FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4925 West Market Street, Greensboro, N.C. 27407
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (910) 316-4000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
Number of shares of common stock outstanding
at January 1, 1995 - 13,997,120
<PAGE>
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JANUARY 1, 1995
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The consolidated financial statements included herein have been prepared by
Guilford Mills, Inc. (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest annual report
on Form 10-K for the year ended October 2, 1994.
The consolidated financial statements included herein reflect all adjustments
(none of which are other than normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the information
included. The following consolidated financial statements are included:
Consolidated Statements of Income for the thirteen weeks ended
January 1, 1995 and December 26, 1993
Consolidated Balance Sheets as of January 1, 1995 and October 2, 1994
Consolidated Statements of Cash Flows for the thirteen weeks ended
January 1, 1995 and December 26, 1993
Condensed Notes to Consolidated Financial Statements
<PAGE>
G u i l f o r d M i l l s, I n c.
C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e
For the Thirteen Weeks Ended January 1, 1995 and December 26, 1993
(In thousands except per share data)
(Unaudited)
<TABLE>
<S> <C> <C>
January 1, December 26,
1995 1993
Net Sales $182,494 $157,576
Costs and Expenses:
Cost of goods sold 149,483 131,152
Selling and administrative 18,707 17,494
168,190 148,646
Operating Income 14,304 8,930
Interest Expense 3,711 2,902
Other Expense, net 1,102 79
Income Before Income Taxes 9,491 5,949
Income Tax Provision 3,388 2,100
Net Income $ 6,103 $ 3,849
Net Income Per Share:
Primary $.44 $.28
Fully Diluted .41 .28
Dividends Per Share $.15 $.15
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
G u i l f o r d M i l l s, I n c.
C o n s o l i d a t e d B a l a n c e S h e e t s
January 1, 1995 and October 2, 1994
(In thousands except share data)
(Unaudited)
<TABLE>
<S> <C> <C>
January 1, October 2,
1995 1994
Assets
Cash and cash equivalents $ 7,070 $ 6,110
Accounts receivable 123,154 146,294
Inventories (Note 3) 103,577 105,735
Prepaid income taxes 3,168 2,016
Other current assets 3,348 3,814
Total current assets 240,317 263,969
Property, net (Note 4) 231,895 242,510
Cash surrender value of life
insurance, net of policy loans 36,973 36,715
Other 18,339 22,144
Total assets $527,524 $565,338
Liabilities
Short-term borrowings $ 4,350 $ 21,422
Current maturities of long-term debt 3,093 3,284
Accounts payable 28,327 49,673
Accrued liabilities 35,714 36,425
Total current liabilities 71,484 110,804
Long-term debt 167,706 164,611
Deferred income taxes 16,544 16,209
Other deferred liabilities 24,776 25,468
Minority interest 3,126 4,186
Total liabilities 283,636 321,278
Stockholders' Investment
Preferred stock, $1 par;
1,000,000 shares authorized,
not issued --- ---
Common stock, $.02 par; 40,000,000
shares authorized, 19,629,199 shares
issued, 13,997,120 shares outstanding
at January 1, 1995 and 13,984,037
shares outstanding at October 2, 1994 393 393
Capital in excess of par 34,282 34,455
Retained earnings 264,708 260,705
Foreign currency translation loss (8,158) (3,661)
Unamortized stock compensation (2,420) (2,802)
Treasury stock, at cost (5,632,079
shares at January 1, 1995 and
5,645,162 shares at October 2, 1994) (44,917) (45,030)
Total stockholders' investment 243,888 244,060
Total liabilities and
stockholders' investment $527,524 $565,338
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
G u i l f o r d M i l l s, I n c.
C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s
For the Thirteen Weeks Ended January 1, 1995 and December 26, 1993
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C>
January 1, December 26,
1995 1993
Cash Flows From Operating Activities:
Net income $ 6,103 $ 3,849
Non-cash items included in net income --
Depreciation and amortization 12,080 9,705
Gain on disposition of property -- (14)
Deferred income taxes 937 788
Increase in cash surrender value of
life insurance (258) (335)
Compensation earned under restricted
stock plan 382 412
Changes in assets and liabilities --
Receivables 19,158 9,010
Inventories (46) (3,667)
Other current assets 271 195
Accounts payable (19,605) (8,538)
Accrued liabilities 459 4,250
Other (902) 11
Net cash provided by operating activities 18,579 15,666
Cash Flows From Investing Activities:
Additions to property (7,332) (12,015)
Proceeds from disposition of property 122 1,072
Proceeds from sale of other assets 2,600 --
(Increase) decrease in other assets 804 (1,144)
Net cash used by investing activities (3,806) (12,087)
Cash Flows From Financing Activities:
Minority interest 1,060 --
Repayments of short-term borrowings, net (16,149) (3,117)
Payments of long-term debt (816) (695)
Proceeds from issuance of long-term debt 5,611 --
Cash dividends (2,100) (2,097)
Proceeds from exercise of common stock options 282 234
Net cash used by financing activities (12,112) (5,675)
Effect of exchange rate changes on cash
and cash equivalents (1,701) 15
Net Increase (Decrease) In Cash and
Cash Equivalents 960 (2,081)
Beginning Cash and Cash Equivalents 6,110 4,912
Ending Cash and Cash Equivalents $ 7,070 $ 2,831
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 1995
(In thousands except share data)
1. Seasonal Fluctuations -- Results for any portion of a year are not
necessarily indicative of the results to be expected for a full year, due
to seasonal aspects of the textile industry.
Reclassifications - For comparative purposes certain amounts for 1994
have been reclassified to conform with the 1995 presentation.
2. Per Share Information -- Primary net income per share information has
been computed by dividing net income by the weighted average number of
shares of common stock, par value $.02 per share, of the Company (the
"Common Stock") and Common Stock equivalents outstanding during the periods.
The average shares used in computing primary net income per share for the
thirteen weeks ended January 1, 1995 and December 26, 1993 were 13,887,000
and 13,742,000, respectively.
Fully diluted income per share information also considers as applicable
(i) the dilutive effect, if any, assuming that the Company's convertible
debentures were converted at the beginning of the current fiscal period,
with earnings being increased by the interest expense, net of income taxes,
that would not have been incurred had conversion taken place and (ii) any
additional dilutive effect for stock options and restricted stock grants.
The average shares used in computing fully diluted net income per share for
the thirteen weeks ended January 1, 1995 and December 26, 1993 were 16,151,000
and 16,021,000, respectively.
3. Inventories -- Inventories are carried at the lower of cost or market.
Cost is determined for substantially all inventories using the LIFO (last-in,
first-out) method.
Inventories at January 1, 1995 and October 2, 1994 consisted of the
following:
<TABLE>
<S> <C> <C>
January 1, October 2,
1995 1994
Finished goods $ 39,801 $ 40,455
Raw materials and work in process 66,425 65,810
Manufacturing supplies 12,592 12,311
Total inventories valued at first-in,
first-out (FIFO) cost 118,818 118,576
Less -- Adjustments to reduce FIFO
cost to LIFO cost, net (15,241) (12,841)
Total inventories $103,577 $105,735
</TABLE>
4. Accumulated Depreciation -- Accumulated depreciation at January 1, 1995
and October 2, 1994 was $270,217 and $263,073, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the first quarter of fiscal 1995, consolidated sales of $182.5 million
increased $24.9 million from the comparable period of the previous year.
Sales in the automotive and upholstery business unit increased 12.9% from
the comparable period of the previous year. This resulted from an 18.1%
increase in sales of headliner and body cloth fabrics and a 4.7% decrease in
sales of fabrics for recreational vehicles and vans. Furniture fabric sales
declined 13.8% due to knit fabrics not moving well at the retail level.
While the Company continues to expect sales growth in this business unit,
the domestic automotive original equipment manufacturer (OEM) market is
beginning to show some signs of softening.
Sales in the apparel and home fashions business unit declined 5.5% from the
comparable period of the previous year. Sales declined 16.8% in intimate
apparel, sleepwear and robewear, and 23.0% in ready-to-wear circular knit
cotton jersey and interlock fabrics and warp knits, were partially offset
by large sales increases in shapewear and swimwear, and moderate increases
in fastener products and industrial fabrics. As the Company continues to
experience shifts in the product mix from traditionally high volume products
into new value added products for the apparel and commercial markets, the
Company anticipates flat sales for the entire year.
Sales of the Company's U.K. subsidiary increased $13.7 million or 74.7% from
the comparable period of the previous year reflecting continuing economic
improvement in Europe, which began in the second quarter of last year,
coupled with strong demand for certain Ford and General Motors car models.
The Company expects continuing improvement in sales volume, although at a lower
level than the first quarter would indicate.
Sales from the Company's Mexican subsidiary totalled $11.6 million. These
were realized largely at an average exchange rate of 3.5 pesos to the dollar.
The devaluation of approximately 40% will impact future revenue translation
and reduce total sales below expectations.
Margins for the first quarter of fiscal 1995 improved to 18.1% compared to last
year's 16.8%. Primary factors contributing to this increase were strong U.K.
improvement, improved Fibers performance, and the Mexican contribution, with
automotive margins remaining flat compared to the prior year. Price increases
on purchased yarn were passed on to customers enabling selling margins to be
maintained. The apparel and home fashions business unit margin decreased as
compared to the prior year's quarter due largely to negative volume variances.
Management does not believe that volume declines were related to selling price
increases.
Selling and administrative expenses for the first quarter increased to $18.7
million compared to last year's $17.5 million entirely as a result of
consolidating the Company's Mexican subsidiary in the first quarter (which
occurred in August 1994). These expenses were contained and resulted in a
declining percentage of sales as volume increased.
Interest expense for the first quarter increased to $3.7 million compared to
last year's $2.9 million due to the addition of $20 million of senior,
unsecured notes in the third quarter of the prior year. While the Company's
long-term debt increased relative to the prior year, average short term
borrowings for the quarter declined slightly. The Company's Mexican subsidiary
added an additional $0.5 million in interest expense for the first quarter
compared to the prior year.
Other expense for the first quarter increased to $1.1 million compared to last
year's $0.1 million due primarily to an acceleration of investment losses in
a real estate limited partnership in which the Company owns an interest, which
resulted from the partnership changing its fiscal year-end to coincide with
the fiscal year-end of the Company.
<PAGE>
The effective income tax rate was 35.7% in the first quarter of fiscal 1995
compared to 35.3% in the comparable quarter of the prior year. The rate is
expected to be below the prior year's rate throughout the year due to the
impact of Mexican taxes combined with research and development and real
estate investment credits.
Net income for the first quarter was $6.1 million, or $.44 per primary share,
compared to $3.8 million, or $.28 per primary share, for the comparable period
of the previous year.
The results of operations for the first quarter of fiscal 1995 were not
significantly impacted by the devaluation of the Mexican peso which occurred
very late in the quarter. In the balance sheet, the result of this
translation loss is a reduction in stockholder equity, as required by
Statement of Financial Accounting Standards No. 52, and accordingly is not
reflected in the income of the Company. In management's view, a risk of loss
of earnings exists in the future related to net U.S. dollar transactions
and from a decline of the Company's sales in Mexico. Although the Mexican
government has issued guidelines allowing for the increase of selling prices
for both apparel and automotive manufacturers, current operations are at near
normal levels, and contingency plans are in place to utilize Mexican capacity,
the Company cannot determine to what extent these may offset the possible
negative impact of this economic uncertainty.
Liquidity and Capital Requirements
At January 1, 1995, working capital was $168.8 million compared to $153.2
million at October 2, 1994. The increase in working capital is due primarily
to the reduction in short-term borrowings as a result of fluctuations in
seasonal requirements. The Company maintains flexibility with respect to its
seasonal working capital needs through a committed revolving credit facility of
$25 million and its continued access to other traditional sources of funds,
including available uncommitted lines of credit aggregating over $100 million,
and the ability to receive advances against its factored accounts receivable.
Management believes that the Company's financial position and operating
performance will continue to provide the Company with necessary capital from
appropriate financial markets.
Contingencies and Future Operations
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 Resources and incurred
approximately $3.5 million in costs. 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 will perform
(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 evaluate alternatives for any corrective action which may be
necessary at the facility. The failure of Gold to comply with the terms of
the Consent Order may result in the imposition of monetary penalties against
Gold. In the fourth quarter of 1992, a pre-tax charge of $8.0 million was
provided for the estimated future cost of the additional remediation.
The Company initiated litigation against the former stockholders and other
parties involved in the sale of Gold to the Company. The parties have reached
a settlement. No recovery has been recognized in the Company's statement of
income as a result of the settlement.
During the fourth quarter of 1992, the Company also received a Notice of
Violation from the North Carolina Division of Environmental Management
concerning ground water contamination on or near one
<PAGE>
of its North Carolina facilities. The Company has voluntarily agreed to
allow the installation of monitoring wells at the site to determine the
source of the contaminants, but denies that such contaminants originated
from the Company's operations or property. An additional pre-tax charge
of $1.3 million was provided in the fourth quarter of 1992 to reflect the
estimated future costs of monitoring this and other environmental matters
including the removal of underground storage tanks at the Company's
facilities. At January 1, 1995, environmental accruals amounted to $7.2
million of which $6.2 million is non-current and is included in other
deferred liabilities in the balance sheet.
The Company is also involved in various litigation arising in the ordinary
course of business. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Reference is made to Item 3 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 2, 1994, which
item is incorporated herein by reference.
Items 2 - 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's 1994 Annual Meeting of Stockholders was held on February 2,
1995. At such meeting, the stockholders elected each of Donald B. Dixon,
Terrence E. Geremski, George Greenberg, and Dr. Jacobo Zaidenweber to serve
as directors for a three-year term expiring after the Company's 1997 fiscal
year. In addition, the stockholders at such meeting ratified the selection
of Arthur Andersen LLP as independent auditors for the fiscal year ending
October 1, 1995. The number of votes cast for, against or withheld, as well
as the number of abstentions, as the case may be, with respect to each matter
voted upon at the 1994 Annual Stockholders' Meeting is set forth below:
(1) Election of Directors
<TABLE>
<S> <C> <C>
Director Votes For Votes Withheld
Donald B. Dixon 11,544,562 22,599
Terrence E. Geremski 11,544,257 22,904
George Greenberg 11,544,574 22,587
Dr. Jacobo Zaidenweber 11,545,353 21,808
</TABLE>
(2) Ratification of Selection of Auditors
<TABLE>
<S> <C> <C> <C>
Votes For Votes Against Abstentions
11,532,715 20,441 14,005
</TABLE>
Items 5 - 6. Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: February 15, 1995 By: /s/ Terrence E. Geremski
Terrence E. Geremski
Vice President/Chief Financial
Officer and Treasurer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-END> JAN-01-1995
<CASH> 7,070
<SECURITIES> 0
<RECEIVABLES> 131,781
<ALLOWANCES> (8,627)
<INVENTORY> 103,577
<CURRENT-ASSETS> 240,317
<PP&E> 502,112
<DEPRECIATION> 270,217
<TOTAL-ASSETS> 527,524
<CURRENT-LIABILITIES> 71,484
<BONDS> 167,706
<COMMON> 393
0
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<OTHER-SE> 243,495
<TOTAL-LIABILITY-AND-EQUITY> 527,524
<SALES> 182,494
<TOTAL-REVENUES> 182,494
<CGS> 149,483
<TOTAL-COSTS> 168,190
<OTHER-EXPENSES> 1,102
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<INTEREST-EXPENSE> 3,711
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</TABLE>
