UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (fee OF THE SECURITIES EXCHANGE ACT OF 1934 (fee
[ X ] required) [ ] required)
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For the Fiscal Year Ended September 29, 1996
Commission File No. 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4925 West Market Street
Greensboro, North Carolina 27407
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 316-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
Common Stock, $.02 par value New York Stock Exchange
6% Convertible Subordinated
Debentures due 2012 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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.
Yes X No
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.[ ]
Aggregate market value of the voting stock (which consists solely of shares of
common stock) held by non-affiliates of the Registrant at November 22, 1996 (a
total of 12,265,725 shares of common stock), computed by reference to the last
reported sale price ($25.75 the Registrant's common stock on the New York Stock
Exchange on such date: $315,842,419.
Number of shares of the Registrant's common stock outstanding as of November 22,
1996: 14,487,127
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Stockholders for the fiscal year ended
September 29, 1996 are incorporated by reference into Parts I and II of this
report.
Certain portions of the Registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, which will be
filed with the Commission on or about December 27, 1996 are incorporated by
reference into Part III of this report.
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GUILFORD MILLS, INC.
PART I
Item 1. Business
General
Guilford Mills, Inc. (the "Company") is engaged primarily in the business
of producing, processing and selling warp knit fabrics. The Company knits
synthetic yarn, primarily nylon, acetate and polyester, on warp knitting
machinery into warp knit fabrics, which it then dyes and finishes. The Company
sells these finished knit fabrics for use in a broad range of apparel,
automotive, industrial and home fashions products. The Company also designs,
knits, dyes, prints and finishes elastomeric and circular knit fabrics for sale
principally to swimwear, dress and sportswear manufacturers. Additionally, the
Company has introduced woven velour fabric capabilities in its expanding
automotive business. The Company produces knitted lace fabrics for the apparel,
intimate apparel and home fashions markets. Lace fabrics are also cut and sewn
into finished home fashions products which are sold directly to retailers.
On August 18, 1994, the Company purchased 55% of the outstanding capital
stock of Grupo Ambar, S.A. de C.V. ("Grupo Ambar"). The acquisition increased
the Company's ownership in Grupo Ambar to 75%. Grupo Ambar is a leading
manufacturer of knit textile fabrics in Mexico.
On January 17, 1996, the Company acquired 100% of the outstanding capital
stock of Hofmann Laces, Ltd., Raschel Fashions Interknitting, Ltd., and Curtains
and Fabrics, Inc. (collectively "Hofmann Laces"). Hofmann Laces designs and
produces lace fabrics for the intimate apparel, apparel and home fashions
markets. It also cuts and sews lace fabrics into finished home fashions
products. It produces stretch knit fabrics for the apparel swimwear and intimate
apparel markets. For information regarding this acquisition, reference is made
to the Company's Form 8-K, filed with the commission on January 31, 1996, and
Form 8-K/A, filed with the Commission on April 1, 1996, and which are
incorporated herein by reference.
The Company 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 predecessors and subsidiaries are referred to as
the "Company", unless the context indicates otherwise.
Product Development
Working closely with the Company's customers, the Company's research and
development departments, consisting of 83 full-time U.S. employees, ten
employees of Guilford Europe Limited, a United Kingdom corporation and an
indirect wholly-owned subsidiary of the Company ("Guilford Europe"), and four
employees of Grupo Ambar, are primarily responsible for the creation of new
fabrics and styles. Sample warping and knitting machines are used to develop new
fabrics which can be placed into production after customer acceptance. Total
expenditures for research and development for fiscal years 1996, 1995 and 1994,
were approximately $13.4 million, $13.8 million, and $14.7 million,
respectively.
The Company has numerous trademarks, trade names and certain licensing
agreements which it uses in connection with the advertising and promotion of its
products. Management believes that the loss or expiration of such trademarks,
trade names and licensing agreements would not have a material adverse effect on
the Company's operations.
Working Capital Practices
The Company primarily produces inventory based on customer orders and
significant amounts of inventory are not required to meet rapid delivery or to
assure a continuous allotment of goods from suppliers. Customers are allowed to
return goods for valid reasons and customer accommodations are not significant.
Approximately 15% of domestic accounts receivable are factored in order to avoid
the credit risk on such accounts and to obtain larger credit lines for many
customers. The Company has the ability to borrow against such receivables,
although it has traditionally not done so as the related borrowing terms are
less favorable than other available sources of financing. The Company maintains
credit insurance covering $13.0 million of certain outstanding accounts
receivable. The Company generally takes advantage of discounts offered by
vendors.
Marketing
The Company sells its warp knit and circular knit fabrics for use in a
broad range of apparel, automotive and home fashions products. For the fiscal
years ended September 29, 1996, October 1, 1995, and October 2, 1994, the
approximate percentage of the Company's worldwide sales attributable to each
category was as follows:
1996 1995 1994
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Apparel 41% 46% 51%
Automotive 41 43 38
Home Fashions 11 6 8
Other 7 5 3
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Total 100% 100% 100%
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The Company experiences seasonal fluctuations in its sales of apparel
fabrics, with the highest sales occurring in the period from April to September.
Sales of fabrics for use in automotive and home fashions products experience
insignificant seasonal fluctuations.
Reference is made to Note 12 of the Consolidated Financial Statements in
the Company's Annual Report to Stockholders for the fiscal year ended September
29, 1996 (the "Annual Report"), which note is incorporated herein by reference,
for financial information relating to sales, income and assets of Guilford
Europe and Grupo Ambar for the last three fiscal years.
The backlog of orders believed to be firm as of the end of the current and
preceding fiscal years is not deemed to be material for an understanding of the
Company's business as most orders are deliverable within a few months.
The Company promotes its fabrics primarily by advertising in trade
publications, in conjunction with yarn producers, and to a lesser extent by
participating in trade shows.
In the United States, the Company has sales offices in New York City, Los
Angeles, Greensboro, Detroit, San Francisco, Atlanta and Chicago. Hofmann Laces
maintains an office in Hong Kong. Export markets for U.S. manufacturers are
serviced by commission agents throughout the world. Guilford Europe services the
United Kingdom market with its own marketing group from its Alfreton
administrative offices. Export markets are serviced by in-house personnel based
in the United Kingdom, Belgium and Germany and by commission agents in most
continental European Union countries. Grupo Ambar services its Mexican market
from its administrative office.
The Company has a large number of customers. No customer accounted for 10%
or more of total net sales during fiscal 1996, 1995 or 1994.
Export Sales
U.S. export sales, as a percentage of total worldwide sales of the Company,
were approximately 5% in fiscal 1996, 3% in fiscal 1995, and 4% in fiscal 1994.
Raw Materials
In the United States, the Company's warp knit fabrics are constructed
primarily of synthetic yarns: acetate, nylon, polyester and lycra(R). In fiscal
1996, the Company purchased approximately 90% of such yarns and internally
produced the balance of nylon and polyester yarns. The Company purchases
substantially all of its nylon yarn from five domestic fiber producers and
purchases substantially all of its polyester yarn from seven domestic fiber
producers and two domestic texturizers. One domestic fiber producer supplied
substantially all of the acetate yarn. Lycra(R) is purchased from one domestic
producer. The Company also uses cotton as well as synthetic yarns in its
circular knit and lace operations. In fiscal 1996, all such yarns were readily
available and were purchased from numerous sources.
Fabrics manufactured by Guilford Europe are made from nylon, acetate and
polyester synthetic yarns. The majority of its polyester yarn is purchased from
ten European suppliers, and the majority of its nylon and acetate yarn is
purchased from five European suppliers.
Fabrics manufactured by Grupo Ambar in Mexico are made from nylon, lycra(R)
and polyester synthetic yarn. The majority of its polyester yarn is purchased
from one Mexican, two Japanese and one American supplier. The majority of its
nylon and lycra(R) yarn is purchased from two Mexican suppliers.
Except for certain specialty yarns, management believes that an adequate
supply of yarns is available to meet the Company's requirements. The chemicals
and dyes used in the dyeing and finishing processes are available in large
quantities from various suppliers.
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 Guilford Europe and Grupo Ambar,
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 capital expenditures,
earnings or competitive position.
Reference is made to Note 11 of the Consolidated Financial Statements in
the Annual Report, which note is incorporated herein by reference, for
information regarding certain other environmental matters.
Competition
Historically, the textile industry has been both highly competitive and
cyclical in nature. The textile industry has also been characterized by periods
of strong demand, resulting in over-expansion of production facilities, followed
by periods of over-supply. For a number of years, the domestic U.S. textile
industry has been adversely affected by imports of garments comprised of fabrics
manufactured abroad. The principal methods of competition in the textile
industry are pricing, styling and design, customer service and quality. The
weight of each competitive factor varies with the product line involved.
In the United States, the Company's Apparel Home Fashions Business Unit and
Hofmann Laces have five major warp knit competitors and many other smaller
competitors. The Company also competes with some apparel manufacturers that have
warp knit equipment to manufacture their own fabrics. Some of these companies
are divisions of large, well-capitalized companies while others are small
manufacturers. In circular knits, the Company has two major competitors and
numerous smaller competitors. The automotive business unit has three major
competitors and several smaller competitors. Guilford Europe competes with two
warp knitters in the United Kingdom and several in France. It also competes with
many producers of
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circular knit and woven fabrics. Grupo Ambar competes with six
warp knitters in Mexico.
Employees
As of November 22, 1996, the Company employed 6,517 full-time employees
worldwide. Approximately 1,270 employees (including 428 in Guilford Europe and
475 in Mexico) are represented by collective bargaining agreements.
Item 2. Properties
The Company currently maintains a total of 12 manufacturing and warehousing
facilities in North Carolina (three of which are leased, and one of which a
portion is subleased to an unrelated entity), one manufacturing facility in
Georgia, two manufacturing facilities in Pennsylvania, seven manufacturing
facilities and one leased warehousing facility in New York, and one warehousing
facility in Virginia (leased). Hofmann Laces has five retail stores in New York,
and one in Pennsylvania, all of which are leased. The Company's foreign
operations based in England include two manufacturing and warehousing
facilities, one in Alfreton in Derbyshire and one in Sudbury in Suffolk, each
owned by the Company, and those based in Mexico include one manufacturing
facility and two warehouses (leased) in Xalostoc, and five retail stores, four
of which are leased, in the Federal District. Management believes the facilities
and manufacturing equipment are in good condition, well maintained, suitable and
adequate for present production. Utilization of the facilities fluctuates from
time to time due to the seasonal nature of operations and market conditions.
Item 3. Legal Proceedings
Reference is made to Note 11 of the Consolidated Financial Statements in
the Annual Report, which note is incorporated herein by reference, for
information regarding certain environmental matters.
On or about August 10, 1993, Skylon Corporation commenced an action in the
United States District Court for the Southern District of New York against the
Company and George Greenberg, the former president and a current director of the
Company. Plaintiff alleged that it was fraudulently induced into entering into
various agreements with the Company. Plaintiff sought an aggregate of $31.75
million in compensatory and punitive damages. In the fourth quarter of the 1994
fiscal year, the District Court in this action granted the Company's summary
judgment motion dismissing all of the plaintiff's claims against the Company.
The court denied such motion with respect to Mr. Greenberg, but Mr. Greenberg
has moved to reargue such motion. As a matter of law, in appropriate
circumstances, the Company has an obligation to indemnify Mr. Greenberg as to
any liability he may have in this matter.
On October 12, 1995, the court denied Mr. Greenberg's motion to reargue,
but granted permission for certification for interlocutory appeal to the Second
Circuit Court of Appeals on a narrow issue which, if decided in Mr. Greenberg's
favor, would be dispositive of the case. On October 23, 1995, Mr. Greenberg
petitioned the Second Circuit for permission to appeal. On February 20, 1996,
the Second Circuit Court of Appeals issued an order denying Mr. Greenberg's
petition for interlocutory appeal from a portion of an order previously issued
by the United States District Court of New York in this matter. Mr. Greenberg
continues to vigorously defend this matter.
Except as indicated above, the Company is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
its business. Although the final outcome of these legal 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.
Item 4A. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the Company's
fourth quarter.
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Item 4B. Executive Officers of the Registrant (as of November 22, 1996)
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Name Age Office or Business Experience
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Charles A. Hayes 61 Chairman of the Board and Chief Executive Officer (since 1976); President and Chief Operating
Officer (from 1991 to 1995); formerly President (from 1968 to 1976) and Executive Vice President
(from 1961 to 1968).
John A. Emrich 52 Member of the Board of Directors (since 1995); President and Chief Operating Officer (since
1995); formerly Senior Vice President and President/Automotive Business Unit (from 1993 to 1995);
formerly Vice President/Planning and Vice President/Operations for the Apparel and Home Fashions
Business Unit (from 1991 to 1993); Director of Operations with FAB Industries, Inc. (from 1990 to
1991) and holder of various executive positions with the Company (from 1985 to 1990).
Terrence E. Geremski 49 Member of the Board of Directors (since 1993); Senior Vice President, Chief Financial Officer and
Treasurer (since 1992); formerly Vice President and Controller with Varity Corporation (from 1989
to 1991) and formerly Vice President, Chief Financial Officer, Treasurer and holder of other
executive positions with Dayton Walther Corp. (from 1979 to 1989).
Alfred A. Greenblatt 47 Senior Vice President (since 1989) and President/Apparel and Home Fashions Business Unit (since
1991); formerly President/Fashion Apparel Fabrics Business Unit (from 1989 to 1991) and holder of
various executive positions (from 1984 to 1989).
Phillip D. McCartney 54 Vice President/Technical Operations (since 1989); formerly holder of various executive positions
with FAB Industries, Inc. (from 1984 to 1989).
Byron McCutchen 49 Senior Vice President and President/Fibers Business Unit (since 1995); formerly Senior Vice
President for the Fibers Business Unit (from 1994 to 1995); formerly Worldwide Business
Manager-Dacron(R) Filament-E.I. Dupont Co. (from 1991 to 1994); and Specialty Business Manager-
Dacron(R)-E.I. Dupont Co.(from 1990 to 1991).
Richard E. Novak 53 Vice President/Human Resources (since 1996); formerly Principal of Nova Consulting Group (from
1994 to 1996) and Senior Vice President/Human Resources of Joseph Horne Company, Inc. (from 1987 to
1994).
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No family relationships exist between any executive officers of the Company.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Reference is made to the information set forth on page 35 in the
section entitled "Common Stock Market Prices and Dividends" in the Annual
Report, filed as Exhibit 13 to this report, which page is incorporated herein by
reference.
Item 6. Selected Financial Data
Reference is made to the information set forth on pages 20 and 21 in
the section entitled "Selected Financial Data" in the Annual Report, which page
is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to the information set forth on pages 13 through 19
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report, which pages are
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Reference is made to information set forth on pages 22 through 34 of
the Annual Report, which pages are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information to be included under the captions "Directors and Nominees"
and "Additional Information" contained in the section entitled "ELECTION OF
DIRECTORS" in the Company's definitive proxy statement, which will be filed with
the Commission on or about December 27, 1996 pursuant to Regulation 14A under
the Securities Exchange Act of 1934 (the "Proxy Statement"), is incorporated
herein by reference.
Item 11. Executive Compensation
The information to be included in the section "EXECUTIVE COMPENSATION" in
the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information to be included in the section "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information to be included in the section "CERTAIN TRANSACTIONS" in the
Proxy Statement is incorporated herein by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements (reference is made to pages 22 through 34 of the
Annual Report, which pages are incorporated herein by reference):
Consolidated Balance Sheets as of September 29, 1996 and October 1,
1995
Consolidated Statements of Income for the Years Ended September 29,
1996, October 1, 1995 and October 2, 1994
Consolidated Statements of Stockholders' Investment for the Years
Ended September 29, 1996, October 1, 1995 and October 2, 1994
Consolidated Statements of Cash Flows for the Years Ended September 29,
1996, October 2, 1995 and October 1, 1994
Notes to Consolidated Financial Statements
Statement of Management's Responsibility
Report of Independent Public Accountants
2. Financial Statement Schedule:
Schedule II - Analysis of Valuation and Qualifying Accounts for the
Years Ended September 29, 1996, October 1, 1995 and October 2, 1994
3. Exhibits:
Exhibit No. Description of Exhibit
(3) (a) Restated Certificate of Incorporation of the Company, as
amended through January 14, 1988 (incorporated by
reference to Exhibit 3 (a) (1) to the Company's Annual
Report on Form 10-K for the fiscal year ended July 3, 1988
(the "1988 Annual Report")).
(3) (b) By-Laws of the Company, as amended through November 14,
1996.
(4) (a) Indenture, dated as of March 15, 1987, between the Company
and First Union National Bank of North Carolina, as
Trustee (incorporated by reference to Exhibit 4(a) to the
Company's Registration Statement on Form S-3 (Registration
No. 33-12612) filed with the SEC on March 13, 1987).
(4) (b) The Note Agreement, dated January 29, 1993, by and among
the Company and the purchasers named in the purchasers'
schedule attached thereto (incorporated by reference to
Exhibit 4 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 27, 1992).
(4) (c) Rights Agreement dated as of August 23, 1990 between the
Company and The First National Bank of Boston, as Rights
Agent (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K filed with the SEC on
September 7, 1990).
(4) (d) Appointment of Successor Rights Agent, dated January 28,
1994, between the Company and Wachovia Bank of North
Carolina, N.A. (incorporated by reference to Exhibit
(4)(e) to the Company's Annual Report of Form 10-K for the
fiscal year ended October 1, 1995 (the "1995 Annual
Report").
(4) (e) The Company has an additional long-term debt instrument
which, pursuant to Item 601 (b)(4)(iii) of Regulation S-K,
will be furnished to the Securities and Exchange
Commission upon request.
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(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)* Amended and Restated Incentive Stock Option Plan-1981
(incorporated by reference to Exhibit (10) (d) to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 28, 1987 (the "1987 Annual Report")).
(10) (c)* Guilford Mills, Inc. 1991 Stock Option Plan (incorporated
by reference to Exhibit 28 (a) to the Company's
Registration statement on Form S-8 (Registration No.
33-47109) filed with the SEC on April 10, 1992 (the "Form
S-8")).
(10) (d)* Form of Stock Option Contract for key employees in the
1991 Stock Option Plan (relating to incentive stock
options) (incorporated by reference to Exhibit 28 (b) to
the Form S-8).
(10) (e)* Form of Stock Option Contract for Director participants in
the 1991 Stock Option Plan (incorporated by reference to
Exhibit 28 (d) to the Form S-8).
(10) (f)* Guilford Mills, Inc. 1989 Restricted Stock Plan
(incorporated by reference to Exhibit 10 (b) (2) to the
1990 Annual Report).
(10) (g)* Amendment to 1989 Restricted Stock Plan (incorporated by
reference to Exhibit (10) (g) to the 1994 Annual Report).
(10) (h)* Form of Restricted Stock Agreement between the Company and
certain of its officers and key employees pursuant to the
1989 Restricted Stock Plan (incorporated by reference to
Exhibit 10 (j) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 28, 1992 (the "1992 Annual
Report")).
(10) (i)* Form of Amendment to Restricted Stock Agreement between
the Company and certain of its officers and key employees
pursuant to the 1989 Restricted Stock Plan (incorporated
by reference to Exhibit (10) (k) to the 1992 Annual
Report).
(10) (j)* Form of Second Amendment to Restricted Stock Agreement
between the Company and certain of its officers and key
employees pursuant to the 1989 Restricted Stock Plan
(incorporated by reference to Exhibit (10) (j) to the 1994
Annual Report).
(10) (k)* Form of Third Amendment to Restricted Stock Agreement
between the Company and certain of its officers and key
employees pursuant to the 1989 Restricted Stock Plan
(incorporated by reference to Exhibit (10) (k) to the 1994
Annual Report).
(10) (l)* Form of Fourth Amendment to Restricted Stock Agreement
between the Company and certain of its officers and key
employees pursuant to the 1989 Restricted Stock Plan
(incorporated by reference to Exhibit (10) (l) to the 1994
Annual Report).
(10) (m)* Amended and Restated Phantom Stock Agreement between the
Company and Charles A. Hayes dated September 21, 1994
(incorporated by reference to Exhibit (10) (m) to the 1994
Annual Report).
(10) (n)* Form of Executive Retirement and Death Benefit Agreements
between the Company and certain of its executive officers
and key employees (incorporated by reference to Exhibit
(10) (d) (1) to the 1990 Annual Report).
(10) (o)* Form of Pension and Death Benefit Agreement between the
Company and certain of its executive officers and key
employees (incorporated by reference to Exhibit (10) (d)
(2) to the 1990 Annual Report).
(10) (p)* Form of Deferred Compensation Agreement between the
Company and certain of its officers and key employees
(incorporated by reference to Exhibit (10) (d) (3) to the
1990 Annual Report).
(10) (q)* Guilford Mills, Inc. Senior Managers' Life Insurance Plan
and related Plan Agreement (incorporated by reference to
Exhibit (10) (r) to the 1992 Annual Report).
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(10) (r)* Guilford Mills, Inc. Senior Managers' Pre-Retirement Life
Insurance Agreement (incorporated by reference to Exhibit
(10) (s) to the 1992 Annual Report).
(10) (s)* 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) (t)* Form of Severance Agreement between the Company and
certain of its officers and employees (incorporated by
reference to Exhibit (10) (u) to the 1992 Annual Report).
(10) (u)* Form of Amendment to Severance Agreement between the
Company and certain of its officers and employees
(incorporated by reference to Exhibit (10) (v) to the 1994
Annual Report).
(10) (v)* Form of Second Amendment to Severance Agreement between
the Company and certain of its officers and employees
(incorporated by reference to Exhibit (10) (w) to the 1994
Annual Report).
(10) (w) Stockholders' Agreement, dated as of April 30, 1991 by and
among the Company, Maurice Fishman and Charles A. Hayes
(incorporated by reference to Exhibit (10) (e) to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991).
(10) (x) Amendment, dated June 29, 1994, to Stockholders'
Agreement, dated as of April 30, 1991, by and among the
Company, Maurice Fishman and Charles A. Hayes
(incorporated by reference to Exhibit (10) (y) to the 1994
Annual Report).
(10) (y) Second Amendment dated January 1, 1995, to Stockholders'
Agreement, dated as of April 30, 1991, by and among the
Company, Maurice Fishman and Charles A. Hayes
(incorporated by reference to Exhibit (10)(y) to the 1995
Annual Report).
(10) (z) Third Amendment dated June 22, 1995, to Stockholders'
Agreement, dated as of April 30, 1991, by and among the
Company, Maurice Fishman and Charles A. Hayes
(incorporated by reference to Exhibit (10)(z) to the 1995
Annual Report).
(10) (a)(a) Stockholders' Agreement, dated as of June 22, 1990, by and
among the Company, Charles A. Hayes, George Greenberg and
Maurice Fishman (incorporated by reference to Exhibit (10)
(f) to the 1990 Annual Report).
(10) (b)(b) Amendment dated January 1, 1995, to Stockholders'
Agreement, dated as of June 22, 1990, by and among the
Company, Charles A. Hayes, George Greenberg and Maurice
Fishman (incorporated by reference to Exhibit (10) (b)(b)
to the 1995 Annual Report).
(10) (c)(c) Second Amendment dated June 22, 1995, to Stockholders'
Agreement, dated as of June 22, 1990, by and among the
Company, Charles A. Hayes, George Greenberg and Maurice
Fishman (incorporated by reference to Exhibit (10)(c)(c)
to the 1995 Annual Report).
(10) (d)(d)* Short Term Incentive Compensation Plan for Key Managers
(incorporated by reference to Exhibit (10) (x) to the 1992
Annual Report).
(10) (e)(e)* 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) (f)(f)* 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) (g)(g)* Second Amendment to the Management Compensation Trust
Agreement between the Company and North Carolina Trust
Company dated July 1, 1992 (incorporated by reference to
Exhibit (10) (a) (a) to the 1992 Annual Report).
(10) (h)(h) Revolving Credit Agreement, dated September 26, 1995, by
and between the Company, as borrower, Gold Mills, Inc. as
Guarantor, and the banks listed therein (incorporated by
reference to Exhibit (10)(i)(i) to the 1995 Annual
Report).
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10 (i)(i)* Employment Agreement, dated January 17, 1996, by and among
Hofmann Laces, Ltd., Raschel Fashion Interknitting, Ltd.,
Curtains and Fabrics, Inc. and Bruno Hofmann (incorporated
by reference to Exhibit 2.1(a) to the Company's Current
Report on Form 8-K, dated January 31, 1996 (the "1996
8-K").
10 (j)(j) Stock Purchase Agreement, dated January 12, 1996, by and
between Guilford Mills, Inc. and Bruno Hofmann and
Amendment No. 1 thereto, dated January 17, 1996
(incorporated by reference to Exhibit 2.1 to the 1996
8-K).
(13) Annual Report to Stockholders of the Company for the
fiscal year ended September 29, 1996 (only those portions
of such report incorporated by reference to the Annual
Report on Form 10-K are filed herewith).
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule
*Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.
(b) Reports on Form 8-K
Not Applicable.
10
<PAGE>
SIGNATURES
Pursuant 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/ Terrence E. Geremski
Terrence E. Geremski
Senior Vice President, Chief Financial
Officer and Treasurer
Dated: December 19, 1996
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Chairman of the Board of Directors
and Chief Executive Officer (Principal
/s/ Charles A. Hayes Executive Officer) December 19, 1996
- ----------------------------------
Charles A. Hayes
/s/ Maurice Fishman Vice Chairman of the Board of Directors December 19, 1996
- -----------------------------------
Maurice Fishman
/s/ George Greenberg Vice Chairman of the Board of Directors December 19, 1996
- -----------------------------------
George Greenberg
Director; Senior Vice President, Chief
Financial Officer and Treasurer (Principal
/s/ Terrence E. Geremski Financial and Accounting Officer) December 19, 1996
- -----------------------------------
Terrence E. Geremski
Director; President and Chief Operating
/s/ John A. Emrich Officer December 19, 1996
- -----------------------------------
John A. Emrich
/s/ Jacobo Zaidenweber Director December 19, 1996
- -----------------------------------
Jacobo Zaidenweber
/s/ Tomokazu Adachi Director December 19, 1996
- -----------------------------------
Tomokazu Adachi
/s/ Donald B. Dixon Director December 19, 1996
- -----------------------------------
Donald B. Dixon
/s/ Stephen C. Hassenfelt Director December 19, 1996
- -----------------------------------
Stephen C. Hassenfelt
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Sherry R. Jacobs Director December 19, 1996
- -----------------------------------
Sherry R. Jacobs
/s/ Stig A. Kry Director December 19, 1996
- -----------------------------------
Stig A. Kry
/s/ Paul G. Gillease Director December 19, 1996
- -----------------------------------
Paul G. Gillease
</TABLE>
12
<PAGE>
INDEX TO FORM 10-K SCHEDULE
Report of Independent Public Accountants................................... F-1
Schedule II - Analysis of Valuation and Qualifying Accounts for the Years
Ended September 29, 1996, October 1, 1995 and October 2, 1994.............. F-2
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Guilford Mills, Inc.:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in the Guilford Mills, Inc. Annual
Report to the Stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated November 14, 1996. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
on page F-2 is the responsibility of the Company's management and 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 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.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
November 14, 1996.
F-1
<PAGE>
Guilford Mills, Inc.
SCHEDULE II
Analysis of Valuation and Qualifying
Accounts For the Years Ended September 29, 1996, October 1,
1995 and October 2, 1994
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance
Beginning Cost and End
of Period Expenses Deductions Other of Period
------------ -------------- -------------- -------- -------------
(1) (2)
<S> <C> <C> <C> <C> <C>
For the Year Ended October 2, 1994:
Reserve deducted from assets to
which it applies -
Allowance for doubtful
accounts............................ $8,748 $1,334 $(1,719) $182 $8,545
============ ============ ============= ========= ============
For the Year Ended October 1, 1995:
Reserve deducted from assets to
which it applies -
Allowance for doubtful
accounts............................ $8,545 $3,186 $(2,645) $(219) $8,867
============ ============ ============= ========= ============
For the Year Ended September 29, 1996
Reserve deducted from assets to
which it applies -
Allowance for doubtful
accounts............................ $8,867 $245 $(9) $ 384 $9,487
============ ============ ============= ========= ============
(1) Deductions are for the purpose for which the reserve was created.
(2) Other amounts represent the effect of exchange rate fluctuations and the purchase of a business.
(3) See Notes to Consolidated Financial Statements.
</TABLE>
F-2
<PAGE>
Exhibit Index
(3)(b) By-Laws of the Company as amended through November 14, 1996.
(13) Annual Report to Stockholders of the Company for the fiscal year
ended September 29, 1996 (only those portions of such report
incorporated by reference to the Annual Report on Form
10-K are filed herewith).
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule
BY-LAWS
OF
GUILFORD MILLS, INC.
(as amended through November 14, 1996)
ARTICLE I
OFFICES
The principal office of the Corporation within the State of Delaware
shall be located at the address stated in the Certificate of Incorporation or in
any certificate of appointment or change of agent or of change of principal
office which shall be filed with the Secretary of State on behalf of the
Corporation. The Corporation may have such other offices, either within or
without the State of Delaware, as the Board of Directors may designate or as the
business of the Corporation may require from time to time.
ARTICLE II
STOCKHOLDERS
The Annual Meeting of the stockholders for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting shall in 1993 be held on such day during the months of October or
November as may be fixed by the Board of Directors. The next Annual Meeting of
the stockholders for the purpose of electing Directors and for the transaction
of such other business as may come before the meeting shall be held on such day
during the months of February or March in 1995 as may be fixed by the Board of
Directors. Thereafter, the Annual Meeting of the stockholders for the purpose of
electing Directors and for the transaction of such other
<PAGE>
business as may come
before the meeting shall be on such day during the months of February or March
in each year as may be fixed by the Board of Directors. If the election of
Directors shall not be held on the day designated herein for any annual meeting
of the stockholders, or at any adjournment thereof, the annual election of
Directors may be held at a special meeting of the stockholders as soon
thereafter as may be convenient.
SECTION 2. Place of Meeting. Annual meetings and special meetings of
the stockholders shall be held at such place, within or without the State of
Delaware and at such hour as may be fixed from time to time by the Board of
Directors. At least ten days' (but not more than 50 days') notice shall be given
to the stockholders of the place so fixed.
SECTION 3. Special Meetings. Special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors.
SECTION 4. Notice of Meeting. Written or printed notice stating the
time and place of the meeting shall be delivered not less than ten (10) days
before the date of the meeting, either personally or by mail, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States Mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. Such notice need not
state the purposes of the meeting unless required by law. Whenever the
provisions of law or of the Certificate of Incorporation or By-laws of the
Corporation require that a meeting of the stockholders shall be duly called for
the purpose, or that a certain
2
<PAGE>
notice of the time, place and purposes of any such meeting shall be given, in
order that certain action may be taken at such meeting, a written waiver of
notice of the time, place and purposes of such meeting, whether regular or
special, signed by every stockholder entitled to notice not present in person or
duly represented by proxy at such meeting, or by his attorney or legal
representative thereunto duly authorized, either before or after the time fixed
for holding said meeting, shall be deemed equivalent to such call and notice,
and such action if taken at any such meeting shall be as valid as if call and
notice had been duly given. Notice of any adjourned meeting of the stockholders
shall not be required to be given.
SECTION 5. Closing of Transfer Books for Fixing of Record Date. The
Board of Directors may close the stock transfer books of the Corporation for a
period not exceeding fifty (50) days preceding the date of any meeting of
stockholders or the date for payment of any dividend or the date for the
allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect or for a period of not exceeding fifty (50)
days in connection with obtaining the consent of stockholders for any purpose.
In lieu of closing the stock transfer books as aforesaid, the Board of Directors
may fix in advance a date, not exceeding fifty (50) days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment or rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent, and in
such case be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such
3
<PAGE>
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid. In the event that the Board of Directors shall not have closed the
transfer books of the Corporation or fixed a date for the determination of its
stockholders entitled to vote, as aforesaid, no share of stock shall be voted on
at any election for Directors which has been transferred on the books of the
Corporation within twenty (20) days next preceding such election of Directors.
SECTION 6. Quorum. The holders of a majority of the outstanding shares
of the Corporation entitled to vote, present in person or represented by proxy,
shall constitute a quorum at any meeting of the stockholders. In the absence of
a quorum at any meeting, or any adjournment thereof, a majority in interest of
the stockholders present in person or represented by proxy may adjourn the
meeting from time to time without further notice. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally held.
SECTION 7. Proxies. At all meetings of stockholders, the vote of any
stockholder may be cast in person or by his proxy or proxies (who need not be
stockholders) appointed by an instrument in writing subscribed by such
stockholder or by his duly authorized attorney-in-fact and delivered to the
Secretary of the meeting. No
4
<PAGE>
appointment of proxy shall be valid after one year from the date thereof, unless
the proxy provides for a longer period.
SECTION 8. Voting Shares. Each stockholder shall be entitled at each
meeting of the stockholders to one vote in person or by proxy for each share of
capital stock having voting rights held by him.
SECTION 9. Voting Lists. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address of each
stockholder of record and the number of shares registered in the name of each
stockholder of record. Such list shall be open during the usual hours for
business at the place where said election is to be held for ten (10) days next
preceding the date of said election, to the examination of any stockholder, and
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and subject to the inspection of any stockholder who may be
present.
SECTION 10. Notification of Nomination of Directors. Nominations for
election to the Board of Directors of the Corporation at a meeting of
stockholders may be made by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of Directors at such meeting who
complies with the notice procedures set forth in this Section 10. Such
nominations, other than those made by, or on behalf of the Board of Directors,
may be made only if notice in writing is personally delivered to, or mailed by
first class United States mail, postage prepaid, and received by,0 the Secretary
of the
5
<PAGE>
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to such meeting; provided, however, that if less than seventy (70) days' notice
or prior public disclosure of the date of the meeting is given to stockholders,
such nomination shall have been mailed by first class United States mail,
postage prepaid, and received by, or personally delivered to, the Secretary of
the Corporation not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the meeting was mailed or such
public disclosure was made, whichever occurs first. Such notice shall set forth
(a) as to each proposed nominee (i) the name, age, business address and, if
known, residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares, if any, of stock of
the Corporation that are beneficially owned by each such nominee and (iv) any
other information concerning the nominee that must be disclosed in proxy
solicitations pursuant to the proxy rules of the Securities and Exchange
Commission if such person had been nominated, or intended to be nominated, by
the Board of Directors (including such person's written consent to be named as a
nominee and to serve as a Director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such stockholder (ii) a representation that such stockholder is a
holder of record of shares of stock of the Corporation entitled to vote at the
meeting and the class and number of shares of the Corporation which are
beneficially owned by such stockholder, (iii) a representation that such
stockholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice and (iv) a description of all
arrangements or understandings between such
6
<PAGE>
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such stockholder. The Corporation also may require any proposed nominee to
furnish such other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a Director of
the Corporation.
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 11. Notice of Business at Annual Meetings. At an annual meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of Directors of the
Corporation, the procedures in Article II, Section 10 must be complied with. If
such business relates to any other matter, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be personally delivered to, or mailed by
first class United States mail, postage prepaid, and received by, the Secretary
of the Corporation not less than sixty (60)
7
<PAGE>
days nor more than ninety (90) days prior to such meeting; provided, however,
that if less than seventy (70) days' notice or prior public disclosure of the
date of the meeting is given to stockholders, such notice, to be timely, must
have been mailed by first class United States mail, postage prepaid, and
received by, or personally delivered to, the Secretary of the Corporation not
later than the close of business on the tenth (10th) day following the day on
which notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A stockholder's notice to the Secretary of the
Corporation shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) a
representation that the stockholder is a holder of record of shares of stock of
the Corporation entitled to vote at the meeting and the class and number of
shares of the Corporation which are beneficially owned by the stockholder and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
Section 11 and except that any stockholder proposal which complies with Rule
14a-8 of the proxy rules (or any successor provision) promulgated under the
Securities Exchange Act of 1934, as amended, and is to be included in the
Corporation's proxy statement for an annual meeting of stockholders shall be
deemed to comply with the requirements of this Section 11.
8
<PAGE>
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, he shall so declare to the meeting and the business not properly
brought before the meeting shall be disregarded.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 2. Number, tenure and qualifications. The number of Directors
shall be such as from time to time shall be fixed by the Board of Directors, but
in no case shall the number be more than thirteen (13) or less than three (3).
Each Director shall hold office until the next election of the class for which
such Directors shall have been chosen, and until a successor shall be duly
elected and qualified, or until his death, resignation or removal. No Director
need be a stockholder of the Corporation.
SECTION 3. Regular Meetings. The first meeting of each newly elected
Board of Directors shall be held immediately after, and at the same place as the
annual election of Directors, if a quorum shall be then present, in which case
notice of such meeting need not be given. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Delaware,
for the holding of regular meetings without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President or of any two Directors. The
person or
9
<PAGE>
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Delaware, as the place for
holding any special meeting of the Board of Directors called by them.
SECTION 5. Notice. Notice of any special meeting shall be given at
least two (2) days prior thereto by written notice delivered personally or
mailed to each Director at his business address, or by telegram. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Each such notice shall state the time and place of the
meeting but need not state the purposes thereof except as otherwise in these
By-laws expressly provided. Unless required by law or these By-laws, such notice
shall not be required to be given to any Director who shall be present at such
meeting, or who shall waive such notice in writing or by telegraph, cable or
radio, whether before or after the meeting, and any meeting of the Board of
Directors shall be a legal meeting without any notice thereof having been given
if all of the Directors shall be present thereat. Whenever the provisions of the
law or of the Certificate of Incorporation of the Corporation or these By-laws
require that a meeting of the Directors shall be duly called for the purpose, or
that a certain notice of the time, place and purposes of any such meeting shall
be given, in order that certain action may be taken at such meeting, a written
waiver of notice of the time, place and purposes of such meeting, whether
regular or special, signed by every Director not present in person, either
before or after the time fixed for holding said meeting, shall be deemed
equivalent to such call and notice, and
10
<PAGE>
such action if taken at any such meeting shall be as valid as if call and notice
had been duly given.
SECTION 6. Quorum. A majority of the Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
but if less than such a quorum is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time without further
notice.
SECTION 7. Manner of Acting. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 8. Removal of Directors. Any Director may be removed, but only
with cause, at any time, by the affirmative vote of the holders of a majority of
the outstanding stock entitled to vote for the election of Directors of the
Corporation, at a special meeting of the stockholders called and held for the
purpose.
SECTION 9. Vacancies. Any vacancy or vacancies in the Board of
Directors resulting from death, resignation, removal, and increase in the
authorized number of Directors, or any other cause, may be filled only by a
majority vote of the Directors then in office, though less than a quorum, and
each Director so elected shall hold office until the next election of the class
for which such Director shall have been chosen and until his successor shall be
duly elected and qualified, or until his death, resignation or removal.
SECTION 10. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid such fee for attendance at each meeting
of the Board of Directors or such stated salary as Director as shall be fixed by
the Board of Directors. No
11
<PAGE>
such payment shall preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. Designation and Vacancies. The Executive Committee, if any,
shall be designated as provided in the Certificate of Incorporation, shall
consist of not less than three members of the Board of Directors, one of whom
shall be designated the Chairman of the Executive Committee. The Chairman of the
Executive Committee shall preside at meetings of the Executive Committee, and
the Secretary of the Corporation, or such other person as the Executive
Committee shall from time to time determine, shall act as Secretary of the
Executive Committee.
The Board of Directors, by action of a majority of the whole Board,
shall fill vacancies in the Executive Committee.
SECTION 2. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee, if designated, shall have, and may
exercise, all of the powers of the Board of Directors (other than the power to
remove or elect officers) in the management of the business and affairs of the
Corporation, including the power to authorize the seal of the Corporation to be
affixed to all papers which may require it, in such manner as the Executive
Committee shall deem for the best interests of the Corporation, in all cases in
which specific directions shall not have been given by the Board of Directors.
12
<PAGE>
All action by the Executive Committee shall be reported to the Board of
Directors at its meeting next succeeding such action.
SECTION 3. Procedures, Meetings and Quorum. The Executive Committee
shall meet at such times and at such place or places as may be provided by such
rules of procedures as the Executive Committee may adopt, or by resolution of
the Executive Committee or of the Board of Directors. At every meeting of the
Executive Committee the presence of a majority of all the members shall be
necessary for the adoption by it of any resolution.
SECTION 4. Compensation. By resolution of the Board of Directors, the
members of the Executive Committee may be paid their expenses, if any, of
attendance at each meeting of the Executive Committee, and may be paid such fee
for attendance at each meeting of the Executive Committee as shall be fixed by
the Board of Directors.
ARTICLE 7
AUDIT COMMITTEE
SECTION 1. Audit Committee. The Audit Committee, if any, of the Board
of Directors shall be designated by the Board of Directors and shall consist of
not less than two (2) members of the Board of Directors, none of whom shall be
executive officers of the Corporation. One member of the Audit Committee may be
designated the Chairman of the Audit Committee. The Chairman of the Audit
Committee shall preside at meetings of the Audit Committee, and the Secretary of
the Corporation, or such other person as the Audit Committee shall from time to
time determine, shall act as Secretary of the Audit
13
<PAGE>
Committee. The Board of Directors, by action of a majority of the whole Board,
shall fill vacancies in the Audit Committee.
SECTION 2. Powers. The Audit Committee shall meet with management to
consider the adequacy of the internal controls of the Corporation and the
objectivity of financial reporting. The Audit Committee shall also meet with the
Corporation's independent accountants and with appropriate Corporation financial
personnel with respect to such matters. The Audit Committee shall recommend to
the Board of Directors the appointment of independent accountants. The Audit
Committee shall have such other powers as are granted to it by resolution of the
Board of Directors.
SECTION 3. Procedures, Meetings and Quorum. The Audit Committee shall
meet at such times and at such place or places as may be provided by such rules
of procedures as the Audit Committee may adopt, or by resolution of the Audit
Committee or of the Board of Directors. At every meeting of the Audit Committee
the presence of a majority of all the members shall be necessary for the
adoption of a new resolution.
SECTION 4. Compensation. By resolution of the Board of Directors, the
members of the Audit Committee may be paid their expenses, if any, of attendance
at each meeting of the Audit Committee and may be paid such fee for attendance
at each meeting of the Audit Committee as shall be fixed by the Board of
Directors.
ARTICLE VI
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a Chairman
of the Board, a President, one or more Vice Presidents (the number thereof to be
determined
14
<PAGE>
by the Board of Directors), a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers (including a Vice
Chairman of the Board) and assistant officers as may be deemed necessary may be
elected or appointed by the Board of Directors. Any two offices (but not more
than two), other than the offices of a President and Secretary, may be held by
the same person. The President shall be chosen from among the Directors.
SECTION 2. Election and Term of Office. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually at the first
meeting of the Board of Directors following the annual election of Directors. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as may be convenient. Each officer shall hold office
until his successor shall be duly elected and qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
SECTION 3. Removal of Officers. Any officer may be removed, either with
or without cause, by the vote of a majority of the whole Board of Directors at a
special meeting called for the purpose or, except in case of any officer elected
by the Board of Directors, by any superior officer upon whom the power of
removal may be conferred by the Board of Directors or by these By-laws.
SECTION 4. Vacancies. A vacancy in any office resulting from
death, resignation, removal or any other cause, may be filled by the Board of
Directors for the unexpired portion of the term.
15
<PAGE>
SECTION 5. Chairman and Vice Chairman of the Board. The Chairman of the
Board of Directors shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and of the Board of Directors
at which he is present and shall have the final executive authority with respect
to the management of the affairs and policies of the Corporation, including all
powers and authority which, by custom and usage, ordinarily are inherent in and
incident to the office of the chief executive officer of the Corporation. The
Vice Chairman of the Board of Directors shall, in the absence of the Chairman of
the Board of Directors, preside at all meetings of the stockholders and of the
Board of Directors at which he is present, and shall perform such other duties
as may be prescribed by the Board of Directors from time to time.
SECTION 6. President. The President shall be the chief operating
officer of the Corporation and shall have overall responsibility and authority
for the general management of the operations of the Corporation, including such
powers and authority which, by custom and usage, ordinarily are inherent in and
incident to the office of the chief executive officer, except as the same
specifically may be limited by resolution of the Board of Directors.
SECTION 7. The Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors may determine or as may
be assigned to him by the President. In the absence of the President or in the
event of his death, or inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties
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of the President, and when so acting, shall have all the powers and be subject
to all the restrictions upon the President.
SECTION 8. The Secretary. The Secretary shall (a) keep the minutes of
the meetings of the stockholders, the Board of Directors, the Executive
Committee (if designated), and all other committees, if any, of which a
Secretary shall not have been appointed, in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents, the execution of which on behalf of
the Corporation under its seal, is duly authorized; (d) be in charge of the
stock ledger of the Corporation; (e) in general perform all duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
SECTION 9. The Treasurer. The Treasurer shall (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever; (c) deposit all such moneys in the name of the
Corporation in such banks, trust companies, or other depositories as shall be
selected in accordance with the provisions of Article VI of these By-laws; and
(d) in general perform all duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors. He shall, if required by the Board of Directors, give a
bond for the
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faithful discharge of his duties in such sum and with such surety or sureties as
the Board of Directors shall determine.
SECTION 10. Assistant Secretaries and Assistant Treasurers. At the
request of the Secretary or in his absence or disability, one or more Assistant
Secretaries designated by the Board of Directors shall have all the powers of
the Secretary. At the request of the Treasurer or in his absence or disability,
one or more Assistant Treasurers designated by the Board of Directors shall have
all the powers of the Treasurer. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. Except as otherwise provided by law, these
By-laws or resolutions of the Board of Directors, any contract or other
instrument shall be valid and binding on the Corporation if executed and
delivered in its name and on its behalf by the President or in his absence or
disability by any Vice President. The Board of Directors may, however, authorize
any other officer or officers or other agent or agents to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, and such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by a
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resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers or other
agent or agents of the Corporation and in such manner and as shall from time to
time be determined by resolution of the Board of Directors. Each of such
officers and agents shall give such bond, if any, as the Board of Directors may
require.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select or as may be designated by any officer or officers of the
Corporation.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of
stock of the Corporation shall be in such form and shall contain such
information as shall be required by law at the time the same are issued. Such
certificates shall be (i) signed by the Chairman or Vice Chairman of the Board
of Directors or by the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or by the Secretary or an Assistant Secretary. If such
certificate is countersigned (i) by a transfer agent other than the Corporation
or its employee or (ii) by a registrar other than the Corporation or its
employee, any of the signatures above authorized may be a facsimile. Such
certificates
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shall bear the seal of the Corporation which may be a facsimile thereof. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, the
certificate may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent, or registrar at the date of issue. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and the date of issue, shall be entered on the
stock transfer books of the Corporation. The person in whose name any shares
shall stand on the books of the Corporation shall be deemed by the Corporation
to be the owner thereof for all purposes. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except as otherwise provided in the Certificate of
Incorporation and except that in case of a lost, destroyed, or mutilated
certificate a new one may be issued therefor upon such terms and/or indemnity to
the Corporation as the Board of Directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or the Transfer
Agent of the Corporation and on surrender for cancellation of the certificate
for such shares.
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ARTICLE IX
FISCAL YEAR
The 1994 fiscal year of the Corporation shall commence on September 27,
1993 and end on October 2, 1994. Thereafter, the fiscal year of the Corporation
shall commence on the first Monday following the Sunday nearest September 30 in
each year and end on the Sunday nearest September 30 in each year.
ARTICLE X
SEAL
The corporate seal of the Corporation shall be in the form of a circle
and shall include the name of the Corporation and reference to the year and
place of its incorporation.
ARTICLE XI
INDEMNIFICATION
SECTION 1. Indemnification Respecting Third Party Claims. The
Corporation, to the full extent permitted, and in the manner required, by the
laws of the State of Delaware as in effect at the time of the adoption of this
Article or as such laws may be amended from time to time, shall indemnify any
person who was or is made a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (including any
appeal thereof), whether civil, criminal, administrative or investigative in
nature (other than an action by or in the right of the Corporation), by reason
of the fact that such person is or was a Director, officer, employee or agent of
the Corporation, or, if at a time when he was a Director, officer, employee or
agent of the
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Corporation, is or was serving at the request of, or to represent the interests
of, the Corporation as a Director, officer, partner, fiduciary, employee or
agent (a "Subsidiary Officer") of another Corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (an "Affiliated
Entity"), against expenses (including attorneys' fees and disbursements), costs,
judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful; provided, however,
that the Corporation shall not be obligated to indemnify against any amount paid
in settlement unless the Corporation has consented to such settlement, which
consent shall not be unreasonably withheld. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his or her conduct was unlawful.
Notwithstanding anything to the contrary in the foregoing provisions of this
Section 1, a person shall not be entitled, as a matter of right, to
indemnification pursuant to this Section 1 against costs or expenses incurred in
connection with any action, suit or proceeding commenced by such person against
any person who is or was a Director, officer, fiduciary, employee or agent of
the Corporation
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or a Subsidiary Officer of any Affiliated Entity, but such indemnification may
be provided by the Corporation in a specific case as permitted by Section 6 of
this Article.
SECTION 2. Indemnification Respecting Derivative Claims. The
Corporation, to the full extent permitted, and in the manner required, by the
laws of the State of Delaware as in effect at the time of the adoption of this
Article or as such laws may be amended from time to time, shall indemnify any
person who was or is made a party to or is threatened to be made a party to any
threatened, pending or completed action or suit (including any appeal thereof)
brought in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a Director, officer, employee or
agent of the Corporation, or, if at a time when he was a Director, officer,
employee or agent of the Corporation, is or was serving at the request of, or to
represent the interests of, the Corporation as a Subsidiary Officer of an
Affiliated Entity against expenses (including attorneys' fees and disbursements)
and costs actually and reasonably incurred by such person in connection with
such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless, and except to the extent that, the Court of
Chancery of the State of Delaware or the court in which such judgment was
rendered shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses and costs as the
Court of Chancery of the State of Delaware or such other
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court shall deem proper. Notwithstanding anything to the contrary in the
foregoing provisions of this Section 2, a person shall not be entitled, as a
matter of right, to indemnification pursuant to this Section 2 against costs and
expenses incurred in connection with any action or suit in the right of the
Corporation commenced by such person, but such indemnification may be provided
by the Corporation in any specific case as permitted by Section 6 of this
Article.
SECTION 3. Determination of Entitlement to Indemnification. Any
indemnification under Section 1 or 2 of this Article (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification is proper under the circumstances because
such person has met the applicable standard of conduct set forth in Section 1 or
2 of this Article. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to the action, suit or proceeding in respect of which indemnification is
sought or by majority vote of the members of a committee of the Board of
Directors composed of at least three members each of whom is not a party to such
action, suit or proceeding, or (b) if such a quorum is not obtainable and/or
such a committee is not established or obtainable, or, even if obtainable, if a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion or (c) by the stockholders. In the event a request for
indemnification is made by any person referred to in Section 1 or Section 2, the
Corporation shall cause such determination to be made not later than 60 days
after such request is made.
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SECTION 4. Right to Indemnification Upon Successful Defense and For
Service as a Witness.
(a) Notwithstanding the other provisions of this Article,
to the extent that a Director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or 2 of this Article, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) and costs actually and reasonably incurred
by such person in connection therewith.
(b) To the extent any person who is or was a Director,
officer, employee or agent of the Corporation has served or prepared to serve as
a witness in any action, suit or proceeding (whether civil, criminal,
administrative or investigative in nature) or in any investigation by the
Corporation or the Board of Directors thereof or a committee thereof or by any
securities exchange on which securities of the Corporation are or were listed by
reason of his services as a Director, officer, employee or agent of the
Corporation or as a Subsidiary Officer of any Affiliated Entity (other than in a
suit commenced by such person), the Corporation shall indemnify such person
against expenses (including attorneys' fees and disbursements) and costs
actually and reasonably incurred by such person in connection therewith within
30 days after receipt by the Corporation from such person of a statement
requesting such indemnification, averring such service and reasonably evidencing
such expenses and costs.
SECTION 5. Advance of Expenses. Expenses and costs incurred by any
person referred to in Section 1 or Section 2 of this Article in defending a
civil, criminal,
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administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized by this Article.
SECTION 6. Indemnification Not Exclusive. The provision of
indemnification to or the advancement of expenses and costs to any person under
this Article, or the entitlement of any person to indemnification or advancement
of expenses and costs under this Article, shall not limit or restrict in any way
the power of the Corporation to indemnify or advance expenses and costs to such
person in any other way permitted by law or be deemed exclusive of, or
invalidate, any right to which any person seeking indemnification or advancement
of expenses and costs may be entitled under any law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in such
person's capacity as an officer, Director, employee or agent of the Corporation
and as to action in any other capacity while holding any such position.
SECTION 7. Accrual of Claims; Successors. The indemnification provided
or permitted under this Article shall apply in respect of any expense, cost,
judgment, fine, penalty or amount paid in settlement, whether or not the claim
or cause of action in respect thereof accrued or arose before or after the
effective date of this Article. The right of any person who is or was a
Director, officer, employee or agent of the Corporation to indemnification under
this Article shall continue after he shall have ceased to be a
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Director, officer, employee or agent and shall inure to the benefit of the
heirs, distributees, executors, administrators and other legal representatives
of such person.
SECTION 8. Corporate Obligations; Reliance. This Article shall be
deemed to create a binding obligation on the part of the Corporation to its
current and former officers, Directors, employees and agents and their heirs,
distributees, executors, administrators and other legal representatives, and
such persons in acting in such capacities shall be entitled to rely on the
provisions of this Article, without giving notice thereof to the Corporation.
SECTION 9. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of, or to
represent the interests of, the Corporation as a Subsidiary Officer of any
Affiliated Entity, against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this Article or
applicable law.
SECTION 10. Definitions of Certain Terms.
(a) For purposes of this Article, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its corporate existence had continued, would
have been permitted under applicable law to indemnify its Directors, officers,
employees or agents, so that any person who is or was a
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Director, officer, employee or agent of such constituent corporation, or is or
was serving at the request, or to represent the interests of, such constituent
corporation as a Director, officer, employee or agent of any Affiliated Entity
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Article, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; references to "serving at the request of the Corporation" shall
include any service as a Director, officer, fiduciary, employee or agent of the
Corporation which imposes duties on, or involves services by, such Director,
officer, fiduciary, employee or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interest of the Corporation" as
referred to in this Article.
28
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Consolidated sales for Guilford Mills, Inc. ("Guilford" or the "Company") for
the year ended September 29, 1996 were a record $830.3 million. Net income also
reached a record $34.0 million.
This increase in current year sales results primarily from the acquisition and
consolidation of Hofmann Laces and its affiliates. In addition, sales for the
Company's majority-owned Mexican affiliate increased significantly. Worldwide
automotive sales were down slightly while sales into apparel home fashions
markets decreased due to the demand decline at retail, particularly for
cotton-only and certain mature apparel products.
While Guilford competes as a fabric producer in many different markets, it is
regarded as a single segment based upon technology.
Guilford's increased U.S. automotive sales of headliner and bodycloth are due to
increases in the production of certain vehicles in which the Company
participates and increased revenues from higher value-added technologies. These
increases were achieved despite the decrease in the North American car build to
14.3 million cars and light trucks for fiscal 1996 from 14.6 million for 1995.
In Europe, declines resulted from a decreased car build of 12.5 million units in
1995 to 12.0 million units in 1996. Increased market share in both headliner and
bodycloth were offset by a large industry inventory correction. Given the
softness in the apparel industry, especially in the women's apparel product
lines in which Guilford predominantly competes, there was an overall decline in
revenue for our apparel products. Guilford has partially offset this decrease in
apparel sales with improved competitive position and new value-added products in
the apparel, home fashions and industrial markets. Three years ago the Company
sold primarily to the lingerie, robewear and sleepwear portions of the apparel
industry. Today end uses are greatly expanded. With Lycra(r)-containing fabric,
revenue growth has been generated from sales of swimwear, shapewear, velvet, and
shoelining products which have provided the Company a competitive edge in niche
markets. This diversification was precipitated by the foreseen decrease in
demand in the mature, traditional markets. The planned evolution has resulted in
an increase in demand for many of the Company's apparel, home fashions and
industrial products.
As a portion of Guilford's operations is conducted in the United Kingdom and
Mexico, fluctuations in foreign exchange rates affect the Company's operating
results and financial position due to translation gains and losses recognized in
converting such activity to U.S. dollars. During fiscal 1996, the U.S. dollar
strengthened slightly against the British pound but this did not materially
affect the operating results or translation of the Company's U.K. investment on
the balance sheet. In Mexico, the peso continued to decline against the U.S.
dollar and resulted in a translation loss on the balance sheet of $7.7 million.
However, despite the peso devaluation and slow economic recovery in Mexico
during 1996, the Company's Mexican subsidiary contributed 5.2% to consolidated
sales and was profitable.
On January 17, 1996 the Company acquired 100% of the outstanding capital stock
of Hofmann Laces, Ltd. and its affiliates. Hofmann Laces produces knitted lace
fabrics for the apparel, intimate apparel and home fashions markets and stretch
knit fabric for the intimate apparel, swimwear and activewear markets. It also
cuts and sews lace fabric into finished home fashions products which are sold
directly to retailers.
On August 18, 1994, Guilford purchased an additional 55% of the stock of Grupo
Ambar, S.A. de C.V., the parent company of American Textil, S.A. de C.V. This
acquisition increased the Company's ownership to 75%. American Textil is a
leading manufacturer of knit textiles in Mexico. This strategic purchase has
enhanced the Company's global competitive position in both the apparel and
automotive industries.
Results of Operations
1996 Compared to 1995 - Consolidated sales for fiscal 1996 increased to a record
level and were up 6.1% to $830.3 million from last year's previous record high
of $782.5 million. The Hofmann Laces acquisition provided the revenue growth
which more than offset sales declines in the Apparel Home Fashions Business
Unit.
<PAGE>
The Apparel Home Fashions Business Unit sales declined nearly 5% to $397.0
million with an overall demand decline for apparel at the retail level, but
especially for cotton-only products and mature sleepwear and robewear garments.
Sales of fabrics to the Company's traditional women's apparel markets, which
include lingerie, sleepwear, robewear and ready-to-wear declined by 11.7%.
However, certain highly technical products which contain Lycra(r), such as
shapewear and stretch velvets continued to grow significantly as the marketplace
demanded these fashionable products.
Home fashions and industrial fabric sales continued to grow with an overall
sales increase of 11.2%. Sales of core products, such as lining, team athletic
wear, mattress tickings, furniture upholstery and domestics increased. However,
sales were more significantly boosted by specialty fabrics used in diaper
closure systems and spacer lining for athletic shoes.
Since the date of acquisition on January 17, 1996, Hofmann Laces, Ltd. and its
affiliates contributed $61.6 million to fiscal 1996 sales. While sales fell
short of internal expectations, due to softness at the retail level, there was
continual quarterly improvement with sales nearly at planned levels by the end
of the fiscal year. While Hofmann Laces' 1995 sales were not consolidated into
Guilford's revenue, sales of lace fabrics to the apparel and intimate apparel
manufacturers have increased significantly over prior year levels.
Domestic Automotive Business Unit sales increased 3.0% to $196.0 million despite
a slightly lower car build of 14.3 million units for fiscal year 1996 versus
14.6 million units for fiscal year 1995. Sales of headliner and bodycloth to
original equipment manufacturers ("OEMs") increased 2.1% and sales of van and RV
fabrics increased 11.7%. This improvement resulted from increased market share,
the continued popularity of the Ford Taurus, and increased revenues from higher
value-added technologies.
Guilford's European Automotive Business Unit sales declined 6.9% to $122.4
million. While the Company was affected by the decrease in the European car
build (from 12.5 million units in fiscal 1995 to 12.0 million units in fiscal
1996), and from price reductions mandated by the automobile manufacturers, it
exited the year with increased market share of both headliner and bodycloth. The
market share penetration was attributable to key placements with OEMs such as
Ford, Skoda and Audi.
Sales of Guilford's Mexican subsidiary increased by 20.6% to $42.9 million
compared to last year's $35.6 million. Despite the harsh economic conditions of
the country, there was a renewed domestic demand for apparel fabrics. There was
also continued strong demand for exported garments under NAFTA. The trend in
consumer demand toward soft goods resulted in a shift in sales from automotive
to apparel and industrial fabrics, which in fiscal year 1996 comprised over 55%
of the unit's aggregate sales.
Gross margins increased to 18.6% from last year's 17.7% due to the contribution
of the Hofmann Laces acquisition. The results were negatively impacted by volume
declines of $6 million in the Apparel Home Fashions Business Unit and nearly $3
million in the European operation and by manufacturing inefficiencies in the
domestic Automotive Business Unit of approximately $3 million. These were offset
by raw material price reductions of more than $6 million and by fixed overhead
cost reductions, including incentive compensation, of approximately $7 million.
Additionally, gross margins were impacted by product mix changes in the Mexican
operation which offset the increase in revenue there and also by selling price
reductions to automotive OEMs in both the U.S. and Europe.
Selling and administrative expenses ("S,G&A") increased to $82.4 million from
the prior year's $70.4 million. The increases resulted from the consolidation of
Hofmann Laces expenses of approximately $7 million and Automotive Business Unit
excess freight costs of nearly $3 million in the first half of the year.
Research and development costs declined slightly to $13.4 million reflecting
reduced automotive printing trials.
Interest expense increased in fiscal 1996 to $17.0 million from last year's
$14.1 million primarily due to the additional borrowings related to the
acquisition and consolidation of Hofmann Laces which added $4.0 million. This
increase was offset by a combined increase in capitalized interest and reduction
in the short-term borrowing rates of $1.1 million.
Other expense increased $0.1 million to $3.6 million. A reduction in expenses of
$1.5 million related to low income housing investments was substantially offset
by additional goodwill amortization of $0.5 million related to both the Hofmann
Laces and Mexican acquisitions and also by currency losses of $0.5 million.
<PAGE>
The effective income tax rate in fiscal 1996 was 33.3% compared to 33.0% in
fiscal 1995. The higher rate was due to the impact of the proportionate share of
Hofmann Laces pre-tax income to the total pre-tax income at higher statutory
state rates. This was partially offset by the impact of the tax credits'
relative proportion to total pre-tax income.
Net income in fiscal 1996 reached a record high of $34.0 million and increased
1% over last year's $33.6 million. Primary earnings per share decreased to $2.38
per share compared to $2.41 per share in the prior year due to an increase in
average shares outstanding to 14,248,000 compared to the prior year's
13,983,000.
1995 Compared to 1994 - Consolidated sales for fiscal 1995 reached record levels
with an increase of 11.2% to $782.5 million from the previous year's record high
of $703.7 million.
The Apparel Home Fashions Business Unit sales declined 1.0% to $407.9 million
reflecting decreases of 9.0% in intimate apparel, ready-to-wear and home
fashions/ linings. These decreases were offset by a strong improvement of 15.6%
in lingerie and continued growth from the Company's Lycra(r)- containing fabrics
used in shapewear and swimwear. The industrial market products such as diaper
closure systems and shoe linings continued to grow in 1995.
Domestic automotive sales increased 9.2% to $199.5 million from the prior year's
$182.7 million. Sales of headliner and bodycloth to original equipment
manufacturers increased 15.5% while sales of van, RV and furniture fabrics
declined 18.4%. Given the flat car build of 14.6 million units for fiscal 1994
and fiscal 1995, the increase in sales of headliner and bodycloth resulted from
increased market share and continued success with the popularity of the Ford
Taurus.
Guilford's European Automotive Business Unit sales increased 44.3% to $131.5
million from the prior year's $91.1 million. While the Company benefited from
the overall increase in the European car build (from 11.8 million units in
fiscal 1994 to 12.5 million units in fiscal 1995), Guilford's sales growth was
due primarily to increased market share of both headliner and bodycloth. The
increase was also attributable to placements in key automotive models such as
the GM Astra, GM Omega and Ford Escort.
With the full year impact of consolidation, the Mexican operations contributed
$35.6 million compared to the previous year's $8.7 million. Despite the
depressed economy in Mexico, the Company exceeded internal sales expectations.
Gross margins improved to 17.7% from the prior year's 16.8% due to Guilford
Europe's increase in margin to 16.7% from 14.0 % in the prior year, increased
operating efficiencies in the Company's Apparel and Fibers operations of $12.2
million and the Mexican operation's contribution for the full year. While the
Company experienced large increases in raw material prices for yarn, chip and
foam, substantially all of these were passed through to the customers.
Incremental sales volume contribution and manufacturing improvements in the
Apparel and Fibers Business Units of $12.2 million were offset in part by
one-time automotive product launch costs of $1.1 million, and $1.5 million due
to the start up of the new automotive print technology.
In fiscal 1995, S,G&A increased to $70.4 million from the prior year's $66.6
million primarily as a result of the Mexican operations increase of $2.9 million
and additional compensation expense of $1.6 million. Research and development
costs declined from $14.6 million to $13.8 million reflecting reduced efforts in
yarn development by the Fibers Business Unit offset by increased focused
spending in the Apparel Home Fashions Business Unit where successes equated to
higher returns.
Interest expense increased in fiscal 1995 to $14.1 million from the prior year's
$12.4 million due to the consolidation of the Mexican operations which added
$2.2 million. Higher average short-term borrowing rates were more than offset by
reduced borrowing amounts.
Other expense increased to $3.5 million from the prior year's $0.6 million as a
result of increased expense relating to the low income housing investment of
$2.2 million and the consolidation of the Mexican operations which was not
included in 1994.
The effective income tax rate in fiscal 1995 was 33.0% compared to 35.4% in
fiscal 1994. This decrease was due to the impact of research and development and
low income housing investment credits.
<PAGE>
Net income in fiscal 1995 reached a record high of $33.6 million and increased
33.9% over the previous year's $25.1 million. This was $4.8 million higher than
the previous record high of $28.9 million recorded in fiscal 1993. Primary
earnings per share increased to $2.41 per share compared to $1.82 per share in
1994 on 13,983,000 average shares outstanding versus 13,776,000 average shares
for the prior year.
Liquidity and Capital Requirements
At the end of fiscal 1996, cash and cash equivalents of $31.4 million were
available for future capital and other needs.
Cash provided by operations decreased in fiscal 1996 compared to fiscal 1995 due
to working capital increases which were partially offset by adjustments for
non-cash items such as the depreciation and amortization increase of $8.7
million. Trade receivables increased $23.4 million, inventory increased $32.0
million and accrued liabilities increased $4.5 million. These increases were
substantially the result of the consolidation of Hofmann Laces.
Net property increased $65.4 million from fiscal 1995 primarily due to the
consolidation of Hofmann Laces. Capital expenditures were $64.5 million during
1996, $57.5 million in 1995, and $47.7 million in 1994. In the past three years,
Guilford continued to modernize equipment and increase capacity to support new,
innovative products. Fiscal 1996 included Hofmann Laces' capital additions of
$6.3 million. Expenditure levels for the next two years are expected to
approximate depreciation expense.
Increases in short-term borrowings and long-term debt of $35.4 million and $43.1
million, respectively, at September 29, 1996 as compared to October 1, 1995,
related primarily to the acquisition and consolidation of Hofmann Laces. The
purchase price consisted of cash and common stock. The cash purchase and the
repayment of a portion of Hofmann Laces' long-term debt was funded with
borrowings of $58.8 million under the company's revolving credit facility. This
was refinanced with bank lines of credit. The increase in long-term debt is
partially offset by the reclassification of a portion of Guilford's debt to
current maturities of long-term debt, as current maturities in fiscal 1997 will
exceed prior year levels. The additional short-term borrowings were
substantially related to working capital requirements.
In conjunction with its acquisition of Hofmann Laces, the Company also agreed to
pay additional consideration in fiscal year 2001 in accordance with a formula
based upon the Company's price-earnings multiple and Hofmann Lace's performance
through the end of calendar year 2000.
Raw material costs declined in fiscal 1996. Management expects flat or slightly
decreased raw material costs in 1997 as suppliers participate in selling price
reductions granted to customers which are being driven by consumer and global
competition.
On September 26, 1995, the Company established a $150.0 million revolving credit
facility which replaced a previous $25.0 million revolving line of credit. The
Company entered into this facility in order to maintain flexibility with the
Company's seasonal working capital needs and for potential future acquisitions.
To further supplement its working capital requirements, the Company has
available, uncommitted short-term bank lines of credit approximating $85 million
and additionally can receive advances against its factored accounts receivable.
Management believes that the Company's strong financial position and operating
performance would allow access to necessary capital from both the debt and
equity markets.
During the next five years, management believes that its cash requirements for
working capital, capital expenditures, dividends, interest and debt repayments
will continue to be met through internally generated sources and utilization of
available borrowing sources. In line with management's desire to better position
itself to consider acquisition opportunities and to make strategic capital
investments, management intends to continue examining near and long-term
alternatives to strengthen its balance sheet. Such alternatives may include
equity or debt financing.
Inflation
The Company believes that the relatively moderate inflation rate of the 1990s
has not significantly impacted its operations.
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.
<PAGE>
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 and (ii) an investigation
to fully determine the nature of any release of hazardous substances at the
facility. In addition, Gold will conduct 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 fiscal 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 fiscal 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 voluntarily agreed to allow the installation of
monitoring wells at the site 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 fiscal 1992 to reflect the
estimated future costs of this monitoring and other environmental matters,
including the removal of underground storage tanks at the Company's facilities.
The Company has removed substantially all underground storage tanks at its
facilities. At September 29, 1996, environmental accruals amounted to $6.0
million of which $5.0 million is non-current and is included in other deferred
liabilities in the accompanying consolidated balance sheet.
The Company also is 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.
Outlook
Management is optimistic for Guilford's future as it moves forward with new
innovative products. For the Apparel Home Fashions Business Unit, sales growth
is expected due to new products, heightened marketing of innovative concepts and
synergies as a result of the Hofmann Laces acquisition.
In the automotive industry, with a flat car build, the Company expects sales
growth through worldwide sourcing opportunities enhanced by the Company's
presence in Europe and Mexico, increased placements of woven velour fabrics and
diverse product offerings including the new printing technology. In addition,
continued emphasis on cost reduction should translate to better economics for
the Company's customers.
Many manufacturers who use Guilford's fabrics in both the apparel and automotive
sectors are seeking to reduce costs. In addition, the markets are subject to
competition from imported garments. Consequently, Guilford is experiencing
continual pricing pressures. However, through diversity, innovation and
technology, the Company will continue to focus its efforts on providing high
quality, innovative products, with excellent customer service at the lowest cost
and expects to maintain its competitive position in its markets. Growth is
expected to come gradually from internal product transition efforts and more
quickly with strategic acquisitions.
The results of operations for fiscal 1996 were not significantly impacted on a
consolidated basis by the continued devaluation of the Mexican peso. In the
balance sheet, the result of this translation loss is a reduction in
stockholders' investment, as required by Statement of Financial Accounting
Standards No. 52 (SFAS No. 52), and accordingly is not reflected in the
Company's results of operations. In management's view, a risk of loss of
earnings exists in the future related to net U.S. dollar transactions. Effective
January 1, 1997, it is expected that the Mexican economy will be considered
"highly inflationary" for financial reporting purposes because the cumulative
Mexican inflation rate for the immediately preceding three years is expected to
exceed 100%. As a result, under SFAS No. 52, the U.S. dollar will be used as the
functional currency for translating the balance sheet and results of operations
of the Company's Mexican operation, until the Mexican economy is no longer
considered highly inflationary. Under this method of accounting, foreign
currency translation gains and losses are recognized currently in the results of
operations, rather than as a direct change in stockholders' investment. While
management expects that the peso will devalue even further in fiscal 1997, it
believes that economic growth, spurred by a return of domestic demand and a
reduction in inflation, will result in continued growth for its operations. The
Company cannot determine to what extent this growth may be offset by the
negative impact of economic uncertainty
<PAGE>
Guilford Mills, Inc.
Selected Financial Data
<TABLE>
<CAPTION>
Transition
(In thousands except per share data) Quarter
1996 1995 1994 1993 (2) 1993 1992 1991 1990
- -------------------------- ------------ ------------ ------------- ------------ ------------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Net sales $830,320 $782,518 $703,700 $141,450 $654,435 $614,905 $528,778 $544,059
Income (loss) before
extraordinary item 33,978 33,636 25,124 (1,087) 28,852 24,858 13,557 (8,041)
Income (loss) before
cumulative effect of
change in accounting
principle 33,978 33,636 25,124 (1,087) 28,852 24,858 15,917 (8,041)
Net income (loss) 33,978 33,636 25,124 2,013 28,852 24,858 15,917 (8,041)
Per Share Data (1)
Primary:
Income (loss) before
extraordinary item 2.38 2.41 1.82 (.08) 2.11 1.85 1.02 (.56)
Income (loss) before
cumulative effect of
change in accounting
principle 2.38 2.41 1.82 (.08) 2.11 1.85 1.19 (.56)
Net income (loss) 2.38 2.41 1.82 .15 2.11 1.85 1.19 (.56)
Average common and
common equivalent
shares outstanding 14,248 13,983 13,776 13,646 13,674 13,465 13,322 14,250
Fully diluted:
Income (loss) before
extraordinary item 2.19 2.21 1.71 (.08) 1.96 1.73 1.01 (.56)
Income (loss) before
cumulative effect of
change in accounting
principle 2.19 2.21 1.71 (.08) 1.96 1.73 1.17 (.56)
Net income (loss) 2.19 2.21 1.71 .15 1.96 1.73 1.17 (.56)
Average common and
common equivalent
shares outstanding 16,562 16,309 16,059 13,650 15,933 15,783 15,665 14,250
Cash dividends .60 .60 .60 .15 .60 .57 .53 .53
Balance Sheet Data
Working capital 177,658 178,233 153,165 126,766 151,994 139,897 124,078 137,893
Total assets 728,830 586,371 565,338 500,306 506,742 414,335 379,874 395,425
Long-term debt 209,435 166,368 164,611 146,736 147,430 76,855 80,316 92,072
Stockholders' investment 298,059 267,549 244,060 221,954 219,739 206,170 178,058 175,500
</TABLE>
(1) All share data has been restated to reflect the effect of a three-for-two
stock split effected in January 1992 in the form of a 50% stock dividend.
(2) Due to the change in year end, the transition quarter from June 28, 1993 to
September 26, 1993 is presented.
<PAGE>
Guilford Mills, Inc.
CONSOLIDATED BALANCE SHEETS
September 29, 1996 and October 1, 1995
<TABLE>
<CAPTION>
(In thousands except share data)
- ---------------------------------------------------------------------------- --------------------------- -------------------------
1996 1995
- ---------------------------------------------------------------------------- --------------------------- -------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 31,448 $ 17,964
Accounts receivable, net 172,033 148,656
Inventories (Note 3) 137,993 106,008
Prepaid income taxes (Note 7) 2,437 5,530
Other current assets 7,977 7,769
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Total current assets 351,888 285,927
Property, net (Note 4) 309,964 244,592
Cash surrender value of life insurance, net of policy loans (Note 8) 41,715 37,676
Other 25,263 18,176
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Total assets $728,830 $586,371
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Liabilities
Short-term borrowings (Note 6) $ 47,979 $ 9,587
Current maturities of long-term debt (Note 6) 18,837 4,078
Accounts payable 63,551 54,677
Accrued liabilities (Note 5) 43,863 39,352
- ---------------------------------------------------------------------------- --------------------------- -------------------------
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Total current liabilities 174,230 107,694
Long-term debt (Note 6) 209,435 166,368
Deferred income taxes (Note 7) 19,969 17,518
Other deferred liabilities (Note 8) 24,970 25,011
Minority interest (Note 2) 2,167 2,231
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Total liabilities 430,771 318,822
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Commitments and Contingencies (Notes 2, 9 & 11)
Stockholders' Investment (Notes 6 & 9)
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, 14,455,711 shares outstanding at
September 29,1996 and 14,108,721 shares outstanding at
October 1, 1995 393 393
Capital in excess of par 41,089 37,467
Retained earnings 311,217 285,880
Foreign currency translation loss (11,988) (10,110)
Unamortized stock compensation (287) (1,260)
Treasury stock, at cost (5,173,488 shares at September 29, 1996
and 5,520,478 shares at October 1, 1995) (42,365) (44,821)
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Total stockholders' investment 298,059 267,549
- ---------------------------------------------------------------------------- --------------------------- -------------------------
Total liabilities and stockholders' investment $728,830 $586,371
- ---------------------------------------------------------------------------- --------------------------- -------------------------
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 29, 1996, October 1, 1995 and October 2, 1994
<TABLE>
<CAPTION>
(In thousands except per share data)
--------------------------------------------- ----------------------- ----------------------- ------------------
1996 1995 1994
(52 Weeks) (52 Weeks) (53 Weeks)
--------------------------------------------- ----------------------- ----------------------- ------------------
<S> <C> <C> <C>
Net Sales $830,320 $782,518 $703,700
--------------------------------------------- ----------------------- ----------------------- ------------------
Costs and Expenses:
Cost of goods sold 676,264 644,344 585,244
Selling and administrative 82,430 70,358 66,566
--------------------------------------------- ----------------------- ----------------------- ------------------
758,694 714,702 651,810
--------------------------------------------- ----------------------- ----------------------- ------------------
Operating Income 71,626 67,816 51,890
--------------------------------------------- ----------------------- ----------------------- ------------------
Other Expense:
Interest expense 17,017 14,122 12,428
Other expense, net 3,640 3,506 551
--------------------------------------------- ----------------------- ----------------------- ------------------
20,657 17,628 12,979
--------------------------------------------- ----------------------- ----------------------- ------------------
Income Before Income Taxes 50,969 50,188 38,911
Income Tax Provision (Note 7) 16,991 16,552 13,787
--------------------------------------------- ----------------------- ----------------------- ------------------
Net Income $ 33,978 $ 33,636 $ 25,124
--------------------------------------------- ----------------------- ----------------------- ------------------
Net Income Per Share:
Primary $2.38 $2.41 $1.82
Fully Diluted 2.19 2.21 1.71
--------------------------------------------- ----------------------- ----------------------- ------------------
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
Consolidated Statements of Stockholders' Investment
For the Years Ended September 29, 1996, October 1, 1995 and October 2, 1994
<TABLE>
<CAPTION>
Foreign
Capital in Currency Unamortized
Common Excess of Retained Translation Stock Treasury
(In thousands except share data) Stock Par Earnings Gain (Loss) Compensation Stock
- ------------------------------------------------ ------------- ------------- ------------ -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 26, 1993 $393 $33,581 $244,006 $ (5,536) $(5,137) $(45,353)
Vesting of 92,000 shares under the
restricted stock plan, less forfeitures of
76,422 shares -- -- -- -- 1,351 (1,351)
Compensation under restricted stock plan -- -- -- -- 984 --
Issuance of 160,537 shares of treasury stock
under the employee stock ownership plan -- (1,260) -- -- -- 1,260
Shares to be issued in fiscal 1995 under the
employee stock ownership plan -- 2,033 -- -- -- --
Issuance of 54,000 shares of treasury stock
for options exercised -- 101 -- -- -- 414
Foreign currency translation gain -- -- -- 1,875 -- --
Cash dividends ($.60 per share) -- -- (8,425) -- -- --
Net income -- -- 25,124 -- -- --
- ------------------------------------------------ ------------- ------------- ------------ -------------- ---------------- ----------
Balance, October 2, 1994 393 34,455 260,705 (3,661) (2,802) (45,030)
Vesting of 135,533 shares under the
restricted stock plan, less return of
53,415 shares to treasury stock to satisfy
recipient's individual income tax obligations -- -- -- -- -- (1,162)
Compensation under restricted stock plan -- -- -- -- 1,542 --
Issuance of 84,701 shares of treasury stock
under the employee stock ownership plan -- (676) -- -- -- 676
Shares to be issued in fiscal 1996 under the
employee stock ownership plan -- 3,385 -- -- -- --
Issuance of 93,398 shares of treasury stock
for options exercised -- 303 -- -- -- 695
Foreign currency translation loss -- -- -- (6,449) -- --
Cash dividends ($.60 per share) -- -- (8,461) -- -- --
Net income -- -- 33,636 -- -- --
- ------------------------------------------------ ------------- ------------- ------------ -------------- ---------------- ----------
Balance, October 1, 1995 393 37,467 285,880 (10,110) (1,260) (44,821)
Issuance of 200,000 shares of treasury
stock in connection with the purchase of a
business -- 2,401 -- -- -- 1,624
Issuance of 20,000 shares of treasury stock
and vesting of 97,934 shares
under the restricted stock plan, less
forfeitures of 19,600 shares and less
return of 22,436 shares to treasury stock to
satisfy reciindividual income tax obligations -- 275 -- -- (275) (670)
Compensation under restricted stock plan -- -- -- -- 1,248 --
Issuance of 132,952 shares of treasury stock
under the employee stock ownership plan -- (1,080) -- -- -- 1,080
Shares to be issued in fiscal 1997 under the
employee stock ownership plan -- 1,858 -- -- -- --
Issuance of 42,017 shares of treasury stock
for options exercised -- 247 -- -- -- 483
Return of 5,943 shares to treasury stock
received as payment for options exercised -- (79) -- -- -- (61)
Foreign currency translation loss -- -- -- (1,878) -- --
Cash dividends ($.60 per share) -- -- (8,641) -- -- --
Net income -- -- 33,978 -- -- --
- ------------------------------------------------ ------------- ------------- ------------ -------------- ---------------- ----------
Balance, September 29, 1996 $393 $41,089 $311,217 $(11,988) $ (287) $(42,365)
- ------------------------------------------------ ------------- ------------- ------------ -------------- ---------------- ----------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<PAGE>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Years Ended September 29, 1996, October 1, 1995 and October 2, 1994
<TABLE>
<CAPTION>
(In thousands)
-------------------------------------------------------------------- --------------------- ------------------ -----------------
1996 1995 1994
(52 Weeks) (52 Weeks) (53 Weeks)
-------------------------------------------------------------------- --------------------- ------------------ -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 33,978 $ 33,636 $ 25,124
Non-cash items included in net income --
Depreciation and amortization 55,389 46,710 40,282
(Gain) loss on disposition of property (180) (156) 605
Minority interest in net income 206 253 195
Deferred income taxes 5,835 1,295 5,715
Increase in cash surrender value of life insurance,
net of policy loans (3,852) (961) (2,087)
Compensation earned under restricted stock plan 1,248 1,542 984
Shares to be issued under employee stock ownership plan 1,858 3,385 2,033
Changes in assets and liabilities --
Receivables (13,277) (9,400) (22,474)
Inventories (3,688) (3,596) (85)
Other current assets (184) (3,750) 854
Accounts payable 11,640 5,662 5,950
Accrued liabilities (9,999) 7,062 4,999
Other (400) 339 555
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Net cash provided by operating activities 78,574 82,021 62,650
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Cash Flows From Investing Activities:
Additions to property (64,532) (57,544) (47,711)
Proceeds from dispositions of property 1,220 612 2,303
Proceeds from sale of other assets --- 2,600 ---
(Increase) decrease in other assets (655) 606 (4,515)
Purchases of businesses, net of cash acquired (Note 2) (26,519) --- (9,868)
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Net cash used in investing activities (90,486) (53,726) (59,791)
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net 42,667 (9,087) (11,300)
Payments of long-term debt (68,138) (2,439) (2,801)
Proceeds from issuance of long-term debt 58,777 6,374 20,000
Cash dividends (8,641) (8,461) (8,425)
Common stock options exercised 730 998 515
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Net cash provided by (used in) financing activities 25,395 (12,615) (2,011)
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 1 (3,826) 350
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Net Increase In Cash and Cash Equivalents 13,484 11,854 1,198
-------------------------------------------------------------------- --------------------- ------------------ -----------------
Beginning Cash and Cash Equivalents 17,964 6,110 4,912
Ending Cash and Cash Equivalents $ 31,448 $ 17,964 $ 6,110
-------------------------------------------------------------------- --------------------- ------------------ -----------------
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(In thousands except share data)
1. Description of Business and Summary of
Significant Accounting Policies:
Description of Business - The Company produces, processes and sells warp knit,
circular knit and woven velour fabric as well as lace. The Company sells its
finished fabrics to customers who manufacture a broad range of apparel,
automotive, industrial and home furnishings products. The company also cuts and
sews lace fabrics into finished home fashions products which are sold directly
to retailers. During 1996, 1995, and 1994 no single customer accounted for 10%
or more of net sales.
Principles of Consolidation - The consolidated financial statements include the
accounts of Guilford Mills, Inc. and its majority-owned and controlled
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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 1995 and
1994 financial statements have been reclassified to conform with the 1996
presentation.
Minority Interest - Minority interest represents the minority stockholders'
proportionate share of the equity of Grupo Ambar, S.A. de C.V., the parent
company of American Textil, S.A. de C.V (collectively, "American Textil"). At
September 29, 1996, the Company owned 75% of the capital stock of Grupo Ambar,
S.A. de C.V.
Cash Equivalents - All highly liquid investments with an original maturity of
six months or less are considered to be cash equivalents. The carrying amount of
cash equivalents approximates fair value.
Accounts Receivable and Concentration of Credit Risk - As of September 29, 1996
and October 1, 1995, approximately 15%, and 24%, respectively, of the Company's
accounts receivable were factored on a non-recourse basis. The Company performs
on-going credit evaluations of its non-factored customers' financial condition
and generally does not require collateral from those customers. Credit insurance
is maintained covering $13,000 of certain outstanding accounts receivable. The
Company competes primarily in the apparel and automotive industries and sells
its products to a multitude of customers in numerous geographical locations
throughout the world. There is not a disproportionate concentration of risk.
Allowances for doubtful accounts were $9,487 and $8,867 at September 29, 1996
and October 1, 1995, respectively.
Inventories - Inventories are carried at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for approximately 73% of
inventories in 1996. Cost for all other inventories have been determined
principally by the first-in, first-out (FIFO) method. Cost was determined using
the LIFO method for substantially all inventories in 1995.
Property - Property is carried at cost, and depreciation is provided for
financial reporting primarily on the straight-line method. Accelerated methods
are used for income tax reporting. Depreciation rates are reviewed annually and
revised, if necessary, to reflect estimated remaining useful lives.
Goodwill and Intangible Assets - Goodwill is amortized using the straight-line
method over periods ranging from twenty to forty years. Intangible assets are
amortized using the straight-line method over their estimated economic lives of
five years. The Company reviews the carrying value of goodwill and intangible
assets for impairment whenever events or changes in circumstance indicate that
the carrying value may not be recoverable. Measurement of any impairment would
include a comparison of estimated future operating cash flows anticipated to be
generated during the remaining life to the net carrying value of the asset.
Income Taxes - Deferred or prepaid income taxes are provided for differences in
timing of expense and income recognition between tax and financial reporting in
accordance with SFAS No. 109 "Accounting for Income Taxes". United States income
taxes are not provided on the income of foreign operations, since such income
has been reinvested and is not expected to be repatriated. Undistributed
earnings of foreign operations were $29,316 at September 29, 1996, $25,796 at
October 1, 1995, and $14,873 at October 2, 1994.
Foreign Currency Translation - The financial statements of majority-owned
foreign subsidiaries are translated into dollars at the year-end rate of
exchange for asset and liability accounts and the average rate of exchange for
income statement accounts. Resulting translation gains or losses are reflected
in the foreign currency translation account in the stockholders' investment
section of the accompanying balance sheets and do not affect the results of
operations.
<PAGE>
Revenue Recognition - The Company recognizes a sale when goods are shipped or
when ownership is assumed by the customer.
Per Share Information - Primary income per share information has been determined
by dividing the respective net income amounts by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods (14,248,000 in 1996, 13,983,000 in 1995, and 13,776,000 in 1994). Fully
diluted income per share information also considers as applicable (i) the
dilutive effect assuming that the Company's convertible debentures were
converted at the beginning of the year, with earnings being increased by the
interest expense, net of taxes, that would not have been incurred had conversion
taken place and (ii) an additional dilutive effect for stock options and shares
issued under the restricted stock plan. The weighted average number of fully
diluted shares of common stock and equivalents was 16,562,000 in 1996,
16,309,000 in 1995, and 16,059,000 in 1994.
Supplemental Cash Flow Information - The Company paid interest of $17,245 during
1996, $14,526 during 1995, and $12,217 during 1994. The Company paid income
taxes of $9,006 during 1996, $15,599 during 1995, and $7,391 during 1994.
Non-cash activities consist of $176 in 1996, $0 in 1995, and $1,351 in 1994 for
the issuance of treasury shares under the restricted stock plan, net of shares
forfeited under the restricted stock plan.
Recent Accounting Pronouncements - The Financial Accounting Standards Board
recently issued SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement introduces a fair-value based method of accounting for stock-based
compensation. It encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on the new fair value accounting rules. The
Company has elected not to recognize compensation expense as encouraged by this
statement. As a result of this election, SFAS No. 123 requires that the Company
provide pro forma disclosures for the two most recent fiscal years presented as
if compensation expense had been recorded. The Company will adopt the disclosure
provisions of this statement in fiscal 1997.
2. Acquisitions:
Hofmann Laces, Ltd. and Affiliates - On January 17, 1996, the Company acquired
100% of the outstanding capital stock of Hofmann Laces, Ltd., Raschel Fashions
Interknitting, Ltd., and Curtains and Fabrics, Inc. (collectively "Hofmann
Laces"). Hofmann Laces designs and produces lace fabrics for the intimate
apparel, apparel and home fashions markets. It produces stretch knit fabrics for
the apparel swimwear and intimate apparel markets. Additionally, it cuts and
sews lace fabrics into finished home fashions products which are sold directly
to retailers. The purchase price was comprised of cash of $45,480 and the
issuance of 200,000 shares of the company's common stock. The acquisition was
accounted for using the purchase method of accounting. Excess purchase price
over fair market value of the underlying assets of $7,575 was allocated to
goodwill, other intangible assets and property based upon preliminary estimates
of fair values. The Company does not believe that the final purchase price
allocation will differ significantly from the preliminary purchase price
allocation recorded at September 29, 1996. Additional purchase price may be paid
based on Hofmann Laces' earnings for the five year period ending on December 31,
2000.
The operating results of Hofmann Laces have been included in the consolidated
statement of income from the date of acquisition. The unaudited pro forma
results below assume the acquisition occurred at the beginning of the fiscal
years ending September 29, 1996 and October 1, 1995:
- --------------------- --------------------- --------------------
1996 1995
- --------------------- --------------------- --------------------
Net Sales $848,985 $859,717
Operating Income 73,682 82,661
Net Income 34,386 40,017
- --------------------- --------------------- --------------------
Net Income per share:
Primary 2.40 2.82
Fully Diluted 2.21 2.42
- --------------------- --------------------- --------------------
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of fiscal 1996 or at the beginning
of fiscal 1995 or of future perations of the combined companies under the
ownership and management of the Company.
American Textil - On August 18, 1994, the Company acquired an additional 55%
ownership interest in American Textil. In 1996, additional consideration of
$3,667 was paid based on American Textil's earnings through December 31, 1995.
The acquisition increased the Company's ownership interst in American Textil to
75%. American Textil is a leading manufacturer of knit textile fabrics in
Mexico.
The Company recorded its equity in the earnings of American Textil through
August 18, 1994, and the consolidated statement of income for fiscal 1994
includes the operating results of American Textil thereafter. Accordingly, for
comparison purposes, the consolidated financial statements for 1994 included
approximately six weeks of operations (August 19, 1994
<PAGE>
through October 2, 1994) while the consolidated financial statements for 1996
and 1995 include fifty-two weeks. The minority stockholders' 25% proportionate
interest in American Textil's net income after August 18, 1994 is included in
other expense in the 1996, 1995 and 1994 statements of income.
3. Inventories:
Inventories at September 29, 1996 and October 1, 1995 consist of the following:
- ---------------------------- ----------------- -----------------
1996 1995
- ---------------------------- ----------------- -----------------
Finished goods $ 45,515 $ 45,745
Raw materials and work
in process 95,439 69,786
Manufacturing supplies 13,892 11,968
- ---------------------------- ----------------- -----------------
Total inventories valued at
first-in, first-out
(FIFO) cost 154,846 127,499
Less - Adjustments to
reduce FIFO cost to
LIFO cost, net 16,853 21,491
- ---------------------------- ----------------- -----------------
Total inventories $137,993 $106,008
- ---------------------------- ----------------- -----------------
4. Property:
Property at September 29, 1996 and October 1, 1995 consists of the following:
- -------------------------- ------------------- -----------------
1996 1995
- -------------------------- ------------------- -----------------
Land $ 11,850 $ 10,618
Buildings 100,412 84,478
Machinery and equipment 538,834 445,425
Construction in progress 12,232 6,647
- -------------------------- ------------------- -----------------
663,328 547,168
Less - Accumulated
depreciation 353,364 302,576
- -------------------------- ------------------- -----------------
Property, net $309,964 $244,592
- -------------------------- ------------------- -----------------
5. Accrued Liabilities:
Accrued liabilities at September 29, 1996 and October 1, 1995 consist of the
following:
- -------------------------- ------------------- -----------------
1996 1995
- -------------------------- ------------------- -----------------
Payroll and related benefits $14,041 $16,352
Income taxes 7,027 5,178
Property taxes 3,150 3,282
Other 19,645 14,540
- -------------------------- ------------------- -----------------
Total accrued liabilities $43,863 $39,352
- -------------------------- ------------------- -----------------
6. Short-Term Borrowings and Long-Term Debt:
The Company uses short-term bank borrowings with terms of six months or less to
meet seasonal working capital needs. The maximum short-term borrowings during
1996, 1995, and 1994 were $68,355, $32,059, and $42,510, respectively; the
average borrowings were $25,586, $9,960, and $26,279, respectively; and the
weighted average interest rates were 9%, 12% and 7% (6%, 6%, and 7% for U.S.
borrowings), respectively. The Company has no compensating balance requirements.
Long-term debt at September 29, 1996 and October 1, 1995 consists of the
following:
- ---------------------------------- --------------- -------------
1996 1995
- ---------------------------------- --------------- -------------
Senior, unsecured notes, due in
annual payments of
$10,714 from 1997 to 2003,
interest at 7.569% $ 75,000 $ 75,000
Convertible subordinated
debentures, due in various
payments from 1999 through
2012, convertible into common
stock at $29.50 per share,
interest at 6% 66,180 66,180
Lines of Credit 58,777 --
Term loan, due in quarterly
payments of $695 until 1996,
interest at 8.38% -- 3,472
Senior, unsecured notes, due in
1999, interest at 7.49% 20,000 20,000
Term loans with a Mexican
bank at various due dates
and various interest rates 2,780 4,494
Industrial revenue bonds at
various due dates and various
interest rates 845 --
Other 4,690 1,300
- ---------------------------------- --------------- -------------
228,272 170,446
Less - Current maturities 18,837 4,078
- ---------------------------------- --------------- -------------
Total $209,435 $166,368
- ---------------------------------- --------------- -------------
The Company financed the Hofmann Laces acquisition discussed in Note 2 as well
as the refinancing of a portion of the assumed debt with $58,777 of borrowings
under its $150,000 revolving line of credit. The borrowings were subsequently
repaid with borrowings under line of credit agreements with maturities ranging
from 1 to 180 days and interest rates ranging from 5.18% to 6.38% with a
weighted average interest rate of 5.48% at September 29, 1996. The total
borrowings outstanding as of September 29, 1996 of $58,777 have been classified
as long-term debt in the accompanying consolidated balance sheet as management
intends to refinance the borrowings through available long-term debt sources.
The Company has additional availability under uncommitted bank lines of credit
of approximately $86,000.
During 1995, the Company established a $150,000 revolving credit facility with a
group of banks which replaced a previous $25,000 revolving line of credit. This
credit facility expires September 25, 2000. No borrowings were outstanding under
this facility at September 29, 1996 or October 1, 1995.
The Company's Mexican subsidiary has various term loans with a local bank. These
loans have due dates ranging from fiscal year 1997 to fiscal year 2000. The
loans also have various variable interest rates. At September 29, 1996 these
interest rates ranged from 8.24% to 37.61%.
<PAGE>
On May 20, 1994, the Company issued $20,000 of senior, unsecured long-term notes
to certain institutional investors. The notes bear interest at a rate of 7.49%
per annum and will mature on May 20, 1999. The proceeds were used to fund the
acquisition of American Textil, to repay certain other debt obligations, and for
general corporate purposes.
The fair value of the Company's publicly-traded convertible subordinated
debentures at September 29, 1996, and October 1, 1995 approximated $63,533 and
$65,022, respectively, based upon the quoted market price of the issue. The
carrying value of the remaining short-term borrowings and long-term debt of the
Company approximates the fair value for loans with similar terms.
Annual maturities of long-term debt for the next five years are $18,837 in 1997,
$16,905 in 1998, $37,033 in 1999, $20,959 in 2000, and $15,027 in 2001.
Under the terms of the Company's debt agreements, certain requirements and
restrictions apply to future indebtedness, stockholders' investment, and
tangible net worth. The Company is in compliance with all covenants under its
debt agreements.
7. Income Taxes:
The net deferred income tax liability at September 29, 1996 and October 1, 1995
is comprised of the following:
- ------------------------------ ------------------ ---------------
1996 1995
- ------------------------------ ------------------ ---------------
Assets $ 28,775 $ 23,915
Liabilities (46,307) (35,903)
- ------------------------------ ------------------ ---------------
Total $(17,532) $ (11,988)
- ------------------------------ ------------------ ---------------
No valuation allowances against deferred income tax assets were recorded at
September 29, 1996 or October 1, 1995.
Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of September 29, 1996 and October 1, 1995
were as follows:
- ------------------------------ ------------------ ---------------
1996 1995
- ------------------------------ ------------------ ---------------
Current prepaid (deferred) income
taxes:
General business credit
carry-forwards (expire
2005-2010) $ 1,558 $ 4,098
Allowances for doubtful 3,071 2,910
accounts
Inventory valuation
differences (2,475) (2,142)
Prepaid healthcare costs (1,096) (543)
Accrued expenses not
currently deductible for tax 1,437 925
Accrued environmental
expenses 396 396
Other, net (454) (114)
- ------------------------------ ------------------ ---------------
Total current prepaid
income taxes $ 2,437 $ 5,530
- ------------------------------ ------------------ ---------------
Long-term prepaid (deferred) income taxes:
Property $(31,612) $(30,393)
Accrued pension and other
employee benefits 7,503 6,927
Alternative minimum and other
tax credit carryforwards
(no expiration) 5,304 4,997
Accrued environmental expenses 1,785 1,842
Investments in limited
partnerships (2,078) (1,230)
Other, net (871) 339
- ------------------------------ ------------------ ---------------
Total long-term deferred
income taxes $(19,969) $(17,518)
- ------------------------------ ------------------ ---------------
The income tax provision consists of the following elements:
- -------------------- ----------------- ------------ -----------
1996 1995 1994
- -------------------- ----------------- ------------ -----------
Currently payable
(refundable):
U.S. Federal $5,932 $ 8,589 $ 4,718
State 1,539 1,798 803
Foreign 3,685 4,870 2,196
Deferred payable
(prepaid):
U.S. Federal 4,860 400 5,632
State 722 56 747
Foreign 253 839 (309)
- -------------------- ----------------- ------------ -----------
$16,991 $16,552 $13,787
- -------------------- ----------------- ------------ -----------
The income tax provision as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:
- ---------------------------- ------------- ---------- ----------
1996 1995 1994
- ---------------------------- ------------- ---------- ----------
Statutory U.S. Federal
income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal Income tax reduction 2.7 3.1 3.5
Tax credits (3.8) (6.8) (2.9)
Other (0.6) 1.7 (0.2)
- ---------------------------- ------------- ---------- ----------
Effective income tax rate 33.3% 33.0% 35.4%
- ---------------------------- ------------- ---------- ----------
<PAGE>
8. Benefit Plans:
Guilford Mills, Inc. has a noncontributory defined benefit plan for the majority
of its hourly employees. Gold Mills, Inc., a wholly-owned subsidiary, also has a
non-contributory defined benefit plan and a multi-employer pension plan covering
the majority of its employees. The financial status of the domestic defined
benefit plans at September 29, 1996, and October 1, 1995 is as follows:
- ------------------------------ --------------- ----------------
1996 1995
- ------------------------------ --------------- ----------------
Fair value of plan assets,
primarily marketable
securities, short-term
investment funds and
insurance company contracts $21,515 $19,656
- ------------------------------ --------------- ----------------
Accumulated benefit
obligation, including
vested benefits of $22,171 and
$19,064 22,721 19,510
Additional benefits based on
estimated future salary
levels 2,037 2,949
- ------------------------------ --------------- ----------------
Projected benefit obligation 24,758 22,459
- ------------------------------ --------------- ----------------
Projected benefit obligation
in excess of plan assets (3,243) (2,803)
Unrecognized net loss 4,955 5,061
Unrecognized net
transitional asset (2,443) (2,635)
Adjustment to recognize
minimum liability (476) --
- ------------------------------ --------------- ----------------
Accrued pension liability $(1,207) $ (377)
- ------------------------------ --------------- ----------------
The projected benefit obligation has been determined for 1996 and 1995 using an
assumed discount rate of 7.25% and an assumed long-term rate of salary
progression of 4%. The assumed long-term rate of return on plan assets is 9%.
Guilford Europe Limited, a wholly-owned subsidiary, has a defined benefit
pension plan with an actuarial present value of accumulated plan benefits of
$11,798 and net assets available for plan benefits of $14,928 as of December 31,
1995. The present value of plan benefits for Guilford Europe Limited was
determined using an assumed discount rate of 8.5% and an assumed long-term rate
of salary progression of 7%. The assumed long-term rate of return on plan assets
was 8.5%.
Pension expense includes the following components:
------------------- -------------- ----------- -----------
1996 1995 1994
------------------- -------------- ----------- -----------
Domestic defined
benefit plans:
Service cost --
benefits earned
during the period $1,170 $1,130 $1,036
Interest on
projected benefit
obligation 1,618 1,493 1,293
Actual return
on plan assets (1,760) (2,361) (1,358)
Net amortization
and deferral 106 1,004 165
------------------- -------------- ----------- -----------
1,134 1,266 1,136
Domestic multi-
employer plan 257 252 238
Foreign defined
benefit plan 478 432 306
------------------- -------------- ----------- -----------
Total $1,869 $1,950 $1,680
------------------- -------------- ----------- -----------
The Company maintains defined contribution plans for certain officers and
salaried employees. Contributions under these plans are determined by the Board
of Directors. During 1996, 1995 and 1994, the provisions under the defined
contribution plans were $2,626, $1,631, and $2,543, respectively.
The Company also maintains deferred compensation plans for certain officers and
salaried employees. These plans are being provided for currently. During 1996,
1995 and 1994, the provisions under these plans were $1,828, $1,964, and $1,882,
respectively. The liability for deferred compensation was $17,201 at September
29, 1996 and $17,226 at October 1, 1995 and is included in other deferred
liabilities in the accompanying balance sheets.
Insurance policies are maintained to fund the deferred compensation plans and
other benefits to senior management such as life insurance and defined benefit
plans, and for keyman coverage.
9. Capital Stock and Stock Compensation:
The Company has stock option plans for key employees and directors covering
1,313,835 shares of common stock. Options granted may be either incentive stock
options or non-qualified options. Under the terms of the plan, the purchase
price of shares subject to each incentive option granted will not be less than
fair market value at the date of grant. Outstanding incentive options are
exercisable over a three-year period commencing two years after the date of
grant.
<PAGE>
Outstanding non-qualified options are exercisable over a five-year period
commencing in the year of the grant. Option activity under the plans is as
follows:
- ------------------------------ ----------------- ----------------
Number of
Shares Exercise Price
Under Option Per Share
- ------------------------------ ----------------- ----------------
Balance, September 26, 1993 523,250 9.33 to 24.50
Granted 30,000 20.19
Exercised ( 54,000) 9.33 to 13.67
Forfeited (58,250) 9.33 to 24.50
- ------------------------------ ----------------- ----------------
Balance, October 2, 1994 441,000 9.33 to 24.50
Granted 303,250 20.75 to 20.81
Exercised (93,398) 9.33 to 23.25
Forfeited (24,835) 20.81 to 23.25
- ------------------------------ ----------------- ----------------
Balance, October 1, 1995 626,017 9.33 to 24.50
Granted 48,750 22.31
Exercised (42,017) 9.33 to 23.25
Forfeited (51,166) 9.33 to 24.38
- ------------------------------ ----------------- ----------------
Balance, September 29, 1996 581,584 18.67 to 24.50
- ------------------------------ ----------------- ----------------
These options expire at various dates through fiscal 2001. Incentive options
exercisable at September 29, 1996 and October 1, 1995 were 159,500 and 139,017,
respectively. Non-qualified options exercisable at September 29, 1996 and
October 1, 1995 were 132,500 and 112,500, respectively.
The Company authorized 1,500,000 shares of common stock for the 1989 Restricted
Stock Plan which covers certain key salaried employees. A total of 91,933 shares
were issued and outstanding under the plan at September 29, 1996. These shares
carry voting and dividend rights; however, sale of the shares is restricted
prior to vesting. Subject to continued employment, vesting generally occurs
three years from the date of grant for 20% of the shares and ten years from the
date of grant for the remaining 80% of the shares. The vesting date for the 20%
portion occurred on October 2, 1994. Vesting of the 80% portion was accelerated
to vest evenly over a three year period beginning January 2, 1995 given that
defined earnings levels were achieved. Dividend payments are made to an escrow
account. Shares issued under the plan are 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 is being amortized as compensation expense on a
straight-line basis over the related vesting period. Compensation expense
totaled $1,248, $1,542, and $984 during 1996, 1995, and 1994, respectively.
Effective July 1, 1990, the Company adopted an employee stock ownership plan
covering all U.S. full-time employees who have completed one year of service.
Awards are made to the plan each year, in the form of shares of the Company's
common stock or in cash which is used to purchase shares of the Company's common
stock, based on the approval of the Board of Directors and are generally tied to
targeted earnings levels achieved during the year. Rights to the stock vest over
a seven-year period and vested shares are payable at retirement, death or
disability, or termination of employment. Shares of common stock in the plan
carry normal voting and dividend rights. Compensation expense for the plan for
1996, 1995 and 1994 was $1,858, $3,385, and $2,033, respectively and the related
obligation at September 29, 1996 and October 1, 1995 for shares to be issued is
included in capital in excess of par.
At September 29, 1996 2,243,390 shares of common stock were reserved for
conversion of convertible subordinated debentures.
The Company has an agreement with two of its directors whereby the Company will,
in the event of their death prior to June 22, 1997, purchase common stock of the
Company owned by the two directors in the amounts of $5,000 and $4,000. The
number of shares purchased will be based on the average market value of the
stock for a 20-day period preceding the date of death.
In 1990, the Board of Directors declared a dividend of one preferred stock
purchase right on each outstanding share of the Company's common stock to
holders of record on September 7, 1990. If the rights become exercisable,
separate certificates evidencing the rights will be distributed and each right
will entitle the holder to purchase from the Company a new series of preferred
stock at a pre-defined price. The rights also contain an option to purchase
shares in a change of control situation. The preferred stock, in addition to a
preferred dividend and liquidation right, will entitle the holder to vote on a
pro rata basis with the Company's common stock. The rights are not exercisable
until either certain changes in ownership of the Company occur or an
announcement of a tender offer for at least 30% of the Company's common stock is
made. The rights are redeemable by the Company at a fixed price until 10 days,
or longer as determined by the Board, after the occurrence of certain defined
events or at any time prior to the expiration of the rights on August 23, 2000
if such events do not occur. As of October 1, 1995, the Company had reserved
300,000 preferred shares as issuable pursuant to these rights. At the present
time, the rights have no dilutive effect on the earnings per share calculation.
<PAGE>
10. Financial Instruments:
The Company periodically purchases foreign exchange forward contracts
("forwards") to hedge sales transactions for the succeeding year which are
denominated in non-functional currency.
At September 29, 1996 and October 1, 1995, the Company had the following amounts
of forward contracts:
- ------------------ ---------- ------------------ ---------------
Contract Market Value at Net unrealized
Amount September 29, Gains (Losses)
1996
- ------------------ ---------- ------------------ ---------------
Purchases $ 1,981 $ 1,916 $ (65)
Sales $ 4,846 $ 4,610 $236
- ------------------ ---------- ------------------ ---------------
Contract Market Value at Net unrealized
Amount October 1, 1995 Gains (Losses)
- ------------------ ---------- ------------------ ---------------
Purchases $ 7,070 $ 7,111 $ 41
Sales $28,149 $27,825 $324
- ------------------ ---------- ------------------ ---------------
11. 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 19
years. Rent expense under these leases was $5,404 in 1996, $3,982 in 1995, and
$4,034 in 1994. At September 29, 1996, future minimum rental payments applicable
to these leases are $4,470 in 1997, $3,985 in 1998, $3,302 in 1999, $2,871 in
2000, $1,540 in 2001, and $13,199 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 Resources and incurred approximately
$3,500 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 has performed (i) certain measures designed
to prevent any potential threats to the environment at the facility and (ii) an
investigation to fully determine the nature of any release of hazardous
substances at the facility. In addition, Gold will conduct 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
fiscal 1992, a pre-tax charge of $8,000 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 voluntarily agreed to allow the installation of
monitoring wells at the site, but denies that such contaminants originated from
the Company's operations or property. An additional pre-tax charge of $1,250 was
provided in the fourth quarter of fiscal 1992 to reflect the estimated future
costs of this monitoring and other environmental matters including the removal
of underground storage tanks at the Company's facilities. The Company has
removed substantially all underground storage tanks at its facilities. At
September 29, 1996, environmental accruals amounted to $6,020 of which $5,025 is
non-current and is included in other deferred liabilities in the accompanying
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.
12. Geographic Information:
The accompanying financial statements include the following amounts related to
the operations of the Company's subsidiaries in Europe and Mexico:
- ------------------------ -------------- ----------- -------------
1996 1995 1994
- ------------------------ -------------- ----------- -------------
Net sales to
unaffiliated customers:
United States $665,727 $616,833 $603,880
United Kingdom 122,300 130,760 91,069
Mexico 42,293 34,925 8,751
- ------------------------ -------------- ----------- -------------
Total net sales $830,320 $782,518 $703,700
- ------------------------ -------------- ----------- -------------
Transfers between
geographic areas
(eliminated
in consolidation):
United States $ 4,257 $ 5,756 $ 515
United Kingdom 137 699 1,942
Mexico 582 641 ---
- ------------------------ -------------- ----------- -------------
Total transfers $ 4,976 $ 7,096 $ 2,457
- ------------------------ -------------- ----------- -------------
Operating income:
United States $ 58,488 $ 53,919 $ 45,345
United Kingdom 8,644 9,727 5,652
Mexico 4,494 4,170 893
Interest and other
expense, net 20,657 17,628 12,979
- ------------------------ -------------- ----------- -------------
Income before
income taxes $ 50,969 $ 50,188 $ 38,911
- ------------------------ -------------- ----------- -------------
Identifiable assets:
United States $695,294 $550,911 $522,328
United Kingdom 89,019 79,313 65,751
Mexico 26,237 25,604 39,129
Eliminations 81,720 69,457 61,870
- ------------------------ -------------- ----------- -------------
Total assets $728,830 $586,371 $565,338
- ------------------------ -------------- ----------- -------------
<PAGE>
13. Summary of Quarterly Earnings (Unaudited):
- --------------------- ---------- --------- ---------- ---------
First Second Third Fourth
- --------------------- ---------- --------- ---------- ---------
1996 Quarter:
Net sales $174,185 $207,097 $232,202 $216,836
Gross profit 27,599 33,376 45,068 48,013
Net Income 2,748 5,882 12,640 12,708
- --------------------- ---------- --------- ---------- ---------
Net Income per share:
Primary .20 .41 .87 .90
Fully diluted .20 .39 .79 .81
- --------------------- ---------- --------- ---------- ---------
- --------------------- ---------- --------- ---------- ---------
1995 Quarter:
Net sales $182,494 $201,885 $210,762 $187,377
Gross profit 33,011 38,480 37,302 29,381
Net Income 6,103 9,376 11,247 6,910
- --------------------- ---------- --------- ---------- ---------
Net Income per share:
Primary .44 .67 .80 .50
Fully diluted .41 .61 .73 .46
- --------------------- ---------- --------- ---------- ---------
- --------------------- --------- ---------- --------- ----------
1994 Quarter:
Net sales $157,576 $155,586 $183,235 $207,303
Gross profit 26,424 23,392 33,002 35,638
Net Income 3,849 3,929 8,934 8,412
- --------------------- --------- ---------- --------- ----------
Net Income per share:
Primary .28 .28 .65 .61
Fully diluted .28 .28 .59 .56
- --------------------- --------- ---------- --------- ----------
<PAGE>
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 29, 1996
and October 1, 1995, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended September 29, 1996. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 29, 1996 and October 1, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended September 29, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Greensboro, North Carolina,
November 14, 1996
- --------------------------------------------------------------------------------
Statement of Management's Responsibility
The management of Guilford Mills, Inc. has the responsibility for the
preparation of all information contained in the Annual Report. The financial
statements, including footnotes, have been prepared in accordance with generally
accepted accounting principles appropriate in the circumstances and include
amounts based on the best judgment of management.
In meeting its responsibilities for the accuracy, integrity and objectivity
of data in the financial statements, management maintains a system of internal
accounting controls designed to provide reasonable assurance of the reliability
of financial records and the safeguarding of assets. This 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. There are limits inherent
in all systems of internal control based on the recognition that the cost of
such systems should be related to the benefits to be derived. Management
believes the Company's systems provide an appropriate balance.
The control environment is complemented by an internal auditing program
that independently assesses the effectiveness of the internal controls and
reports its findings to management throughout the year. The Company's
independent public accountants are engaged to express an opinion on the
Company's financial statements. 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.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, is responsible for monitoring
the Company's management control and reporting system. The Audit Committee meets
with management and the internal auditors periodically to review their
activities and responsibilities. The Audit Committee also meets as needed with
the independent auditors along with the internal auditors, both of whom have
free access to the Audit Committee without management's presence.
Terrence E. Geremski
Senior Vice President/Chief Financial
Officer and Treasurer
<PAGE>
Guilford Mills, Inc.
COMMON STOCK MARKET PRICES AND DIVIDENDS
Fiscal 1996
------------------- --------------- -- ---------------- -- -------------
Quarter High Low Dividends
------------------- --------------- -- ---------------- -- -------------
First $ 24 1/4 $ 20 $ .15
Second 24 1/2 19 1/2 .15
Third 25 1/8 22 .15
Fourth 25 5/8 22 1/8 .15
----
Year $ 25 5/8 $ 19 1/2 $ .60
-----
Fiscal 1995
------------------- ----------------------------------------------------
Quarter High Low Dividends
------------------- --------------- -- ---------------- -- -------------
First $ 22 1/4 $ 19 1/2 $ .15
Second 22 3/8 20 1/4 .15
Third 27 1/4 21 1/4 .15
Fourth 28 3/8 23 7/8 .15
----
Year $ 28 3/8 $ 19 1/2 $ .60
-----
Fiscal 1994
------------------- ----------------------------------------------------
Quarter High Low Dividends
------------------- --------------- -- ---------------- -- -------------
First $ 23 7/8 $ 18 7/8 $ .15
Second 24 1/8 21 1/4 .15
Third 23 5/8 20 3/8 .15
Fourth 21 5/8 18 1/2 .15
----
Year $ 24 1/8 $ 18 1/2 $ .60
-----
The high and low stock market prices are as reported under the ticker
symbol "GFD" on the New York Stock Exchange which is the principal market for
the Company's common stock. On November 22, 1996 there were 503 stockholders of
record.
Based on continued favorable future operations and the present level of
available retained earnings, management anticipates continuing its current
dividend policies.
Annual Stockholders' Meeting
The Company's 1996 annual meeting of stockholders will be held at 10:00
a.m. on Thursday, February 6, 1997 at Joseph S. Koury Convention Center, 3121
High Point Road, Greensboro, North Carolina.
SUBSIDIARIES OF GUILFORD MILLS, INC.
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF % OWNERSHIP
NAME OF COMPANY INCORPORATION
<S> <C> <C>
Gold Mills, Inc. Delaware 100%
Gold Mills Farms, Inc. (1) New York 100%
Guilford Airmont, Inc. North Carolina 100%
Advisory Research Services, Inc. North Carolina 100%
Guilford Mills (Michigan), Inc. Michigan 100%
Grupo Ambar, S.A. de C.V. Mexico 75%
American Textil, S.A. de C.V. (2) Mexico 100%
Servicios Corporativos Ambar, S.A. de C.V. (3) Mexico 100%
Industrias Globales de Mexico, S.A. de C.V. (4) Mexico 100%
NuStart S.A. de C.V. Mexico 51.166%
27 VSQ Limited (Guilford Mills Limited) United Kingdom 100%
Guilford Mills Europe Limited (5) United Kingdom 100%
Guilford Europe Limited (6) United Kingdom 100%
Guilford Kapwood GmbH (7) Germany 100%
Guilford Europe Pension Trustees Limited (8) United Kingdom 100%
Guilford Wovens Limited (7) United Kingdom 100%
Rouquinet Deroy Limited (9) United Kingdom 100%
Raschel Fashion Interknitting, Ltd. New York 100%
Hofmann Laces, Ltd. New York 100%
Curtains and Fabrics, Inc. New York 100%
GFD Services, Inc. Delaware 100%
GFD Fabrics, Inc. North Carolina 100%
GMI Computer Sales, Inc. North Carolina 100%
- --------
(1) Owned by Gold Mills, Inc.
(2) 10,457,517 shares owned by Grupo Ambar, S.A. de C.V. ("Grupo Ambar"), and 1 share owned by
Servicios Corporativos Ambar, S.A. de C.V.
(3) 321,751 shares owned by Grupo Ambar, and 1 share owned by American Textil, S.A. de C.V.
(4) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Grupo Ambar.
(5) Owned by 27 VSQ Limited.
(6) 2,000,000 shares owned by Guilford Mills Europe Limited and 1 share owned by Guilford Mills, Inc.
(7) Owned by Guilford Europe Limited.
(8) 1 share owned by Guilford Europe Limited and 1 share owned by Guilford Mills Europe
Limited.
(9) 1,999,999 shares owned by Guilford Mills Europe Limited and 1 share owned by Guilford Europe
Limited.
</TABLE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated November 14, 1996 included in and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statement File
No. 2-75943, Registration Statement File No. 33-46465 and Registration Statement
File No. 33-47109.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
December 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Guilford Mills, Inc. for the year ended September 29,
1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> SEP-29-1996
<EXCHANGE-RATE> 1
<CASH> 31,448
<SECURITIES> 0
<RECEIVABLES> 181,520
<ALLOWANCES> (9,487)
<INVENTORY> 137,993
<CURRENT-ASSETS> 351,888
<PP&E> 663,328
<DEPRECIATION> 353,364
<TOTAL-ASSETS> 728,830
<CURRENT-LIABILITIES> 174,230
<BONDS> 209,435
0
0
<COMMON> 393
<OTHER-SE> 297,666
<TOTAL-LIABILITY-AND-EQUITY> 728,830
<SALES> 830,320
<TOTAL-REVENUES> 830,320
<CGS> 676,264
<TOTAL-COSTS> 758,694
<OTHER-EXPENSES> 3,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,017
<INCOME-PRETAX> 50,969
<INCOME-TAX> 16,991
<INCOME-CONTINUING> 33,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,978
<EPS-PRIMARY> 2.38
<EPS-DILUTED> 2.19
</TABLE>
