FORM 10-Q-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
4925 West Market Street, Greensboro, N.C. 27407
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (336) 316-4000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Number of shares of common stock outstanding
at December 28, 1997 - 25,684,953
<PAGE>
Page 2
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 28,1997
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by Guilford Mills, Inc. (the "Company" or "Guilford"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Condensed Consolidated Balance Sheet as of September 28, 1997 has been taken
from the audited financial statements as of that date. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K for the year ended
September 28, 1997.
The condensed consolidated financial statements included herein reflect
all adjustments (none of which are other than normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
information included. The following condensed consolidated financial statements
are included:
Consolidated Statements of Income for the thirteen weeks ended December
28, 1997 and December 29, 1996
Condensed Consolidated Balance Sheets as of December 28, 1997 and
September 28, 1997
Condensed Consolidated Statements of Cash Flows for the thirteen weeks
ended December 28, 1997 and December 29, 1996
Condensed Notes to Consolidated Financial Statements
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Page 3
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended December 28, 1997 and December 29, 1996
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 28, December 29,
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 213,377 $ 210,863
- ------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 175,376 173,014
Selling and administrative 25,267 23,243
- ------------------------------------------------------------------
200,643 196,257
- ------------------------------------------------------------------
Operating Income 12,734 14,606
Interest Expense 2,616 5,172
Other Expense, Net 147 843
- ------------------------------------------------------------------
Income Before Income Tax Provision 9,971 8,591
Income Tax Provision 3,480 3,182
- ------------------------------------------------------------------
Net Income $ 6,491 $ 5,409
- ------------------------------------------------------------------
Net Income Per Share:
Basic $ .26 $ .25
Diluted .25 .24
- ------------------------------------------------------------------
Dividends Per Share $ .11 $ .10
- ------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 4
Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 28, 1997 and September 28, 1997
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 28, September 28,
1997 1997
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 8,849 $ 24,349
Accounts receivable, net 165,797 167,347
Inventories 159,095 141,898
Other current assets 12,965 15,023
- --------------------------------------------------------------------------------
Total current assets 346,706 348,617
Property, net 311,335 308,523
Other assets 71,050 72,656
- --------------------------------------------------------------------------------
Total assets $ 729,091 $ 729,796
- --------------------------------------------------------------------------------
Liabilities
Short-term borrowings $ 21,331 $ 6,677
Current maturities of long-term debt 11,832 12,542
Other current liabilities 98,135 115,424
- --------------------------------------------------------------------------------
Total current liabilities 131,298 134,643
Long-term debt 133,395 134,560
Deferred income taxes and other deferred
liabilities 52,303 51,697
- --------------------------------------------------------------------------------
Total liabilities 316,996 320,900
- --------------------------------------------------------------------------------
Stockholders' Investment
Preferred stock --- ---
Common stock 655 655
Capital in excess of par 117,513 117,110
Retained earnings 348,295 344,656
Other stockholders' investment (54,368) (53,525)
- --------------------------------------------------------------------------------
Total stockholders' investment 412,095 408,896
- --------------------------------------------------------------------------------
Total liabilities and
stockholders' investment $ 729,091 $ 729,796
- --------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 5
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended December 28, 1997 and December 29, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 28, December 29,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $6,491 $ 5,409
Depreciation and amortization 16,228 16,171
Other adjustments to net income, net (1,958) (308)
Net changes in operating assets and liabilities (30,045) 9,477
- --------------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (9,284) 30,749
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property (18,119) (10,522)
Other investing activities, net 3,969 2,715
- --------------------------------------------------------------------------------
Net cash used in investing activities (14,150) (7,807)
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net 14,654 (16,531)
Other financing activities, net (7,010) (2,644)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 7,644 (19,175)
- --------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 290 (20)
- --------------------------------------------------------------------------------
Net (Decrease) Increase In Cash and Cash
Equivalents (15,500) 3,747
- --------------------------------------------------------------------------------
Beginning Cash and Cash Equivalents 24,349 31,448
Ending Cash and Cash Equivalents $8,849 $35,195
- --------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Page 6
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 1997
(In thousands except share data)
(Unaudited)
1. Restatement -- As publicly announced on October 26, 1998, the Company
uncovered potential accounting irregularities related to inappropriate
reductions of certain material costs and a corresponding understatement of
accounts payable amounts at its Hofmann Laces unit. As a result, the Audit
Committee of the Company's Board of Directors ("Audit Committee") engaged Weil,
Gotshal & Manges LLP ("Weil Gotshal") as special legal counsel and Weil Gotshal
engaged Arthur Andersen LLP ("Andersen") to perform an independent investigation
into these potential accounting irregularities. On November 24, 1998 the Company
announced that the Audit Committee, assisted by Weil Gotshal and Andersen, had
completed an investigation of the financial impact of the accounting
irregularities at the Hofmann Laces unit. As a result of the findings of this
investigation, the Company has restated its previously reported financial
results for the first three quarters of the fiscal year ended September 27,
1998.
The restated financial statements, as set forth herein, reverse the net impact
of the inappropriate amounts.
A summary of significant affects of the restatement is as follows (in thousands
except per share data):
<TABLE>
<CAPTION>
Thirteen weeks ended
December 28, 1997
(unaudited)
--------------------------
As
Previously
Reported As Restated
------------ ------------
<S> <C> <C>
Net Sales $ 213,377 $ 213,377
Cost and Expenses 198,690 200,643
------------ ------------
Operating Income 14,687 12,734
Interest Expense 2,616 2,616
Other Expense, Net 147 147
------------ ------------
Income before income tax provision 11,924 9,971
Income tax provision 4,209 3,480
------------ ------------
Net Income $ 7,715 $ 6,491
============ ============
Net Income per share:
Basic $ .30 $ .26
Diluted .30 .25
</TABLE>
Following the October 26, 1998 press release, three purported class action
lawsuits have been filed on behalf of purchasers of the Company's common stock
against the Company and certain of its officers and directors. These lawsuits
purport to allege claims under Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, in connection with
the Company's public disclosure of accounting irregularities at the Hofmann
Laces unit in fiscal year 1998. Specifically, the actions allege that, during
the class period (January 20, 1998 through October 26, 1998), defendants
materially misrepresented the Company's financial condition and overstated the
Company's reported earnings. No specific amount of damages is sought in these
complaints. The Company intends to vigorously defend the lawsuits. 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.
2. Seasonal Fluctuations -- Results for any portion of a year are not
necessarily indicative of the results to be expected for a full year, due to
seasonal aspects of the textile industry.
<PAGE>
Page 7
3. Per Share Information -- The Company has adopted the provisions of Statement
of Financial Accounting No. 128, "Earnings per share", and therefore has
restated prior period earnings per share data to conform to this statement.
Basic earnings per share information has been computed by dividing net income by
the weighted average number of shares of common stock, par value $.02 per share,
outstanding during the periods presented. The average shares used in computing
basic net income per share for the thirteen weeks ended December 28, 1997 and
December 29, 1996 were 25,451,000 and 21,671,000, respectively.
Diluted earnings per share information also considers as applicable (i) any
dilutive effect for stock options and restricted stock grants and (ii) the
dilutive effect, if any, assuming that the Company's convertible debentures were
converted at the beginning of the respective reporting period, with earnings
being increased by the interest expense, net of income taxes, that would not
have been incurred had conversion taken place. The average shares used in
computing diluted net income per share for the thirteen weeks ended December 28,
1997 and December 29, 1996 were 25,859,000 and 25,132,000, respectively.
The reconciliations of the numerator (income available to common
stockholders) and the denominator (average number of common shares outstanding)
of the earnings per share calculations for the thirteen weeks ended on December
28, 1997 and December 29, 1996 are as follows (000's have been omitted for net
income and share amounts):
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
--------------------- ----------------------
Net Net
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $6,491 25,451 $0.26 $5,409 21,671 $0.25
===== =====
Add effect of dilutive securities:
Options and
Restricted Stock -- 408 -- 96
6% Convertible Debt -- -- 603 3,365
---------------------- -----------------------
Diluted EPS $6,491 25,859 $0.25 $6,012 25,132 $0.24
====================== =======================
</TABLE>
4. Inventories -- Inventories are carried at the lower of cost or market. Cost
is determined by using the LIFO (last-in, first-out) method for the majority of
inventories. Cost for all other inventories has been determined principally by
the FIFO (first-in, first-out) method.
Inventories at December 28, 1997 and September 28, 1997 consisted of the
following:
<TABLE>
<CAPTION>
December 28, September 28,
1997 1997
------------ -----------
<S> <C> <C>
Finished Goods $ 61,079 $ 53,404
Raw Materials and work in process 107,478 98,499
Manufacturing supplies 9,183 8,758
------------ -----------
Total inventories valued at FIFO cost 177,740 160,661
Less -- Adjustments to reduce FIFO cost to
LIFO cost, net (18,645) (18,763)
------------ -----------
Total inventories $159,095 $141,898
============ ===========
</TABLE>
5. Accumulated Depreciation -- Accumulated depreciation at December 28, 1997 and
September 28, 1997 was $421,392 and $409,654, respectively.
<PAGE>
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Consolidated net sales were $213.4 million for the first quarter of fiscal
1998 as compared to $210.9 million for the first quarter of fiscal 1997.
Sales in the apparel market declined 4% to $75.5 million in the first quarter
of fiscal 1998 as compared to $78.8 million for the first quarter of fiscal
1997. This reduction in apparel sales was primarily attributable to a decrease
in demand and capacity allocated to ready-to-wear fabrics. This was partially
offset by an increase in sales of elastomerics/intimate apparel and swimwear due
to continued customer penetration and improvement of market conditions.
<PAGE>
Page 8
Sales of worldwide automotive fabrics increased by approximately 4% to $85.8
million for the first quarter of fiscal 1998 as compared to the comparable
quarter from the previous fiscal year. This was significantly attributable to
increases in Guilford's domestic sales from the ramp up of new programs, trim
level penetration, market share increase of Japanese transplants and the
increase of RV and van fabric sales. These increases were partially offset by a
decrease in sales of the Company's European operations due to temporary customer
resourcing outside the U.K. to offset foreign currency impacts caused by the
strength of the sterling.
Sales of home fashion products increased by almost 27% to $38.7 million for
the first quarter of fiscal 1998 as compared to the first quarter of fiscal
1997. The improvement was attributable to growth in the Company's cotton jersey
knit sheeting program and increased demand for the Company's window curtain and
window treatment fabrics. These increases were slightly offset by a decrease in
demand for the Company's mattress ticking and furniture fabrics.
Product sales in the industrial/specialty markets were $13.4 million for the
first quarter of 1998, a 29% decrease from the corresponding quarter of the
prior fiscal year. The decrease was attributable to a decrease in the sale of
hook and loop closure fabric due to a demand decline at the consumer level for
the diaper product which included it and due to a resourcing of this business to
a European supplier.
Gross margins decreased slightly to 17.8% as compared to 17.9% for the first
quarter of the previous year. This decrease was due primarily to changes in
product mix toward the production and sale of certain lower-margin products and
to price reductions to automotive original equipment manufacturers. These were
substantially offset by increased volume and raw material price and usage and
other cost improvements.
Selling and administrative expenses increased to 11.8% of net sales as
compared to 11.0% in the first quarter of the prior year. This increase was
attributable to strategically focused marketing programs and research and
development efforts.
Interest expense decreased to $2.6 million for this quarter as compared to
$5.2 million for the first quarter of 1997. This decrease was attributable to
the reduction of both long-term and short-term debt through the conversion and
repayment of $66 million of convertible debt in July 1997 and the repayment of
approximately $25 million of short-term financing.
The effective income tax rate for the first quarter of fiscal 1998 was 34.9%
as compared to 37.0% for the corresponding quarter of fiscal 1997. The rate
decreased as a result of increased tax credits in proportion to taxable income
and lower effective state tax rates.
Net income increased 20.4% to $6.5 million compared to $5.4 million for the
corresponding quarter of fiscal 1997.
Liquidity and Capital Requirements
At December 28, 1997, working capital was $215.4 million compared to $214.0
million at September 28, 1997. This increase in working capital was primarily
due to the utilization of resources to fund seasonal inventory requirements. The
Company maintains flexibility with respect to its seasonal working capital needs
through a committed revolving credit facility of $150 million and its continued
access to other traditional sources of funds, including available uncommitted
lines of credit aggregating over $200 million, and the ability to receive
advances against its factored accounts receivable. At December 28, 1997, no
borrowings were outstanding against the Company's $150 million credit facility,
and the Company's borrowing availability under its uncommitted bank lines of
credit was $119 million. Management believes that the Company's financial
position and operating performance will continue to provide the Company with the
ability to obtain necessary capital from the appropriate financial markets.
<PAGE>
Page 9
Contingencies and Future Operations
Since January 1992, the Company has been involved in discussions with the
United States Environmental Protection Agency ("EPA") regarding remedial actions
at its Gold Mills, Inc. ("Gold") facility in Pine Grove, Pennsylvania which was
acquired in October 1986. Between 1988 and 1990, the Company implemented a
number of corrective measures at the facility in conjunction with the
Pennsylvania Department of Environmental Resources and incurred approximately
$3.5 million in costs. Subsequently, through negotiations with the EPA, Gold
entered into a Final Administrative Consent Order with the EPA, effective
October 14, 1992. Pursuant to such order, Gold has performed (i) certain
measures designed to
prevent any potential threats to the environment at the facility and (ii) an
investigation to fully determine the nature of any release of hazardous
substances at the facility. The Company has not received a response to its
report filed with the EPA. Upon receipt of EPA comments, Gold will conduct a
study to evaluate alternatives for any corrective action which may be necessary
at the facility. The failure of Gold to comply with the terms of the Consent
Order may result in the imposition of monetary penalties against Gold. In the
fourth quarter of 1992, a pre-tax charge of $8.0 million was provided for the
estimated future cost of the additional remediation.
During the fourth quarter of 1992, the Company also received a Notice of
Violation from the North Carolina Division of Environmental Management
concerning ground water contamination on or near one of its North Carolina
facilities. The Company has voluntarily agreed to allow the installation of
monitoring wells at the site but denies that such contaminants originated from
the Company's operations or property. An additional pre-tax charge of $1.3
million was provided in the fourth quarter of 1992 to reflect the estimated
future costs of monitoring this and other environmental matters including the
removal of underground storage tanks at the Company's facilities. The Company
has removed substantially all underground storage tanks at its facilities. At
December 28, 1997, environmental accruals amounted to $5.5 million of which $4.5
million is non-current and is included in other deferred liabilities in the
balance sheet.
The Company is also involved in various litigation arising in the ordinary
course of business. Although the final outcome of these legal and environmental
matters cannot be determined, based on the facts presently known, it is
management's opinion that the final resolution of these matters will not have a
material adverse effect on the Company's financial position or future results of
operations.
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
document, 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 significant customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation and
restructuring of acquired companies
<PAGE>
Page 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Reference is made to Item 3 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1997, which item is
incorporated herein by reference.
Items 2. - 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. The Company's
fiscal 1997 Annual Meeting of Stockholders was held on February 5, 1998. At such
meeting, the stockholders elected each of Donald B. Dixon, Terrence E. Geremski,
George Greenberg, Dr. Jacobo Zaidenweber and Grant M. Wilson to serve as
directors for a three-year term expiring after the Company's 2000 fiscal year.
The stockholders at such meeting ratified the selection of Arthur Andersen LLP
as independent auditors for the fiscal year ending September 27, 1998. The
number of votes cast for, against or withheld, as well as the number of
abstentions, as the case may be, with respect to each matter voted upon at the
fiscal 1997 Annual Stockholders' Meeting is set forth below:
(1) Election of Directors
<TABLE>
<CAPTION>
Director Votes For Votes Withheld
-------- --------- --------------
<S> <C> <C>
Donald B. Dixon 20,057,567 297,946
Terrence E. Geremski 20,027,374 328,139
George Greenberg 20,042,032 313,481
Dr. Jacobo Zaidenweber 20,032,362 323,151
Grant M. Wilson 20,061,290 294,223
</TABLE>
(2) Ratification of Selection of Auditors
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
20,297,100 33,709 24,704
</TABLE>
Item 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
<PAGE>
Page 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: December 7, 1998 By: /s/ Terrence E. Geremski
-----------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
<PAGE>
Page 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: December 7, 1998 By:
-----------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000044471
<NAME> Guilford Mills, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 8,849
<SECURITIES> 0
<RECEIVABLES> 165,797
<ALLOWANCES> 0
<INVENTORY> 159,095
<CURRENT-ASSETS> 346,706
<PP&E> 732,727
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<TOTAL-ASSETS> 729,091
<CURRENT-LIABILITIES> 131,298
<BONDS> 0
0
0
<COMMON> 655
<OTHER-SE> 411,440
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<SALES> 213,377
<TOTAL-REVENUES> 213,377
<CGS> 175,376
<TOTAL-COSTS> 200,643
<OTHER-EXPENSES> 147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,616
<INCOME-PRETAX> 9,971
<INCOME-TAX> 3,480
<INCOME-CONTINUING> 6,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,491
<EPS-PRIMARY> .26
<EPS-DILUTED> .25
</TABLE>
