)
(w) to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2001 (the 2001
Annual Report)).(10) (f)*
    
    Guilford Mills, Inc. Amended and Restated Trust for Non-Qualified Plans, dated as of February 16, 2001
(incorporated by reference to Exhibit (10) (x) to the 2001
Annual Report).(10) (g)*
    
    Guilford Mills, Inc. Executive Deferred Compensation Plan, dated as of February 12, 2001 (incorporated by
reference to Exhibit (10) (y) to the 2001 Annual Report).(10) (h)*
    
    Guilford Mills, Inc. Senior Managers Life Insurance Plan and related Plan Agreement (incorporated by
reference to Exhibit (10) (r) to the Companys Annual Report on Form 10-K for the fiscal year ended June
28, 1992 (1992 Annual Report)).(10) (i)*
    
    Guilford Mills, Inc. Senior Managers Pre-Retirement Life Insurance Agreement (incorporated by reference to
Exhibit (10) (s) to the 1992 Annual Report).(10) (j)*
    
    Guilford Mills, Inc. Senior Managers Supplemental Retirement Plan and related Plan Agreement (incorporated
by reference to Exhibit (10) (t) to the 1992 Annual Report).(10) (k)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and John A. Emrich
(incorporated by reference to Exhibit (10)(l) of the 2002 Annual
Report).(10) (l)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Richard E. Novak
(incorporated by reference to Exhibit (10) (m) of the 2002
Annual Report).(10) (m)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Robert W. Nolan.(10) (n)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Alan R. Mackinnon.(10) (o)*
    
    Salary Continuation Agreement, dated January 31, 2003, between the Company and David H. Taylor
(incorporated by reference to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
December 29, 2002 (the 12/29/02 10-Q)).(10) (p)*
    
    Management Compensation Trust Agreement between the Company and North Carolina Trust Company dated July 1,
1991 (incorporated by reference to Exhibit (10) (y) to the 1992
Annual Report).(10)(q)*
    
    Amendment to the Management Compensation Trust
Agreement between the Company and North Carolina
Trust Company dated April 1, 1992 (incorporated by
reference to Exhibit (10) (z) to the 1992 Annual
Report).(10) (r)*
    
    Guilford Mills, Inc. Stock Option Plan for Nonemployee Directors (incorporated by reference to Exhibit
(10)(b) to the 12/29/02 10-Q).(10) (s)*
    
    Form of Stock Option Contract pursuant to the Guilford Mills, Inc. Stock Option Plan for Nonemployee
Directors (incorporated by reference to Exhibit (10) (a) to the Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended March 30, 2003).(10) (t)*
    
    Guilford Mills, Inc. 2003 Stock Option Plan.(10) (u)*
    
    Form of Stock Option Contract pursuant to the Guilford Mills, Inc. 2003 Stock Option Plan.(10) (v)*
    
    Summary of Key Manager Short-Term Incentive Plan.

75Table of Contents(10)(w)*
    
    Form of Indemnification Agreement for Directors
and Certain Employees (incorporated by reference to
Exhibit 10 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended June 29, 2003).(10) (x)
    
    Exclusive Supply Agreement, dated December 17, 2003, by and among the Company, Guilford Mexico, S.A. de
C.V., Textiles Zana, S.A. de C.V., American Textil Acquisition, LLC and American Textil, S.A. de C.V.(10) (y)
    
    Steam Purchase Contract, dated November 30, 1984, by and between the Company and Cogentrix Eastern
Carolina, LLC. (successor to Cogentrix Leasing Corporation) (incorporated by reference to Exhibit (10)(v)
to the 2002 Annual Report).(10) (z)
    
    First Amendment to Steam Purchase Agreement, dated August 1, 1991, by and between the Company and Cogentrix
Eastern Carolina, LLC (incorporated by reference to Exhibit (10)(w)
to the 2002 Annual Report).(10)(a)(a)
    
    Altamira Trust Agreement and Declaration of
Trust, dated October 1, 2002, by and between the
Company and Wilmington Trust Company (incorporated by
reference to Exhibit (10)(x) to the 2002 Annual
Report).(10) (b)(b)
    
    Credit, Security, Guaranty and Pledge Agreement, dated October 1, 2002, among the Company, the Guarantors
and Lenders referred to therein, and Wachovia Bank, National Association, as Administrative Agent,
Collateral Agent and Issuing Bank (the Credit Agreement) (incorporated by reference to Exhibit (10)(y) to
the 2002 Annual Report).(10) (c)(c)
    
    Amendment No. 1 to Credit Agreement, dated December 17, 2003.(10) (d)(d)
    
    Amended and Restated Factoring Agreement, dated October 1, 2002, by and between the Company and The CIT
Group/Commercial Services, Inc. (incorporated by reference to Exhibit
(10)(z) to the 2002 Annual Report).(21)
    
    Subsidiaries of the Registrant.(23) (a)
    
    Consent of Independent Public Accountants.(23) (b)
    
    Notice regarding consent of Arthur Andersen LLP.(31) (a)
    
    Certification of Chief Executive Officer required by
Rule 13a-14(a).(31) (b)
    
    Certification of Chief Financial Officer required by
Rule 13a-14(a).(32) (a)
    
    Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350 (furnished herewith).(32) (b)
    
    Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350 (furnished herewith).

*   Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.(b)
 
 Reports on Form 8-KNone76Table of Contents
SIGNATURESPursuant 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.GUILFORD MILLS, INC.By:
    
    /s/ David H. TaylorDavid H. TaylorChief Financial OfficerDated: December 22, 2003

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 and in the capacities and on the dates indicated.SIGNATURE
    
    TITLE
    
    DATE/s/ Michael T. MonahanMichael T. Monahan
    
    Chairman of the Board of Directors
    
    December 22, 2003/s/ John A. EmrichJohn A. Emrich
    
    Director; President and Chief Executive
Officer
(Principal Executive Officer)
    
    December 22, 2003/s/ David H. TaylorDavid H. Taylor
    
    Chief Financial Officer (Principal
Financial and Accounting Officer)
    
    December 22, 2003/s/ David G. ElkinsDavid G. Elkins
    
    Director
    
    December 22, 2003/s/ Kevin M. McSheaKevin M. McShea
    
    Director
    
    December 22, 2003/s/ Charles M. PriceCharles M. Price
    
    Director
    
    December 22, 2003/s/ Todd A. RobinsonTodd A. Robinson
    
    Director
    
    December 22, 2003/s/ Ronald M. RuzicRonald M. Ruzic
    
    Director
    
    December 22, 2003


77Table of ContentsEXHIBIT INDEXExhibit No.
    
    Description of Exhibit(2) (a)
    
    Amended Joint Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code, dated August 15, 2002,
as filed with the U.S. Bankruptcy Court for the Southern District of New York (incorporated by reference
to Exhibit 2.1 to the Companys Current Report on Form 8-K filed with the SEC on October 4, 2002 (the
10/4/02 8-K)).(2) (b)
    
    Amended Disclosure Statement to Amended Joint Plan of Reorganization dated August 15, 2002 (incorporated by
reference to Exhibit 2.2 to the 10/4/02 8-K).(2) (c)
    
    Bankruptcy Court Order, dated September 20, 2002, confirming the Amended Joint Plan of Reorganization under
Chapter 11 of the U.S. Bankruptcy Code (incorporated by
reference to Exhibit 2.3 to the 10/4/02 8-K).(3) (a)
    
    Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Companys 10/4/02 8-K).(3) (b)
    
    Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Companys
10/4//02 8-K).(4) (a)
    
    Note Agreement, dated October 1, 2002, entered into by and between the Company and each of the purchasers
named in the purchasers schedule thereto (the Note Agreement) (incorporated by reference to Exhibit
(4)(a) to the Companys Annual Report on Form 10-K for the fiscal year ended September 29, 2002 (the 2002
Annual Report)).(4) (b)
    
    Amendment No. 1 to Note Agreement, dated December 17, 2003.(4) (c)
    
    Registration Rights Agreement, dated October 1, 2002, by and among the Company and the Investors named
therein (incorporated by reference to Exhibit (4)(b) to the 2002
Annual Report).(10) (a)*
    
    Guilford Mills, Inc. Non-Qualified Profit Sharing Plan for Certain of its Executive Officers and Key
Employees, effective July 1, 1989 (incorporated by reference to Exhibit (10) (a) (7) to the Companys
Annual Report on Form 10-K for the fiscal year ended
July 1, 1990 (the 1990 Annual Report)).(10) (b)*
    
    First Amendment, dated September 1, 1993, to the Guilford Mills, Inc. Non-Qualified Profit-Sharing Plan
(incorporated by reference to Exhibit (10)(b) to the Companys Annual Report on Form 10-K for the fiscal
year ended September 28, 1997 (the 1997 Annual
Report)).(10)(c)*
    
    Second Amendment, dated November 1, 1996, to the
Guilford Mills, Inc. Non-Qualified Profit-Sharing
Plan (incorporated by reference to Exhibit (10)(c) to
the 1997 Annual Report).(10) (d)*
    
    Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit (10) (a) to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 29, 1996).(10) (e)*
    
    First Amendment to the Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit (10)
(w) to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2001 (the 2001
Annual Report)).(10) (f)*
    
    Guilford Mills, Inc. Amended and Restated Trust for Non-Qualified Plans, dated as of February 16, 2001
(incorporated by reference to Exhibit (10) (x) to the 2001
Annual Report).(10) (g)*
    
    Guilford Mills, Inc. Executive Deferred Compensation Plan, dated as of February 12, 2001 (incorporated by
reference to Exhibit (10) (y) to the 2001 Annual Report).(10) (h)*
    
    Guilford Mills, Inc. Senior Managers Life Insurance Plan and related Plan Agreement (incorporated by
reference to Exhibit (10) (r) to the Companys Annual Report on Form 10-K for the fiscal year ended June
28, 1992 (1992 Annual Report)).

78Table of Contents(10) (i)*
    
    Guilford Mills, Inc. Senior Managers Pre-Retirement Life Insurance Agreement (incorporated by reference to
Exhibit (10) (s) to the 1992 Annual Report).(10) (j)*
    
    Guilford Mills, Inc. Senior Managers Supplemental Retirement Plan and related Plan Agreement (incorporated
by reference to Exhibit (10) (t) to the 1992 Annual Report).(10) (k)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and John A. Emrich
(incorporated by reference to Exhibit (10)(l) of the 2002 Annual
Report).(10) (l)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Richard E. Novak
(incorporated by reference to Exhibit (10) (m) of the 2002
Annual Report).(10) (m)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Robert W. Nolan.(10) (n)*
    
    Salary Continuation Agreement, dated November 12, 2002, by and between the Company and Alan R. Mackinnon.(10) (o)*
    
    Salary Continuation Agreement, dated January 31, 2003, between the Company and David H. Taylor
(incorporated by reference to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
December 29, 2002 (the 12/29/02 10-Q)).(10) (p)*
    
    Management Compensation Trust Agreement between the Company and North Carolina Trust Company dated July 1,
1991 (incorporated by reference to Exhibit (10) (y) to the 1992
Annual Report).(10)(q)*
    
    Amendment to the Management Compensation Trust
Agreement between the Company and North Carolina
Trust Company dated April 1, 1992 (incorporated by
reference to Exhibit (10) (z) to the 1992 Annual
Report).(10) (r)*
    
    Guilford Mills, Inc. Stock Option Plan for Nonemployee Directors (incorporated by reference to Exhibit
(10)(b) to the 12/29/02 10-Q).(10) (s)*
    
    Form of Stock Option Contract pursuant to the Guilford Mills, Inc. Stock Option Plan for Nonemployee
Directors (incorporated by reference to Exhibit (10) (a) to the Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended March 30, 2003).(10) (t)*
    
    Guilford Mills, Inc. 2003 Stock Option Plan.(10) (u)*
    
    Form of Stock Option Contract pursuant to the Guilford Mills, Inc. 2003 Stock Option Plan.(10) (v)*
    
    Summary of Key Manager Short-Term Incentive Plan.(10)(w)*
    
    Form of Indemnification Agreement for Directors
and Certain Employees (incorporated by reference to
Exhibit 10 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended June 29, 2003).(10) (x)
    
    Exclusive Supply Agreement, dated December 17, 2003, by and among the Company, Guilford Mexico, S.A. de
C.V., Textiles Zana, S.A. de C.V., American Textil Acquisition, LLC and American Textil, S.A. de C.V.(10) (y)
    
    Steam Purchase Contract, dated November 30, 1984, by and between the Company and Cogentrix Eastern
Carolina, LLC. (successor to Cogentrix Leasing Corporation) (incorporated by reference to Exhibit (10)(v)
to the 2002 Annual Report).(10) (z)
    
    First Amendment to Steam Purchase Agreement, dated August 1, 1991, by and between the Company and Cogentrix
Eastern Carolina, LLC (incorporated by reference to Exhibit (10)(w)
to the 2002 Annual Report).

79Table of Contents(10)(a)(a)
    
    Altamira Trust Agreement and Declaration of
Trust, dated October 1, 2002, by and between the
Company and Wilmington Trust Company (incorporated by
reference to Exhibit (10)(x) to the 2002 Annual
Report).(10) (b)(b)
    
    Credit, Security, Guaranty and Pledge Agreement, dated October 1, 2002, among the Company, the Guarantors
and Lenders referred to therein, and Wachovia Bank, National Association, as Administrative Agent,
Collateral Agent and Issuing Bank (the Credit Agreement) (incorporated by reference to Exhibit (10)(y) to
the 2002 Annual Report).(10) (c)(c)
    
    Amendment No. 1 to Credit Agreement, dated December 17, 2003.(10) (d)(d)
    
    Amended and Restated Factoring Agreement, dated October 1, 2002, by and between the Company and The CIT
Group/Commercial Services, Inc. (incorporated by reference to Exhibit
(10)(z) to the 2002 Annual Report).(21)
    
    Subsidiaries of the Registrant.(23) (a)
    
    Consent of Independent Public Accountants.(23) (b)
    
    Notice regarding consent of Arthur Andersen LLP.(31) (a)
    
    Certification of Chief Executive Officer required by
Rule 13a-14(a).(31) (b)
    
    Certification of Chief Financial Officer required by
Rule 13a-14(a).(32) (a)
    
    Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350 (furnished herewith).(32) (b)
    
    Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350 (furnished herewith).

*Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.80