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 April 2, 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 April 2, 1995 - 14,053,410
<PAGE>
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 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 twenty-six weeks ended
April 2, 1995 and March 27, 1994
Consolidated Statements of Income for the thirteen weeks ended
April 2, 1995 and March 27, 1994
Consolidated Balance Sheets as of April 2, 1995 and October 2, 1994
Consolidated Statements of Cash Flows for the twenty-six weeks ended
April 2, 1995 and March 27, 1994
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 Twenty-Six Weeks Ended April 2, 1995 and March 27, 1994
(In thousands except per share data)
(Unaudited)
<TABLE>
<S> <C> <C>
April 2, March 27,
1995 1994
Net Sales $384,379 $313,162
Costs and Expenses:
Cost of goods sold 312,888 263,346
Selling and administrative 38,753 32,095
351,641 295,441
Operating Income 32,738 17,721
Interest Expense 7,183 5,808
Other Expense (Income), net 1,988 (65)
Income Before Income Taxes 23,567 11,978
Income Tax Provision 8,088 4,200
Net Income $ 15,479 $ 7,778
Net Income Per Share:
Primary $1.11 $.56
Fully Diluted 1.03 .56
Dividends Per Share $.30 $.30
</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 I n c o m e
For the Thirteen Weeks Ended April 2, 1995 and March 27, 1994
(In thousands except per share data)
(Unaudited)
<TABLE>
<S> <C> <C>
April 2, March 27,
1995 1994
Net Sales $201,885 $155,586
Costs and Expenses:
Cost of goods sold 163,405 132,194
Selling and administrative 20,046 14,601
183,451 146,795
Operating Income 18,434 8,791
Interest Expense 3,472 2,906
Other Expense (Income), net 886 (144)
Income Before Income Taxes 14,076 6,029
Income Tax Provision 4,700 2,100
Net Income $ 9,376 $ 3,929
Net Income Per Share:
Primary $.67 $.28
Fully Diluted .61 .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
April 2, 1995 and October 2, 1994
(In thousands except share data)
(Unaudited)
<TABLE>
<S> <C> <C>
April 2, October 2,
1995 1994
Assets
Cash and cash equivalents $ 7,620 $ 6,110
Accounts receivable, net 147,948 146,294
Inventories (Note 3) 116,660 105,735
Prepaid income taxes 4,078 2,016
Other current assets 3,038 3,814
Total current assets 279,344 263,969
Property, net (Note 4) 235,053 242,510
Cash surrender value of life insurance,
net of policy loans 37,469 36,715
Other 17,690 22,144
Total assets $569,556 $565,338
Liabilities
Short-term borrowings $ 9,971 $ 21,422
Current maturities of long-term debt 2,978 3,284
Accounts payable 55,457 49,673
Accrued liabilities 41,929 36,425
Total current liabilities 110,335 110,804
Long-term debt 165,754 164,611
Deferred income taxes 15,707 16,209
Other deferred liabilities 25,171 25,468
Minority interest 2,266 4,186
Total liabilities 319,233 321,278
Stockholders' Investment
Preferred stock, $1 par; 1,000,000 shares
authorized, none issued --- ---
Common stock, $.02 par; 40,000,000 shares
authorized, 19,629,199 shares issued,
14,053,410 shares outstanding at
April 2, 1995 and 13,984,037 shares
outstanding at October 2, 1994 393 393
Capital in excess of par 33,773 34,455
Retained earnings 271,987 260,705
Foreign currency translation loss (8,658) (3,661)
Unamortized stock compensation (2,037) (2,802)
Treasury stock, at cost (5,575,789 shares
at April 2, 1995 and 5,645,162 shares
at October 2, 1994) (45,135) (45,030)
Total stockholders' investment 250,323 244,060
Total liabilities and stockholders'
investment $569,556 $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 Twenty-Six Weeks Ended April 2, 1995 and March 27, 1994
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C>
April 2, March 27,
1995 1994
Cash Flows From Operating Activities:
Net income $15,479 $ 7,778
Non-cash items included in net income --
Depreciation and amortization 23,789 19,228
Gain on disposition of property (116) (68)
Minority interest in net income 209 --
Deferred income taxes 168 1,767
Increase in cash surrender value of
life insurance (754) (1,326)
Compensation earned under restricted stock plan 765 713
Changes in assets and liabilities --
Receivables (7,494) (7,989)
Inventories (14,271) (7,409)
Other current assets 520 1,235
Accounts payable 8,812 (2,666)
Accrued liabilities 7,371 2,732
Other 471 (216)
Net cash provided by operating activities 34,949 13,779
Cash Flows From Investing Activities:
Additions to property (25,596) (23,800)
Proceeds from disposition of property 350 1,191
Proceeds from sale of other assets 2,600 --
(Increase) decrease in other assets 1,671 (1,310)
Net cash used by investing activities (20,975) (23,919)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net (9,366) 14,961
Payments of long-term debt (1,591) (1,389)
Proceeds from issuance of long-term debt 4,166 --
Cash dividends (4,197) (4,219)
Common stock options exercised 375 376
Net cash (used) provided by financing
activities (10,613) 9,729
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (1,851) 16
Net Increase (Decrease) In Cash and Cash Equivalents 1,510 (395)
Beginning Cash and Cash Equivalents 6,110 4,912
Ending Cash and Cash Equivalents $ 7,620 $ 4,517
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 2, 1995
(In thousands except share data)
(Unaudited)
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 twenty-
six weeks ended April 2, 1995 and March 27, 1994 were 13,887,000 and
13,800,000, respectively. The average shares used in computing primary net
income per share for the thirteen week periods ended April 2, 1995 and March
27, 1994 were 13,977,000 and 13,831,000, 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 twenty-six weeks ended April 2, 1995 and March 27, 1994 were 16,188,000
and 13,834,000, respectively. The average shares used in computing fully
diluted net income per share for the thirteen weeks ended April 2, 1995 and
March 27, 1994 were 16,228,000 and 13,836,000, 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 April 2, 1995 and October 2, 1994 consisted of the
following:
<TABLE>
<S> <C> <C>
April 2, October 2,
1995 1994
Finished goods $ 50,966 $ 40,455
Raw materials and work in process 69,736 65,810
Manufacturing supplies 12,706 12,311
Total inventories valued at first-in,
first-out (FIFO) cost 133,408 118,576
Less -- Adjustments to reduce FIFO
cost to LIFO cost (16,748) (12,841)
Total inventories $116,660 $105,735
</TABLE>
4. Accumulated Depreciation -- Accumulated depreciation at April 2, 1995
and October 2, 1994 was $286,584 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 six months of fiscal 1995, consolidated sales of $384.4
million increased $71.2 million from the prior year period. For the second
quarter of fiscal 1995, consolidated sales of $201.9 million increased $46.3
million from the prior year period.
Sales in the U.S. automotive and upholstery business unit increased 15%
to $102.6 million for the first six months of fiscal 1995 and 17% to $52.2
million for the second quarter of fiscal 1995 compared to the prior year
periods. This resulted from an increase in sales of headliner and bodycloth
fabrics of 22% and 26% for the first six months and second quarter of fiscal
1995, respectively. These increases were partially offset by sales declines
in the recreational vehicle and van business and in furniture fabrics of 15%
and 21% for the first six months and second quarter of fiscal 1995,
respectively. While the Company remains cautiously optimistic and expects
sales growth in this business unit compared to the prior year, the domestic
automotive original equipment manufacturer (OEM) market is showing signs of
softening.
Sales in the apparel and home fashions business unit increased 3% to
$187.6 million for the first six months of fiscal 1995 compared to the prior
year period. This resulted from flat sales in intimate apparel, increases in
sales of 17% or $8.5 million in shapewear and swimwear, and 24% or $3.5
million in fastener products and industrial fabrics. These increases were
partially offset by sales declines of 4% or $1.3 million in home fashions and
13% or $5.5 million in ready-to-wear circular and warp knits. Sales for the
second quarter of fiscal 1995 increased 12% to $100.7 million compared to the
prior year period. This resulted from increases in sales of 13% or $2.9
million in intimate apparel, 22% or $4.9 million in shapewear and swimwear,
and 27% or $2.0 million in fastener products and industrial fabrics with
sales of ready-to-wear circular and warp knits and home fashions remaining
flat as compared to the prior year period. As the Company continues to
experience shifts in the product mix from traditionally high volume products
into new value added products and as retailers express pessimism for apparel
goods and continue strongly to resist price increases, the Company's
expectations are guarded and it anticipates flat sales in this business unit
for the entire year.
Sales of the Company's U.K. subsidiary increased 79% to $70.7 million
for the first six months of fiscal 1995 and 84% to $38.7 million for the
second quarter of fiscal 1995 compared to the prior year periods. Continued
economic improvement in Europe coupled with a strong demand for certain Ford,
General Motors and Nissan car models have exceeded the Company's own internal
expectations. The Company's revised sales estimates for the remainder of the
fiscal year anticipate continued improvement, although at a lower level than
the first six months would indicate.
Sales of the Company's Mexican subsidiary were $19.9 million at an
average exchange rate of 4.5 pesos to a dollar for the first six months of
fiscal 1995 and $8.3 million at an average exchange rate of 5.4 pesos to a
dollar for the second quarter of fiscal 1995 compared to the prior year
periods. Since the first quarter, the peso's devaluation has caused
approximately a 40% decrease in reported sales from what they would have been
had the value of the peso not declined. However, this decrease was somewhat
offset by the shift in production for export from 15% to 30% largely related
to the automotive builds. The Company anticipates that the peso's
devaluation will continue to impact future revenue translation and reduce
total sales of its Mexican subsidiary.
Margins improved to 18.6% for the first six months of fiscal 1995 from
15.9% for the prior year period. This resulted from margin increases of $6.5
million for the U.K. subsidiary, $6.4 million due to operating efficiencies
in apparel and fibers operations, $3.5 million in the domestic automotive
business unit and $5.5 million contributed
<PAGE>
by the Mexican subsidiary. Margins improved to 19.1% for the second quarter
of fiscal 1995 from 15.0% for the second quarter of fiscal 1995. The primary
factors contributing to this increase were $3.3 million for the U.K.
subsidiary, $7.0 million due to operating efficiencies in apparel and fiber
operations, $2.1 million in the domestic automotive business unit and $2.5
million contributed by the Mexican subsidiary.
Selling and administrative expenses increased to $38.8 million for the
first six months of fiscal 1995 from $32.1 million for the prior year period
and to $20.0 million for the second quarter of fiscal 1995 from $14.6 million
for the prior year period. The primary factors for these increases for the
first six months and the second quarter were higher accruals for performance
based incentive compensation plans of $2.3 million and $4.0 million,
respectively, the consolidation of the Company's Mexican subsidiary which
added $2.5 million and $1.0 million, respectively, and increased research and
development ("R&D") expenses of $1.4 million and $0.7 million, respectively,
as the Company continues to focus R&D efforts on new developments in growth
related areas and to move the timing of major R&D projects to the off peak
periods.
Interest expense increased to $7.2 million for the first six months of
fiscal 1995 from the prior year period of $5.8 million and to $3.5 million
for the second quarter of fiscal 1995 from the prior year period of $2.9
million. These increases were primarily due to the consolidation of the
Company's Mexican subsidiary which added $1.0 million and $0.5 million of
interest expense for the first six months and the second quarter of fiscal
1995, respectively. The remaining increase for the first six months of
fiscal 1995 was due to higher short-term borrowing rates.
Other expense increased $2.1 million for the first six months of fiscal
1995 from the prior year period and increased $1.0 for the second quarter of
fiscal 1995 from the prior year. These increases were primarily due to an
acceleration of investment losses in a real estate limited partnership in
which the Company owns an interest.
The effective tax rate for the first six months of fiscal 1995 was
34.3% compared to the prior year period of 35.1% and was 33.4% for the second
quarter of fiscal 1995 compared to the prior year period of 34.8%. The rate
is expected to be below the prior year's rate throughout the year due to the
impact of R&D and real estate investment credits.
Net Income for the first six months of fiscal 1995 increased to $15.5
million from the prior year period of $7.8 million, and increased to $9.4
million for the second quarter of fiscal 1995 from the prior year period of
$3.9 million.
The results of operations for the first six months and second quarter
of fiscal 1995 were not significantly impacted on a consolidated basis by the
devaluation of the Mexican peso which occurred very late in the first
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 manufacturing capacity, the
Company cannot determine to what extent these may offset the possible
negative impact of this economic uncertainty.
Liquidity and Capital Requirements
At April 2, 1995, working capital was $169.0 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 and the increase in inventory
<PAGE>
as a result of 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 its 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 would allow access to 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 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 April 2, 1995, environmental
accruals amounted to $6.9 million of which $5.9 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 - 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: May 17, 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> 6-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-END> APR-02-1995
<CASH> 7,620
<SECURITIES> 0
<RECEIVABLES> 147,948
<ALLOWANCES> 0
<INVENTORY> 116,660
<CURRENT-ASSETS> 279,344
<PP&E> 521,637
<DEPRECIATION> (286,584)
<TOTAL-ASSETS> 569,556
<CURRENT-LIABILITIES> 110,335
<BONDS> 165,754
<COMMON> 393
0
0
<OTHER-SE> 249,930
<TOTAL-LIABILITY-AND-EQUITY> 569,556
<SALES> 384,379
<TOTAL-REVENUES> 384,379
<CGS> 312,888
<TOTAL-COSTS> 312,888
<OTHER-EXPENSES> 1,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,183
<INCOME-PRETAX> 23,567
<INCOME-TAX> 8,088
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