FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
-------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
4925 West Market Street, Greensboro, N.C. 27407
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (910) 316-4000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Number of shares of common stock outstanding
at December 31, 1995 - 14,117,913
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Page 1
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1995
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The consolidated financial statements included herein have been
prepared by Guilford Mills, Inc. (the "Company" or "Guilford"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Consolidated Balance Sheet as of October 1, 1995 has been taken from the
audited financial statements as of that date. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
latest annual report on Form 10-K for the year ended October 1, 1995.
The consolidated financial statements included herein reflect all
adjustments (none of which are other than normal recurring accruals) which are,
in the opinion of management, necessary for a fair presentation of the
information included. The following consolidated financial statements are
included:
Consolidated Statements of Income for the thirteen weeks ended December
31, 1995 and January 1, 1995
Consolidated Balance Sheets as of December 31, 1995 and October 1, 1995
Consolidated Statements of Cash Flows for the thirteen weeks ended
December 31, 1995 and January 1, 1995
Condensed Notes to Consolidated Financial Statements
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Page 2
Guilford Mills, Inc.
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
For the Thirteen Weeks Ended
December 31, 1995 and January 1, 1995
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
- ---------------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
NET SALES $ 174,185 $ 182,494
- ---------------------------------------------------------------------------------------- ------------------ ------------------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
COSTS AND EXPENSES:
Cost of goods sold 146,586 149,483
Selling and administrative 19,091 18,707
- ---------------------------------------------------------------------------------------- ------------------ ------------------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
165,677 168,190
- ---------------------------------------------------------------------------------------- ------------------ ------------------
OPERATING INCOME 8,508 14,304
INTEREST EXPENSE 3,400 3,711
OTHER EXPENSE, NET 1,010 1,102
- ---------------------------------------------------------------------------------------- ------------------ ------------------
INCOME BEFORE INCOME TAXES 4,098 9,491
INCOME TAX PROVISION 1,350 3,388
- ---------------------------------------------------------------------------------------- ------------------ ------------------
NET INCOME $ 2,748 $ 6,103
- ---------------------------------------------------------------------------------------- ------------------ ------------------
NET INCOME PER SHARE:
Primary $.20 $.44
Fully Diluted .20 .41
- ---------------------------------------------------------------------------------------- ------------------ ------------------
DIVIDENDS PER SHARE $.15 $.15
- ---------------------------------------------------------------------------------------- ------------------ ------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 3
Guilford Mills, Inc.
C O N S O L I D A T E D B A L A N C E S H E E T S
December 31, 1995 and October 1, 1995
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------- -------------- ---------------
DECEMBER 31, October 1,
1995 1995
-------------------------------------------------------- -------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 17,411 $ 17,964
Accounts receivable, net 126,254 148,656
Inventories (Note 3) 114,233 106,008
Prepaid income taxes 5,927 5,530
Other current assets 8,168 7,769
- ------------------------------------------------------------------------ --------- ---------
Total current assets 271,993 285,927
Property, net (Note 4) 238,354 244,592
Cash surrender value of life insurance, net of policy loans 38,589 37,676
Other 19,615 18,176
- ------------------------------------------------------------------------ --------- ---------
Total assets $ 568,551 $ 586,371
- ------------------------------------------------------------------------ --------- ---------
LIABILITIES
Short-term borrowings $ 14,562 $ 9,587
Current maturities of long-term debt 2,250 4,078
Accounts payable 42,959 54,677
Accrued liabilities 32,918 39,352
- ------------------------------------------------------------------------ --------- ---------
Total current liabilities 92,689 107,694
Long-term debt 164,809 166,368
Deferred income taxes 18,011 17,518
Other deferred liabilities 25,002 25,011
Minority interest 1,780 2,231
- ------------------------------------------------------------------------ --------- ---------
Total liabilities 302,291 318,822
- ------------------------------------------------------------------------ --------- ---------
STOCKHOLDERS' INVESTMENT
Preferred stock, $1 par; 1,000,000 shares authorized, none issued -- --
Common stock, $.02 par; 40,000,000 shares authorized, 19,629,199
shares issued, 14,117,913 shares outstanding at December 31, 1995
and 14,108,721 shares outstanding October 1, 1995 393 393
Capital in excess of par 37,490 37,467
Retained earnings 286,510 285,880
Foreign currency translation loss (12,490) (10,110)
Unamortized stock compensation (926) (1,260)
Treasury stock, at cost (5,511,286 shares at December 31, 1995 and
5,520,478 shares at October 1, 1995) (44,717) (44,821)
- ------------------------------------------------------------------------ --------- ---------
Total stockholders' investment 266,260 267,549
- ------------------------------------------------------------------------ --------- ---------
Total liabilities and stockholders' investment $ 568,551 $ 586,371
- ------------------------------------------------------------------------ --------- ---------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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Page 4
Guilford Mills, Inc.
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
For the Thirteen Weeks Ended
December 31, 1995 and January 1, 1995
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------ -------- --------
DECEMBER 31, January 1,
1995 1995
- ------------------------------------------------------------------------------------------------ -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,748 $ 6,103
Non-cash items included in net income --
Depreciation and amortization 12,164 12,080
Loss on disposition of property 9 --
Minority interest in net income (35) 32
Deferred income taxes 650 937
Increase in cash surrender value of life insurance, net of policy (913) (258)
loans
Compensation earned under restricted stock plan 334 382
Changes in assets and liabilities --
Receivables 21,879 19,158
Inventories (9,315) (46)
Other current assets (580) 271
Accounts payable (10,936) (19,605)
Accrued liabilities (6,885) 459
Other 57 126
- ------------------------------------------------------------------------------------------------ -------- --------
Net cash provided by operating activities 9,177 19,639
- ------------------------------------------------------------------------------------------------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (8,411) (7,332)
Proceeds from dispositions of property -- 122
Proceeds from sale of other assets -- 2,600
(Decrease) increase in other assets (1,868) 804
- ------------------------------------------------------------------------------------------------ -------- --------
Net cash used in investing activities (10,279) (3,806)
- ------------------------------------------------------------------------------------------------ -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net 5,365 (16,149)
Payments of long-term debt (2,450) (816)
Proceeds from issuance of long-term debt -- 5,611
Cash dividends (2,118) (2,100)
Common stock options exercised 167 282
- ------------------------------------------------------------------------------------------------ -------- --------
Net cash provided by (used in) financing activities 964 (13,172)
- ------------------------------------------------------------------------------------------------ -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (415) (1,701)
- ------------------------------------------------------------------------------------------------ -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (553) 960
EQUIVALENTS
- ------------------------------------------------------------------------------------------------ -------- --------
BEGINNING CASH AND CASH EQUIVALENTS 17,964 6,110
ENDING CASH AND CASH EQUIVALENTS $ 17,411 $ 7,070
- ------------------------------------------------------------------------------------------------ -------- --------
</TABLE>
See accompanying condensed notes to consolidated financial statements
<PAGE>
Page 5
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(In thousands except share data)
1. Seasonal Fluctuations -- Results for any portion of a year are not
necessarily indicative of the results to be expected for a full year, due to
seasonal aspects of the textile industry.
Reclassifications - For comparative purposes certain amounts for 1995 have
been reclassified to conform with the 1996 presentation.
2. Per Share Information -- Primary net income per share information has been
computed by dividing net income by the weighted average number of shares of
common stock, par value $.02 per share, of the Company (the "Common Stock") and
Common Stock equivalents outstanding during the periods. The average shares used
in computing primary net income per share for the thirteen weeks ended December
31, 1995 and January 1, 1995 were 14,082,000 and 13,887,000, respectively.
Fully diluted income per share information also considers as applicable (i)
the dilutive effect, if any, assuming that the Company's convertible debentures
were converted at the beginning of the current fiscal period, with earnings
being increased by the interest expense, net of income taxes, that would not
have been incurred had conversion taken place and (ii) any additional dilutive
effect for stock options and restricted stock grants. The average shares used in
computing fully diluted net income per share for the thirteen weeks ended
December 31, 1995 and January 1, 1995 were 14,082,000 and 16,151,000,
respectively.
3. Inventories -- Inventories are carried at the lower of cost or market. Cost
is determined for substantially all inventories using the LIFO (last-in,
first-out) method.
Inventories at December 31, 1995 and October 1, 1995 consisted of the
following:
<TABLE>
<CAPTION>
December 31, October 1,
1995 1995
------------------ -----------------
<S> <C> <C>
Finished goods $ 48,450 $ 45,745
Raw materials and work in process 74,429 69,786
Manufacturing supplies 12,440 11,968
------------------
-----------------
Total inventories valued at first-in, first-out (FIFO) cost 135,319 127,499
Less -- Adjustments to reduce FIFO cost to LIFO cost, net 21,086 21,491
------------------ -----------------
Total inventories $114,233 $106,008
================== =================
</TABLE>
4. Accumulated Depreciation -- Accumulated depreciation at December 31, 1995 and
October 1, 1995 was $313,827 and $302,576 respectively.
5. Subsequent Event -- 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. ("Hofmann Laces"). Pursuant
to the stock purchase agreement, the aggregate purchase price consisted of three
components: (i) a cash payment of $22,007, representing an estimate of the
combined net worth of Hofmann Laces as of December 31, 1995, less a loan
described below, (ii) 200,000 shares of the Company's common stock, the transfer
of which is prohibited, with certain exceptions, until December 31, 2000 and
(iii) a contingent payment, payable in cash or shares of the Company's stock, or
a combination of cash and stock based on a specified formula for the five year
period ending December 31, 2000. In addition, the Company loaned one of the
companies $16,500, an amount equal to such company's accumulated adjustments
account which was distributed to the Seller at the closing date.
<PAGE>
Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the first quarter of fiscal 1996, consolidated sales of $174.2 million
decreased $8.3 million from the comparable period of the previous year.
Sales in the apparel and home fashions business unit declined 4.7% from the
comparable period of the previous year primarily as a result of the weak retail
environment. Sales declines of 2.4% in intimate apparel, sleepwear and robewear,
7.8% in swimwear and shapewear, and 10.3% in linings were partially offset by
moderate sales increases in ready-to-wear warp knit and circular knit products,
and fastener and industrial products. Furniture fabric, which is now included as
part of the Apparel business unit, remained relatively flat. Although the
outlook for the retail markets appears weak, the Company anticipates flat to
slightly improved sales for fiscal 1996 due to a gain in market share of the
value added products which will offset the decline in the traditional products.
Sales in the U.S. automotive business unit were flat from the comparable
period of the previous year. This resulted from a 2.1% increase in sales of
headliner and bodycloth fabrics, offset by a decrease in sales of fabrics for
recreational vehicles and vans. Although the domestic automotive original
equipment manufacturer (OEM) market has softened, the Company expects improved
sales growth for fiscal 1996 in this business unit as a result of increased
market share of headliner and bodycloth.
Sales of the Company's U.K. business unit decreased 10.3% from the
comparable period of the previous year. This decrease was a result of the
softening of Europe's automotive market, which had seen significant growth in
the prior year, with lower market forecasts and an economy that is not likely to
significantly improve in 1996. While there is some opportunity for new programs,
the Company expects lower full year sales in its European operations.
Sales from the Company's Mexican subsidiary decreased 12.1%. This decrease
resulted from an average peso exchange rate decline of 50.9% from the prior
year's first quarter. On a peso comparative basis, sales of the Mexican
subsidiary increased 77.3%. The Company anticipates that the peso's uncertainty
will continue to impact future revenue translation and total sales of its
Mexican subsidiary.
Margins for the first quarter of fiscal 1996 declined to 15.8% compared to
last year's 18.1%. Sales volume decreases resulted in a net contribution loss of
$1.2 million. The margins of the U.S. Automotive Business Unit were impacted by
$1.1 million as a result of ten one-time model change launch costs in the
Company's key technologies, including new warp knits, yarn dye circular knits,
woven velour products, and new print technology. In addition, raw material price
increases, primarily fiber, incurred in the fourth quarter could not be passed
along to the Company's customers. The margins of the Fibers Business Unit were
also impacted by a $1.8 million charge relating to the write-off of inventory.
Raw material price increases were somewhat offset by new product pricing and
operating efficiencies in the Apparel Business Unit.
Selling and administrative expenses for the first quarter were relatively
flat at $19.1 million compared to last year's $18.7 million.
Interest expense for the first quarter decreased to $3.4 million compared
to last year's $3.7 million. Short-term interest expense was flat with a
negligible increase in borrowing rates offset by interest income.
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Page 7
The effective income tax rate was 32.9% in the first quarter of fiscal 1996
compared to 35.7% in the comparable quarter of the prior year due to the
proportionate impact of credits relative to the considerable decline in pre-tax
income from year to year. However, the Company expects the effective tax rate
for the year to be higher than the prior year's rate as a result of the Hofmann
Laces acquisition.
Net income for the first quarter was $2.7 million, or $.20 per primary
share, compared to $6.1 million, or $.44 per primary share, for the comparable
period of the previous year.
The results of operations on a consolidated basis for the first quarter of
1996 were not significantly impacted by the devaluation of the Mexican peso. In
the balance sheet, the result of this translation loss is a reduction in
stockholders' equity, as required by Statement of Financial Accounting Standards
No. 52, and accordingly is not reflected in the income of the Company. In
management's view, a risk of loss of earnings exists in the future related to
net U.S. dollar transactions and from a decline of the Company's sales in
Mexico. The Mexican government has issued guidelines allowing for the increase
of selling prices for both apparel and automotive manufacturers and the Company
has increased utilization of the Mexican operations. The Mexican operation has
also had success in limiting its exposure as a result of the peso devaluation by
invoicing in U.S. dollars certain transactions on products for ultimate export.
The Company cannot determine to what extent these actions may offset the
possible negative impact of this economic uncertainty.
Liquidity and Capital Requirements
At December 31, 1995, working capital was $179.3 million compared to $178.2
million at October 1, 1995. Although the Company has experienced raw material
cost increases, it has not had an impact on the Company's liquidity. The Company
maintains flexibility with respect to its seasonal working capital needs through
a committed revolving credit facility of $150 million and its continued access
to other traditional sources of funds, including available uncommitted lines of
credit aggregating over $100 million, and the ability to receive advances
against its factored accounts receivable. Management believes that the Company's
financial position and operating performance will continue to provide the
Company with necessary capital from appropriate financial markets.
On January 17, 1996 the Company acquired 100% of the outstanding capital
stock of Hofmann Laces, Ltd., Raschel Fashion Interknitting, Ltd., and Curtains
and Fabrics, Inc ("Hofmann Laces"). On that date the Company borrowed
approximately $60 million under its revolving credit facility to fund the
purchase of the stock and to refinance the majority of the existing debt of
Hofmann Laces.
Contingencies and Future Operations
Since January 1992, the Company has been involved in discussions with the
United States Environmental Protection Agency ("EPA") regarding remedial actions
at its Gold Mills, Inc. ("Gold") facility in Pine Grove, Pennsylvania which was
acquired in October 1986. Between 1988 and 1990, the Company implemented a
number of corrective measures at the facility in conjunction with the
Pennsylvania Department of Environmental Resources and incurred approximately
$3.5 million in costs. Subsequently, through negotiations with the EPA, Gold
entered into a Final Administrative Consent Order with the EPA, effective
October 14, 1992. Pursuant to such order, Gold 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 1992, a pre-tax charge of $8.0 million was provided for the estimated
future cost of the additional remediation.
During the fourth quarter of 1992, the Company also received a Notice of
Violation from the North Carolina Division of Environmental Management
concerning ground water contamination on or near one of its North Carolina
facilities. The Company has voluntarily agreed to allow the installation of
monitoring wells at the site to determine the source of the contaminants, but
denies that such contaminants originated from the Company's operations or
property. An additional pre-tax charge of $1.3 million was provided in the
fourth quarter of 1992 to reflect the estimated future costs of monitoring this
and other environmental matters including the removal of underground storage
tanks at the Company's facilities. At December 31, 1995, environmental accruals
amounted to $6.2 million of which $5.2 million is non-current and is included in
other deferred liabilities in the balance sheet.
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Page 8
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.
Subsequent Event
On January 17, 1996 the Company acquired 100% of the outstanding capital
stock of Hofmann Laces, Ltd., Raschel Fashion Interknitting, Ltd., and Curtains
and Fabrics, Inc. (See footnote 5 to the Condensed Notes to the Consolidated
Financial Statements) .
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Reference is made to Item 3 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 1, 1995, which item is
incorporated herein by reference.
Items 2 - 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's 1995 Annual Meeting of Stockholders was held on February 1,
1996. At such meeting, the stockholders elected each of Maurice Fishman, Paul G.
Gillease, Stephen C. Hassenfelt and Charles A. Hayes to serve as directors for a
three-year term expiring after the Company's 1998 fiscal year. In addition, the
stockholders at such meeting ratified the selection of Arthur Andersen LLP as
independent auditors for the fiscal year ending September 29, 1996. The number
of votes cast for, against or withheld, as well as the number of abstentions, as
the case may be, with respect to each matter voted upon at the 1995 Annual
Stockholders' Meeting is set forth below:
(1) Election of Directors
<TABLE>
<CAPTION>
Director Votes For Votes Withheld
<S> <C> <C>
Maurice Fishman 10,949,668 229,066
Paul G. Gillease 10,951,471 227,588
Stephen C. Hassenfelt 11,025,810 152,924
Charles A. Hayes 10,951,586 227,148
</TABLE>
(2) Ratification of Selection of Auditors
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C> <C>
11,145,166 15,203 18,365
</TABLE>
Items 5 - 6. Not Applicable.
<PAGE>
Page 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: February 14, 1996 By: /s/ Terrence E. Geremski
Terrence E. Geremski
Vice President/Chief Financial
Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,411
<SECURITIES> 0
<RECEIVABLES> 134,918
<ALLOWANCES> (8,664)
<INVENTORY> 114,233
<CURRENT-ASSETS> 271,993
<PP&E> 552,181
<DEPRECIATION> 313,827
<TOTAL-ASSETS> 568,551
<CURRENT-LIABILITIES> 92,689
<BONDS> 0
0
0
<COMMON> 393
<OTHER-SE> 265,867
<TOTAL-LIABILITY-AND-EQUITY> 568,551
<SALES> 174,185
<TOTAL-REVENUES> 174,185
<CGS> 146,586
<TOTAL-COSTS> 165,677
<OTHER-EXPENSES> 1,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,400
<INCOME-PRETAX> 4,098
<INCOME-TAX> 1,350
<INCOME-CONTINUING> 2,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,748
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
