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)
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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 28, 1997
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Commission File No. 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 13-1995928
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4925 WEST MARKET STREET 27407
GREENSBORO, NORTH CAROLINA (Zip Code)
(Address of principal executive offices)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (336) 316-4000
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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
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
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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 December 4, 1997 (a
total of 21,937,025 shares of common stock), computed by reference to the last
reported sale price $27.625 the Registrant's common stock on the New York Stock
Exchange on such date: $606,010,316.
Number of shares of the Registrant's common stock outstanding as of December 4,
1997: 25,716,973
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Stockholders for the fiscal year ended
September 28, 1997 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, which will be filed with
the Commission on or about December 23, 1997, are incorporated by reference into
Part III of this report.
Certain portions of the Form 8-K/A Current Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, filed January 17, 1996, are
incorporated by reference into Part I of this report.
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GUILFORD MILLS, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Guilford Mills, Inc. (the "Company") is a fabric producer which processes
and sells warp knit, circular knit, flat woven and woven velour fabrics as well
as lace. The Company knits synthetic yarn, primarily nylon, polyester and
acetate, on warp knitting machinery, which it then dyes and finishes. The
Company sells these finished knit fabrics for use in a broad range of apparel,
automotive, industrial/specialty 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 produces flat wovens and woven velour fabrics for use
in automotive products. The Company knits 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 June 27, 1997, the Company acquired an additional 20% ownership interest
in Grupo Ambar, S.A. de C.V. ("Grupo Ambar"). The acquisition increased the
Company's ownership interest in Grupo Ambar to 95%. 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 and other 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 Securities and Exchange
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 77 full-time U.S. employees, 8 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 1997, 1996 and 1995,
were approximately $14.9 million, $14.5 million, and $13.4 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 to the
Company's customers 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. To minimize the credit risk on such accounts
and to obtain larger credit lines for many customers, the Company maintained
credit insurance covering $38.0 million of certain outstanding accounts
receivable as of September 28, 1997. In addition, approximately 14% of domestic
accounts receivable are factored. 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 generally takes advantage of discounts offered by vendors.
MARKETING
The Company sells its fabrics for use in a broad range of apparel,
automotive, home fashions and specialty products. For the fiscal years ended
September 28, 1997, September 29, 1996 and October 1 1995, the percentage of the
Company's worldwide sales attributable to each category was as follows:
1997 1996 1995
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Apparel 39.2% 41.1% 44.7%
Automotive 36.7 40.6 43.0
Home Fashions 14.8 11.7 6.5
Specialty 9.3 6.6 5.8
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Total 100.0% 100.0% 100.0%
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The Company promotes its fabrics primarily through its sales force. This is
supplemented 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 the Company's U.S.
operations 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, Germany and Brazil and by
commission agents in most continental European Union countries. Grupo Ambar
services the Mexican market from its Mexico City administrative office.
Reference is made to Note 11 of the Consolidated Financial Statements in
the Company's Annual Report to Stockholders for the fiscal year ended September
28, 1997 (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 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, home fashions and specialty products
experience insignificant seasonal fluctuations.
The Company has a large number of customers. No customer accounted for 10%
or more of total net sales during fiscal 1997, 1996 or 1995.
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.
EXPORT SALES
U.S. export sales, as a percentage of total worldwide sales of the Company,
were approximately 5.5% in fiscal 1997, 5.0% in fiscal 1996 and 3.0% in fiscal
1995.
RAW MATERIALS
In the United States, Europe and Mexico, the Company's fabrics are
constructed primarily of synthetic yarns: nylon, polyester and spandex. In
fiscal 1997, the Company purchased approximately 90% of such yarns and
internally produced the balance of nylon and polyester yarns. The Company
purchases its nylon and polyester yarns from several domestic and foreign fiber
producers. Spandex is purchased substantially from one domestic producer. The
Company uses acetate, cotton and rayon to a lesser extent. One domestic fiber
producer supplied substantially all of the acetate yarn. In fiscal 1997, all
yarns were readily available and were purchased from numerous sources. 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. The foam backing used in
the automotive fabric lamination process is purchased from two suppliers in the
United States and three suppliers in Europe. In fiscal 1997, there was an
adequate supply of foam.
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 10 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 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 has five major warp knit competitors and
many other smaller competitors in the apparel and home fashions markets. 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 four major competitors and
numerous smaller competitors. In the automotive market, the Company 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 circular knit and flat woven fabrics. Grupo Ambar
competes primarily with four warp knitters in Mexico in the apparel markets and
one warp knitter in Mexico's automotive industry.
3
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EMPLOYEES
As of December 4, 1997, the Company employed 6,571 full-time employees
worldwide. Approximately 1,463 employees (including 602 in Guilford Europe and
483 in Grupo Ambar) are represented by collective bargaining agreements.
SAFE HARBOR-FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relative to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements.
All statements other than statements of historical fact included or
incorporated by reference, in this Form 10-K, including, without limitation the
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" are, or may be deemed to be, forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Important factors that could cause actual results to
differ materially from those discussed in such forward-looking statements
include:
1. general economic factors including, but not limited to, changes in interest
rates, foreign currency translation rates, consumer confidence, housing
starts, trends in disposable income, changes in consumer demand for goods
produced, and cyclical or other downturns
2. the overall level of automotive production and the production of specific
car models
3. fashion trends
4. technological advances
5. cost and availability of raw materials, labor and other resources
6. domestic and foreign competition
7. domestic and foreign governmental regulations and trade policies
8. reliance on major customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation and
restructuring of acquired companies
ITEM 2. PROPERTIES
The Company currently maintains a total of 16 manufacturing and warehousing
facilities in North Carolina (seven 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. Hofmann Laces has
five retail stores in New York, one in Pennsylvania, and one in North Carolina,
all of which are leased. The Company's operations based in England include two
manufacturing facilities, one in Alfreton in Derbyshire and one in Sudbury in
Suffolk, each owned by the Company, and one leased warehousing facility. The
Company's operations based in Mexico include two manufacturing facilities and
two warehouses (leased) in Xalostoc, and five retail stores, four of which are
leased, in the Federal District and the state of Mexico. 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 10 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. During the first
quarter of the 1998 fiscal year, the Company agreed to pay $1,000,000 in
settlement of the action brought against Mr. Greenberg. Such settlement payment
will be made pursuant to the indemnification obligations under the By-Laws. Mr.
Greenberg, who vigorously denied all liability in this action, elected to settle
this matter in order to avoid the expense and inconvenience of further
litigation.
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 DECEMBER 4, 1997)
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Name Age Office or Business Experience
Charles A. Hayes 62 Chairman of the Board and Chief Executive Officer (since
1976); President and Chief Operating Officer (from 1991 to 1995);
President (from 1968 to 1976) and Executive Vice President (from 1961 to
1968).
John A. Emrich 53 Member of the Board of Directors (since 1995); President and
Chief Operating Officer (since 1995); Senior Vice President and
President/Automotive Business Unit (from 1993 to 1995); 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 50 Member of the Board of Directors (since 1993); Executive
Vice President and Chief Financial Officer (since 1997), Senior Vice
President, Chief Financial Officer and Treasurer (from 1996 to 1997);
Vice President, Chief Financial Officer and Treasurer (from 1992 to
1996); Vice President and Controller with Varity Corporation (from 1989
to 1991) and Vice President, Chief Financial Officer, Treasurer and
holder of other executive positions with Dayton Walther Corp. (from 1979
to 1989).
Byron McCutchen 50 Senior Vice President and President/Fibers (since 1995);
Senior Vice President of Fibers (from 1994 to 1995); 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).
Mark E. Cook 38 Treasurer (since 1997); Director of Corporate Finance,
Worthington Industries, Inc. (from 1995 to 1997); Director of Corporate
Finance, Blount International, Inc. (from 1989 to 1995).
Nathan M. Dry 52 Vice President/Product Development and Research (since 1996);
President of Dyeing and Printing Lumberton, Inc. (from 1990 to 1996)
Phillip D. McCartney 55 Vice President/Technical Operations (since 1989);
formerly holder of various executive positions with FAB Industries, Inc.
(from 1984 to 1989).
Lewis R. Morrison, Jr. 56 Executive Vice President/Apparel Home Fashions (since
1997); Director, Packaging Resin, North American Hoechst Celanese
Corporation (from 1992 to 1997); Vice President of World Marketing
Engineering Plastics (from 1990 to 1992).
Richard E. Novak 54 Vice President/Human Resources (since 1996); Principal of
Nova Consulting Group (from 1994 to 1996); Senior Vice President/Human
Resources of Joseph Horne Company, Inc. (from 1987 to 1994).
Deborah Poole 42 Vice President/Information Systems (since 1997); Director of
Information Services (from 1992 to 1997)
Kim A. Thompson 39 Vice President/Corporate Controller (since 1997); Director
of Financial Reporting (from 1994 to 1997) and formerly holder of
executive positions with Collins and Aikman Corporation (from 1980 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 pages
are 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 23, 1997 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 28, 1997 and September 29,
1996
Consolidated Statements of Income for the Years Ended September 28,
1997, September 29, 1996 and October 1, 1995
Consolidated Statements of Stockholders' Investment for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995
Consolidated Statements of Cash Flows for the Years Ended September 28,
1997, September 29, 1996 and October 1, 1995
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 28, 1997, September 29, 1996 and October 1, 1995
3. EXHIBITS:
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
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(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.
(3) (b) By-Laws of the Company, as amended through February 6, 1997 (incorporated by
reference to Exhibit (3) to the Quarterly Report on Form 10-Q for the fiscal quarter
ended March 30, 1997 (the "3/30/97 10-Q")).
(4) (a) 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) (b) 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) (c) 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) (d) The Company has additional long-term debt instruments 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)* First Amendment, dated September 1, 1993, to the Guilford Mills, Inc.
Non-Qualified Profit-Sharing Plan
(10)(c)* Second Amendment, dated November 1, 1996, to the Guilford Mills, Inc.
Non-Qualified Profit-Sharing Plan
(10)(d)* Guilford Mills, Inc. 1991 Stock Option Plan (the "1991 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)(e)* Amendments to the 1991 Plan (incorporated by reference to Exhibit (10) (a) to the
3/30/97 10-Q).
(10)(f)* Form of Stock Option Contract for key employees in the 1991 Plan (relating to
incentive stock options) (incorporated by reference to Exhibit 28 (b) to the Form
S-8).
(10)(g)* Form of Stock Option Contract for Director participants in the 1991 Plan
(incorporated by reference to Exhibit 28 (d) to the Form S-8).
(10)(h)* Form of Stock Option Contract between the Company and certain of its officers
pursuant to the 1991 Plan (incorporated by reference to Exhibit (10) (b) to the
Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997 (the
"6/29/97 10-Q")).
(10)(i) Form of Stock Option Contract between the Company and certain of its key
employees pursuant to the 1991 Plan (incorporated by reference to Exhibit (10) (c) to
the 6/29/97 10-Q).
(10)(j)* Guilford Mills, Inc. 1989 Restricted Stock Plan (the "Restricted Plan")
(incorporated by reference to Exhibit 10 (b) (2) to the 1990 Annual Report).
(10)(k)* Amendment to 1989 Restricted Stock Plan (incorporated by reference to Exhibit
(10) (g) to the Annual Report on Form 10-K for the fiscal year ended October 2, 1994
(the "1994 Annual Report").
(10)(l)* Amendment to the Resticted Plan (incorporated by reference to Exhibit (10) (b) to
the 3/30/97 10-Q).
(10)(m)* Restricted Stock Agreement, dated February 12, 1996, between the Company and John
A. Emrich pursuant to the Restricted Plan.
(10)(n)* First Amendment to Restricted Stock Agreement, dated October 9, 1996, between the
Company and John A. Emrich pursuant to the Restricted Plan.
(10)(o)* Form of Restricted Stock Agreement between the Company and certain of its
officers pursuant to the Restricted Plan (incorporated by reference to Exhibit (10)
(a) to the 6/29/97 10-Q).
(10)(p)* 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)(q)* 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)(r)* 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)(s)* 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)(t)* Guilford Mills, Inc. Excess Benefit Plan (incorporated by reference to Exhibit
(10) (a) to the Quarterly Report on Form 10-Q for the fiscal quarter ended December
29, 1996 ("12/29/96 10-Q")
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(10)(u)* Guilford Mills, Inc. Trust for Non-Qualified Plans (incorporated by reference to
Exhibit (10) (b) to the 12/29/96 10-Q).
(10)(v)* Guilford Mills, Inc. Senior Managers' Life Insurance Plan and related Plan
Agreement (incorporated by reference to Exhibit (10) (r) to the Annual Report on Form
10-K for the fiscal year ended June 28, 1992 ("1992 Annual Report")).
(10)(w)* Guilford Mills, Inc. Senior Managers' Pre-Retirement Life Insurance Agreement
(incorporated by reference to Exhibit (10) (s) to the 1992 Annual Report).
(10)(x)* 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)(y)* 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)(z)* 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)(a)(a)* 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)(b)(b) 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)(c)(c) 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)(d)(d) 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)(e)(e) 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)(f)(f) Fourth Amendment dated May 23, 1997, to Stockholders' Agreement, dated as of
April 30, 1991, by and among the Company, Charles A. Hayes and Maurice Fishman
(incorporated by reference to Exhibit (10)(e) to the 6/29/97 10-Q).
(10)(g)(g) 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)(h)(h) 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)(i)(i) 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)(j)(j) Third Amendment dated May 23, 1997, to Stockholders' Agreement, dated as of
June 22, 1990, by and among the Company, Charles A. Hayes, Maurice Fishman and George
Greenberg (incorporated by reference to Exhibit (10)(d) to the 6/29/97 10-Q).
(10)(k)(k)* Summary of Short Term Incentive Plan.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(10)(l)(l)* 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)(m)(m)* 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)(n)(n)* 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)(o)(o) 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).
10 (p)(p)* 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 (q)(q) 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 28,
1997 (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
</TABLE>
*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
Executive Vice President and
Chief Financial Officer
Dated: December 22, 1997
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 22, 1997
- ---------------------------------------------
Charles A. Hayes
Director; President and Chief Operating
/s/ John A. Emrich Officer December 22, 1997
- ---------------------------------------------
John A. Emrich
Director; Executive Vice President and Chief
Financial Officer (Principal Financial and
/s/ Terrence E. Geremski Accounting Officer) December 22, 1997
- ---------------------------------------------
Terrence E. Geremski
Vice Chairman of the Board of Directors
/s/ George Greenberg December 22, 1997
- ---------------------------------------------
George Greenberg
Vice Chairman of the Board of Directors
/s/ Maurice Fishman December 22, 1997
- ---------------------------------------------
Maurice Fishman
Director December 22, 1997
- ---------------------------------------------
Tomokazu Adachi
/s/ Donald B. Dixon Director December 22, 1997
- ---------------------------------------------
Donald B. Dixon
/s/ Paul G. Gillease Director December 22, 1997
- ---------------------------------------------
Paul G. Gillease
/s/ Stephen C. Hassenfelt Director December 22, 1997
- ---------------------------------------------
Stephen C. Hassenfelt
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------ ------- ------
<S> <C> <C>
/s/ Bruno Hofmann Director December 22, 1997
- ---------------------------------------------
Bruno Hofmann
/s/ Sherry R. Jacobs Director December 22, 1997
- ---------------------------------------------
Sherry R. Jacobs
/s/ Stig A. Kry Director December 22, 1997
- ---------------------------------------------
Stig A. Kry
/s/ Grant M. Wilson Director December 22, 1997
- ---------------------------------------------
Grant M. Wilson
Director December 22, 1997
- ---------------------------------------------
Jacob Zaidenweber
</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 28, 1997, September 29, 1996 and October 1, 1995.......... 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 11, 1997. 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 11, 1997.
F-1
<PAGE>
<TABLE>
<CAPTION>
GUILFORD MILLS, INC.
SCHEDULE II
ANALYSIS OF VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 28, 1997, September 29, 1996 and October 1, 1995
(In Thousands)
Additions
Balance Charged to Balance End
Beginning Cost and of Period
of Period Expenses Deductions Other
------------ -------------- -------------- -------- -------------
(1) (2)
<S> <C> <C> <C> <C> <C>
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
========== ============ ============= ========= ============
For the Year Ended September 28, 1997:
Reserve deducted from assets to
which it applies -
Allowance for doubtful
accounts.............................. $9,487 $2,579 $(3,303) $42 $8,805
========== ============ ============= ========= ============
</TABLE>
(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.
F-2
<PAGE>
Exhibit Index
(10) (m)* Form of Restricted Stock Agreement between the
Company and certain of its officers pursuant to the
Restricted Plan (incorporated by reference to Exhibit (10)
(a) to the 6/29/97 10-Q).
(10) (n)* 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) (k)(k)* 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).
(13) Annual Report to Stockholders of the Company for the
fiscal year ended September 28, 1997 (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
<PAGE>
Exhibit (10)(m)
GUILFORD MILLS, INC.
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT is entered into this 12th day of February, 1996, by and
between Guilford Mills, Inc. (the "Company") and John A. Emrich (the
"Executive").
WITNESSETH:
WHEREAS, the Company has approved the grant of restricted stock to the
Executive pursuant to the terms and conditions of the Company's 1989 Restricted
Stock Plan (the "Plan").
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Restricted Stock Award. Subject to the terms and conditions of the
Plan and this Agreement, the Company hereby awards to the Executive 20,000
shares of Company Common Stock, par value $.02 per share, the vesting of which
shall be subject to the Executive's continued employment with the Company as
described below (the "Restricted Stock").
2. Restrictions. The following restrictions apply to each share of
Restricted Stock until it vests in accordance with Section 3 below: (i) one or
more stock certificates representing the Restricted Stock will be issued in the
Executive's name, but will be held in custody by the Company or an escrow agent
appointed by the Company; (ii) the Executive shall not sell, transfer, assign,
give, place in trust, or otherwise dispose of or pledge, grant a security
interest in, or otherwise encumber the Restricted Stock; (iii) dividends on the
Restricted Stock will be subject to the provisions set forth in Section 4 below;
and (iv) upon termination of the Executive's employment with the Company or a
Subsidiary, as defined in the Plan, for any reason whatsoever the Executive
shall automatically forfeit any and all rights, claims or interests in the
Restricted Stock not then vested, and in any dividends or interest thereon,
unless the Compensation Committee of the Company's Board of Directors determines
otherwise in its sole and absolute discretion, except that if the Executive's
employment with the Company or a Subsidiary is terminated Without Cause, as
hereinafter defined in Section 11, or by reason of death or disability, then the
Executive, or his estate, as the case may be, shall become vested in the
Restricted Stock, and all dividends and interest paid thereon, on the date of
such termination.
3. Vesting of Restricted Stock. Subject to the Executive's continuous
employment with the Company or a Subsidiary from and after the date of this
Agreement, the Executive shall become vested in 4,000 shares of Restricted Stock
on each of
<PAGE>
November 16, 1996, November 16, 1997, November 16, 1998, November 16,
1999 and November 16, 2000 (each such date a "Vesting Date").
4. Dividends. Dividends on each share of Restricted Stock shall be paid
to the escrow agent appointed by the Company. The escrow agent shall invest the
escrowed dividends and, to the extent the annual yield thereon is less than 9%,
the Company shall make payments to the escrow agent from time to time so that
dividends held in escrow shall be credited with interest at the rate of 9% per
annum, compounded annually. Earnings on escrowed dividends in excess of 9% per
annum shall be paid to the Company. The Executive shall be entitled to receive
the dividends paid on each share of Restricted Stock and held in escrow,
together with interest thereon at the rate of 9% per annum, at the same time he
becomes vested in that share of Restricted Stock under the vesting provisions
set forth in Section 3 above.
5. Change in Control. Notwithstanding the foregoing, if there is a
Change in Control of the Company (as defined in the Plan), all shares of
Restricted Stock not previously forfeited will immediate vest, and the Executive
shall be entitled to receive any dividends previously paid on the Restricted
Stock and then held in escrow, together with interest thereon, provided,
however, that in the event of any conflict between the provisions of this
Section and any other contract or arrangement between the Executive and the
Company relating to a Change in Control of the Company, the provisions of such
other contract or arrangement shall control.
6. Delivery of Restricted Stock; Voting. Subject to the provisions of
the Plan and this Agreement, upon the vesting of any shares of Restricted Stock,
the Executive shall thereupon become entitled to receive a stock certificate
evidencing such shares. The Executive shall have the right to vote Restricted
Stock issued in his name on all matters that come before the stockholders of the
Company.
7. Regulatory Compliance and Listing. The issuance or delivery of any
stock certificates representing vested shares of Restricted Stock may be
postponed by the Company for such period as may be required to comply with any
applicable requirements under the federal securities laws, any applicable
listing requirements of any national securities exchange and requirements under
any other law or regulation applicable to the issuance or delivery of such
shares. The Company shall not be obligated to deliver any vested shares of
Restricted Stock to the Executive if the Company believes that such delivery
would constitute a violation of any governmental authority or any national
securities exchange.
8. Investment Representations and Related Matters. The Executive hereby
represents that the Restricted Stock awarded him pursuant to this Agreement is
being acquired for investment and not for sale or with a view to distribution
thereof. The Executive acknowledges and agrees that any sale or distribution of
shares of Restricted Stock that have become vested may be made only pursuant to
either (a) a Registration Statement on an appropriate form under the Securities
Act of 1933, as amended (the
2
<PAGE>
"Act"), which Registration Statement has become effective and is current with
regard to the shares being sold, or (b) a specific exemption from the
registration requirements of the Act that is confirmed in a favorable written
opinion of counsel, in form and substance satisfactory to counsel for the
Company, prior to any such sale or distribution. The Executive hereby consents
to such action as the Company deems necessary or appropriate from time to time
to prevent a violation of, or to perfect an exemption from, the registration
requirements of the Act or to implement the provisions of this Agreement,
including but not limited to placing restrictive legends on certificates
evidencing shares of Restricted Stock (whether or not vested) and delivering
stop transfer instructions to the Company's transfer agent.
9. Withholding. The Executive acknowledges that the Company will have
certain withholding obligations when he becomes vested in shares of Restricted
Stock. It shall be a condition to his receipt of a stock certificate covering
shares of Restricted Stock that have vested and to his receipt of dividends
previously paid on such shares and interest thereon that the Executive pay to
the Company such amounts as it is required to withhold or, with the consent of
the Company, otherwise provide for the discharge of the Company's withholding
obligations. If any such payment is not made by the Executive, the Company or
any Subsidiary may deduct the amounts required to be withheld, plus interest
thereon, from payments of any kind to which the Executive would otherwise be
entitled.
10. No Right To Continued Employment. This Agreement does not confer
upon the Executive any right to continued employment by the Company or any of
its subsidiaries or affiliated companies, nor shall it interfere in any way with
the right of the Executive's employer to terminate his employment at any time
for any reason or no reason.
11. Restrictive Covenants. In consideration of the Restricted Stock
award evidenced by this Agreement and to induce the Company to award such stock,
the Executive agrees as follows:
(a) As used in this Section, the following terms shall have
the meaning ascribed to them below:
"Business" shall mean the business of developing, knitting,
weaving, dyeing and finishing, designing, printing or marketing textile yarns or
fabrics for clothing, apparel or home furnishings or for automotive, upholstery
or industrial applications and any other business or businesses in which
Guilford is engaged during the Executive's employment with Guilford.
"Cause" shall mean (i) the Executive's willful and continued
failure to perform substantially the duties assigned to him by Guilford (other
than by reason of illness or mental or physical disability or incapacity) after
a written demand for substantial performance is delivered to the Executive by
any officer of Guilford, which demand
3
<PAGE>
specifically identifies the manner in which the Executive has not substantially
performed his duties, provided that such duties are reasonably capable of being
performed by the Executive in light of the Executive's then training, knowledge
and experience or are reasonably capable of being performed by the Executive
after receiving proper training; (ii) actions by the Executive that violate
policies of Guilford which have been announced within 30 days of the Executive's
receipt of written notice of such violation from an officer of Guilford; (iii)
theft or misappropriation of Guilford's assets by the Executive; or (iv) any act
by the Executive that constitutes an act of moral turpitude which materially
injures Guilford or materially affects the Executive's ability to perform his
duties.
"Competitive Company" shall mean any person, corporation,
association, joint venture, partnership, limited liability company or other
business entity that engages in any part of the "Business" in competition with
Guilford.
"Guilford" shall mean the Company or any of its subsidiaries,
affiliated companies, successors or assigns.
"Restrictive Period" shall mean a period of two years
following the Executive's voluntary termination of his employment with Guilford
or the termination of his employment by Guilford for Cause; provided, however,
that the Restrictive Period shall be extended for an additional period equal to
any period during which the Executive is in violation of any provisions of
Section 11(d) below.
"Territory" - (i) The Executive acknowledges and agrees that
Guilford does business on a nationwide basis, with customers throughout the
country, and that the breach of the Executive's covenants contained herein would
immeasurably and irreparably damage Guilford, regardless of the area of the
country in which the activities constituting such breach were to occur.
Accordingly, the area in which the terms and provisions of these covenants shall
apply (the "Territory") shall be the entire United States.
(ii) In the event that the preceding
subparagraph shall be determined by judicial action to define too broad a
territory to be enforceable, the Territory shall consist of the following
states: California, Georgia, Illinois, Michigan, New York, North Carolina and
Pennsylvania as well as any other state of the United States in which Guilford,
during the continuation of the Executive's employment with the Company or during
the Restrictive Period, has any customers.
"Without Cause" shall mean termination of the Executive's
employment by Guilford for reasons other than Cause.
(b) The Executive acknowledges that by reason of his position
with Guilford he is and will be acquainted with confidential and privileged
information relating to customer files and special customer information, vendor
sources and information, production methods and techniques, promotional
materials and information, financings, mergers, acquisitions, selective
personnel information and confidential processes, designs,
4
<PAGE>
ideas, machinery, plans, devices and materials, and other similar matters
treated by Guilford as confidential (the "Confidential Information") and that
use of the Confidential Information against Guilford might seriously damage
Guilford in its Business. The Executive further acknowledges that Guilford is
engaged in manufacturing textile products at various locations in the United
States for sale throughout the United Sates and that his duties and
responsibilities cover various aspects of Guilford's manufacturing and sales
operation.
(c) The Executive agrees that he will not, without the prior
written consent of Guilford, divulge, furnish, or make accessible to any third
person, company or other organization or entity (other than in the regular
course of Guilford's business) any Confidential Information; provided, however,
that this covenant shall not apply to any Confidential Information that was
rightfully in the Executive's possession prior to Guilford's disclosure thereof
to him, that is or becomes through no fault of the Executive generally available
to the public or that is independently developed and supplied to the Executive
by a source other than Guilford.
(d) During the continuation of his employment with Guilford
and during the Restrictive Period if his employment is terminated by him
voluntarily or by Guilford for Cause, the Executive shall not, directly or
indirectly, within the Territory:
(A) own, manage, operate, control, be employed by,
render advisory services to, support or assist (by loans or otherwise),
participate in or be connected in the management or control of any Competitive
Company, unless his affiliation with such Competitive Company is not related in
any way, directly or indirectly, to the manufacture and/or sale of textile
products of the same kind or a like nature as the products manufactured and/or
sold by Guilford at the time his employment terminates; or
(B) solicit or attempt in any manner to persuade or
influence any present or future
customer of Guilford to divert its purchases of textile products or services
from Guilford to any Competitive Company.
(e) In the event of any breach or threatened breach of the
provisions of this Section 11 by the Executive, Guilford, in addition to any
other rights and remedies it may have, shall be entitled to an injunction
restraining such breach or threatened breach, it being stipulated and agreed
that a breach by the Executive would cause irreparable damage to Guilford and
that its remedies at law would be inadequate. The existence of any claim or
cause of action on the part of the Executive against Guilford shall not
constitute a defense to the enforcement of these provisions. The Executive
agrees that the terms of the foregoing covenants, including, without limitation,
the Restrictive Period and the Territory, are reasonable in all respects and
necessary for the protection of Guilford, and represents and warrants to
Guilford that he will be able to support himself and his dependents
notwithstanding the covenants. If any court of competent jurisdiction shall
finally adjudicate that any of the covenants provided for herein are too broad
as to area, activity or time covered, such area, activity or time covered may be
reduced to whatever
5
<PAGE>
extent the court deems reasonable and the covenants herein and the remedy of
injunctive relief may be enforced as to such reduced area, activity or time.
12. Miscellaneous.
(a) The Plan and this Agreement shall be construed by and
administered under the supervision of the Compensation Committee of the Board of
Directors of the Company, and all determinations of the Compensation Committee
shall be final and binding on the Executive.
(b) Nothing in the Plan or this Agreement will restrict or
limit in any way the right of the Board of Directors of the Company to issue or
sell stock of the Company (or securities convertible into stock of the Company)
on such terms and conditions as it deems to be in the best interests of the
Company, including, without limitation, stock and securities issued or sold in
connection with mergers and acquisitions, stock issued or sold in connection
with any stock option or similar plan, and stock issued or contributed to any
qualified stock bonus or employee stock ownership plan.
(c) The Executive hereby irrevocably constitutes and appoints
Terrence E. Geremski and Charles A. Hayes, or either of them, as his true and
lawful agents and attorneys in fact, with full power to appoint a substitute or
substitutes to act hereunder, (i) to sign in his name and on his behalf, stock
certificates and stock powers covering some or all of the Restricted Stock,
checks and other negotiable instruments evidencing dividends paid on the
Restricted Stock, and to sign such other documents and instruments and to take
such other action as either of the attorneys-in-fact deems necessary or
desirable to carry out the terms of this Agreement; (ii) to transfer shares of
Restricted Stock in accordance with the terms of this Agreement; and (iii) to
deposit, invest, reinvest and transfer, in accordance with the terms of this
Agreement, dividends paid on the Restricted Stock and interest thereon. This
power, being coupled with an interest, is irrevocable. The Executive agrees to
execute such other stock powers and documents as may be reasonably requested
from time to time by the Company to effectuate the terms of this Agreement.
(d) The Executive hereby agrees to be bound by all of the
terms and provisions of the Plan, as amended, a copy of which is available to
him upon request.
(e) Any notice to be given hereunder to the Company shall be
sent by mail addressed to the Company at its principal offices, 4925 West Market
Street, Greensboro, North Carolina 27407, Attention: General Counsel, and any
notice hereunder to the Executive shall be sent by mail addressed to him at his
current address as reflected in the personnel records of the Company, subject to
the right of either party to designate at any time hereafter in writing some
other address.
(f) This Agreement may be executed in counterparts, each of
which taken together shall constitute one and the same instrument.
6
<PAGE>
(g) This Agreement, which constitutes the entire agreement of
the parties with respect to the Restricted Stock, shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
The parties consent to and agree that, jurisdiction and venue shall rest in the
courts of North Carolina for the purpose of settling all claims, disputes or
controversies arising out of or relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GUILFORD MILLS, INC.
By: /s/ Terrence E. Geremski
------------------------------
Name: Terrence E. Geremski
---------------------------
Title: Vice President/Chief
---------------------------
Financial Officer and Treasurer
/s/ John A. Emrich
-----------------------
John A. Emrich
Exhibit (10)(n)
FIRST AMENDMENT TO RESTRICTED STOCK AGREEMENT
This Agreement is entered into this 9th day of October, 1996 by and
between GUILFORD MILLS, INC. (the "Company") and JOHN A. EMRICH (the
"Executive").
WITNESSETH:
WHEREAS, pursuant to the Guilford Mills, Inc. 1989 Restricted Stock
Plan (the "Plan"), the Company and the Executive entered into a restricted stock
agreement, dated February 12, 1996 (the "Original Agreement"), under the terms
of which the Company granted the Executive 20,000 shares of Company common
stock, par value $.02 per share, subject to certain restrictions; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company has the authority under the terms of the Original Agreement to
administer the Original Agreement; and
WHEREAS, the Compensation Committee approved an amendment to the
Original Agreement modifying the dates upon which the restricted stock awarded
thereunder shall vest, as described more fully herein.
NOW, THEREFORE, the Company and the Executive hereby agree to amend the
Original Agreement as follows:
1. Section 3 of the Original Agreement is hereby deleted in
its entirety and the following section is substituted in its place:
3. Vesting of Restricted Stock. Subject to the
Executive's continuous employment with the Company or
a Subsidiary from and after the date of this
Agreement, the Executive shall become vested in 4,000
shares of restricted stock on each of October 9,
1996, October 1, 1997, October 1, 1998, October 1,
1999 and October 1, 2000 (each such date a "Vesting
Date").
2. Except as otherwise set forth herein, the Original
Agreement remains unmodified and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GUILFORD MILLS, INC.
By: /s/ Terrence E. Geremski
-------------------------------------
Name: Terrence E. Geremski
--------------------------------
Title: Vice President/Chief Financial
--------------------------------
Officer and Treasurer
/s/ John A. Emrich
-------------------
John A. Emrich
Exhibit (10)(k)(k)
SUMMARY OF SHORT TERM
INCENTIVE COMPENSATION PLAN
o The Guilford Mills, Inc. Short Term Incentive Compensation Plan (the
"Plan") provides for the payment of annual cash bonuses to participating
employees.
o Senior management will select each year which employees will participate
in the Plan. An individual's participation in the Plan for any given plan
year will not guarantee participation in the Plan in any subsequent plan
year.
o Cash bonuses under the Plan are determined according to a formula based
upon a percentage of the participant's base salary (with appropriate pro
rata adjustments to be made if a participant's base salary changes during
a plan year) and one or more performance measures.
o The nature of the performance measures will vary from participant to
participant. Any bonus payable to the Company's Chief Executive Officer
will be based on a single performance measure (the Company's earnings per
share results for the plan year). For other participants, the bonus
calculation will include earnings per share results and one or more of the
following performance measures: (1) a matrix based upon corporate sales
and net income performance, (2) a matrix based upon business unit sales
and operating income performance and (3) other performance measures,
determined by a supervisor, specific to a participant's responsibilities.
o The "matrix" component of a participant's bonus under the Plan is subject
to adjustment, plus or minus 20%, based upon the Company's return on net
assets (RONA) which is calculated as follows:
EBIT x (1 - Tax Rate)
-------------------------------------
Equity + LTD + Current Portion of LTD
o Bonuses payable under the Plan, if any, with respect to a plan year will
be paid after the Company's public announcement of its financial results
for such year. An individual who was selected to participate in the Plan
in a given plan year must be an active, full time employee of the Company
or one of its subsidiaries at the time bonuses under the Plan are paid for
such year in order to be eligible to receive any bonus under the Plan. If
a participant's employment is terminated for any reason whatsoever prior
to the date such bonus payments are paid by the Company, then the
participant will not be eligible to receive any payment under the Plan.
o The Company reserves the right to amend, modify, terminate or alter the
Plan at any time, in its discretion, in a non-discriminatory fashion.
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 28, 1997 were a record $894.7 million. Net income also
reached a record $43.2 million.
The increase in current year sales levels over prior year reflected the
continued growth of niche fabrics, focus on diversification - especially into
the home fashions market, and the full year impact of the Hofmann Laces
acquisition which was consolidated for three of the four quarters in fiscal year
1996.
Guilford produces fabrics for a variety of customers and markets. It competes
primarily in the apparel, automotive, home fashions and specialty sectors. It is
regarded as a single segment based upon technology.
Sales of apparel fabrics increased to $351.1 million in fiscal year 1997 and
represented 39.2% of consolidated revenue. The Company's apparel fabrics are
used predominantly in women's shapewear, swimwear, ready-to-wear and intimate
apparel garments. Other uses include children's sleepwear, team sportswear and
linings. Guilford has continued to transition sales from its traditional
intimate apparel and ready-to-wear fabrics to technically-advanced
high-performance products which distinguish it from the competition and provide
a better value in the marketplace.
Worldwide automotive fabric sales were $328.5 million for the current year and
were 36.7% of consolidated sales. Automotive fabrics are produced in the U.S.,
the U.K. and Mexico and are sold to original equipment manufacturers (OEMs) and
their suppliers. Guilford's products are fabricated into the seats and
headliners of passenger cars and light trucks. The North American automotive
production for the Company's 1997 fiscal year was 15.2 million units and the
European automotive production for the same period was 13.4 million units. The
Company participates in certain vehicles which are sourced two to three years in
advance of the car model year. Both consumer demand for specific models and the
overall car build can greatly impact revenue. The Company's diverse fabric
technology allows it to compete in the majority of vehicle platforms.
The Company's sales of home fashions fabrics increased to $132.0 million for
fiscal year 1997. Sales to this market now comprise 14.8% of consolidated
revenue and represent the largest increase in market penetration for Guilford.
This revenue increase of more than 160% from fiscal 1995 to fiscal 1997 has
resulted primarily from the acquisition of Hofmann Laces and Affiliates in early
1996. Revenue is generated primarily from sales to retailers of knit and/or lace
comforters, window treatments, cotton-sheeting, shower curtains and tablecloths.
Additionally, Guilford produces upholstery fabrics for office and residential
furniture and mattress ticking.
The remainder of Guilford's fabrics are sold for use in a broad range of
industrial/specialty products. The fiscal year sales to these markets totaled
$83.1 million and represented 9.3% of consolidated sales. For fiscal year 1997,
sales of hook and loop fabrics for closure systems comprised approximately 56%
and sales of yarn were 19% of the total specialty revenue. The remaining 25%
consists of a multitude of products. The sales mix within this market varies
greatly from year to year depending upon production capacity, internal yarn
requirements, and market conditions.
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 1997, the British pound strengthened against the U.S. dollar and
resulted in a translation gain on the balance sheet of approximately $2.2
million. The Mexican peso continued to decline in the first quarter of fiscal
1997. Effective January 1, 1997, the Mexican economy was considered "highly
inflationary" for financial reporting purposes because the cumulative Mexican
inflation rate for the immediately preceding three years exceeded 100%. As a
result, under Statement of Financial Standards No. 52, "Foreign Currency
Translation", the U.S. dollar was used as the functional currency for
translating the balance sheet and the results of operations of the Company's
Mexican operation - Grupo Ambar S.A. de C.V. ("Grupo Ambar"). This treatment
will continue 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. The Mexican peso declined
slightly against the U.S. dollar over the remaining three quarters of the 1997
fiscal year. This decline did not materially affect the operating results of the
Mexican investment. The Company's Mexican subsidiary contributed 5.6% to
consolidated sales and was profitable.
Effective June 27, 1997, the Company acquired an additional 20% ownership
interest in Grupo Ambar.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The acquisition increased the Company's ownership interest in Grupo Ambar to
95%. Grupo Ambar is a leading manufacturer of knit textiles in Mexico. 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 and home fashions markets and stretch knit fabrics for
the apparel market. Hofmann Laces also cuts and sews home fashions products
which are sold directly to retailers.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996 - Consolidated sales for fiscal 1997 increased to $894.7
million from last year's previous record high of $830.3 million. This increase
of 7.8% reflected improvements in sales of fabrics to apparel, home fashions and
specialty markets. The increase was offset slightly by a decline in worldwide
automotive sales. Sales in the apparel, home fashions and specialty areas were
boosted partially from the full year consolidation of Hofmann Laces in fiscal
year 1997 versus three quarters of fiscal 1996. In addition, improvements in the
Mexican economy and the demand for Mexican-exported garments under NAFTA
resulted in a 16.0% improvement in sales of fabric produced in that country.
Apparel fabric sales for fiscal 1997 were $351.1 million and increased 3.0% from
fiscal 1996's $340.9 million. Sales of compression fabrics, which contain
Lycra(R), such as swimwear and shapewear, continued to grow at double-digit
rates. Intimate apparel fashion fabrics and laces were up significantly while
traditional intimate apparel fabrics such as nylons and mature robewear and
sleepwear continued to decline. These trends in the intimate apparel markets
have developed over the last three to four years and were driven by consumer
demand at the retail level. Ready-to-wear sales decreased primarily due to a
planned reallocation of capacity to shapewear and reduction of the cotton-only
business. There was also a decline in demand for high-end stretch velvets.
Automotive fabric sales decreased worldwide by 2.6% and were $328.5 million for
fiscal year 1997 versus $337.2 million for the prior year. Increases in Europe
and Mexico were more than offset by a reduction in U.S. produced fabric.
Guilford's North American sales to OEMs decreased primarily as a result of the
decline in Ford placements due to their market share loss on certain models.
Although this Ford loss also negatively impacted the Company's European sales,
penetration at other OEMs, more than offset the decline. The European car build
increase of 11.7% for the Company's fiscal year and the introduction of new
wovens also contributed to revenue growth. Other factors which contributed to
the worldwide sales decline included price reductions mandated by the automobile
manufacturers and seating company fabric yield improvement. Fabric sales within
the Mexican automotive markets increased. The Company's van and RV business
decreased slightly due to a soft market caused by competing sport utility
vehicle popularity.
Sales of fabrics to home fashions markets increased 35.4% from $97.5 million in
fiscal year 1996 to $132.0 million in fiscal year 1997. The most significant
product growth resulted from sheeting. Additionally, continued strong market
demand at retail contributed to significantly higher sales of other bed and bath
products. Upholstery fabric sales, principally exported from the U.S., were down
and directly correlated with unfavorable exchange rates. Mattress ticking fabric
sales were up slightly.
Specialty/industrial revenue increased 51.9% to $83.1 million in 1997 from $54.7
million in 1996. Sales of hook and loop closure system fabrics grew
substantially as demand for diapers containing this fastening system increased.
Yarn sales were also up as the Company pursued external channels for excess
fiber-producing capacity.
Gross margin increased to 20.3% of sales from last year's 18.6% of sales
primarily due to the increased volume of fabric produced for intimate apparel
and home fashions sales through the Hofmann Laces acquisition. Nearly one half
of the $27.5 million increase in gross profit was generated by synergies and
opportunities triggered by this acquisition. Sales volume increases of other
fabrics contributed an additional $5 million. Raw material price and usage
declines and product mix resulted in additional margin improvement of
approximately $11 million.
Selling and administrative expenses increased to $95.0 million or 10.6% from
prior year's $82.4 million or 9.9% of sales. The increases resulted from the
consolidation of Hofmann Laces, increased incentive compensation, salary
increases and sales volume and promotion related increases. The Hofmann
consolidation for the full year combined with compensation increases totalling
$8.5 million and sales related increases of $3.9 million to effect the increase.
Increases were partially offset by non-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
recurring premium freight costs for automotive fabrics in 1996.
Interest expense decreased to $16.2 million from last year's $17.0 million. This
overall decrease is attributable to the reduction of long-term debt due to
repayments and the conversion of the 6% Subordinated Convertible Debentures, a
slight decrease in the average short-term borrowing rate to 5.3% from 5.7%, and
favorable negotiation of interest rate reductions in Mexico. These were
partially offset by increased interest expense on deferred compensation programs
and an increase in average short-term borrowings as a result of the full year
impact of the Hofmann Laces acquisition and consolidation.
Other expense increased $1.0 million to $4.6 million. The increase was
substantially attributable to increased amortization of goodwill related to
business acquisitions and to investment write-offs. This increased expense was
partially offset by the sale of investments and a decrease in foreign currency
transaction losses from the prior year.
The effective income tax rate in fiscal 1997 was 34.3% compared to 33.3% in
fiscal 1996. The higher effective income tax rate was attributable to the
temporary elimination of the Research and Development tax credit and to the
increased results from Hofmann Laces, which is taxed at slightly higher
statutory rates.
Net income in fiscal 1997 reached a record high of $43.2 million or 4.8% of
sales and increased 27.1% from last year's $34.0 million or 4.1% of sales.
Primary earnings per share increased to $1.91 per share compared to $1.59 per
share in the prior year (as restated for the 3-for-2 stock split effected as a
stock dividend). Fully diluted earnings per share increased to $1.77 from $1.46
(as restated for the 3-for-2 stock split effected as a stock dividend).
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 and specialty/industrial fabric
sales provided the revenue growth which more than offset slight sales declines
of apparel fabric. Worldwide automotive sales were basically flat.
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.
Sales of apparel fabrics decreased in 1996 to $340.9 million from $350.3 million
for the prior year. The decline resulted from an overall demand decline for
apparel at the retail level in the U.S., 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. However, certain highly technical products which
contain Lycra(R), such as shapewear and stretch velvets, continued to grow
significantly due to the increase in demand for these fashionable products.
Despite the harsh economic conditions in Mexico, there was a renewed domestic
demand for apparel fabrics. There was also continued strong demand for exported
garments under NAFTA. The trend in Mexico's consumer demand toward soft goods
resulted in a shift in sales to apparel and industrial fabrics which partially
offset the decrease in the U.S. The acquisition of Hofmann Laces increased the
intimate apparel revenue.
Revenue from the Company's automotive products increased from $336.5 million in
1995 to $337.2 million in 1996. Increases in the U.S. and Mexico were
substantially offset by a decline in the U.K.. Domestic automotive fabric sales
increased 3.0% to $196.0 million consistent with a slightly higher car build of
15.1 million units for fiscal year 1996 versus 14.6 million units for fiscal
year 1995. Sales of headliner and bodycloth to OEMs as well as sales of van and
RV fabrics increased. This improvement resulted from increased market share, the
continued popularity of certain Ford platforms, and increased revenues from
higher value-added technologies.
Guilford's European automotive sales declined 6.9%. 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Guilford significantly increased sales to the home fashions market in 1996 with
the acquisition of Hofmann Laces. Revenue was $97.5 million in 1996 versus $50.7
million in 1995 with the entire increase contributed by the acquisition.
Increases in furniture upholstery sales were offset by decreases in mattress
ticking and other bedding fabrics.
Revenue from specialty/industrial fabrics was up 21.6% to $54.7 million in 1996
from the prior year's $45.0 million. Continued growth of fabrics used in diaper
closure systems and spacer lining for athletic shoes accounted for most of the
improvement. External yarn sales also increased.
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 $9 million and by manufacturing inefficiencies of approximately $3
million. These were offset by raw material price reductions of more than $6
million and by manufacturing overhead cost reductions, including incentive
compensation, of approximately $7 million. Additionally, gross margins were
impacted by product mix changes in Mexico which offset the increase in revenue
there, and also by sales price reductions to automotive OEMs in both the U.S.
and Europe.
Selling and administrative expenses 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 excess freight costs
of nearly $3 million in the first half of the year. Research and development
costs declined 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
related to low income housing investments was substantially offset by additional
goodwill amortization related to both the Hofmann Laces and Mexican acquisitions
and also by foreign currency transaction losses.
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 the prior year's $33.6 million. Primary earnings per share decreased to
$1.59 per share compared to $1.60 per share in the prior year due to an increase
in average shares outstanding to 21,372,000 compared to the prior year's
20,975,000. Fully diluted earnings per share decreased to $1.46 per share
compared to $1.47 per share in the prior year due to an increase in average
shares outstanding to 24,844,000 compared to the prior year's 24,463,000.
LIQUIDITY AND CAPITAL REQUIREMENTS
At the end of fiscal 1997, cash and cash equivalents of $ 24.3 million were
available for future capital and other operational and business needs.
Cash provided by operations increased to $114.0 million in fiscal 1997 compared
to $78.6 million in fiscal 1996. This increase was due primarily to the increase
in net income and the reduction of certain components of working capital. The
significant working capital decreases resulted from the reduction of trade
accounts receivable and the increase in accrued liabilities. The charge for
depreciation and amortization also increased in fiscal 1997 resulting in an
additional non-cash item of $4.2 million over the prior year.
Over the past three years, Guilford continued to modernize equipment and
increase capacity to support new, innovative products. Capital expenditures were
$57.6 million in 1997, $64.5 million in 1996 and $57.5 million in 1995.
Expenditure levels for the next two years are expected to approximate
depreciation expense.
Long-term debt decreased $81.2 million from the prior year. This decrease was
substantially attributable to the redemption of the Company's outstanding 6%
Convertible Subordinated Debentures. Of the $66.2 million of Convertible
Subordinated Debentures outstanding, $65.0 million or 98% of the debt was
converted into Common
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Stock. The remaining $1.2 million of the Subordinated Convertible Debentures
were redeemed at 100.6% of the principal amount. The additional $15.0 million of
long-term debt repayment, including current maturities, was funded through cash
provided by operations. Additionally, the company was able to repay $41.3
million of short-term borrowings.
Net increases in short-term and long-term debt in fiscal year 1996 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 additional short-term borrowings were substantially
related to working capital requirements.
As part of the fiscal 1996 purchase of Hofmann Laces, the Company agreed to pay
additional consideration in fiscal year 2001 in accordance with a formula based
upon the Company's price-earnings multiple and Hofmann Laces' performance
through the end of calendar year 2000. This additional purchase consideration is
payable in cash or stock.
Raw material costs declined in fiscal 1997. Management expects flat or slightly
decreased raw material costs in 1998 as suppliers participate in selling price
reductions granted to customers which are being driven by consumer and global
competition.
The Company maintains flexibility with respect to its seasonal working capital
needs as well as for future acquisitions through a revolving credit facility of
$150.0 million. It also has continued access to other traditional sources of
funds, including uncommitted bank lines of credit aggregating $200.0 million and
the ability to borrow against factored accounts receivables. At September 28,
1997, no borrowings were outstanding against the revolving credit facility and
availability under its uncommitted short-term bank lines of credit approximated
$137 million.
Management believes that its cash requirements for operations, capital
expenditures, dividends, interest, debt repayments, strategic acquisitions, and
other financial needs will continue to be met through internally generated
sources and utilization of external borrowings.
The Company's strong financial position, with debt to total capital of 27.3%,
affords it many options. Management intends to continue to examine both
short-term and long-term opportunities to strengthen its balance sheet and add
shareholder value. These opportunities may require debt or equity financing.
INFLATION
The Company believes that the relatively moderate inflation rate of the 1990s
has not significantly impacted its operations.
CONTINGENCIES
The Company also is involved in various litigation and environmental matters
arising in the ordinary course of business. These are discussed in Note 10 to
the consolidated statements which are included below. 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 and home fashions products, 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 the apparel, automotive, home
fashions and industrial sectors are seeking to reduce costs. In addition, the
markets are subject to competition from imported garments and products.
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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
its competitive position in its markets. Growth is expected to come gradually
from internal product transition efforts and more quickly with strategic
acquisitions.
Effective January 1, 1997, since the Mexican inflation rate for the immediately
preceding three years exceeded 100%, Mexico was considered "highly inflationary"
for financial reporting purposes. In accordance with Statement of Financial
Accounting No. 52, beginning January 1, 1997, the U.S. dollar has and will be
utilized as the functional currency 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 operations
rather as an adjustment to stockholders' equity. The results of operations for
fiscal 1997 were not significantly impacted by foreign currency fluctuations
associated with the devaluation of the Mexican peso. While management believes
that the Company's Mexican operations will continue to grow, the Company is
unable to determine or predict the negative impact due to economic uncertainty.
YEAR 2000
Over the last five years the company has committed significant resources to the
reengineering of its business processes and information systems. This effort has
incorporated a review of Year 2000 issues and as a result management believes
that appropriate and timely action has been taken to minimize the negative
impact of this event. The Year 2000 issue results from the inability of many
computer systems and applications to recognize the year 2000 as the year
following 1999. This could cause systems to process critical information
incorrectly. The Company's new client server technology, which has been or will
be implemented in all of its operating facilities before the turn of the
century, provides an internal solution to the identified Year 2000 concerns. The
Company continues to work with its customers, suppliers and third party service
providers to identify external weaknesses and provide solutions which will
prevent the disruption of business activities at that time.
SAFE HARBOR-FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements.
All statements other than statements of historical fact included in this Annual
Report, including, without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Important factors
that could cause actual results to differ materially from those discussed in
such forward-looking statements include:
1. general economic factors including, but not limited to, changes in interest
rates, foreign currency translation rates, consumer confidence, housing
starts, trends in disposable income, changes in consumer demand for goods
produced, and cyclical or other downturns
2. the overall level of automotive production and the production of specific
car models
3. fashion trends
4. technological advances
5. cost and availability of raw materials, labor and other resources
6. domestic and foreign competition
7. domestic and foreign governmental regulations and trade policies
8. reliance on major customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation and
restructuring of acquired companies
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
SELECTED FINANCIAL DATA
(In thousands except per share data)
Transition
Quarter
1997 1996 1995 1994 1993 (2)
- ----------------------------------------------------------------------------------------------------------------------------
Results of Operations
<S> <C> <C> <C> <C> <C>
Net Sales $ 894,709 $ 830,320 $ 782,518 $ 703,700 $ 141,450
Income (loss) before
extraordinary item 43,238 33,978 33,636 25,124 (1,087)
Income (loss) before
cumulative effect of
change in accounting
principle 43,238 33,978 33,636 25,124 (1,087)
Net income (loss) 43,238 33,978 33,636 25,124 2,013
Per Share Data (1)
Primary:
Income (loss) before
extraordinary item 1.91 1.59 1.60 1.22 (0.05)
Income (loss) before
cumulative effect of
change in accounting
principle 1.91 1.59 1.60 1.22 (0.05)
Net income (loss) 1.91 1.59 1.60 1.22 0.10
Weighted average common
and common equivalent
shares outstanding 22,653 21,372 20,975 20,664 20,469
Fully diluted:
Income (loss) before
extraordinary item 1.77 1.46 1.47 1.14 (0.05)
Income (loss) before
cumulative effect of
change in accounting
principle 1.77 1.46 1.47 1.14 (0.05)
Net income (loss) 1.77 1.46 1.47 1.14 0.10
Weighted average common
and common equivalent
shares outstanding 25,554 24,844 24,463 24,089 20,475
Cash dividends 0.42 0.40 0.40 0.40 0.10
Balance Sheet Data
Working capital 213,974 177,658 178,233 153,165 126,766
Total assets 729,796 728,830 586,371 565,338 500,306
Long-term debt 134,560 209,435 166,368 164,611 146,736
Stockholders' investment 408,896 298,059 267,549 244,060 221,954
<CAPTION>
1993 1992 1991 1990
-------------------------------------------------------------
Results of Operations
<S> <C> <C> <C> <C>
Net Sales $ 654,435 $ 614,905 $ 528,778 $ 544,059
Income (loss) before
extraordinary item 28,852 24,858 13,557 (8,041)
Income (loss) before
cumulative effect of
change in accounting
principle 28,852 24,858 13,557 (8,041)
Net income (loss) 28,852 24,858 13,557 (8,041)
Per Share Data (1)
Primary:
Income (loss) before
extraordinary item 1.41 1.23 0.68 (0.38)
Income (loss) before
cumulative effect of
change in accounting
principle 1.41 1.23 0.68 (0.38)
Net income (loss) 1.41 1.23 0.68 (0.38)
Weighted average common
and common equivalent
shares outstanding 20,511 20,198 19,983 21,375
Fully diluted:
Income (loss) before
extraordinary item 1.31 1.15 0.67 (0.38)
Income (loss) before
cumulative effect of
change in accounting
principle 1.31 1.15 0.78 (0.38)
Net income (loss) 1.31 1.15 0.78 (0.38)
Weighted average common
and common equivalent
shares outstanding 23,900 23,675 23,498 21,375
Cash dividends 0.40 0.38 0.35 0.35
Balance Sheet Data
Working capital 151,994 139,897 124,078 137,893
Total assets 506,742 414,335 379,874 395,425
Long-term debt 147,430 76,855 80,316 92,072
Stockholders' investment 219,739 206,170 178,058 175,500
</TABLE>
(1) All share data has been restated to reflect the effects of three-for-two
stock splits effected in January 1992 and May 1997 in the form of 50% stock
dividends.
(2) Due to the change in year end, the transition quarter from June 28, 1993 to
September 26, 1993 is presented.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
September 28, 1997 and September 29, 1996
(In thousands except share data)
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 24,349 $ 31,448
Accounts receivable, net 167,347 172,033
Inventories 141,898 137,993
Prepaid income taxes 7,102 2,437
Other current assets 7,921 7,977
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 348,617 351,888
Property, net 308,523 309,964
Cash surrender value of life insurance, net of policy loans 43,433 41,715
Other 29,223 25,263
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $ 729,796 $ 728,830
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities
Short-term borrowings $ 6,677 $ 47,979
Current maturities of long-term debt 12,542 18,837
Accounts payable 60,592 63,551
Accrued liabilities 54,832 43,863
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 134,643 174,230
Long-term debt 134,560 209,435
Deferred income taxes 23,024 19,969
Other non-current liabilities 28,673 27,137
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 320,900 430,771
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 2, 9 &10)
Preferred stock, $1 par; 1,000,000 shares authorized, none issued --- ---
Common stock, $.02 par; 60,000,000 shares authorized, 32,750,222 shares issued
at September 28, 1997 and 29,443,799 shares issued at September 29, 1996,
25,756,905 shares outstanding at at September 28, 1997 and 21,683,567 shares
outstanding at
at September 29, 1996 655 393
Capital in excess of par 117,110 41,089
Retained earnings 344,656 311,217
Foreign currency translation loss (9,604) (11,988)
Unamortized stock compensation (5,091) (287)
Treasury stock, at cost (6,993,317 shares at September 28, 1997 and
7,760,232 shares at September 29, 1996) (38,830) (42,365)
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' investment 408,896 298,059
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' investment $ 729,796 $ 728,830
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompaning notes to consolidated financial statements are an integeral part
of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended September 28, 1997, September 29, 1996 and October 1, 1995
(In thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
(52 Weeks) (52 Weeks) (52 Weeks)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 894,709 $ 830,320 $ 782,518
- ------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 713,143 676,264 644,344
Selling and administrative 94,957 82,430 70,358
- ------------------------------------------------------------------------------------------------------------------
808,100 758,694 714,702
- ------------------------------------------------------------------------------------------------------------------
Operating Income 86,609 71,626 67,816
- --------------------------------------------------------------------------------------------------------------------
Other Expense:
Interest expense 16,190 17,017 14,122
Other expense, net 4,609 3,640 3,506
- ---------------------------------------------------------------------------------------------------------------------
20,799 20,657 17,628
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Provision 65,810 50,969 50,188
Income Tax Provision 22,572 16,991 16,552
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Net Income $ 43,238 $ 33,978 $ 33,636
- ------------------------------------------------------------------------------------------------------------------
Net Income Per Share:
Primary $ 1.91 $ 1.59 $ 1.60
Fully Diluted 1.77 1.46 1.47
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompaning notes to consolidated financial statements are an integeral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the Years Ended September 28, 1997, September 29, 1996 and October 1, 1995
(In thousands)
- -------------------------------------------------------------------------------------------------------------------------
Capital in
Common Excess of Retained
Stock Par Earnings
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, October 2, 1994 $ 393 $ 34,455 $ 260,705
Vesting of 203,300 shares under the
restricted stock plan, less retun of 80,123 shares to
treasury stock to satisfy receipents' individual
income tax obligations --- --- ---
Compensation under restricted stock plan --- --- ---
Issuance of 127,052 shares of treasury stock under
the employee stock ownership plan --- (676) ---
Shares to be issued in fiscal 1996 under the employee
stock ownership plan --- 3,385 ---
Issuance of 140,097 shares of treasury stock for options exercised --- 303 ---
Foreign currency translation loss --- --- ---
Cash dividends ($.40 per share) --- --- (8,461)
Net Income --- --- 33,636
- -------------------------------------------------------------------------------------------------------------------------
Balance, October 1, 1995 393 37,467 285,880
Issuance of 300,000 shares of treasury stock in connection
with the purchase of a business --- 2,401 ---
Issuance of 30,000 shares of treasury stock and vesting of 146,901
shares under the restricted stock plan, less forfeitures of 29,400
shares and less return of 33,654 shares to treasury stock to
satisfy recipents' individual income tax obligations --- 275 ---
Compensation under restricted stock plan --- --- ---
Issuance of 199,428 shares of treasury stock under the
employee stock ownership plan --- (1,080) ---
Shares to be issued in fiscal 1997 under the employee
stock ownership plan --- 1,858 ---
Issuance of 63,026 shares of treasury stock for options exercised --- 247 ---
Other transactions including return of 8,915 shares to treasury
stock received as payment for options exercised --- (79) ---
Foreign currency translation loss --- --- ---
Cash dividends ($.40 per share) --- --- (8,641)
Net Income --- --- 33,978
- -------------------------------------------------------------------------------------------------------------------------
Balance, September 29, 1996 393 41,089 311,217
Three-for-two stock split effected as a stock dividend 196 --- (196)
Conversion of 3,306,423 shares of common stock for
subordinated convertible debentures 66 66,431 ---
Grant of 322,750 shares under the restricted stock plan --- 4,816 ---
Return of 38,270 shares to treasury stock
to satisfy recipents' individual tax obligations under the
restricted stock plan --- --- ---
Compensation under restricted stock plan --- --- ---
Issuance of 129,761 shares of treasury stock under the
employee stock ownership plan --- (710) ---
Shares to be issued in fiscal 1998 under the employee
stock ownership plan --- 2,032 ---
Issuance of 367,577 shares of treasury stock for options exercised --- 3,292 ---
Other transactions of 14,903 shares including return of 11,723 shares to
treasury stock received as payment for
options exercised --- 160 ---
Foreign currency translation gain --- --- ---
Cash dividends ($.42 per share) --- --- (9,603)
Net Income --- --- 43,238
- -------------------------------------------------------------------------------------------------------------------------
Balance, September 28, 1997 $ 655 $ 117,110 $ 344,656
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign
Currency Unamortized
Translation Stock Treasury
Gain / (Loss) Compensation Stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, October 2, 1994 $ (3,661) $ (2,802) $ (45,030)
Vesting of 203,300 shares under the
restricted stock plan, less retun of 80,123 shares to
treasury stock to satisfy receipents' individual
income tax obligations --- --- (1,162)
Compensation under restricted stock plan --- 1,542 ---
Issuance of 127,052 shares of treasury stock under
the employee stock ownership plan --- --- 676
Shares to be issued in fiscal 1996 under the employee
stock ownership plan --- --- ---
Issuance of 140,097 shares of treasury stock for options exercised --- --- 695
Foreign currency translation loss (6,449) --- ---
Cash dividends ($.40 per share) --- --- ---
Net Income --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, October 1, 1995 (10,110) (1,260) (44,821)
Issuance of 300,000 shares of treasury stock in connection
with the purchase of a business --- --- 1,624
Issuance of 30,000 shares of treasury stock and vesting of 146,901
shares under the restricted stock plan, less forfeitures of 29,400
shares and less return of 33,654 shares to treasury stock to
satisfy recipents' individual income tax obligations --- (275) (670)
Compensation under restricted stock plan --- 1,248 ---
Issuance of 199,428 shares of treasury stock under the
employee stock ownership plan --- --- 1,080
Shares to be issued in fiscal 1997 under the employee
stock ownership plan --- --- ---
Issuance of 63,026 shares of treasury stock for options exercised --- --- 483
Other transactions including return of 8,915 shares to treasury
stock received as payment for options exercised --- --- (61)
Foreign currency translation loss (1,878) --- ---
Cash dividends ($.40 per share) --- --- ---
Net Income --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 29, 1996 (11,988) (287) (42,365)
Three-for-two stock split effected as a stock dividend --- --- ---
Conversion of 3,306,423 shares of common stock for
subordinated convertible debentures --- --- ---
Grant of 322,750 shares under the restricted stock plan --- (6,587) 1,771
Return of 38,270 shares to treasury stock
to satisfy recipents' individual tax obligations under the
restricted stock plan --- --- (707)
Compensation under restricted stock plan --- 1,783 ---
Issuance of 129,761 shares of treasury stock under the
employee stock ownership plan --- --- 710
Shares to be issued in fiscal 1998 under the employee
stock ownership plan --- --- ---
Issuance of 367,577 shares of treasury stock for options exercised --- --- 2,028
Other transactions of 14,903 shares including return of 11,723 shares to
treasury stock received as payment for
options exercised --- --- (267)
Foreign currency translation gain 2,384 --- ---
Cash dividends ($.42 per share) --- --- ---
Net Income --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 28, 1997 $ (9,604) $ (5,091) $ (38,830)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompaning notes to consolidated financial statements are an integeral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 28, 1997, September 29, 1996 and October 1, 1995
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
(52 Weeks) (52 Weeks) (52 Weeks)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operationg Activities:
<S> <C> <C> <C>
Net income $ 43,238 $ 33,978 $ 33,636
Non-cash items included in net income:
Depreciation and amortization 59,561 55,389 46,710
Gain on disposition of property (1,079) (180) (156)
Minority interest in net income 467 206 253
Prepaid (Deferred) income taxes (1,728) 5,835 1,295
Increase in cash surrender value of life insurance, net of policy loans (1,718) (3,852) (961)
Compensation earned under restricted stock plan 1,783 1,248 1,542
Shares to be issued under employee stock ownership plan 2,032 1,858 3,385
Changes in assets and liabilities:
Receivables 5,548 (13,277) (9,400)
Inventories (3,444) (3,688) (3,596)
Other current assets 211 (184) (3,750)
Accounts payable (3,257) 11,640 5,662
Accrued liabilities 10,112 (9,999) 7,062
Other 2,244 (400) 339
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 113,970 78,574 82,021
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property (57,629) (64,532) (57,544)
Proceeds from dispositions of property 2,603 1,220 612
Proceeds from sale of other assets 2,060 --- 2,600
Decrease (Increase) in other assets 5 (655) 606
Purchase of business, net of cash acquired (6,991) (26,519) ---
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (59,952) (90,486) (53,726)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Short-term (repayments) borrowings, net (41,244) 42,667 (9,087)
Payments of long-term debt (16,108) (68,138) (2,439)
Proceeds from issuance of long-term debt --- 58,777 6,374
Cash dividends (9,603) (8,641) (8,461)
Proceeds from exercise of common stock options 5,320 730 998
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (61,635) 25,395 (12,615)
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 518 1 (3,826)
Net (Decrease) Increase In Cash and Cash Equivalents (7,099) 13,484 11,854
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning Cash and Cash Equivalents 31,448 17,964 6,110
Ending Cash and Cash Equivalents $ 24,349 $ 31,448 $ 17,964
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 14,945 $ 17,245 $ 14,526
Cash paid for income taxes 13,112 9,006 15,599
Noncash investing and financing activities:
Conversion of 6% Subordinated Convertible
Debentures to common stock (including
accrued interest) $ 66,497 --- ---
Issuance of common stock
under restricted stock plan 6,587 $ 176 ---
for purchase of a business --- 4,025 ---
</TABLE>
The accompaning notes to consolidated financial statements are an integeral part
of these statements.
<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 is a fabric producer which processes and
sells warp knit, circular knit and woven velour fabrics as well as lace. The
Company sells its finished fabrics to customers who manufacture a broad range of
apparel, automotive, specialty and home fashions products. The company also cuts
and sews lace fabrics into finished home fashions products which are sold
directly to retailers. During 1997, 1996, and 1995 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 1996 and
1995 financial statements have been reclassified to conform with the 1997
presentation.
CASH EQUIVALENTS - All highly liquid investments with an original maturity of
three 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 - The Company maintains
credit insurance and uses factoring as a means to reduce credit risk. Credit
insurance is maintained covering $38,000 of certain outstanding accounts
receivable. As of September 28, 1997 and September 29, 1996, approximately 14%,
and 15%, respectively, of the Company's accounts receivables 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. The Company competes primarily in the apparel,
automotive, home fashions and specialty fabric markets and sells its products to
a multitude of customers in numerous geographical locations throughout the
world. There is no disproportionate concentration of risk. Allowances for
doubtful accounts were $8,805 and $9,487 at September 28, 1997 and September 29,
1996, respectively.
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. At September 28, 1997, the Company
owned 95% of the capital stock of Grupo Ambar, S.A. de C.V. Minority interest is
included in other non-current liabilities in the accompanying consolidated
balance sheet.
INVENTORIES - Inventories are carried at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for approximately 55% of
inventories in 1997 and approximately 64% of inventories in 1996. Cost for all
other inventories have been determined principally by the first-in, first-out
(FIFO) method.
PROPERTY - Property is carried at cost, and depreciation is provided for
financial reporting purposes primarily on the straight-line method. Accelerated
methods are used for income tax reporting purposes. Depreciation rates are
reviewed annually and revised, if necessary, to reflect estimated remaining
useful lives which range from three to thirty-five years.
GOODWILL AND INTANGIBLE ASSETS - Goodwill is amortized using the straight-line
method over periods ranging from twenty to forty years. The Company reviews the
carrying value of goodwill for impairment whenever events or changes in
circumstances 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 income tax and financial
reporting in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for income Taxes". United States income taxes are not
provided on the earnings of foreign operations as those are intended to be
permanently reinvested, or in the event earnings are repatriated, credits
received in the United States for foreign income taxes previously paid will be
available to substantially reduce the United States tax liability. Undistributed
earnings of foreign operations were $22,952 at September 28, 1997.
FOREIGN CURRENCY TRANSLATION - The financial statements of certain
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
<PAGE>
currency translation account in the stockholders' investment section of the
accompanying balance sheets and do not affect the results of operations.
Financial results of certain majority-owned foreign subsidiaries in highly
inflationary economies are translated using a combination of current and
historical exchange rates. Any translation adjustments are included in the
results of operations along with transaction gains and losses for the period.
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 (22,653,000 in 1997, 21,372,000 in 1996, and 20,975,000 in 1995). 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 at that time 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 25,554,000 in
1997, 24,844,000 in 1996, and 24,463,000 in 1995.
FINANCIAL INSTRUMENTS AND DERIVATIVES - The Company periodically enters into
foreign currency contracts to reduce the impact of certain foreign currency
fluctuations. Firmly committed transactions are hedged with forward exchange
contracts. Anticipated, but not yet firmly committed, transactions may be hedged
through the use of purchased options. Gains and losses related to hedges of
firmly committed transactions are deferred and are recognized in income or as
adjustments to carrying amounts when the hedged transaction occurs. Premiums
paid on purchased options are included in other assets and are recognized in
income in the same period as the hedged transaction. There were no significant
contracts outstanding as of September 28, 1997 or September 29, 1996.
STOCK-BASED COMPENSATION - In accordance with SFAS No. 123, "Stock-Based
Compensation," the Company has continued to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees".
Pro forma disclosures of net income and earnings per share are presented as if
the fair value-based method prescribed by SFAS No. 123 had been applied in
measuring compensation expense for the periods required by the Statement.
RECENT ACCOUNTING PRONOUNCEMENTS - In March 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings Per Share". This Statement
requires the presentation of basic earnings per share (net income available to
common shareholders divided by the weighted average number of shares of common
stock outstanding) and a disclosure reconciling the numerator and the
denominator of the earnings per share calculations. SFAS No. 128 is effective
for interim and annual periods ending after December 15, 1997, and early
application is prohibited. Accordingly, the accompanying financial statements do
not reflect the provisions of SFAS No. 128. The Company will adopt the
provisions of SFAS No. 128 in the first quarter of fiscal 1998. Management does
not expect the impact of the adoption of this statement on the Company's
financial position and results of operations to be material.
In June of 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This Statement establishes standards for the
prominent reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive income is the
total of net income and other changes in equity that bypass net income. The
Statement is effective for fiscal years beginning after December 15, 1997. The
Company plans to adopt the provisions of this Statement in fiscal 1999.
Management does not expect the impact of the adoption of this statement on the
Company's financial position and results of operations to be material.
2. ACQUISITIONS:
GRUPO AMBAR - Effective June 27, 1997, the Company acquired an additional 20%
ownership interest in Grupo Ambar, S.A. de C.V. ("Grupo Ambar" or "American
Textil") for approximately $7,100. The acquisition increased the Company's
ownership interest in Grupo Ambar from 75% to 95%. The purchase price was
allocated to the fair market value of assets and liabilities acquired and excess
purchase price over fair market value of underlying assets was allocated to
goodwill. Grupo Ambar is a leading manufacturer of knit textile fabrics in
Mexico.
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 and other 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 300,000 shares of the Company's common stock. The acquisition
was accounted for using
<PAGE>
the purchase method of accounting. Excess purchase price over fair market value
of the underlying assets of $7,575 was allocated to goodwill. 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 1.60 1.88
Fully Diluted 1.47 1.71
- --------------------- --------------------- --------------------
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 operations of the combined companies under the
ownership and management of the Company.
3. INVENTORIES:
Inventories at September 28, 1997 and September 29, 1996 consist of the
following:
- ---------------------------- ---------------- -----------------
1997 1996
- ---------------------------- ---------------- -----------------
Finished goods $ 53,404 $ 45,515
Raw materials and work
in process 98,499 100,622
Manufacturing supplies 8,758 8,709
- ---------------------------- ---------------- -----------------
Total inventories valued at
FIFO cost 160,661 154,846
Adjustments to reduce
FIFO cost to LIFO cost,
net 18,763 16,853
- ---------------------------- ---------------- -----------------
Total inventories $141,898 $137,993
- ---------------------------- ---------------- -----------------
4. PROPERTY:
Property at September 28, 1997 and September 29, 1996 consists of the following:
- -------------------------- ---------------- -----------------
1997 1996
- -------------------------- ---------------- -----------------
Land $ 11,541 $ 11,850
Buildings 107,357 100,412
Machinery and equipment 580,048 538,834
Construction in progress 19,231 12,232
- -------------------------- ---------------- -----------------
718,177 663,328
Less - Accumulated
depreciation 409,654 353,364
- -------------------------- ---------------- -----------------
Property, net $308,523 $309,964
- -------------------------- ---------------- -----------------
5. ACCRUED LIABILITIES:
Accrued liabilities at September 28, 1997 and September 29, 1996 consist of the
following:
- -------------------------- ---------------- -----------------
1997 1996
- -------------------------- ---------------- -----------------
Payroll and related $22,596 $14,041
benefits
Income taxes 15,211 7,027
Property taxes 3,126 3,150
Other 13,899 19,645
- -------------------------- ---------------- -----------------
Total accrued
liabilities $54,832 $43,863
- -------------------------- ---------------- -----------------
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
1997, 1996, and 1995 were $49,904, $68,355, and $32,059 respectively; the
average borrowings were $37,363, $25,586, and $9,960, respectively; and the
weighted average interest rates were 7%, 9%, and 12% (5%, 6% and 6% for U.S.
borrowings), respectively. The Company has no compensating balance requirements.
Long-term debt at September 28, 1997 and September 29, 1996 consists of the
following:
- ---------------------------------- -------------- -------------
1997 1996
- ---------------------------------- -------------- -------------
Senior, unsecured notes, due in
annual payments of
$10,714 through 2003,
interest at 7.569% $64,286 $ 75,000
Convertible subordinated
debentures, due in various
payments from 1999 through
2012, convertible into common
stock at $19.67 per share,
interest at 6% -- 66,180
Lines of credit 58,777 58,777
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 1,617 2,780
Industrial revenue bonds at
various due dates and various
interest rates 134 845
Other 2,288 4,690
- ---------------------------------- -------------- -------------
147,102 228,272
Less - Current maturities 12,542 18,837
- ---------------------------------- -------------- -------------
Total $134,560 $209,435
- ---------------------------------- -------------- -------------
On June 25, 1997, the Company issued a call for the redemption of the Company's
outstanding 6% Convertible Subordinated Debentures to be redeemed as of August
8, 1997 at 100.6% of the principal amount. Of the $66,180 debentures outstanding
at June 24, 1997, $65,039 or 98.3% were converted into common stock. The
remaining debentures of $1.1 million were redeemed. The outstanding balance of
the 6% Convertible Debentures as of September 28, 1997 and September 29, 1996
was $0 and $66,180, respectively.
The Company financed the fiscal 1996 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 30 days and 1 to 180 days and interest rates
ranging from 5.25% to 7.15% and 5.18% to 6.38% for the fiscal years ended
September 28, 1997 and September 29, 1996, respectively. The
<PAGE>
weighted average interest rate was 5.60% at September 28, 1997 and 5.48% at
September 29, 1996. The total borrowings outstanding as of September 28, 1997
and September 29, 1996 of $58,777 have been classified as long-term debt in the
accompanying consolidated balance sheets as management has the ability to
refinance the borrowings through available long-term debt sources. As of
September 28, 1997 the Company has additional availability under uncommitted
bank lines of credit of approximately $136,700.
The Company established the $150,000 revolving credit facility with a group of
banks in fiscal 1995. This credit facility expires September 25, 2000. No
borrowings were outstanding under this facility at September 28, 1997 or
September 29, 1996.
The Company's Mexican subsidiary has various term loans with a local bank. These
loans have due dates ranging from fiscal year 1999 to fiscal year 2000. The
loans also have various variable interest rates. At September 28, 1997 these
interest rates ranged from 8.5% to 21.1%.
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 Grupo Ambar, to repay certain other debt obligations, and for
general corporate purposes.
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, $12,542 in
1998, $32,481 in 1999, $69,904 in 2000, $10,714 in 2001 and $10,714 in 2002.
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 was in compliance with all covenants under its
debt agreements.
7. INCOME TAXES:
The net deferred income tax liability at September 28, 1997 and September 29,
1996 is comprised of the following:
- ------------------------------ --------------- ----------------
1997 1996
- ------------------------------ --------------- ----------------
Assets $33,713 $ 28,775
Liabilities (49,635) (46,307)
- ------------------------------ --------------- ----------------
Total $(15,922) $(17,532)
- ------------------------------ --------------- ----------------
No valuation allowances against deferred income tax assets were recorded at
September 28, 1997 or September 29, 1996.
Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of September 28, 1997 and September 29, 1996
were as follows:
- ------------------------------ ---------------- ---------------
1997 1996
- ------------------------------ ---------------- ---------------
Current prepaid (deferred)
income taxes:
Income tax credit carry-
forwards
(expire 2005-2010) $4,750 $ 1,558
Allowances for doubtful
accounts 2,721 3,071
Inventory valuation
differences (2,481) (2,475)
Prepaid healthcare costs (764) (1,096)
Accrued expenses not
currently
deductible for tax 2,228 1,437
Accrued environmental
expenses 396 396
Other, net 252 (454)
- ------------------------------ ---------------- ---------------
Total current prepaid
income taxes $7,102 $ 2,437
- ------------------------------ ---------------- ---------------
Long-term prepaid (deferred)
income taxes:
Property $(36,654) $(31,612)
Accrued pension and other
employee benefits 8,327 7,503
Alternative minimum and other
tax credit carryforwards
(no expiration) 5,811 5,304
Accrued environmental
expenses 1,469 1,785
Investments in limited
partnerships (2,299) (2,078)
Other, net 322 (871)
- ------------------------------ ---------------- ---------------
Total long-term deferred
income taxes $(23,024) $(19,969)
- ------------------------------ ---------------- ---------------
The income tax provision consists of the following elements:
- -------------------- --------------- ----------- -----------
1997 1996 1995
- -------------------- --------------- ----------- -----------
Currently payable
(refundable):
U.S. Federal $15,803 $5,932 $ 8,589
State 2,338 1,539 1,798
Foreign 6,159 3,685 4,870
Deferred payable
(prepaid):
U.S. Federal (1,826) 4,860 400
State 434 722 56
Foreign (336) 253 839
- -------------------- --------------- ----------- -----------
$22,572 $16,991 $16,552
- -------------------- --------------- ----------- -----------
The income tax provision as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:
- ---------------------------- ---------- ---------- ----------
1997 1996 1995
- ---------------------------- ---------- ---------- ----------
Statutory U.S. Federal
income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal Income tax
reduction 2.9 2.7 3.1
Tax credits (2.9) (3.8) (6.8)
Other 0.7 (0.6) 1.7
- ---------------------------- ---------- ---------- ----------
Effective income tax rate 34.3% 33.3% 33.0%
- ---------------------------- ---------- ---------- ----------
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 28, 1997, and September 29, 1996 is as follows:
<PAGE>
- -------------------------------- ---------------- ---------------
1997 1996
- -------------------------------- ---------------- ---------------
Fair value of plan assets,
primarily marketable
securities, short-term
investment funds and
insurance company contracts $22,605 $21,515
- -------------------------------- ---------------- ---------------
Accumulated benefit
obligation, including vested
benefits of $24,330 and
$22,171 24,939 22,721
Additional benefits based on
estimated future salary
levels 2,188 2,037
- -------------------------------- ---------------- ---------------
Projected benefit obligation 27,127 24,758
- -------------------------------- ---------------- ---------------
Projected benefit obligation
in excess of plan assets (4,522) (3,243)
Unrecognized net loss 4,824 4,955
Unrecognized net transitional
asset (2,184) (2,443)
Adjustment to recognize
minimum liability (658) (476)
- -------------------------------- ---------------- ---------------
Accrued pension liability $(2,540) $(1,207)
- -------------------------------- ---------------- ---------------
The projected benefit obligation has been determined for both 1997 and 1996
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
$16,835 and net assets available for plan benefits of $ 17,004 as of December
31, 1996. 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 7.0%. The assumed long-term rate of return on plan
assets was 8.5%.
Pension expense includes the following components:
------------------- ------------ ----------- ------------
1997 1996 1995
------------------- ------------ ----------- ------------
Domestic defined
benefit plans:
Service cost --
benefits
earned
during the
period $1,254 $1,170 $1,130
Interest on
projected
benefit
obligation 1,781 1,618 1,493
Actual return
on plan assets (1,903) (1,760) (2,361)
Net amortization
and deferral 56 106 1,004
------------------- ------------ ----------- ------------
1,188 1,134 1,266
Domestic multi-
employer plan 264 257 252
Foreign defined
benefit plan 567 478 432
------------------- ------------ ----------- ------------
Total $2,019 $1,869 $1,950
------------------- ------------ ----------- ------------
The Company maintains defined contribution plans for certain officers and
salaried employees. Contributions under these plans are determined by the Board
of Directors. During 1997, 1996 and 1995, the provisions under the defined
contribution plans were $2,381, $2,626, and $1,631, respectively.
The Company also maintains deferred compensation plans for certain officers and
salaried employees. These plans are being provided for currently. During 1997,
1996 and 1995, the provisions under these plans were $2,167, $1,828, and $1,964,
respectively. The liability for deferred compensation was $17,448 at September
28, 1997 and $17,201 at September 29, 1996 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 authorized the issuance of 2,025,000 shares of common stock
under a stock option plan for key employees and directors of which 229,277 are
available for grant. 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 the fair market
value at the date of grant. Outstanding incentive options are exercisable over
either a three or eight year period commencing two years after the date of
grant. Outstanding non-qualified options are exercisable over either a five to
eight year period commencing on the date of grant or two years after the date of
grant. Option activity under the plans is as follows:
- ------------------------------ ----------------- ----------------
NUMBER OF
SHARES EXERCISE PRICE
UNDER OPTION PER SHARE
- ------------------------------ ----------------- ----------------
Balance, October 2, 1994 661,500 6.22 to 16.33
Granted 454,875 13.83 to 13.87
Exercised (140,097) 6.22 to 15.50
Forfeited (37,252) 13.87 to 15.50
- ------------------------------ ----------------- ---------------
Balance, October 1, 1995 939,026 6.22 to 16.33
Granted 73,125 14.87
Exercised (63,026) 6.22 to 15.50
Forfeited (76,749) 6.22 to 16.25
- ------------------------------ ----------------- ---------------
Balance, September 29, 1996 872,376 12.44 to 16.33
Granted 909,350 17.21 to 23.70
Exercised (367,577) 12.44 to 16.33
Forfeited (39,246) 13.87 to 15.50
- ------------------------------ ----------------- ----------------
Balance, September 28, 1997 1,374,903 13.46 to 23.70
- ------------------------------ ----------------- ----------------
These options expire at various dates through fiscal 2007. Incentive options
exercisable at September 28, 1997 and September 29, 1996 were 23,171 and
239,250, respectively. Non-qualified options exercisable at September 28, 1997
and September 29, 1996 were 186,500 and 198,750, respectively.
The Company has elected to continue to account for stock option grants under APB
Opinion No. 25 and is required to provide pro forma disclosures of what net
income and earnings per share would have been had the Company adopted the new
fair value method for recognition purposes under SFAS No. 123. The following
information is presented as if the Company had adopted SFAS No. 123 and restated
its results:
<PAGE>
- ------------------------------------- ------------ ------------
1997 1996
- ------------------------------------- ------------ ------------
Net income:
As reported $43,238 $33,978
Pro forma $42,902 $33,924
- ------------------------------------- ------------ ------------
Primary EPS:
As reported $ 1.91 $ 1.59
Pro forma $ 1.90 $ 1.59
- ------------------------------------- ------------ ------------
Fully diluted EPS:
As reported $ 1.77 $ 1.46
Pro forma $ 1.76 $ 1.46
- ------------------------------------- ------------ ------------
For the above information, the fair value of each option grant was estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants in fiscal 1997 and 1996: (i) expected
volatility of 20%, (ii) expected lives ranging from 4 to 7 years, (iii) risk
free interest rates ranging from 5.7% to 6.7% and (iv) an expected dividend
yield of 2.2%. The weighted average calculated value in excess of the grant
value of an option granted during fiscal 1997 and 1996 under the Black-Scholes
model was $5.00 and $3.02, respectively. Because SFAS No. 123 method of
accounting has not been applied to options granted prior to October 2, 1995, the
above pro forma amounts may not be representative of the compensation costs to
be expected in future years utilizing this proforma approach.
The Company has authorized 2,250,000 shares of common stock for the 1989
Restricted Stock Plan, which covers certain key salaried employees of which
1,246,850 are available for grant. A total of 276,200 shares were outstanding
(held in trust) under the plan at September 28, 1997. These shares carry voting
and dividend rights; however, sale of the shares is restricted prior to vesting.
Of the 322,750 shares granted this fiscal year 20% vested on the date of grant,
May 27, 1997. The remaining 80% of the grant vests over a four year period (20%
annually) commencing on the fourth anniversary of the grant date, subject to
continued employment. Shares granted prior to fiscal 1997 vest evenly over the
next three years, subject to continued employment. Dividend payments are made to
an escrow account. The accrual for shares issued under the plan is 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 $1,783,
$1,248, and $1,542 during 1997, 1996, and 1995, respectively.
The Company has an employee stock ownership plan which covers the majority of
U.S. full-time employees who have completed one year of service. Annual awards
are based upon the approval of the Board of Directors and are tied to targeted
earnings levels achieved during the year. Prior to fiscal 1997, 100% of the
awards were made to the plan in the form of the Company's common stock or in
cash which was used to purchase shares of the Company's common stock. Employee
rights to the stock vested over a seven-year period. Effective October 1, 1996,
for the 1997 fiscal year employees were immediately vested in 50% of the annual
award and could elect to receive the 50% vested portion in cash or as a common
stock contribution to the plan. The remaining 50% of the award is made to the
plan in the form of the Company's common stock or in cash which is used to
purchase the Company's common stock. Employee rights to this portion of the
award vest over a seven year period. 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 1997, 1996 and 1995 was $4,063, $1,858, and $3,385, respectively. The
related obligation at September 28, 1997 was included in capital in excess of
par and current liabilities for the estimated amount to be awarded. The related
obligation as of September 29, 1996 was included in capital in excess of par.
On April 21, 1997, the Company's Board of Directors approved a
three-for-two-stock split of the Company's common stock. The split was effected
in the form of a stock dividend paid on May 6, 1997 to stockholders of record on
May 1, 1997. The stock dividend increased the Company's issued common stock by
approximately 9.8 million shares. All share and per share data have been
restated for all periods presented to reflect the stock split effected as a
stock dividend.
On June 25, 1997, the Company issued a call for the redemption of the Company's
outstanding 6% Convertible Subordinated Debentures. Holders had the right to
convert debentures into shares of common stock through July 29, 1997 at $19.67
per share. Of the $66,180 debentures outstanding, $65,039 or 98.3% were
converted to common stock. This conversion resulted in the issuance of 3,306,423
shares of common stock that had been previously reserved for such issuance.
The Company has an agreement with two of its directors whereby the Company will,
in the event of their death prior to June 22, 1999, 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. 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
<PAGE>
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
September 28, 1997, 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.
10. 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 28
years. Rent expense under these leases was $5,055 in 1997, $5,404 in 1996, and
$3,982 in 1995. At September 28, 1997, future minimum rental payments applicable
to these leases are $4,347 in 1998, $3,598 in 1999, $2,988 in 2000, $1,646 in
2001, $926 in 2002 and $21,301 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 28, 1997, environmental accruals amounted to $5,473 of which $4,473 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.
11. GEOGRAPHIC INFORMATION:
The accompanying financial statements include the following amounts related to
the operations of the Company's subsidiaries in Europe and Mexico:
- ------------------------ ------------- -------------- -----------
1997 1996 1995
- ------------------------ ------------- -------------- -----------
Net sales to
unaffiliated
customers:
United States $707,991 $665,727 $616,833
United Kingdom 136,962 122,300 130,760
Mexico 49,756 42,293 34,925
- ------------------------ ------------- -------------- -----------
Total net sales $894,709 $830,320 $782,518
- ------------------------ ------------- -------------- -----------
Transfers between geographic areas (eliminated in consolidation):
United States $ 3,232 $ 4,257 $ 5,756
United Kingdom 52 137 699
Mexico 256 582 641
- ------------------------ ------------- -------------- -----------
Total transfers $ 3,540 $ 4,976 $ 7,096
- ------------------------ ------------- -------------- -----------
Operating income:
United States $ 69,347 $ 58,488 $ 53,919
United Kingdom 12,110 8,644 9,727
Mexico 5,152 4,494 4,170
Interest and other
expense, net 20,799 20,657 17,628
- ------------------------ ------------- -------------- -----------
Income before
income taxes $ 65,810 $ 50,969 $ 50,188
- ------------------------ ------------- -------------- -----------
Identifiable assets:
United States $672,011 $695,294 $550,911
United Kingdom 87,911 89,019 79,313
Mexico 35,560 26,237 25,604
Eliminations 65,686 81,720 69,457
- ------------------------ ------------- -------------- -----------
Total assets $729,796 $728,830 $586,371
- ------------------------ ------------- -------------- -----------
<PAGE>
12. SUMMARY OF QUARTERLY EARNINGS (UNAUDITED):
- --------------------- ---------- --------- ---------- ---------
FIRST SECOND THIRD FOURTH
- --------------------- ---------- --------- ---------- ---------
1997 QUARTER:
Net sales $210,863 $219,144 $238,358 $226,344
Gross profit 37,849 41,047 51,110 51,560
Net Income 5,409 7,475 14,543 15,811
- --------------------- ---------- --------- ---------- ---------
Net Income per
share:
Primary .25 .34 .66 .66
Fully diluted .24 .32 .59 .62
- --------------------- ---------- --------- ---------- ---------
- --------------------- ---------- --------- ---------- ---------
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 .13 .28 .59 .59
Fully diluted .13 .27 .53 .53
- --------------------- ---------- --------- ---------- ---------
- --------------------- ---------- --------- ---------- ---------
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 .29 .45 .53 .33
Fully diluted .28 .41 .48 .30
- --------------------- ---------- --------- ---------- ---------
<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 28, 1997
and September 29, 1996, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended September 28, 1997. 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 28, 1997 and September 29, 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended September 28, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Greensboro, North Carolina,
November 11, 1997.
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,
comprised of internal and external business advisors who independently assess
the effectiveness of the internal controls and report findings to management
throughout the year. The group delivers increased value by aligning with the
business objectives to reduce risk and create cost efficiencies. 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.
/s/ Terrence E. Geremski
Executive Vice President/Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
Guilford Mills, Inc.
COMMON STOCK MARKET PRICES AND DIVIDENDS
FISCAL 1997
------------------- ------------------- ----------------------------------------------------
------------------- ------------------- --------------- -- ---------------- -- -------------
QUARTER HIGH LOW DIVIDENDS
------------------- ------------------- --------------- -- ---------------- -- -------------
<S> <C> <C> <C>
First $18 5/32 $14 27/32 .10
Second 20 21/32 17 1/4 .10
Third 20 1/2 18 1/8 .11
Fourth 25 3/4 20 3/8 .11
---
Year $25 3/4 $14 27/32 $.42
----
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
------------------- ------------------- ----------------------------------------------------
------------------- ------------------- --------------- -- ---------------- -- -------------
QUARTER HIGH LOW DIVIDENDS
------------------- ------------------- --------------- -- ---------------- -- -------------
<S> <C> <C> <C>
First $16 5/32 $13 11/32 .10
Second 16 11/32 13 .10
Third 16 3/4 14 3/32 .10
Fourth 17 3/32 14 3/4 .10
---
Year $17 3/32 $13 $.40
----
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
------------------- ------------------- ----------------------------------------------------
------------------- ------------------- --------------- -- ---------------- -- -------------
QUARTER HIGH LOW DIVIDENDS
------------------- ------------------- --------------- -- ---------------- -- -------------
<S> <C> <C> <C>
First $14 27/32 $13 .10
Second 14 29/32 13 1/2 .10
Third 18 5/32 14 5/32 .10
Fourth 18 29/32 15 29/32 .10
---
Year $18 29/32 $13 $.40
----
</TABLE>
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 December 4, 1997 there were 464 stockholders of
record.
Based on continued favorable future operations and the present level of
available retained earnings, management anticipates continuing its current
dividend policies.
<PAGE>
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%
Guilford International, Inc. United States Virgin
Islands 100%
Guilford Mills do Brasil Ltda. (2) Brazil 100%
Grupo Ambar, S.A. de C.V. Mexico 95%
American Textil, S.A. de C.V. (3) Mexico 100%
Servicios Corporativos Ambar, S.A. de C.V. (4) Mexico 100%
Industrias Globales de Mexico, S.A. de C.V. (5) Mexico 100%
Industrias Mexicanas de Morelos, S.A. de C.V. (6) Mexico 100%
Guilford Mills Limited United Kingdom 100%
Guilford Mills Europe Limited (7) United Kingdom 100%
Guilford Europe Limited (8) United Kingdom 100%
Guilford Deutschland GmbH (9) Germany 100%
Guilford Europe Pension Trustees Limited (10) United Kingdom 100%
Guilford Wovens Limited (9) United Kingdom 100%
Rouquinet Deroy Limited (11) United Kingdom 100%
Guilford Automocion Iberica S.L. (9) Spain 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%
Mexican Industries of North Carolina, Inc. North Carolina 100%
</TABLE>
- ---------------------------------
(1) Owned by Gold Mills, Inc.
(2) 990 shares owned by Guilford Mills, Inc. and 10 shares owned by Guilford
Airmont, Inc.
(3) 10,457,517 shares owned by Grupo Ambar, S.A. de C.V. ("Grupo Ambar"), and 1
share owned by Servicos Corporativos Ambar, S.A. de C.V.
(4) 321,751 shares owned by Grupo Ambar, and 1 share owned by American Textil,
S.A. de C.V.
(5) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Grupo
Ambar.
(6) 49,500 shares owned by Guilford Mills, Inc. and 500 shares owned by Mexican
Industries of North Carolina, Inc.
(7) Owned by Guilford Mills Limited.
(8) 2,000,000 shares owned by Guilford Mills Europe Limited and 1 share owned
by Guilford Mills, Inc .
(9) Owned by Guilford Europe Limited.
(10) 1 share owned by Guilford Europe Limited and 1 share owned by Guilford
Mills Europe Limited
(11) 1,999,999 shares owned by Guilford Mills Europe Limited and 1 share owned
by Guilford Europe Limited
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated November 11, 1997 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.
/s/ ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
December 22, 1997.
<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 28,
1997, 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-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 24,349
<SECURITIES> 0
<RECEIVABLES> 176,152
<ALLOWANCES> (8,805)
<INVENTORY> 141,898
<CURRENT-ASSETS> 348,617
<PP&E> 718,177
<DEPRECIATION> 409,654
<TOTAL-ASSETS> 729,796
<CURRENT-LIABILITIES> 134,643
<BONDS> 134,560
0
0
<COMMON> 655
<OTHER-SE> 408,241
<TOTAL-LIABILITY-AND-EQUITY> 729,796
<SALES> 894,709
<TOTAL-REVENUES> 894,709
<CGS> 713,143
<TOTAL-COSTS> 808,100
<OTHER-EXPENSES> 4,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,190
<INCOME-PRETAX> 65,810
<INCOME-TAX> 22,572
<INCOME-CONTINUING> 43,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,238
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.77
</TABLE>
