<PAGE>
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 July 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 July 2, 1995 - 14,081,301
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Page 1
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 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 thirty-nine weeks ended
July 2, 1995 and June 26, 1994
Consolidated Statements of Income for the thirteen weeks ended
July 2, 1995 and June 26, 1994
Consolidated Balance Sheets as of July 2, 1995 and October 2, 1994
Consolidated Statements of Cash Flows for the thirty-nine weeks ended
July 2, 1995 and June 26, 1994
Condensed Notes to Consolidated Financial Statements
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Page 2
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 Thirty-nine Weeks Ended July 2, 1995 and June 26, 1994
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
July 2, June 26,
1995 1994
<S> <C> <C>
Net Sales $595,141 $496,397
Costs and Expenses:
Cost of goods sold 486,348 413,579
Selling and administrative 54,877 47,814
541,225 461,393
Operating Income 53,916 35,004
Interest Expense 11,041 9,014
Other Expense, net 2,777 178
Income Before Income Taxes 40,098 25,812
Income Tax Provision 13,372 9,100
Net Income
$ 26,726 $ 16,712
Net Income Per Share:
Primary $1.92 $1.21
Fully Diluted 1.75 1.15
Dividends Per Share $ .45 $ .45
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 3
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 July 2, 1995 and June 26, 1994
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
July 2, June 26,
1995 1994
<S> <C> <C>
Net Sales $210,762 $183,235
Costs and Expenses:
Cost of goods sold 173,460 150,233
Selling and administrative 16,124 15,719
189,584 165,952
Operating Income 21,178 17,283
Interest Expense 3,858 3,205
Other Expense, net 789 243
Income Before Income Taxes 16,531 13,835
Income Tax Provision 5,284 4,900
Net Income
$
11,247 $ 8,935
Net Income Per Share:
Primary $.80 $.65
Fully Diluted .73 .59
Dividends Per Share $.15 $.15
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 4
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
July 2, 1995 and October 2, 1994
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
July 2, October 2,
1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents $ 16,021 $ 6,110
Accounts receivable, net 152,117 146,294
Inventories (Note 3) 108,019 105,735
Prepaid income taxes 3,995 2,016
Other current assets 5,095 3,814
Total current assets 285,247 263,969
Property, net (Note 4) 239,199 242,510
Cash surrender value of life insurance, net of policy loans 36,641 36,715
Other 17,236 22,144
Total assets $578,323 $565,338
Liabilities
Short-term borrowings $ 15,032
$ 21,422
Current maturities of long-term debt 2,995 3,284
Accounts payable 45,776 49,673
Accrued liabilities 44,143 36,425
Total current liabilities 107,946 110,804
Long-term debt 167,299 164,611
Deferred income taxes 16,357 16,209
Other deferred liabilities 24,597 25,468
Minority interest 2,337 4,186
Total liabilities 318,536 321,278
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, 14,081,301 shares outstanding at July 2, 1995
and 13,984,037 shares outstanding at October 2, 1994 393 393
Capital in excess of par 33,875 34,455
Retained earnings 281,098 260,705
Foreign currency translation loss (9,093) (3,661)
Unamortized stock compensation (1,575) (2,802)
Treasury stock, at cost (5,547,898 shares at July 2, 1995
and 5,645,162 shares at October 2, 1994) (44,911) (45,030)
Total stockholders' investment 259,787 244,060
Total liabilities and stockholders' investment $578,323 $565,338
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 5
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 Thirty-nine Weeks Ended July 2, 1995 and June 26, 1994
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 26, July 2,
1994 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 26,726 $ 16,712
Non-cash items included in net income --
Depreciation and amortization 35,185 29,507
Gain on disposition of property (80) (65)
Minority interest in net income 194 --
Deferred income taxes 672 1,614
Decrease (increase) in cash surrender value of life insurance, net of policy loans 74 (1,961)
Compensation earned under restricted stock plan 1,227 1,047
Changes in assets and liabilities --
Receivables (10,952) (14,715)
Inventories (5,426) (6,510)
Other current assets (1,615) 530
Accounts payable (2,876) (248)
Accrued liabilities 10,638 8,357
Other (458) (52)
Net cash provided by operating activities 53,309 34,216
Cash Flows From Investing Activities:
Additions to property (40,250) (35,672)
Proceeds from disposition of property 389 1,348
Proceeds from sale of other assets 2,600 --
Decrease (increase) in other assets 2,116 (1,018)
Net cash used by investing activities (35,145) (35,342)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net (3,839) (11,503)
Payments of long-term debt (2,318) (2,084)
Proceeds from issuance of long-term debt 6,191 20,000
Cash dividends (6,333) (6,319)
Common stock options exercised 701 461
Net cash (used) provided by financing activities (5,598) 555
Effect of Exchange Rate Changes on Cash and Cash Equivalents (2,655) 457
Net Increase (Decrease) In Cash and Cash Equivalents 9,911 (114)
Beginning Cash and Cash Equivalents 6,110 4,912
Ending Cash and Cash Equivalents $ 16,021 $ 4,798
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 6
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 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 thirty-nine weeks ended July 2, 1995 and
June 26, 1994 were 13,946,000 and 13,764,000, respectively. The average
shares used in computing primary net income per share for the thirteen
week periods ended July 2, 1995 and June 26, 1994 were 14,083,000 and
13,845,000, 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 thirty-nine weeks ended July
2, 1995 and June 26, 1994 were 16,274,000 and 16,031,000 respectively.
The average shares used in computing fully diluted net income per share
for the thirteen weeks ended July 2, 1995 and June 26, 1994 were
16,333,000 and 16,095,000, 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 July 2, 1995 and October 2, 1994 consisted of the
following:
<TABLE>
<CAPTION>
July 2, October 2,
1995 1994
<S> <C> <C>
Finished goods $ 52,113 $ 40,455
Raw materials and work in process 63,587 65,810
Manufacturing supplies 12,584 12,311
Total inventories valued at first-in, first-out (FIFO) 128,284 118,576
cost (20,265) (12,841)
Less -- Adjustments to reduce FIFO cost to LIFO cost
Total inventories $108,019 $105,735
</TABLE>
4. Accumulated Depreciation -- Accumulated depreciation at July 2,
1995 and October 2, 1994 was $296,451 and $263,073, respectively.
<PAGE>
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the first nine months of fiscal 1995, consolidated sales of
$595.1 million increased $98.7 million from the prior year period. For
the third quarter of fiscal 1995, consolidated sales of $210.8 million
increased $27.5 million from the prior year period.
Sales in the U.S. automotive and upholstery business unit
increased 13.6% to $152.9 million for the first nine months of fiscal
1995 and 11.1% to $50.3 million for the third quarter of fiscal 1995
compared to the prior year periods. This resulted from an increase in
sales of headliner and bodycloth fabrics of 20.1% and 16.6% for the
first nine months and for the third 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 14.5% and 13.5% for the first nine months and third quarter of
fiscal 1995, respectively. After several periods of significant
growth in the U.S. automotive and upholstery business unit, the
automotive industry is experiencing a softer trend. Despite adverse
conditions, such as higher interest rates, model year change
over, and excess dealer inventory, the Company has maintained sales
growth largely due to increasing market share. Although the market is
softening, the Company remains cautiously optimistic and expects sales
growth in this business unit in the fourth quarter compared to the prior
year.
Sales in the apparel and home fashions business unit increased 3.9%
to $303.6 million for the first nine months of fiscal 1995 compared
to the prior year period. This resulted from increases in sales of
21.4% in shapewear and swimwear, fastener products and industrial
fabrics. These increases were partially offset by sales declines of
6.6% in intimate apparel and ready-to-wear circular and warp knits,
with home fashions remaining flat compared to the prior year period.
Sales for the third quarter of fiscal 1995 increased 5.1% to $115.9
million compared to the prior year period. This resulted from
increases in sales of 16.2% in shapewear and swimwear, home fashions,
fastener products and industrial fabrics, and ready-to-wear
circular and warp knits. These increases were partially offset by sales
declines of 15.0% or $5.9 million in intimate apparel 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 continue to express pessimism for
apparel goods and continue strongly to resist price increases, the
Company anticipates a slight decline in sales in this business unit for
the entire year compared to the prior year.
Sales in the Company's U.K. subsidiary increased 65.4% to $105.9
million for the first nine months of fiscal 1995 and 42.7% to $35.2
million for the third quarter of fiscal 1995 compared to the prior
year periods. Europe's automotive market, which has seen significant
growth, is showing signs of softening with lower market forecasts and an
economy which is not likely to significantly improve compared
to the last twelve month period. The Company anticipates lower
sales for the fourth quarter relative to the first nine months,
however, some improvement is expected over the fourth quarter of last
year.
Sales in the Company's Mexican subsidiary were $27.1 million at an
average exchange rate of 4.9 pesos to a dollar for the first nine
months of fiscal 1995 and $7.2 million at an average exchange rate of
6.1 pesos to a dollar for the third quarter of fiscal 1995. The
Company anticipates that the peso's uncertainty will continue to impact
future revenue translation and total sales of its Mexican subsidiary.
<PAGE>
Page 8
Margins improved to 18.3% for the first nine months of fiscal
1995 from 16.7% for the prior year period. This resulted from margin
increases of $3.7 million due to volume increases for the U.K.
subsidiary and $5.7 million due to operating efficiencies in apparel
and fibers operations. These increases were partially offset by a $1.8
million decline in margins for the domestic automotive business unit
primarily as a result of startup costs relative to new printing
technology.
Margins slightly declined to 17.7% for the third quarter of fiscal
1995 from 18.0% for the third quarter of fiscal 1994. The Company has
begun experiencing increases in raw material costs and has had limited
success in passing this increased cost to the customer. To date,
the Company has relied primarily upon operating efficiencies to maintain
margins. As raw material costs continue to increase and as customers
continue to vigorously resist price increases, and despite the
Company's ongoing raw material cost reduction efforts aimed at quality
and yield improvements, it anticipates some decline in margin.
Selling and administrative expenses increased to $54.9 million for
the first nine months of fiscal 1995 from $47.8 million for the prior
year period and to $16.1 million for the third quarter of fiscal 1995
from $15.7 million for the prior year period. The primary factors
for these increases for the first nine months and the third quarter were
additional expenses related to performance based incentive
compensation plans of $2.9 million and $0.3 million respectively, and
the consolidation of the Company's Mexican subsidiary which added $3.2
million and $0.7 million, respectively.
Interest expense increased to $11.0 million for the first nine
months of fiscal 1995 from the prior year period of $9.0 million and
to $3.9 million for the third quarter of fiscal 1995 from the prior
year period of $3.2 million. These increases were primarily due to the
consolidation of the Company's Mexican subsidiary which added $1.8
million and $0.7 million of interest expense for the first nine
months and the third quarter of fiscal 1995, respectively. Although
short-term interest rates increased approximately two percentage
points over the prior year, the Company's average short-term borrowings
have decreased over 50%.
Other expense increased $2.6 million for the first nine months
of fiscal 1995 from the prior year period and increased $0.5 for the
third 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 and other
expenses of the Company's Mexican subsidiary.
The effective tax rate for the first nine months of fiscal 1995
was 33.3% compared to the prior year period of 35.3% and was 32.0%
for the third quarter of fiscal 1995 compared to the prior year period
of 35.4%. The rate is expected to be below the prior year's rate
throughout the year due to the impact of research and development and
real estate investment credits.
Net Income for the first nine months of fiscal 1995 increased to
$26.7 million from the prior year period of $16.7 million, and
increased to $11.2 million for the third quarter of fiscal 1995
from the prior year period of $8.9 million.
The results of operations for the first nine months and third
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.
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Page 9
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 July 2, 1995, working capital was $177.3 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
increased cash, inventory and accounts receivable. Although the
Company has experienced raw material cost increases, it has not had an
impact on the Company's liquidity. 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 $145 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.
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 July 2,
1995, environmental accruals amounted to $6.3 million of which $5.3
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.
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Page 10
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
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Page 11
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: August 16, 1995 By: /s/ Terrence E. Geremski
Terrence E. Geremski
Vice President/Chief Financial
Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-END> JUL-2-1995
<CASH> 16,021
<SECURITIES> 0
<RECEIVABLES> 152,117
<ALLOWANCES> 0
<INVENTORY> 108,019
<CURRENT-ASSETS> 285,247
<PP&E> 535,650
<DEPRECIATION> (296,451)
<TOTAL-ASSETS> 578,323
<CURRENT-LIABILITIES> 107,946
<BONDS> 167,299
<COMMON> 393
0
0
<OTHER-SE> 259,394
<TOTAL-LIABILITY-AND-EQUITY> 578,323
<SALES> 595,141
<TOTAL-REVENUES> 595,141
<CGS> 486,348
<TOTAL-COSTS> 486,348
<OTHER-EXPENSES> 2,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,041
<INCOME-PRETAX> 40,098
<INCOME-TAX> 13,372
<INCOME-CONTINUING> 26,726
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,726
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.75
</TABLE>
