SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR TRANSITION REPORT PURSUANT TO SECTION 13
15(d) OR 15(d)
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X OF THE SECURITIES EXCHANGE ACT OF 1934 OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended September 27, For the transition period from __________
1998 to ___________
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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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange on which
Title of Each Class Registered
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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 18, 1998 (a
total of 19,550,386 shares of common stock), computed by reference to the last
reported sale price $16.875 the Registrant's common stock on the New York Stock
Exchange on such date: $329,912,764.
Number of shares of the Registrant's common stock outstanding as of December
18, 1998: 23,135,342.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the annual report to stockholders for the fiscal year ended
September 27, 1998 are incorporated by reference into Parts I, II and IV 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 24, 1998, are incorporated by reference into
Part III of this report.
Certain portions of the Form 8-K and Form 8-K/A Current Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, filed January 31,
1996 and April 1, 1996 respectively, 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 polyester, nylon 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 111 full-time U.S. employees, nine
employees of Guilford Europe Limited, a United Kingdom corporation and an
indirect wholly-owned subsidiary of the Company ("Guilford Europe"), and five
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 1998, 1997 and 1996,
were approximately $19.6 million, $14.9 million, and $13.8 million,
respectively.
The Company has numerous trademarks, trade names, patents 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 $37.0 million of certain outstanding accounts
receivable as of September 27, 1998. In addition, approximately 11% of accounts
receivable are factored without recourse. 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 27, 1998, September 28, 1997, and September 29, 1996, the percentage
of the Company's worldwide sales attributable to each market was
as follows:
1998 1997 1996
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Apparel 38.3% 39.1% 41.1%
Automotive 37.7 36.7 40.6
Home Fashions 17.5 14.8 11.7
Specialty 6.5 9.4 6.6
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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.
2
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In the United States, the Company has sales offices in New York City, Los
Angeles, Greensboro, Detroit, San Francisco and Atlanta. 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 14 of the Consolidated Financial Statements in the
Company's Annual Report to Stockholders for the fiscal year ended September 27,
1998 (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 1998, 1997 or 1996.
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 5.4% in fiscal 1998, 5.5% in fiscal 1997 and 5.0%
in fiscal 1996.
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 1998, the Company purchased approximately 85% 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 1998, all
yarns were readily available and were purchased from numerous sources.
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 1998, 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 13 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.
EMPLOYEES
As of December 4, 1998, the Company employed 6,836 full-time employees
worldwide. Approximately 1,307 employees (including 431 in Guilford Europe and
509 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.
3
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All statements other than statements of historical fact included in or
incorporated by reference into 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 of 1933 and
Section 21E of the Securities Exchange Act of 1934. 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. information and technological advances including Year 2000 issues
5. cost and availability of raw materials, labor and natural 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, and seven manufacturing
facilities and one leased warehousing facility in New York. Hofmann Laces has
five retail stores in New York 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.
The Company has ceased operations in the facility in Gainesville, Georgia and
intends to sell the building.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 13 of the Consolidated Financial Statements in the
Annual Report, which note is incorporated herein by reference, for information
regarding certain environmental matters.
Several 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.
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.
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.
4
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ITEM 4B. EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF DECEMBER 4, 1998)
Name Age Office or Business Experience
Charles A. Hayes 63 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 54 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 51 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 51 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 39 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 53 Vice President/Commercial Products (since 1998);
Vice President/Product Development and Research
(from 1996 to 1998); President of Dyeing and
Printing Lumberton, Inc. (from 1990 to 1996)
Phillip D. McCartney 56 Vice President/Technical Operations (since 1989);
formerly holder of various executive positions with FAB
Industries, Inc. (from 1984 to 1989).
Lewis R. Morrison, Jr.57 Vice President/Fibers Purchasing (since 1998);
Executive Vice President/Apparel Home Fashions (from
1997 to 1998); Vice President/Fibers Purchasing (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 55 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 43 Vice President/Information Systems (since 1997);
Director of Information Services (from 1992 to 1997).
Christopher J. Richard 42Vice President (since 1998) and President/U.S.
Automotive (since 1997); Vice President of Sales and
Marketing, Garden State Tanning (from 1994 to 1997);
holder of various executive positions with Collins &
Aikman Corporation (from 1983 to 1994).
Kim A. Thompson 40 Vice President/Corporate Controller (since 1997);
Director of Financial Reporting (from 1994 to 1997);
holder of executive positions with Collins and Aikman
Corporation (from 1980 to 1994).
No family relationships exist between any executive officers of the Company.
5
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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
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(IN THOUSANDS EXCEPT PER SHARE
DATA) 1998 1997 1996 1995 1994
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RESULTS OF OPERATIONS
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Net sales $894,534 $894,709 $830,320 $782,518 $703,700
Income before extraordinary item 33,146 43,238 33,978 33,636 25,124
Net income 30,206 43,238 33,978 33,636 25,124
PER SHARE DATA (1)
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Basic:
Income before extraordinary
item 1.32 1.92 1.59 1.60 1.22
Net income 1.20 1.92 1.59 1.60 1.22
Diluted:
Income before extraordinary
item 1.30 1.78 1.47 1.48 1.14
Net income 1.19 1.78 1.47 1.48 1.14
Cash dividends 0.44 0.42 0.40 0.40 0.40
BALANCE SHEET DATA
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Working capital 211,278 213,974 177,658 178,233 153,165
Total assets 789,457 729,796 728,830 586,371 565,338
Long-term debt 176,872 134,560 209,435 166,368 164,611
Stockholders' investment 385,177 408,896 298,059 267,549 244,060
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(1)All share data has been restated to reflect the effect of a
three-for-two stock split effected in May 1997 in the form of
a 50% stock dividend.
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 20 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold or issue any financial instruments for trading
or other speculative purposes.
During August 1998, the Company entered into two treasury lock agreements
to provide interest rate protection related to an anticipated debt transaction.
The agreements effectively fixed the 10-year U.S. Treasury rate at 5.4% on an
aggregate notional amount of $87,500. At September 27, 1998, the treasury lock
agreements had an inherent loss of $6,181, which was deferred. The agreements
were terminated in November 1998, resulting in a payment of $4,366, which will
be amortized as additional interest expense over the period of the related debt.
The Company enters into forward currency exchange contracts in the normal
course of business to manage exposure against fluctuations in the purchase price
of capital equipment. Counter-parties for these instruments are major financial
institutions. The fair values of these contracts are estimated by obtaining
quotes from brokers or reference to publicly available information. At
September 27, 1998 and September 28, 1997, deferred gains and losses on
foreign exchange contracts are not material to the consolidated financial
statements.
The carrying amounts of cash and cash equivalents, trade receivables and
trade payables, and short-term debt, approximate fair value because of the short
maturity of these instruments. The carrying amount of long-term debt
approximates the fair value based upon current rates offered for similar debt.
6
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to information set forth on pages 21 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 24, 1998 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.
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 21 through 34 of the
Annual Report, which pages are incorporated herein by reference):
Consolidated Balance Sheets as of September 27, 1998 and September 28,
1997
Consolidated Statements of Income for the Years Ended September 27, 1998,
September 28, 1997 and September 29, 1996
Consolidated Statements of Stockholders' Investment for the Years Ended
September 27, 1998, September 28, 1997 and September 29, 1996
Consolidated Statements of Cash Flows for the Years Ended September 27,
1998, September 28, 1997 and September 29, 1996
Notes to Consolidated Financial Statements
Statement of Management's Responsibility
Report of Independent Public Accountants
7
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2. FINANCIAL STATEMENT SCHEDULE:
Schedule II - Analysis of Valuation and Qualifying Accounts for the Years
Ended September 27, 1998, September 28, 1997 and September 29, 1996
3. EXHIBITS:
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 November 5, 1998.
(4) (a) 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) (b) 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")).
(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 (incorporated by
reference to Exhibit (10)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 28, 1997 (the "1997
Annual Report")).
(10) (c)* Second Amendment, dated November 1, 1996, to the Guilford
Mills, Inc. Non-Qualified Profit-Sharing Plan (incorporated by
reference to Exhibit (10)(c) to the 1997 Annual Report).
(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 Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 30, 1997 (the "3/30/97
10-Q")).
(10) (f)* Amendment to the 1991 Plan.
(10) (g)* 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) (h)* 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) (i)* 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) (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 the Restricted 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 Restricted Plan (incorporated by reference
to Exhibit (10) (b) to the 3/30/97 10-Q).
8
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(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) (o)* 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) (p)* 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) (q)* 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) (r)* 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")).
(10) (s)* Guilford Mills, Inc. Trust for Non-Qualified Plans
(incorporated by reference to Exhibit (10) (b) to the 12/29/96
10-Q).
(10) (t)* 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) (u)* Guilford Mills, Inc. Senior Managers' Pre-Retirement Life
Insurance Agreement (incorporated by reference to Exhibit (10)
(s) to the 1992 Annual Report).
(10) (v)* 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) (w)* 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) (x)* 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) (y)* 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) (z) 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) (a)(a) 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) (b)(b) 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) (c)(c) 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) (d)(d) 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).
9
<PAGE>
(10) (e)(e) 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) (f)(f) 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) (g)(g) 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) (h)(h) 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) (i)(i)* Summary of Short Term Incentive Plan (incorporated by
reference to Exhibit (10) (f)(f) to the 1997 Annual Report).
(10) (j)(j)* 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) (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).
(10) (l)(l)* 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) (m)(m) 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) (n)(n)* 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) (o)(o)* Amended and Restated Employment Agreement, dated February 25,
1998, by and among Raschel Fashion Interknitting, Ltd., Hofmann
Laces, Ltd., Curtains and Fabrics, Inc. and Bruno Hofmann
(incorporated by reference to Exhibit (10) (a) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March
29, 1998 (the "3/29/98 10-Q")).
(10) (p)(p) 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).
(10) (q)(q) Second Amendment to Stock Purchase Agreement, dated February 25,
1998 by and between the Company and Bruno Hofmann (incorporated
by reference to Exhibit (10) (b) to the 3/29/98 10-Q).
(13) Annual Report to Stockholders of the Company for the fiscal year
ended September 27, 1998 (only those portions of such report
incorporated by reference to the Annual Report on Form 10-K are
filed herewith).
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule
*Items denoted with an asterisk represent management contracts or compensatory
plans or arrangements.
(B) REPORTS ON FORM 8-K
Not Applicable.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GUILFORD MILLS, INC.
By: /s/Terrence E. Geremski
-----------------------------
Terrence E. Geremski
Executive Vice President and
Chief Financial Officer
Dated: December 23, 1998
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>
/s/ Charles A. Hayes Chairman of the Board of Directors December 23, 1998
- -------------------------------- and Chief Executive Officer
Charles A. Hayes (Principal
Executive Officer)
/s/ John A. Emrich
- -------------------------------- Director; President and Chief December 23, 1998
John A. Emrich Operating
Officer
/s/ Terrence E. Geremski Director; Executive Vice December 23, 1998
- -------------------------------- President and Chief Financial
Terrence E. Geremski Officer (Principal Financial and
Accounting Officer)
/s/ George Greenberg Vice Chairman of the Board of December 23, 1998
- -------------------------------- Directors
George Greenberg
/s/ Maurice Fishman Vice Chairman of the Board of December 23, 1998
- -------------------------------- Directors
Maurice Fishman
/s/ Tomokazu Adachi Director December 23, 1998
- --------------------------------
Tomokazu Adachi
/s/ Donald B. Dixon Director December 23, 1998
- --------------------------------
Donald B. Dixon
Director December 23, 1998
- --------------------------------
Paul G. Gillease
/s/ Stephen C. Hassenfelt Director December 23, 1998
- --------------------------------
Stephen C. Hassenfelt
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bruno Hofmann Director December 23, 1998
- --------------------------------
Bruno Hofmann
/s/ Sherry R. Jacobs Director December 23, 1998
- --------------------------------
Sherry R. Jacobs
/s/ Stig A. Kry Director December 23, 1998
- --------------------------------
Stig A. Kry
/s/ Grant M. Wilson Director December 23, 1998
- --------------------------------
Grant M. Wilson
/s/ Jacobo Zaidenweber Director December 23, 1998
- --------------------------------
Jacobo Zaidenweber
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FORM 10-K SCHEDULE
<S> <C>
Report of Independent Public Accountants.......................... F-1
Schedule II - Analysis of Valuation and Qualifying Accounts for the Years
Ended September 27, 1998, September 28, 1997 and September 29,
1996.............................................................. F-2
</TABLE>
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 24, 1998. 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.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
November 24, 1998
F-1
<PAGE>
GUILFORD MILLS, INC.
SCHEDULE II
ANALYSIS OF VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 27, 1998, September 28, 1997 and September 29,
1996
(In Thousands)
<TABLE>
<CAPTION>
Additions
Charged
Balance to Balance
Beginning Cost and End
of Period Expenses Deductions Other of Period
---------- ---------- ---------- ------- ---------
(1) (2)
<S> <C> <C> <C> <C> <C>
For the Year Ended 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 $3,262 $(3,303) $42 $9,488
========= ========= ========= ====== =========
For the Year Ended September
27, 1998:
Reserve deducted from
assets to
which it applies -
Allowance for doubtful
accounts.............. $9,488 $2,578 $(2,564) $(52) $9,450
========= ========= ========= ====== =========
</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
(3) (b) By-Laws of the Company, as amended through November 5, 1998.
(10) (f)* Amendment to the 1991 Plan.
(13) Annual Report to Stockholders of the Company for the fiscal year
ended September 27, 1998 (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
EXHIBIT 3(b)
BY-LAWS
OF
GUILFORD MILLS, INC.
(AS AMENDED THROUGH NOVEMBER 5, 1998)
ARTICLE I
OFFICES
The principal office of the Corporation within the State of Delaware shall
be located at the address stated in the Certificate of Incorporation or in any
certificate of appointment or change of agent or of change of principal office
which shall be filed with the Secretary of State on behalf of the Corporation.
The Corporation may have such other offices, either within or without the State
of Delaware, as the Board of Directors may designate or as the business of the
Corporation may require from time to time.
ARTICLE II
STOCKHOLDERS
The Annual Meeting of the stockholders for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting shall in 1993 be held on such day during the months of October or
November as may be fixed by the Board of Directors. The next Annual Meeting of
the stockholders for the purpose of electing Directors and for the transaction
of such other business as may come before the meeting shall be held on such day
during the months of
<PAGE>
February or March in 1995 as may be fixed by the Board of Directors. Thereafter,
the Annual Meeting of the stockholders for the purpose of electing Directors and
for the transaction of such other business as may come before the meeting shall
be on such day during the months of February or March in each year as may be
fixed by the Board of Directors. If the election of Directors shall not be held
on the day designated herein for any annual meeting of the stockholders, or at
any adjournment thereof, the annual election of Directors may be held at a
special meeting of the stockholders as soon thereafter as may be convenient.
SECTION 2. Place of Meeting. Annual meetings and special meetings of the
stockholders shall be held at such place, within or without the State of
Delaware and at such hour as may be fixed from time to time by the Board of
Directors. At least ten days' (but not more than 50 days') notice shall be given
to the stockholders of the place so fixed.
SECTION 3. Special Meetings. Special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the whole Board of Directors.
SECTION 4. Notice of Meeting. Written or printed notice stating the time
and place of the meeting shall be delivered not less than ten (10) days before
the date of the meeting, either personally or by mail, to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States Mail, addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. Such notice need not state the
purposes of the meeting unless required by law. Whenever the provisions of law
or of the Certificate of Incorporation or By-laws of the Corporation require
that a meeting of the stockholders shall be duly called for the purpose, or that
a certain notice of the time, place and purposes of any such meeting shall be
given, in order that certain action may be taken at such meeting, a written
waiver of notice of the time, place and
2
<PAGE>
purposes of such meeting, whether regular or special, signed by every
stockholder entitled to notice not present in person or duly represented by
proxy at such meeting, or by his attorney or legal representative thereunto duly
authorized, either before or after the time fixed for holding said meeting,
shall be deemed equivalent to such call and notice, and such action if taken at
any such meeting shall be as valid as if call and notice had been duly given.
Notice of any adjourned meeting of the stockholders shall not be required to be
given.
SECTION 5. Closing of Transfer Books for Fixing of Record Date. The Board
of Directors may close the stock transfer books of the Corporation for a period
not exceeding fifty (50) days preceding the date of any meeting of stockholders
or the date for payment of any dividend or the date for the allotment of rights
or the date when any change or conversion or exchange of capital stock shall go
into effect or for a period of not exceeding fifty (50) days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing the
stock transfer books as aforesaid, the Board of Directors may fix in advance a
date, not exceeding fifty (50) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining such
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment or
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent, and in such case be entitled
to such notice of, and to vote at, such meeting and any adjournment
3
<PAGE>
thereof, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid. In the event that the Board of
Directors shall not have closed the transfer books of the Corporation or fixed a
date for the determination of its stockholders entitled to vote, as aforesaid,
no share of stock shall be voted on at any election for Directors which has been
transferred on the books of the Corporation within twenty (20) days next
preceding such election of Directors.
SECTION 6. Quorum. The holders of a majority of the outstanding shares of
the Corporation entitled to vote, present in person or represented by proxy,
shall constitute a quorum at any meeting of the stockholders. In the absence of
a quorum at any meeting, or any adjournment thereof, a majority in interest of
the stockholders present in person or represented by proxy may adjourn the
meeting from time to time without further notice. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally held.
SECTION 7. Proxies. At all meetings of stockholders, the vote of any
stockholder may be cast in person or by his proxy or proxies (who need not be
stockholders) appointed by an instrument in writing subscribed by such
stockholder or by his duly authorized attorney-in-fact and delivered to the
Secretary of the meeting. No appointment of proxy shall be valid after one year
from the date thereof, unless the proxy provides for a longer period.
4
<PAGE>
SECTION 8. Voting Shares. Each stockholder shall be entitled at each
meeting of the stockholders to one vote in person or by proxy for each share of
capital stock having voting rights held by him.
SECTION 9. Voting Lists. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address of each
stockholder of record and the number of shares registered in the name of each
stockholder of record. Such list shall be open during the usual hours for
business at the place where said election is to be held for ten (10) days next
preceding the date of said election, to the examination of any stockholder, and
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and subject to the inspection of any stockholder who may be
present.
SECTION 10. Notification of Nomination of Directors. Nominations for
election to the Board of Directors of the Corporation at a meeting of
stockholders may be made by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of Directors at such meeting who
complies with the notice procedures set forth in this Section 10. Such
nominations, other than those made by, or on behalf of the Board of Directors,
may be made only if notice in writing is personally delivered to, or mailed by
first class United States mail, postage prepaid, and received by,0 the Secretary
of the Corporation not less than sixty (60) days nor more than ninety (90) days
prior to such meeting; provided, however, that if less than seventy (70) days'
notice or prior public disclosure of the date of the meeting is given to
stockholders, such nomination shall have
5
<PAGE>
been mailed by first class United States mail, postage prepaid, and received by,
or personally delivered to, the Secretary of the Corporation not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the meeting was mailed or such public disclosure was made, whichever
occurs first. Such notice shall set forth (a) as to each proposed nominee (i)
the name, age, business address and, if known, residence address of each such
nominee, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares, if any, of stock of the Corporation that are beneficially
owned by each such nominee and (iv) any other information concerning the nominee
that must be disclosed in proxy solicitations pursuant to the proxy rules of the
Securities and Exchange Commission if such person had been nominated, or
intended to be nominated, by the Board of Directors (including such person's
written consent to be named as a nominee and to serve as a Director if elected);
and (b) as to the stockholder giving the notice (i) the name and address, as
they appear on the Corporation's books, of such stockholder (ii) a
representation that such stockholder is a holder of record of shares of stock of
the Corporation entitled to vote at the meeting and the class and number of
shares of the Corporation which are beneficially owned by such stockholder,
(iii) a representation that such stockholder intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice
and (iv) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such stockholder. The Corporation also may require any proposed nominee to
furnish such
6
<PAGE>
other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a Director of
the Corporation. The Chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
SECTION 11. Notice of Business at Annual Meetings. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of Directors of the
Corporation, the procedures in Article II, Section 10 must be complied with. If
such business relates to any other matter, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be personally delivered to, or mailed by
first class United States mail, postage prepaid, and received by, the Secretary
of the Corporation not less than sixty (60) days nor more than ninety (90) days
prior to such meeting; provided, however, that if less than seventy (70) days'
notice or prior public disclosure of the date of the meeting is given to
stockholders, such notice, to be timely, must have been mailed by first class
United States mail, postage prepaid, and received by, or personally delivered
to, the
7
<PAGE>
Secretary of the Corporation not later than the close of business on the
tenth (10th) day following the day on which notice of the date of the meeting
was mailed or such public disclosure was made, whichever occurs first. A
stockholder's notice to the Secretary of the Corporation shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) a representation that the stockholder
is a holder of record of shares of stock of the Corporation entitled to vote at
the meeting and the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (iv) any material interest of the
stockholder in such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 11 and except that any
stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any
successor provision) promulgated under the Securities Exchange Act of 1934, as
amended, and is to be included in the Corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 11.
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, he shall so declare to the meeting and the business not properly
brought before the meeting shall be disregarded.
8
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 2. Number, tenure and qualifications. The number of Directors
shall be such as from time to time shall be fixed by the Board of Directors, but
in no case shall the number be more than fourteen (14) or less than three (3).
Each Director shall hold office until the next election of the class for which
such Directors shall have been chosen, and until a successor shall be duly
elected and qualified, or until his death, resignation or removal. No Director
need be a stockholder of the Corporation. No Director shall serve as such beyond
attaining the age of 70, except that Directors serving as such on September 5,
1998 may serve until the later of (i) the expiration of the term of office to
which he or she previously has been elected or (ii) age 72. Notwithstanding the
foregoing, each of Maurice A. Fishman, George Greenberg and Charles A. Hayes
shall be eligible to be designated as a Director Emeritus. Any such appointment
shall be for a one year term expiring with the next Annual Meeting of
Stockholders after such appointment. The one year term shall be subject to
renewal, at the meeting of Directors immediately following the Annual Meeting of
Stockholders, for successive one year periods not beyond the 80th birthday of
the Director Emeritus. A Director Emeritus shall not be considered a member of
the Board of Directors, but shall be a consultant to the Board. Compensation for
a Director Emeritus shall be as determined by the entire Board of Directors, but
shall not in any event exceed the cash compensation paid to Directors for
serving as such. Compensation for a Director Emeritus shall not include stock
option
9
<PAGE>
grants or any other stock-based compensation. Directors Emeritus shall
have none of the rights, obligations or duties of a Director including, without
limitation, voting rights. Directors Emeritus shall be invited to attend and
speak at meetings of the Board of Directors but shall not serve on or attend
Committee meetings.
SECTION 3. Regular Meetings. The first meeting of each newly elected Board
of Directors shall be held immediately after, and at the same place as the
annual election of Directors, if a quorum shall be then present, in which case
notice of such meeting need not be given. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Delaware,
for the holding of regular meetings without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President or of any two Directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Delaware, as the place
for holding any special meeting of the Board of Directors called by them.
SECTION 5. Notice. Notice of any special meeting shall be given at least
two (2) days prior thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Each such notice shall state the time and place of the
meeting but need not state the purposes thereof except as otherwise in these
By-laws expressly provided. Unless required by law or these By-laws, such
10
<PAGE>
notice shall not be required to be given to any Director who shall be present at
such meeting, or who shall waive such notice in writing or by telegraph, cable
or radio, whether before or after the meeting, and any meeting of the Board of
Directors shall be a legal meeting without any notice thereof having been given
if all of the Directors shall be present thereat. Whenever the provisions of the
law or of the Certificate of Incorporation of the Corporation or these By-laws
require that a meeting of the Directors shall be duly called for the purpose, or
that a certain notice of the time, place and purposes of any such meeting shall
be given, in order that certain action may be taken at such meeting, a written
waiver of notice of the time, place and purposes of such meeting, whether
regular or special, signed by every Director not present in person, either
before or after the time fixed for holding said meeting, shall be deemed
equivalent to such call and notice, and such action if taken at any such meeting
shall be as valid as if call and notice had been duly given.
SECTION 6. Quorum. A majority of the Directors shall constitute a quorum
for the transaction of business at any meeting of the Board of Directors, but if
less than such a quorum is present at a meeting, a majority of the Directors
present may adjourn the meeting from time to time without further notice.
SECTION 7. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors.
SECTION 8. Removal of Directors. Any Director may be removed, but only
with cause, at any time, by the affirmative vote of the holders of a majority of
the outstanding stock entitled to vote for the election of Directors of the
Corporation, at a special meeting of the stockholders called and held for the
purpose.
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SECTION 9. Vacancies. Any vacancy or vacancies in the Board of Directors
resulting from death, resignation, removal, and increase in the authorized
number of Directors, or any other cause, may be filled only by a majority vote
of the Directors then in office, though less than a quorum, and each Director so
elected shall hold office until the next election of the class for which such
Director shall have been chosen and until his successor shall be duly elected
and qualified, or until his death, resignation or removal.
SECTION 10. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid such fee for attendance at each meeting
of the Board of Directors or such stated salary as Director as shall be fixed by
the Board of Directors. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. Designation and Vacancies. The Executive Committee, if any,
shall be designated as provided in the Certificate of Incorporation, shall
consist of not less than three members of the Board of Directors, one of whom
shall be designated the Chairman of the Executive Committee. The Chairman of the
Executive Committee shall preside at meetings of the Executive Committee, and
the Secretary of the Corporation, or such other person as the Executive
Committee shall from time to time determine, shall act as Secretary of the
Executive Committee.
The Board of Directors, by action of a majority of the whole Board, shall
fill vacancies in the Executive Committee.
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SECTION 2. Powers. During the intervals between the meetings of the Board
of Directors, the Executive Committee, if designated, shall have, and may
exercise, all of the powers of the Board of Directors (other than the power to
remove or elect officers) in the management of the business and affairs of the
Corporation, including the power to authorize the seal of the Corporation to be
affixed to all papers which may require it, in such manner as the Executive
Committee shall deem for the best interests of the Corporation, in all cases in
which specific directions shall not have been given by the Board of Directors.
All action by the Executive Committee shall be reported to the Board of
Directors at its meeting next succeeding such action.
SECTION 3. Procedures, Meetings and Quorum. The Executive Committee shall
meet at such times and at such place or places as may be provided by such rules
of procedures as the Executive Committee may adopt, or by resolution of the
Executive Committee or of the Board of Directors. At every meeting of the
Executive Committee the presence of a majority of all the members shall be
necessary for the adoption by it of any resolution.
SECTION 4. Compensation. By resolution of the Board of Directors, the
members of the Executive Committee may be paid their expenses, if any, of
attendance at each meeting of the Executive Committee, and may be paid such fee
for attendance at each meeting of the Executive Committee as shall be fixed by
the Board of Directors.
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ARTICLE 7
AUDIT COMMITTEE
SECTION 1. Audit Committee. The Audit Committee, if any, of the Board of
Directors shall be designated by the Board of Directors and shall consist of not
less than two (2) members of the Board of Directors, none of whom shall be
executive officers of the Corporation. One member of the Audit Committee may be
designated the Chairman of the Audit Committee. The Chairman of the Audit
Committee shall preside at meetings of the Audit Committee, and the Secretary of
the Corporation, or such other person as the Audit Committee shall from time to
time determine, shall act as Secretary of the Audit Committee. The Board of
Directors, by action of a majority of the whole Board, shall fill vacancies in
the Audit Committee.
SECTION 2. Powers. The Audit Committee shall meet with management to
consider the adequacy of the internal controls of the Corporation and the
objectivity of financial reporting. The Audit Committee shall also meet with the
Corporation's independent accountants and with appropriate Corporation financial
personnel with respect to such matters. The Audit Committee shall recommend to
the Board of Directors the appointment of independent accountants. The Audit
Committee shall have such other powers as are granted to it by resolution of the
Board of Directors.
SECTION 3. Procedures, Meetings and Quorum. The Audit Committee shall meet
at such times and at such place or places as may be provided by such rules of
procedures as the Audit Committee may adopt, or by resolution of the Audit
Committee or of the Board of Directors. At every meeting of the Audit Committee
the presence of a majority of all the members shall be necessary for the
adoption of a new resolution.
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SECTION 4. Compensation. By resolution of the Board of Directors, the
members of the Audit Committee may be paid their expenses, if any, of attendance
at each meeting of the Audit Committee and may be paid such fee for attendance
at each meeting of the Audit Committee as shall be fixed by the Board of
Directors.
ARTICLE VI
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a Chairman of
the Board, a President, one or more Vice Presidents (the number thereof to be
determined by the Board of Directors), a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. Such other officers (including a
Vice Chairman of the Board) and assistant officers as may be deemed necessary
may be elected or appointed by the Board of Directors. Any two offices (but not
more than two), other than the offices of a President and Secretary, may be held
by the same person. The President shall be chosen from among the Directors.
SECTION 2. Election and Term of Office. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually at the first
meeting of the Board of Directors following the annual election of Directors. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as may be convenient. Each officer shall hold office
until his successor shall be duly elected and qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
SECTION 3. Removal of Officers. Any officer may be removed, either with or
without cause, by the vote of a majority of the whole Board of Directors at a
special
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meeting called for the purpose or, except in case of any officer elected by the
Board of Directors, by any superior officer upon whom the power of removal may
be conferred by the Board of Directors or by these By-laws.
SECTION 4. Vacancies. A vacancy in any office resulting from death,
resignation, removal or any other cause, may be filled by the Board of
Directors for the unexpired portion of the term.
SECTION 5. Chairman and Vice Chairman of the Board. The Chairman of the
Board of Directors shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and of the Board of Directors
at which he is present and shall have the final executive authority with respect
to the management of the affairs and policies of the Corporation, including all
powers and authority which, by custom and usage, ordinarily are inherent in and
incident to the office of the chief executive officer of the Corporation. The
Vice Chairman of the Board of Directors shall, in the absence of the Chairman of
the Board of Directors, preside at all meetings of the stockholders and of the
Board of Directors at which he is present, and shall perform such other duties
as may be prescribed by the Board of Directors from time to time.
SECTION 6. President. The President shall be the chief operating officer
of the Corporation and shall have overall responsibility and authority for the
general management of the operations of the Corporation, including such powers
and authority which, by custom and usage, ordinarily are inherent in and
incident to the office of the chief executive officer, except as the same
specifically may be limited by resolution of the Board of Directors.
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SECTION 7. The Vice Presidents. Each Vice President shall have such powers
and perform such duties as the Board of Directors may determine or as may be
assigned to him by the President. In the absence of the President or in the
event of his death, or inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers and be subject to
all the restrictions upon the President.
SECTION 8. The Secretary. The Secretary shall (a) keep the minutes of the
meetings of the stockholders, the Board of Directors, the Executive Committee
(if designated), and all other committees, if any, of which a Secretary shall
not have been appointed, in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
By-laws and as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation and see that the seal of the Corporation is affixed
to all documents, the execution of which on behalf of the Corporation under its
seal, is duly authorized; (d) be in charge of the stock ledger of the
Corporation; (e) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
SECTION 9. The Treasurer. The Treasurer shall (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever; (c) deposit all such moneys in the name of the Corporation in
such banks, trust companies, or
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other depositories as shall be selected in accordance with the provisions of
Article VI of these By-laws; and (d) in general perform all duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the President or by the Board of Directors. He shall, if
required by the Board of Directors, give a bond for the faithful discharge of
his duties in such sum and with such surety or sureties as the Board of
Directors shall determine.
SECTION 10. Assistant Secretaries and Assistant Treasurers. At the request
of the Secretary or in his absence or disability, one or more Assistant
Secretaries designated by the Board of Directors shall have all the powers of
the Secretary. At the request of the Treasurer or in his absence or disability,
one or more Assistant Treasurers designated by the Board of Directors shall have
all the powers of the Treasurer. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. Except as otherwise provided by law, these By-laws
or resolutions of the Board of Directors, any contract or other instrument shall
be valid and binding on the Corporation if executed and delivered in its name
and on its behalf by the President or in his absence or disability by any Vice
President. The Board of Directors may, however, authorize any other officer or
officers or other agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
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SECTION 2. Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers or other agent or
agents of the Corporation and in such manner and as shall from time to time be
determined by resolution of the Board of Directors. Each of such officers and
agents shall give such bond, if any, as the Board of Directors may require.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select or as may be designated by any officer or officers of the Corporation.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of
stock of the Corporation shall be in such form and shall contain such
information as shall be required by law at the time the same are issued. Such
certificates shall be (i) signed by the Chairman or Vice Chairman of the Board
of Directors or by the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or by the Secretary or an Assistant Secretary. If such
certificate is countersigned (i) by a transfer agent other than the Corporation
or its employee or (ii) by a registrar other than the Corporation or its
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employee, any of the signatures above authorized may be a facsimile. Such
certificates shall bear the seal of the Corporation which may be a facsimile
thereof. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, the certificate may be issued by the Corporation with the same effect as
if such person were such officer, transfer agent, or registrar at the date of
issue. All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and the date of issue, shall be
entered on the stock transfer books of the Corporation. The person in whose name
any shares shall stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as otherwise provided
in the Certificate of Incorporation and except that in case of a lost,
destroyed, or mutilated certificate a new one may be issued therefor upon such
terms and/or indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the Corporation shall
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or the Transfer Agent of the
Corporation and on surrender for cancellation of the certificate for such
shares.
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ARTICLE IX
FISCAL YEAR
The 1994 fiscal year of the Corporation shall commence on September 27,
1993 and end on October 2, 1994. Thereafter, the fiscal year of the Corporation
shall commence on the first Monday following the Sunday nearest September 30 in
each year and end on the Sunday nearest September 30 in each year.
ARTICLE X
SEAL
The corporate seal of the Corporation shall be in the form of a circle and
shall include the name of the Corporation and reference to the year and place of
its incorporation.
ARTICLE XI
INDEMNIFICATION
SECTION 1. Indemnification Respecting Third Party Claims. The Corporation,
to the full extent permitted, and in the manner required, by the laws of the
State of Delaware as in effect at the time of the adoption of this Article or as
such laws may be amended from time to time, shall indemnify any person who was
or is made a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including any appeal thereof),
whether civil, criminal, administrative or investigative in nature (other than
an action by or in the right of the Corporation), by reason of the fact that
such person is or was a Director, officer, employee or agent of the Corporation,
or, if at a time when he was a Director, officer, employee or agent of the
Corporation, is or was serving at the request of, or to represent the interests
of, the
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Corporation as a Director, officer, partner, fiduciary, employee or
agent (a "Subsidiary Officer") of another Corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (an "Affiliated
Entity"), against expenses (including attorneys' fees and disbursements), costs,
judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful; provided, however,
that the Corporation shall not be obligated to indemnify against any amount paid
in settlement unless the Corporation has consented to such settlement, which
consent shall not be unreasonably withheld. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his or her conduct was unlawful.
Notwithstanding anything to the contrary in the foregoing provisions of this
Section 1, a person shall not be entitled, as a matter of right, to
indemnification pursuant to this Section 1 against costs or expenses incurred in
connection with any action, suit or proceeding commenced by such person against
any person who is or was a Director, officer, fiduciary, employee or agent of
the Corporation or a Subsidiary Officer of any Affiliated Entity, but such
indemnification may be provided by the Corporation in a specific case as
permitted by Section 6 of this Article.
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SECTION 2. Indemnification Respecting Derivative Claims. The Corporation,
to the full extent permitted, and in the manner required, by the laws of the
State of Delaware as in effect at the time of the adoption of this Article or as
such laws may be amended from time to time, shall indemnify any person who was
or is made a party to or is threatened to be made a party to any threatened,
pending or completed action or suit (including any appeal thereof) brought in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a Director, officer, employee or agent of the
Corporation, or, if at a time when he was a Director, officer, employee or agent
of the Corporation, is or was serving at the request of, or to represent the
interests of, the Corporation as a Subsidiary Officer of an Affiliated Entity
against expenses (including attorneys' fees and disbursements) and costs
actually and reasonably incurred by such person in connection with such action
or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless, and except to the extent that, the Court of
Chancery of the State of Delaware or the court in which such judgment was
rendered shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses and costs as the
Court of Chancery of the State of Delaware or such other court shall deem
proper. Notwithstanding anything to the contrary in the foregoing provisions of
this Section 2, a person shall not be entitled, as a matter of right, to
indemnification pursuant to this Section 2 against costs and expenses incurred
in
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connection with any action or suit in the right of the Corporation commenced
by such person, but such indemnification may be provided by the Corporation in
any specific case as permitted by Section 6 of this Article.
SECTION 3. Determination of Entitlement to Indemnification. Any
indemnification under Section 1 or 2 of this Article (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification is proper under the circumstances because
such person has met the applicable standard of conduct set forth in Section 1 or
2 of this Article. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to the action, suit or proceeding in respect of which indemnification is
sought or by majority vote of the members of a committee of the Board of
Directors composed of at least three members each of whom is not a party to such
action, suit or proceeding, or (b) if such a quorum is not obtainable and/or
such a committee is not established or obtainable, or, even if obtainable, if a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion or (c) by the stockholders. In the event a request for
indemnification is made by any person referred to in Section 1 or Section 2, the
Corporation shall cause such determination to be made not later than 60 days
after such request is made.
SECTION 4. Right to Indemnification Upon Successful Defense and For
Service as a Witness.
(a) Notwithstanding the other provisions of this Article, to the
extent that a Director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or
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2 of this Article, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees) and
costs actually and reasonably incurred by such person in connection therewith.
(b) To the extent any person who is or was a Director, officer,
employee or agent of the Corporation has served or prepared to serve as a
witness in any action, suit or proceeding (whether civil, criminal,
administrative or investigative in nature) or in any investigation by the
Corporation or the Board of Directors thereof or a committee thereof or by any
securities exchange on which securities of the Corporation are or were listed by
reason of his services as a Director, officer, employee or agent of the
Corporation or as a Subsidiary Officer of any Affiliated Entity (other than in a
suit commenced by such person), the Corporation shall indemnify such person
against expenses (including attorneys' fees and disbursements) and costs
actually and reasonably incurred by such person in connection therewith within
30 days after receipt by the Corporation from such person of a statement
requesting such indemnification, averring such service and reasonably evidencing
such expenses and costs.
SECTION 5. Advance of Expenses. Expenses and costs incurred by any person
referred to in Section 1 or Section 2 of this Article in defending a civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized by this Article.
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SECTION 6. Indemnification Not Exclusive. The provision of indemnification
to or the advancement of expenses and costs to any person under this Article, or
the entitlement of any person to indemnification or advancement of expenses and
costs under this Article, shall not limit or restrict in any way the power of
the Corporation to indemnify or advance expenses and costs to such person in any
other way permitted by law or be deemed exclusive of, or invalidate, any right
to which any person seeking indemnification or advancement of expenses and costs
may be entitled under any law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in such person's capacity as an
officer, Director, employee or agent of the Corporation and as to action in any
other capacity while holding any such position.
SECTION 7. Accrual of Claims; Successors. The indemnification provided or
permitted under this Article shall apply in respect of any expense, cost,
judgment, fine, penalty or amount paid in settlement, whether or not the claim
or cause of action in respect thereof accrued or arose before or after the
effective date of this Article. The right of any person who is or was a
Director, officer, employee or agent of the Corporation to indemnification under
this Article shall continue after he shall have ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
distributees, executors, administrators and other legal representatives of such
person.
SECTION 8. Corporate Obligations; Reliance. This Article shall be deemed
to create a binding obligation on the part of the Corporation to its current and
former officers, Directors, employees and agents and their heirs, distributees,
executors, administrators and other legal representatives, and such persons in
acting in such
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capacities shall be entitled to rely on the provisions of this Article, without
giving notice thereof to the Corporation.
SECTION 9. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of, or to represent the
interests of, the Corporation as a Subsidiary Officer of any Affiliated Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the provisions of this Article or applicable law.
SECTION 10. Definitions of Certain Terms.
(a) For purposes of this Article, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its corporate existence had continued, would
have been permitted under applicable law to indemnify its Directors, officers,
employees or agents, so that any person who is or was a Director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request, or to represent the interests of, such constituent corporation as a
Director, officer, employee or agent of any Affiliated Entity shall stand in the
same position under the provisions of this Article with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
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(b) For purposes of this Article, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; references to "serving at the request of the Corporation" shall
include any service as a Director, officer, fiduciary, employee or agent of the
Corporation which imposes duties on, or involves services by, such Director,
officer, fiduciary, employee or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interest of the Corporation" as
referred to in this Article.
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EXHIBIT 10(F)*
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EXHIBIT 10(f)
AMENDMENT TO THE GUILFORD MILLS, INC.
1991 STOCK OPTION PLAN
The first paragraph of Article II of the Option Plan is deleted in its
entirety and the following is substituted in its place in order to reflect the
increase in the number of shares authorized to be issued under the Option Plan
from 2,025,000 (the original number of shares authorized to be issued under the
Option Plan as adjusted, pursuant to the terms of the Option Plan, for two
3-for-2 stock splits) to 2,500,000:
The total number of shares of common stock of the Company which may
be purchased or acquired pursuant to the exercise of Options or
Rights granted under the Plan shall not exceed, in the aggregate,
Two Million Five Hundred Thousand (2,500,000) shares of the
authorized common stock, $.02 par value per share, of the Company
(the "Shares"), such number to be subject to adjustment as provided
in Article XVIII hereof. Shares that are the subject of Rights and
related Options shall be counted only once in determining whether
the maximum number of Shares that may be purchased or awarded under
the Plan has been exceeded.
EXHIBIT 13
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 27, 1998 were $894.5 million. Net income was $30.2
million.
Current year sales levels were basically flat with the prior year as the
continued growth of certain niche fabrics and focus on diversification
especially into the home fashions market- were more than offset by weakness in
the women's apparel market and declines caused by the Asian financial crisis and
a harsh U.K. manufacturing environment.
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.
The Company's apparel fabrics are used predominantly in women's shapewear,
swimwear, ready-to-wear and intimate apparel garments. Other uses include
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.
Automotive fabrics are produced in the U.S., the U.K., Mexico and Brazil 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 1998
fiscal year was 15.4 million units and the European automotive production for
the same period was 13.9 million units. The Company provides fabric for 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 represent the largest increase in
market penetration for Guilford. This revenue increase of more than 60% from
fiscal 1996 to fiscal 1998 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. For fiscal year 1998, sales of hook and loop
fabrics for closure systems comprised approximately 44% and sales of yarn were
22% of the total specialty revenue. The remaining 34% consisted 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 1998, the British pound
strengthened against the U.S. dollar and resulted in a translation gain on the
balance sheet of approximately $2.0 million. The Mexican peso continued to
decline in fiscal 1998. 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 Accounting 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
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
remaining three quarters of fiscal 1997 and more significantly for the 1998
fiscal year. This decline had a $1.0 million negative impact on the 1998
operating results of the Mexican investment. The Company's Mexican subsidiary
contributed 5.8% to consolidated sales and was profitable in fiscal 1998.
Effective June 27, 1997, the Company acquired an additional 20% ownership
interest in Grupo Ambar. 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
1998 COMPARED TO 1997 - Consolidated sales for fiscal 1998 were $894.5 million,
down slightly from last year's record high of $894.7 million. Increases in sales
to the automotive and home fashions markets were offset by decreases in sales of
apparel and specialty fabrics. Sales were negatively impacted by the Asian
economic crisis, adverse conditions in the U.K. as the result of the
strengthening of the sterling and continued devaluation of the Mexican peso.
Apparel fabric sales for fiscal 1998 were $342.5 million and decreased 2.2% from
fiscal 1997 sales of $350.2 million. Sales to the apparel market, made
predominantly in the U.S. and Mexico, were 38.3% of consolidated sales. Intimate
apparel and shapewear compression fabrics, which contain spandex, continued to
grow at double-digit rates due substantially to strong relationships with key
retail customers and continued penetration of major branded manufacturers.
Swimwear fabric sales were down slightly in fiscal 1998 as the season's success
was thwarted early with extremely poor weather patterns in California and
Florida attributed to El Nino. Ready-to-wear sales decreased significantly
overall. The domestic demand for higher quality fashionable fabrics declined in
favor of garments imported from Asia. As a result of the financial crisis there,
yarns, fabrics and finished garments from foreign competitors were sold at
prices below domestic cost. Team sports sales increased, as these
high-performance ready-to-wear fabrics were not readily produced at low price
points. The impact of the Asian crisis was evident in the Company's linings
business as well. Other apparel fabric sales, such as sleepwear and robewear,
declined slightly from the prior year levels.
Sales of worldwide automotive fabrics increased 2.7% to $337.4 million in fiscal
1998 from $328.5 million last year. Significant growth in the U.S. and Mexican
markets was tempered by the current economics in the U.K. Sales to the
automotive market represented 37.7% of consolidated sales. North American car
build for the fiscal year increased 1.3% to 15.4 million units. Domestic fabric
sales increased by 10.8%. The Company's increased penetration resulted from
continued popularity of certain Ford models, growth with the New Domestic
manufacturers, and dominance of the warp knit fabric market. Additionally, the
Company sourced the largest woven velour program in North America. Fabric
content per vehicle has increased due to the demand for larger sport utility
vehicles and light trucks, but severe pricing pressure and more efficient
utilization by the fabricators offset the increase. In Europe, while the
calendar year car build is expected to be a record 14.7 million units, the
increases are being enjoyed by OEMs which dominate certain markets, such as
luxury vehicles and France. Guilford's key customers experienced reduced market
share. Additionally, the sterling's strength against other European currencies
caused U.K. manufacturers a disadvantage which resulted in reduced sales prices
to prevent resourcing to other parts of Europe. Consequently, sales of
automotive fabric from the Company's U.K.-based manufacturing facilities fell
8.1% in fiscal 1998. The Mexican automotive market was relatively flat with
local demand spurred by OEM incentives. The Company's Mexican sales increased
7.3% due to the popularity of its major customer's vehicles.
Home fashions product sales increased by 18.1% in fiscal 1998 and were $156.1
million
<PAGE>
versus $132.2 million for fiscal year 1997. This market accounted for 17.5% of
consolidated sales and was the largest growth sector. Direct to retail sales
increased by 38.6% with continued strong sales of Guilford's jersey knit cotton
sheeting and the introduction of top-of-the-bed products. Moderate increases in
window curtains and fabrics were slightly offset by declines in shower curtains,
mattress ticking and furniture fabrics.
Specialty/industrial sales declined by 30.2% to $58.5 million in fiscal year
1998 from 1997's $83.8 million. Sales of hook and loop closure system fabrics
decreased by nearly 45% due to the lower demand for premium diapers containing
this fastening system. The European business for these products was resourced to
a local supplier. Additionally, fiber sales were down substantially as a result
of Asian yarn competitive pricing on polyester.
The gross profit margin in fiscal year 1998 was $167.3 million or 18.7% of sales
compared to $181.6 million or 20.3% of sales for the prior year. Volume
increases, especially in retail home fashions and automotive fabrics, were more
than offset by significant sales price pressure. Automotive OEM sales price
reductions domestically and in the U.K., where the strength of the pound
sterling has caused a competitive disadvantage in Europe, totaled nearly $9
million. In the home fashions market, the Company's cotton sheeting sales were
up nearly 200% without corresponding profitability due to operating
inefficiencies and competitive pricing pressure with extremely low-cost imports.
The Company was able to maintain overall margins on apparel products, despite a
decline of $6 million in sales prices and lower volumes caused primarily by the
Asian financial crisis. Reductions were offset by increased volume on
higher-margin intimate apparel and shapewear business and lower polyester yarn
purchase prices. Volume and pricing declines on the hook and loop specialty
fabric impacted margins by more than $5 million. Also, the continued devaluation
of the Mexican peso and the impact of remeasurement under SFAS No. 52 impacted
gross margins by more than $1.0 million in fiscal year 1998.
Selling and administrative expenses increased to $97.7 million or 10.9% of sales
from last year's $95.0 million or 10.6% of sales. Continued design, marketing
and research and development efforts, along with expenses related to the direct
retail business, caused the increase. Research and development expenditures were
$19.6 million in fiscal 1998, an increase of $4.7 million over fiscal 1997.
Direct to retail selling expenses were up $3.7 million primarily due to volume
increases, promotional expenses and shelf space allowances. Salaries and
fringes, which were up as the result of normal wage progression and commissions,
declined substantially as incentive compensation expense was down $9.1 million.
A plant restructuring charge of $6.5 million was recorded for termination and
exit costs for two of the Company's facilities. The charge included $2.9 million
of severance pay, $3.5 million of equipment write-downs and $0.1 million of
other exit costs. Guilford has exited the nylon fiber business and closed a
fiber plant to more effectively utilize capacity. In addition, the Company will
no longer dedicate resources to certain high-end ready-to-wear products.
Interest expense decreased to $12.4 million from the prior year's $16.2 million.
The reduction in long-term debt for much of the year, due substantially to the
repayments and conversion of the 6% Subordinated Convertible Debentures late in
fiscal year 1997, resulted in a $4.2 million decline in interest expense.
Average short-term borrowings increased, but a flat interest rate resulted in
additional interest expense of only $0.2 million. Interest expense for fiscal
1998 was not impacted by the refinancing of long-term debt, which occurred on
September 25, 1998.
Other expense decreased to $1.6 million in fiscal year 1998, down from the prior
year's $4.6 million. Gains on the sale of fixed assets, a fire insurance
recovery, and a reduction in the low income housing investment caused the
decline.
The effective income tax rate for fiscal 1998 was 32.5% versus 34.3% for the
prior year. The decrease resulted from lower pre-tax book income, a U.K.
statutory rate reduction of 200 basis points, additional R&D tax credits and
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
higher Foreign Sales Corporation benefits. The reduction of certain credits
partially offset the decline.
An extraordinary charge, net of tax, of $2.9 million for the prepayment of the
debt was recorded in fiscal 1998. In conjunction with the prepayment of senior
unsecured notes outstanding, the Company recorded a prepayment penalty of $3.9
million and related amortization of loan costs of $0.4 million. The related
income tax benefit was $1.4 million.
Net income before the extraordinary charge in fiscal year 1998 was $33.1 million
or 3.7% of sales. Earnings per share before extraordinary item was $1.32 per
basic share and $1.30 per diluted share. Net income after the extraordinary
charge was $30.2 million or 3.4% of sales compared to $43.2 million or 4.8% of
sales in the prior year. Earnings per share was $1.20 per basic share and $1.19
per diluted share in fiscal 1998 compared to $1.92 per basic share and $1.78 per
diluted share in fiscal 1997. Average basic shares outstanding increased 11.9%
due primarily to the July, 1997 conversion of debentures to equity.
1997 COMPARED TO 1996 - Consolidated sales for fiscal 1997 increased to $894.7
million from the prior 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 / industrial 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 $350.2 million and increased 2.7% from
fiscal 1996's $340.9 million. Sales of compression fabrics, which contain
spandex, 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 containing nylon continued to decline.
These trends 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 decline in Ford placements 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 the home fashions market increased 35.6% from $97.5 million
in fiscal year 1996 to $132.2 million in fiscal year 1997. The most significant
product growth resulted from the introduction of Guilford's jersey knit cotton
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 53.2% to $83.8 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
<PAGE>
pursued external channels for excess fiber-producing capacity.
Gross margin increased to 20.3% of sales from the prior 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 incentive compensation increases
totaling $8.5 million and sales related increases of $3.9 million to affect the
increase. Increases were partially offset by non-recurring premium freight costs
for automotive fabrics in 1996.
Interest expense decreased to $16.2 million from the prior year's $17.0 million.
This overall decrease was 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 U.S. 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 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 the prior year's $34.0 million or 4.1% of sales.
Basic earnings per share increased to $1.92 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). Diluted earnings per share increased to $1.78 from $1.47 (as
restated for the 3-for-2 stock split effected as a stock dividend).
Liquidity and Capital Requirements
At the end of fiscal 1998, cash and cash equivalents of $ 30.4 million were
available for future capital and other operational and business needs.
Cash provided by operations decreased to $81.4 million in fiscal 1998 compared
to $114.0 million in fiscal 1997. Income before non-cash charges for
restructuring and extraordinary items was down $6.4 million from the prior year.
The charge for depreciation and amortization increased in fiscal 1998 resulting
in an additional non-cash item of $4.4 million over the prior year. The decrease
in cash provided by operations was caused substantially by the reduction of
accrued liabilities related to incentive compensation accruals and income taxes
payable. Additionally, inventories increased.
Over the past three years, Guilford continued to modernize equipment and
increase capacity to support new, innovative products. Capital expenditures were
$84.0 million in 1998, $57.6 million in 1997 and $64.5 million in 1996.
Expenditure levels for the next two years are expected to be slightly above
depreciation expense.
As part of the original 1996 purchase agreement between Guilford Mills and
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
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
end of calendar year 2000. The purchase agreement was amended in fiscal year
1998 and the payment of the contingent acquisition price was accelerated. Cash
of $17.0 million was paid during fiscal year 1998 and an additional liability of
$17.3 million was recorded. This final installment was paid in the first quarter
of fiscal year 1999.
Long-term debt increased $30.6 million and short-term debt increased $48.5
million from the prior year. The Company prepaid $73.6 million of senior,
unsecured notes issued to certain institutional investors which matured through
2003. Current year increases in working capital, excluding cash and borrowings,
the accelerated buyout of the Hofmann Laces earnout, stock repurchases and
capital expenditures in excess of depreciation resulted in additional borrowing
requirements. The Company temporarily funded these borrowings under its
revolving credit facility and existing bank lines of credit. The Company
anticipates closing a $145.0 million private placement of senior, unsecured
notes with three institutions in the first quarter of fiscal 1999. The notes
will be payable in 10 years with a fixed rate coupon of 7.06%. The proceeds will
be used to repay current borrowings on uncommitted bank lines with any remainder
to repay a portion of the revolving credit facility.
The Company is exposed to market risk from changes in interest rates. The
Company entered into two treasury lock agreements that hedge a portion of the
interest rate risk related to the anticipated private placement of senior,
unsecured notes. The treasury lock agreements effectively fix the 10-year U.S.
Treasury component of the interest rate on those notes. The treasury lock
agreements were terminated in November 1998, resulting in a payment of $4.4
million which will be amortized as additional interest expense over the 10-year
term of the notes. The treasury lock arrangements are discussed further in Note
9 to the consolidated financial statements which are included herein. The
Company does not hold or issue any financial instruments for trading purposes.
In fiscal 1997, long-term debt decreased substantially due 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 Stock. The remaining $1.2 million of the
Subordinated Convertible Debentures was 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.
Raw material costs declined significantly in fiscal 1998. Record declines in
polyester yarn prices were caused by the Asian financial crisis. These decreases
were passed through to customers as the retail marketplace demanded lower-priced
garments competitive with foreign sources. While pricing has somewhat
stabilized, a return to prior levels is not expected in fiscal 1999. Management
expects flat or slightly decreased raw material costs in 1999 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 $260.0 million and
the ability to borrow against factored accounts receivables. At September 27,
1998, $50.0 million was outstanding against the revolving credit facility and
availability under its uncommitted short-term bank lines of credit was $82.1
million.
<PAGE>
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 sound financial position, with debt to total capital of 37.7%,
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 is involved in various litigation and environmental matters arising
in the ordinary course of business. Additionally, three class action lawsuits
have been commenced against the Company and certain of its officers and
directors alleging violations of the Federal Securities Law arising out of the
previously reported accounting irregularities. These are discussed in Note 13 to
the consolidated financial statements which are included herein. 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,
Mexico, and Brazil, and by diverse product offerings.
Many manufacturers who use Guilford's fabrics 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 its
competitive position in its markets.
The city of Greensboro, North Carolina is currently experiencing a serious water
shortage due to the lack of rain for the past several months. The supply is down
to a three-month level. The City is purchasing water from adjacent
municipalities and intends to purchase additional quantities. Long-term, the
plans include a reservoir. Conservation measures have also been implemented.
However, it is remotely possible that this shortage could result in mandated
business interruption. The Company operates four significant facilities in this
city, two of which would be seriously affected by such water restrictions. The
Company would consider utilizing existing or additional wells if prolonged
mandatory restrictions were imminent.
Mexico is considered "highly inflationary" for financial reporting purposes and,
as a result, foreign currency translation gains and losses are recognized
currently in operations rather than as an adjustment to stockholders' equity.
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.
The Company has significant operations in the United Kingdom (U.K.). Although
the U.K. does not plan to enter into the European Community until 2002, the
Company conducts business in various European countries that will adopt the Euro
as their common currency as of January 1, 1999. The Company has evaluated the
Euro conversion's impact on its business, both strategically and operationally.
The conversion of the Euro is not expected to have a material adverse effect on
the Company's financial condition or results of operation.
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000
The Year 2000 issue affecting most entities, including the Company, results
from the possible inability of internal and external computer systems and
applications to recognize and process data pertaining to years after 1999. Over
the last five years, the Company has committed significant resources to the
reengineering of its business processes and information systems. The education,
identification, evaluation, implementation and testing of changes to systems and
applications to achieve Year 2000 readiness within the Company's operational,
manufacturing and financial areas have been an integral part of this process.
Based upon recently completed Year 2000 compliance assessments of both internal
information technology and embedded systems for all of the Company's facilities,
equipment and infrastructure, the Company expects to successfully implement any
systems and programming changes necessary prior to the turn of the century in
all of its domestic and international operations. The planning, inventory and
impact analysis phases have been completed. The remediation phase of the project
is expected to be completed by March, 1999 and the final testing phase is
scheduled for July, 1999. The Company expects to finalize any necessary
contingency plans by the Spring of 1999. The Company has spent $0.2 million to
date for Year 2000 readiness. Management believes that the cost of the
remediation plan for completion of Year 2000 compliance tasks will be $1.2
million. The Company continues to work with its customers, suppliers, and other
third parties to identify external weaknesses and provide solutions. Year 2000
compliance questionnaires have been forwarded to material third parties. While
the Company continues to gather responses to such questionnaires, of the 65%
response rate received thus far, no material business interruption issues have
been identified. To the extent that suppliers are not compliant or do not
respond, the Company will include alternatives in its contingency plan. The
reasonably likely worst case scenario that could arise as a result of a service
supplier's Year 2000 problem would be an interruption of normal business
operations. There can be no assurance, however, that there will not be a delay
in, increased costs or a material disruption of business activities associated
with Year 2000 readiness.
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 of 1933 and Section 21E of the Exchange Act of 1934.
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. information and
technological advances including Year 2000 issues; 5. cost and availability of
raw materials, labor and natural 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; or 10. inability to achieve cost reductions through
consolidations and restructuring of acquired companies.
<PAGE>
CONSOLIDATED BALANCE SHEETS
September 27, 1998 and September 28, 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 30,447 $ 24,349
Accounts receivable, net 164,555 167,347
Inventories 153,006 141,898
Prepaid income taxes 6,258 7,102
Other current assets 7,643 7,921
- --------------------------------------------------------------------------------------------
Total current assets 361,909 348,617
Property, net 326,941 308,523
Other assets 100,607 72,656
- --------------------------------------------------------------------------------------------
Total assets $789,457 $729,796
- --------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings $ 55,128 $ 6,677
Current maturities of long-term debt 811 12,542
Accounts payable 57,453 58,566
Accrued liabilities 37,239 56,858
- --------------------------------------------------------------------------------------------
Total current liabilities 150,631 134,643
- --------------------------------------------------------------------------------------------
Long-term debt 176,872 134,560
Deferred income taxes 31,075 23,024
Other non-current liabilities 45,702 28,673
- --------------------------------------------------------------------------------------------
Total long-term liabilities 253,649 186,257
- --------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 12 & 13)
STOCKHOLDERS' INVESTMENT
Preferred stock, $1 par; 1,000,000 shares authorized, none issued -- --
Common stock, $.02 par; 40,000,000 shares authorized,
32,750,222 shares issued, 23,226,322 shares outstanding at
September 27,1998 and 25,756,905 shares outstanding at
September 28,1997 655 655
Capital in excess of par 119,648 117,110
Retained earnings 363,606 344,656
Foreign currency translation loss (7,577) (9,604)
Unamortized stock compensation (4,759) (5,091)
Treasury stock, at cost (9,523,900 shares at September 27, 1998
and 6,993,317 shares at September 28, 1997) (86,396) (38,830)
- --------------------------------------------------------------------------------------------
Total stockholders' investment 385,177 408,896
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' investment $789,457 $729,796
- --------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 27, 1998, SEPTEMBER 28, 1997 AND SEPTEMBER 29,
1996
(In thousands except per share data)
<TABLE>
<CAPTION>
---- ---- ----
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES $894,534 $894,709 $830,320
- ------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 727,218 713,143 676,264
Selling and administrative 97,734 94,957 82,430
Plant restructuring costs 6,470 -- --
- ------------------------------------------------------------------------------------------
831,422 808,100 758,694
- ------------------------------------------------------------------------------------------
OPERATING INCOME 63,112 86,609 71,626
- ------------------------------------------------------------------------------------------
OTHER EXPENSES:
Interest expense 12,414 16,190 17,017
Other expense, net 1,592 4,609 3,640
- ------------------------------------------------------------------------------------------
14,006 20,799 20,657
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 49,106 65,810 50,969
INCOME TAX PROVISION 15,960 22,572 16,991
- ------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 33,146 43,238 33,978
EXTRAORDINARY ITEM, NET OF INCOME TAXES
(NOTE 8) (2,940) -- --
- ------------------------------------------------------------------------------------------
NET INCOME $ 30,206 $ 43,238 $ 33,978
- ------------------------------------------------------------------------------------------
INCOME PER SHARE BEFORE EXTRAORDINARY ITEM:
Basic $ 1.32 $ 1.92 $ 1.59
Diluted 1.30 1.78 1.47
- ------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
Basic $ 1.20 $ 1.92 $ 1.59
Diluted 1.19 1.78 1.47
- ------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
For the Years Ended September 27, 1998, September 28, 1997 and September 29,
1996
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)
FOREIGN
CAPITAL IN CURRENCY UNAMORTIZED
COMMON EXCESS OF RETAINED TRANSLATION STOCK TREASURY
STOCK PAR EARNINGS GAIN (LOSS) COMPENSATION STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 .................................. $ 393 $ 37,467 $ 285,880 $ (10,110) $ (1,260) $ (44,821)
Issuance of 300,000 shares of treasury stock
in connection with the purchase of a business ......... -- 2,401 -- -- -- 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
recipients' individual income tax obligations ......... -- 275 -- -- (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) -- -- -- 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 -- -- -- 483
Other transactions including return of
8,915 shares to treasury stock received
as payment for options exercised ...................... -- (79) -- -- -- (61)
Foreign currency translation loss ...................... -- -- -- (1,878) -- --
Cash dividends ($.40 per share) ........................ -- -- (8,641) -- -- --
Net income ............................................. -- -- 33,978 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 29, 1996 ............................... 393 41,089 311,217 (11,988) (287) (42,365)
Three-for-two stock split effected as a
stock dividend ........................................ 196 -- (196) -- -- --
Conversion of 3,306,423 shares of common stock
for subordinated convertible debentures ............... 66 66,431 -- -- -- --
Grant of 322,750 shares under the restricted
stock plan ............................................ -- 4,816 -- -- (6,587) 1,771
Return of 38,270 shares to treasury stock to satisfy
recipients individual tax obligations under
the restricted stock plan ............................. -- -- -- -- -- (707)
Compensation under restricted stock plan ............... -- -- -- -- 1,783 --
Issuance of 129,761 shares of treasury stock
under the employee stock ownership plan ............... -- (710) -- -- -- 710
Shares to be issued in fiscal 1998 under the
employee stock ownership plan ......................... -- 2,032 -- -- -- --
Issuance of 367,577 shares of treasury stock
for options exercised ................................ -- 3,292 -- -- -- 2,028
Other transactions of 14,903 shares including
return of 11,723 shares to treasury stock
received as payment for options exercised ............. -- 160 -- -- -- (267)
Foreign currency translation gain ...................... -- -- -- 2,384 -- --
Cash dividends ($.42 per share) ........................ -- -- (9,603) -- -- --
Net income ............................................. -- -- 43,238 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28,1997 ................................ 655 117,110 344,656 (9,604) (5,091) (38,830)
Grant of 58,000 shares under the restricted
stock plan ............................................ -- 765 -- -- (1,136) 371
Vesting of 29,000 shares under the restricted
stock plan, less return of 11,253 shares to
treasury stock to satisfy recipients'
individual tax obligations ............................ -- -- -- -- -- (256)
Compensation under restricted stock plan ............... -- -- -- -- 1,468 --
Issuance of 105,422 shares of treasury stock
under the employee stock ownership plan ............... -- 64 -- -- -- 619
Issuance of 113,257 shares of treasury stock
for options exercised for cash ........................ -- 947 -- -- -- 684
Issuance of 5,625 shares of treasury stock for
options exercised for stock ....................... -- 52 -- -- -- 30
Other transactions including return of 4,809 shares
treasury stock received as payment for
options exercised ..................................... -- 710 -- -- -- 176
Foreign currency translation gain ...................... -- -- -- 2,027 -- --
Purchases of 2,796,825 shares of treasury stock ........ -- -- -- -- --
Cash dividends ($.44 per share) ....................... -- -- (11,256) -- -- --
Net Income ............................................. -- -- 30,206 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998 ............................... $655 $119,648 $ 363,606 $ (7,577) $ (4,759) $ (86,396)
====================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 27, 1998, SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(IN THOUSANDS)
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 30,206 $ 43,238 $ 33,978
Non-cash items included in net income:
Depreciation and amortization .......................................... 63,951 59,561 55,389
Unexpended Restructuring Costs ......................................... 6,184 -- --
Extraordinary loss on debt extinguishment .............................. 4,356 -- --
Gain on disposition of property ........................................ (2,382) (1,079) (180)
Loss on equity method investment ....................................... (371) -- --
Minority interest in net income ........................................ 97 467 206
Deferred income taxes .................................................. 9,032 (1,728) 5,835
Increase in cash surrender value of life insurance,
net of policy loans .................................................. (2,630) (1,718) (3,852)
Compensation earned under restricted stock plan ........................ 1,468 1,783 1,248
Shares to be issued under employee
stock ownership plan ................................................. -- 2,032 1,858
Changes in assets and liabilities:
Receivables ............................................................ 3,415 5,548 (13,277)
Inventories ............................................................ (10,708) (3,444) (3,688)
Other current assets ................................................... 278 211 (184)
Accounts payable ....................................................... (1,345) (5,283) 11,640
Accrued liabilities .................................................... (21,744) 12,138 (9,999)
Other .................................................................... 1,640 2,244 (400)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 81,447 113,970 78,574
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property .................................................. (84,015) (57,629) (64,532)
Proceeds from dispositions of property ................................. 4,331 2,603 1,220
Proceeds from sale of other assets ..................................... 12,763 2,060 --
(Increase) decrease in other assets .................................... (4,009) 5 (655)
Purchases of businesses, net of cash acquired (34,778) (6,991) (26,519)
Investment in equity investee .......................................... (3,500) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (109,208) (59,952) (90,486)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (repayments), net ................................ 48,804 (41,244) 42,667
Payments of long-term debt ............................................. (88,010) (16,108) (68,138)
Proceeds from issuance of long-term debt ............................... 135,235 -- 58,777
Payments arising from early extinguishment of debt (3,896) -- --
Cash dividends ......................................................... (11,256) (9,603) (8,641)
Proceeds from exercise of common stock options 1,631 5,320 730
Purchases of treasury stock ............................................ (49,190) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ...................... 33,318 (61,635) 25,395
- ------------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS ....................................................... 541 518 1
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 6,098 (7,099) 13,484
- ------------------------------------------------------------------------------------------------------------------------------------
BEGINNING CASH AND CASH EQUIVALENTS ....................................... 24,349 31,448 17,964
ENDING CASH AND CASH EQUIVALENTS .......................................... $ 30,447 $ 24,349 $ 31,448
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................................. $ 13,862 $ 14,945 $ 17,245
Cash paid for income taxes ............................................. 16,406 13,112 9,006
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of 6% Subordinated Convertible
Debentures to equity (including
accrued interest)
$ -- $ 66,497 --
Issuance of common stock:
Under restricted stock plan ......................................... 1,136 6,587 176
For purchase of a business .......................................... -- -- 4,025
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL 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 - Guilford Mills, Inc. (the "Company") is a fabric
producer, which processes and sells warp knit, circular knit and woven velour
fabric as well as lace. The Company sells its finished fabrics to customers who
manufacture a broad range of apparel, automotive, 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 1998, 1997, and
1996 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 1997 and
1996 financial statements have been reclassified to conform with the 1998
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 factors as a means to reduce credit risk. Credit
insurance is maintained covering $37,000 of certain outstanding accounts
receivable. As of September 27, 1998 and September 28, 1997, approximately 11%,
and 15%, respectively, of the Company's trade accounts receivable were factored
on a non-recourse basis. The Company performs on-going credit evaluations of its
non-factored customer's 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 $9,450 and $9,488 at September 27, 1998
and September 28, 1997, respectively.
MINORITY INTEREST - Minority interest represents the minority stockholders'
proportionate share of the equity of Grupo Ambar, S.A. de C.V. At September 27,
1998, 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 53% of
inventories in 1998 and approximately 55% of inventories in 1997. Cost for all
other inventories has been determined principally by the first-in, first-out
(FIFO) method.
PROPERTY - Property is carried at cost, and depreciation is provided for
financial reporting primarily on the straight-line method. Accelerated methods
are used for income tax reporting 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. Goodwill amortization
was $1,998 in fiscal 1998, $1,536 in fiscal 1997 and $1,251 in fiscal 1996. 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 $30,574 at September 27, 1998 and $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 currency translation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 - The Company adopted SFAS No. 128, "Earnings Per Share",
in fiscal 1998 and has restated prior period earnings per share data to conform
to this Statement. Basic income per share information has been determined by
dividing the respective net income amounts by the weighted average number of
shares of common stock outstanding during the periods. 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.
FINANCIAL INSTRUMENTS AND DERIVATIVES - The Company periodically uses derivative
financial instruments for purposes other than trading and does so to reduce its
exposure to fluctuations in interest rates and foreign currency exchange rates.
Gains and losses on hedges of existing assets and liabilities are included in
the carrying amounts of those assets or liabilities and are ultimately
recognized in income. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions are deferred and are recognized in
income or as adjustments of carrying amounts when the hedged transaction occurs.
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 Accounting Principles Board ("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 June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This
Statement establishes standards for the prominent reporting of the components of
comprehensive income, which 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.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
Statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This Statement is effective for financial
statements for periods beginning after December 15, 1997.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures About Pensions and Other Postretirement Benefits". This
Statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The Statement is effective for fiscal years beginning after December 15, 1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This Statement
establishes accounting and reporting stan dards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
The Company plans to adopt the provisions of these Statements in fiscal 1999,
except for SFAS No. 133 which will be adopted in fiscal 2000. Management does
not expect the impact of the adoption of these statements 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") for
approximately
<PAGE>
$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 initial 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 the purchase method of accounting. The
excess of the initial purchase price over fair market value of the underlying
assets of $7,575 was allocated to goodwill. In addition to the initial purchase
price paid at the closing of the acquisition, the Company also agreed to pay
additional consideration in accordance with a formula based on the Company's
price-earnings' multiple and Hofmann Laces' performance through the end of
calendar year 2000 (the "Contingent Payment"). During the 1998 fiscal year, the
Company entered into an amendment to the Hofmann Purchase Agreement, pursuant to
which the Company agreed to pay a fixed amount in lieu of a Contingent Payment.
The Company paid the amount of $17,000 in February 1998 with the remaining
$17,283 paid in October 1998. The $17,283 has been included in other non-current
liabilities in the accompanying 1998 balance sheet as it will be funded through
long-term debt.
The operating results of Hofmann Laces have been included in the consolidated
statements of income from the date of acquisition. The unaudited pro forma
results below assume the acquisition occurred at the beginning of the fiscal
year ending September 29, 1996:
- ------------------------------------
1996
- ------------------------------------
Net Sales $848,985
Operating Income 73,682
Net Income 34,386
- -----------------------------------
Net Income per share:
Basic 1.61
Diluted 1.49
==================================
In management's opinion, the unaudited pro forma combined results of operations
are not necessarily indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of fiscal 1996 or of
future operations of the combined companies under the ownership and management
of the Company.
3. RESTRUCTURING CHARGES:
In September 1998, the Company commenced restructuring of two of its operations
and recorded restructuring and impaired asset charges of $6,470. The
restructuring plan provides for the closing of a yarn manufacturing facility,
the downsizing of a product line-focused operation within the apparel market
sector and the severance of approximately 300 associates. A reserve for
severance costs of $2,849 and lease exit costs and other obligations of $113 was
recorded as an accrued liability in fiscal 1998. Additionally, a charge of
$3,508 was taken to reduce property to net realizable value at September 27,
1998. Severance costs of $286 were charged against the reserve in fiscal 1998.
The Company intends to complete the restructuring plan during fiscal 1999.
4. INVENTORIES:
Inventories at September 27, 1998 and September 28, 1997 consist of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 48,776 $ 53,404
Raw materials and work
in process 112,275 98,499
Manufacturing supplies 8,811 8,758
- --------------------------------------------------------------------------------
Total inventories valued at the lower
of FIFO cost or market value 169,862 160,661
Adjustments to reduce
FIFO cost to LIFO cost, net 16,856 18,763
- --------------------------------------------------------------------------------
Total inventories $153,006 $141,898
================================================================================
</TABLE>
5. PROPERTY:
Property at September 27,1998 and September 28, 1997 consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 12,804 $ 11,541
Buildings 115,144 107,357
Machinery and equipment 637,113 580,048
Construction in progress 19,112 19,231
- --------------------------------------------------------------------------------
784,173 718,177
Less - Accumulated
depreciation 457,232 409,654
- --------------------------------------------------------------------------------
Property, net $326,941 $308,523
================================================================================
</TABLE>
6. OTHER ASSETS:
Other assets at September 27, 1998 and September 28, 1997 consist of
the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 52,448 $ 19,336
Cash surrender value of life insurance 34,549 43,433
Other 13,610 9,887
- --------------------------------------------------------------------------------
Total other assets $100,607 $ 72,656
================================================================================
</TABLE>
<PAGE>
7. ACCRUED LIABILITIES:
Accrued liabilities at September 27, 1998 and September 28, 1997 consist of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Payroll and related benefits $ 14,808 $ 22,596
Income taxes 915 15,211
Property taxes 2,985 3,126
Plant restructuring 2,676 --
Other 15,855 15,925
- --------------------------------------------------------------------------------
Total accrued liabilities $ 37,239 $ 56,858
================================================================================
</TABLE>
8. 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
1998, 1997, and 1996 were $82,918, $49,904, and $68,355 respectively; the
average borrowings were $30,230, $37,363 and $25,586 respectively; and the
weighted average interest rates were 7%, 7% and 9% (6%, 6% and 6% for U.S.
borrowings), respectively. The Company has no compensating balance requirements.
Long-term debt at September 27, 1998 and September 28, 1997 consists of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior, unsecured notes, repaid
during 1998 $ -- $ 84,286
Uncommitted lines of credit, various
maturities and interest rates 125,000 58,777
Revolving line of credit, due in 2000,
interest at 5.8% 50,000 --
Term loan with a Mexican
bank at various due dates
and a variable interest rate
(47.6% at September 27, 1998) 1,482 1,617
Other 1,201 2,422
- --------------------------------------------------------------------------------
177,683 147,102
Less - Current maturities 811 12,542
- --------------------------------------------------------------------------------
Total $176,872 $134,560
================================================================================
</TABLE>
During September 1998, the Company repaid all of the senior unsecured notes
outstanding with $50,000 of borrowings under its $150,000 revolving line of
credit facility and additional borrowings under uncommitted lines of credit. In
connection with the repayment, the Company recorded $3,994 of pretax prepayment
penalties and $362 of pretax accelerated amortization of loan costs as an
extraordinary item. The income tax effect related to those charges was $1,416,
with the net effect of the prepayment expenses ($2,940) reflected as an
extraordinary item in the accompanying 1998 statement of income.
The total borrowings on the uncommitted lines of credit as of September 27, 1998
and September 28, 1997 were $125,000 and $58,777, respectively. Interest rates
at September 27, 1998 ranged from 5.65% to 5.88% with a weighted average
interest rate of 5.84%. Interest rates at September 28, 1997 ranged from 5.64%
to 5.75% with a weighted average of 5.72%. These borrowings have been classified
as long-term debt in the accompanying consolidated balance sheets as management
has the ability and intent to refinance them through available long-term debt
sources. As of September 27, 1998, the Company has additional availability under
uncommitted bank lines of credit of $82,100 and has additional availability
under its revolving line of credit of $100,000.
The Company anticipates closing a $145,000 private placement of senior,
unsecured notes with three institutions in the first quarter of fiscal 1999. The
notes will be payable in 10 years with a fixed rate coupon of 7.06%. The
proceeds will be used to repay current borrowings on uncommitted bank lines with
any remainder to repay a portion of the revolving credit facility.
The carrying value of the remaining short-term borrowings and long-term debt of
the Company approximate the fair value for loans with similar terms.
Annual maturities of long-term debt for the next five years are, $811 in 1999,
$31,131 in 2000, $494 in 2001, $247 in 2002 and $0 in 2003.
Under the terms of the Company's debt agreements, certain requirements and
restrictions apply to future indebtedness, stockholders' investment, and
tangible net worth. As of September 27, 1998, the Company was in compliance with
all covenants under its debt agreements.
9. FINANCIAL INSTRUMENTS:
During August 1998, the Company entered into two treasury lock agreements, which
terminate on January 8, 1999, with two financial institutions to provide
interest rate protection related to the anticipated debt transaction described
in Note 8. The transaction is expected to close during the first quarter of
fiscal 1999. At September 27, 1998, the Company had treasury lock agreements in
place that effectively fix the 10 year U.S. Treasury component of the interest
rate at 5.437% on a notional amount of $57,500 and at 5.435% on a notional
amount of $30,000. As of September 27, 1998, the treasury lock agreements had an
inherent loss of $6,181, which has been deferred until the completion of the
anticipated transaction. These treasury lock agreements were terminated in
November 1998, resulting in a payment of $4,366, which will be amortized as
additional interest expense over the period of the related debt.
<PAGE>
10. INCOME TAXES:
The net deferred income tax liability at September 27, 1998 and September 28,
1997 is comprised of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets $ 25,286 $ 27,575
Liabilities (50,103) (43,497)
- --------------------------------------------------------------------------------
Total $(24,817) $(15,922)
================================================================================
</TABLE>
No valuation allowances against deferred income tax assets were recorded at
September 27, 1998 or September 28, 1997.
Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of September 27, 1998 and September 28, 1997
were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Current prepaid (deferred) income taxes:
Income tax credit carry-forwards
(expire 2005-2010) $ 3,222 $ 4,750
Inventory valuation differences (3,302) (2,481)
Allowances for doubtful accounts 2,056 2,721
Prepaid healthcare costs (446) (764)
Accrued expenses not currently
deductible for tax 2,795 2,228
Restructuring accruals 1,058 --
Accrued environmental expenses 396 396
Other, net 479 252
- -------------------------------------------------------------------------------
Total current prepaid
income taxes $ 6,258 $ 7,102
===============================================================================
Long-term prepaid (deferred) income taxes:
Property $(39,175) $(36,654)
Accrued pension and other
employee benefits 7,619 8,327
Alternative minimum and other
tax credit carryforwards
(no expiration) 3,843 5,811
Accrued environmental expenses 1,460 1,469
Investments in limited partnerships (2,644) (2,299)
Goodwill amortization (2,284) (297)
Other, net 106 619
- -------------------------------------------------------------------------------
Total long-term deferred
income taxes $(31,075) $(23,024)
===============================================================================
</TABLE>
The income tax provision consists of the following elements:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
U.S. Federal $ 4,499 $15,803 $ 5,932
State 823 2,338 1,539
Foreign 1,606 6,159 3,685
Deferred payable:
U.S. Federal 6,115 (1,826) 4,860
State 795 434 722
Foreign 2,122 (336) 253
- --------------------------------------------------------------------------------
Total $ 15,960 $ 22,572 $ 16,991
================================================================================
</TABLE>
The income tax provision as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. Federal
income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal Income tax reduction 2.1 2.9 2.7
Tax credits (3.0) (2.9) (3.8)
Other (1.6) (0.7) (0.6)
- -------------------------------------------------------------------------------
Effective income tax rate 32.5% 34.3% 33.3%
================================================================================
</TABLE>
11. 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 27, 1998, and September 28, 1997 is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets, primarily
marketable securities, short-term
investment funds and
insurance company contracts $ 26,361 $ 22,605
- -------------------------------------------------------------------------------
Accumulated benefit
obligation, including vested
benefits of $28,163 and $24,330 26,432 24,939
Additional benefits based on
estimated future salary levels 1,937 2,188
- -------------------------------------------------------------------------------
Projected benefit obligation 28,369 27,127
- -------------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (2,008)
Unrecognized net loss 3,821 4,824
Unrecognized net transitional
asset (2,058) (2,184)
Adjustment to recognize minimum
liability (140) (658)
- -------------------------------------------------------------------------------
Accrued pension liability $ (385) $ (2,540)
===============================================================================
</TABLE>
The projected benefit obligation has been determined for 1998 and 1997 using an
assumed discount rate of 7.0% and 7.25%, respectively, 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 a projected benefit obligation of $18,563 and net assets
available for plan benefits of $19,070 as of December 31, 1997. The present
value of plan benefits for Guilford Europe Limited was determined using an
assumed discount rate of 6.5% and an assumed long-term rate of salary
progression of 4.5%. The assumed long-term rate of return on plan assets was
9.5%.
<PAGE>
<TABLE>
<CAPTION>
Pension expense includes the following components:
-------------------------------
1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Domestic defined
benefit plans:
Service cost --
benefits earned
during the period $ 1,342 $ 1,254 $ 1,170
Interest on projected
benefit obligation 1,915 1,781 1,618
Actual return on
plan assets (843) (1,903) (1,760)
Net amortization
and deferral (1,512) 56 106
- ---------------------------------------------------------
902 1,188 1,134
Domestic multi-
employer plan 270 264 257
Foreign defined
benefit plan 582 567 478
- ---------------------------------------------------------
Total $ 1,754 $ 2,019 $ 1,869
===============================================================================
</TABLE>
The Company maintains defined contribution plans for certain officers and
salaried employees. Contributions under these plans are determined by the Board
of Directors. During 1998, 1997 and 1996, the provisions under the defined
contribution plans were $2,733, $2,381, and $2,626, respectively.
The Company also maintains deferred compensation plans for certain officers and
salaried employees. These plans are being provided for currently. During 1998,
1997 and 1996, the provisions under these plans were $2,310, $2,167, and $1,828,
respectively. The liability for deferred compensation was $17,899 at September
27, 1998 and $17,448 at September 28, 1997 and is included in other non-current
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.
12. CAPITAL STOCK AND STOCK COMPENSATION:
The Company has authorized the issuance of 2,500,000 shares of common stock
under a stock option plan for key employees and directors of which 393,807 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
ten year period commencing on the date of grant or two years after the date of
grant. Option activity under the plans is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NUMBER OF AVERAGE
SHARES EXERCISE PRICE EXERCISE
UNDER OPTION PER SHARE PRICE PER SHARE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, October 1, 1995 939,026 $6.22 to 16.33 $ 14.68
Granted 73,125 14.87 14.87
Exercised (63,026) 6.22 to 15.50 14.60
Forfeited (76,749) 6.22 to 16.25 13.99
- --------------------------------------------------------------------------------
Balance, September 29, 1996 872,376 12.44 to 16.33 14.76
Granted 909,350 17.21 to 23.70 20.22
Exercised (367,577) 12.44 to 16.33 14.74
Forfeited (39,246) 13.87 to 15.50 14.55
- --------------------------------------------------------------------------------
Balance, September 28, 1997 1,374,903 13.46 to 23.70 18.11
Granted 372,625 19.53 to 27.59 20.84
Exercised (118,882) 13.46 to 18.37 14.24
Forfeited (62,155) 13.87 to 19.75 16.88
- --------------------------------------------------------------------------------
Balance, September 27, 1998 1,566,491 $13.46 to 27.59 $ 19.00
================================================================================
</TABLE>
These options expire at various dates through fiscal 2008. The weighted average
remaining contractual life of the options outstanding at September 27, 1998 was
7 years. Incentive options exercisable at September 27, 1998 and September 28,
1997 were 33,161 and 23,171, respectively. Non-qualified options exercisable at
September 27, 1998 and September 28, 1997 were 200,625 and 186,500,
respectively.The average exercise price on the incentive options exercisable is
$13.87 and on the non-qualified options exercisable is $15.91. The weighted
average fair market value of the Company's common stock at the date of grant was
$20.84, $19.62 and $14.87 for grants made in fiscal 1998, 1997 and 1996,
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 ("EPS") 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 (in thousands, except per share data):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Extraordinary Item:
As reported $ 33,146 $ 43,238 $ 33,978
Pro Forma $ 32,272 $ 42,902 $ 33,924
- --------------------------------------------------------------------------------
Net Income:
As reported $ 30,206 $ 43,239 $ 33,978
Pro Forma $ 29,332 $ 42,902 $ 33,924
- --------------------------------------------------------------------------------
Basic EPS Before Extraordinary Item:
As reported $ 1.32 $ 1.92 $ 1.59
Pro Forma $ 1.28 $ 1.91 $ 1.59
- --------------------------------------------------------------------------------
Diluted EPS Before Extraordinary Item:
As reported $ 1.30 $ 1.78 $ 1.47
Pro Forma $ 1.27 $ 1.77 $ 1.47
- --------------------------------------------------------------------------------
Basic EPS:
As reported $ 1.20 $ 1.92 $ 1.59
Pro Forma $ 1.17 $ 1.91 $ 1.59
- --------------------------------------------------------------------------------
Diluted EPS:
As reported $ 1.19 $ 1.78 $ 1.47
Pro Forma $ 1.15 $ 1.77 $ 1.47
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
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 1998, 1997 and 1996: (i)
expected volatility ranging from 20 to 25%, (ii) expected lives ranging from 4
to 7 years, (iii) risk free interest rates ranging from 5.5% to 6.7% and (iv) an
expected dividend yield of 1.8% to 2.2%. The weighted average calculated value
in excess of the grant value of an option granted during fiscal 1998, 1997, and
1996 under the Black-Scholes model was $6.36, $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 estimated compensation costs to be expected in future
years.
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
1,188,850 are available for grant at September 27, 1998. A total of 334,200
shares were outstanding (held in trust) under the plan at September 27, 1998.
These shares carry voting and dividend rights; however, sale of the shares is
restricted prior to vesting. Of the 58,000 shares granted in fiscal year 1998,
40,000 vest evenly over a three year period commencing September 30, 1998 and
18,000 vest evenly over a four year period commencing May 27, 2001, subject
generally to continued employment. Of the 322,750 shares granted in fiscal year
1997, 20% vested on the date of grant. 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 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 $1,468,
$1,783 and $1,248 during 1998, 1997, and 1996, 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 1998, 1997 and 1996 was $0, $4,063, and $1,858, 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.
In June and September 1998, the Company's Board of Directors authorized the
repurchase of up to an aggregate of 3,500,000 shares of the Company's stock. As
of September 27, 1998, the Company had repurchased 2,535,200 shares at an
average price of $16.40. The Company's repurchases of shares were recorded as
treasury stock and resulted in a reduction in stockholders' equity. The Company
has an agreement with three of its directors whereby the Company may exercise a
first right of refusal on the disposition of shares. Pursuant to these
agreements, the Company repurchased an additional 261,625 shares in fiscal 1998,
at an average price of $27.75, which equaled the fair market value at the dates
of the transactions.
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 6.0% 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.
<PAGE>
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
respectively. 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 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 27,
1998, 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.
13. 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 27
years. Rent expense under these leases was $6,337 in 1998, $5,055 in 1997, and
$5,404 in 1996. At September 27, 1998, future minimum rental payments applicable
to these leases are $6,276 in 1999, $4,767 in 2000, $3,050 in 2001, $1,903 in
2002, $986 in 2003 and $20,038 thereafter.
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, based upon the facts presently known, 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.
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 27, 1998, environmental accruals amounted to $5,043 of which $4,043 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.
<PAGE>
14. GEOGRAPHIC INFORMATION:
The accompanying financial statements include the following amounts related to
the operations of the Company's subsidiaries in Europe and Mexico:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States $ 716,687 $ 707,991 $ 665,727
United Kingdom 126,067 136,962 122,300
Mexico 51,780 49,756 42,293
- ----------------------------------------------------------------------------------------------------------------
Total net sales $ 894,534 $ 894,709 $ 830,320
- ----------------------------------------------------------------------------------------------------------------
Transfers between geographic areas
(eliminated in consolidation):
United States $ 3,227 $ 3,232 $ 4,257
United Kingdom 26 52 137
Mexico 221 256 582
- ----------------------------------------------------------------------------------------------------------------
Total transfers $ 3,474 $ 3,540 $ 4,976
- ----------------------------------------------------------------------------------------------------------------
Operating income:
United States $ 52,124 $ 68,004 $ 57,750
United Kingdom 7,332 13,453 9,752
Mexico 3,656 5,152 4,124
Other expenses 14,006 20,799 20,657
- ----------------------------------------------------------------------------------------------------------------
Income before
income taxes $ 49,106 $ 65,810 $ 50,969
- ----------------------------------------------------------------------------------------------------------------
Identifiable assets:
United States $ 740,167 $ 674,651 $ 695,294
United Kingdom 92,511 87,911 89,019
Mexico 36,999 32,920 26,237
Eliminations (80,220) (65,686) (81,720)
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 789,457 $ 729,796 $ 728,830
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
15. EARNINGS PER SHARE:
The following table reconciles basic and diluted earnings per share:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before EPS Before Earnings
Shares Extraordinary Extraordinary Net per
Item Item Income Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998:
Basic EPS 25,134,000 $ 33,146 $ 1.32 $ 30,206 $ 1.20
============= ==========
Add effect of dilutive securities:
Options and Restricted Stock 343,000 -- --
6% Convertible Debt -- -- --
--------------------------- ---------
Diluted EPS 25,477,000 $ 33,146 $ 1.30 $ 30,206 $ 1.19
- ------------------------------------------------------------------------------------------------------------------------------------
1997:
Basic EPS 22,470,000 $ 43,238 $ 1.92 $ 43,238 $ 1.92
============= ==========
Add effect of dilutive securities:
Options and Restricted Stock 176,000 -- --
6% Convertible Debt 2,801,000 2,170 2,170
--------------------------- ---------
Diluted EPS 25,447,000 $ 45,408 $ 1.78 $ 45,408 $ 1.78
- ------------------------------------------------------------------------------------------------------------------------------------
1996:
Basic EPS 21,320,000 $ 33,978 $ 1.59 $ 33,978 $ 1.59
============= ==========
Add effect of dilutive securities:
Options and Restricted Stock 52,000 -- --
6% Convertible Debt 3,365,000 2,376 2,376
--------------------------- ---------
Diluted EPS 24,737,000 $ 36,354 $ 1.47 $ 36,354 $ 1.47
====================================================================================================================================
</TABLE>
16. SUMMARY OF QUARTERLY EARNINGS (UNAUDITED):
The following table reflects restated quarterly earnings amounts for fiscal
1998. 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. These restatements
are explained in detail in the Company's 10-Q/A's filed with the Securities and
Exchange Commission on December 7, 1998 for the quarters ended December 28,
1997, March 29, 1998 and June 28, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------------------------------
1998 QUARTER:
<S> <C> <C> <C> <C>
Net sales $213,377 $228,448 $232,768 $219,941
Gross profit 38,001 41,657 46,462 41,196
Income Before
Extraordinary Item 6,491 9,253 12,846 4,556
Net Income 6,491 9,253 12,846 1,616
- ------------------------------------------------------------------------------------------------------------------------------------
Income per share
Before Extraordinary Item:
Basic .26 .36 .50 .19
Diluted .25 .36 .49 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income per share:
Basic .26 .36 .50 .07
Diluted .25 .36 .49 .07
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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:
Basic .25 .34 .67 .65
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:
Basic .13 .28 .58 .59
Diluted .13 .26 .53 .53
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 27, 1998 and
September 28, 1997, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended September 27, 1998. 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 27, 1998 and September 28, 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended September 27, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Greensboro, North Carolina,
November 24, 1998.
- --------------------------------------------------------------------------------
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 account ing 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
Terrence E. Geremski
Executive Vice President/Chief Financial Officer
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
FISCAL 1998
- --------------------------------------------------------------------------------
QUARTER HIGH LOW DIVIDENDS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First $ 28 1/4 $ 23 1/ 8 $ .11
Second 29 1/4 25 .11
Third 29 5/8 18 1/2 .11
Fourth 21 5/8 13 3/4 .11
---
Year $ 29 5/8 $ 13 3/4 $ .44
---
FISCAL 1997
- --------------------------------------------------------------------------------
QUARTER HIGH LOW DIVIDENDS
- --------------------------------------------------------------------------------
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
---
FISCAL 1996
- --------------------------------------------------------------------------------
QUARTER HIGH LOW DIVIDENDS
- --------------------------------------------------------------------------------
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>
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, 1998 THERE WERE 435 STOCKHOLDERS OF
RECORD.
BASED ON CONTINUED FAVORABLE FUTURE OPERATIONS AND THE PRESENT LEVEL OF
AVAILABLE RETAINED EARNINGS, MANAGEMENT ANTICIPATES CONTINUING ITS CURRENT
DIVIDEND POLICIES.
EXHIBIT 21
SUBSIDIARIES OF GUILFORD MILLS, INC.
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
NAME OF COMPANY ORGANIZATION % OWNERSHIP
- --------------- ------------ -----------
<S> <C> <C>
GFD Services, Inc. Delaware 100%
GFD Fabrics, Inc. (1) North Carolina 100%
Advisory Research Services, Inc. North Carolina 100%
Twin Rivers Textile Printing & Finishing (2) North Carolina
(general
partnership) 100%
Guilford Mills (Michigan), Inc. Michigan 100%
Guilford Airmont, Inc. North Carolina 100%
GMI Computer Sales, Inc. North Carolina 100%
United States
Guilford International, Inc. Virgin Islands 100%
Hofmann Laces, Ltd. New York 100%
Raschel Fashion Interknitting, Ltd. New York 100%
Curtains and Fabrics, Inc. New York 100%
Mexican Industries of North Carolina, Inc. North Carolina 100%
Gold Mills, Inc. Delaware 100%
Gold Mills Farms, Inc. (3) New York 100%
Industrias Mexicanas de Morelos, S.A. de C.V
(4) Mexico 100%
Guilford Mills Limited United Kingdom 100%
Guilford Mills Europe Limited (5) United Kingdom 100%
Guilford Europe Limited (6) United Kingdom 100%
Rouquinet Deroy Limited (7) United Kingdom 100%
Guilford Deutschland GmbH (8) Germany 100%
Guilford Europe Pension Trustees Limited (9) United Kingdom 100%
Guilford Wovens Limited (8) United Kingdom 100%
Guilford Automocion Iberica S.L. (8) Spain 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
NAME OF COMPANY ORGANIZATION % OWNERSHIP
- --------------- ------------ -----------
<S> <C> <C>
Industrias Globales de Mexico, S.A. de C.V.
(10) Mexico 100%
Guilford Mills do Brasil Ltda. (11) Brazil 100%
Grupo Ambar, S.A. de C.V. Mexico 95%
American Textil, S.A. de C.V. (12) Mexico 100%
Servicios Corporativos Ambar, S.A. de C.V.
(13) Mexico 100%
Guilford de Tamaulipas, S.A. de C.V. (14) Mexico 100%
Guilford de Altamira, S.A. de C.V. (14) Mexico 100%
Altamira Centro de la Confeccion, S.A. de
C.V. (14) Mexico 100%
Altamira Servicios de Infraestructura, S.A.
de C.V. (14) Mexico 100%
</TABLE>
- -----------------------------------
(1) This company is a wholly owned subsidiary of GFD Services, Inc.
(2) Each of Guilford Mills, Inc. and Advisory Research Services, Inc. holds a
50% partnership interest in this general partnership.
(3) Owned by Gold Mills, Inc.
(4) 49,500 shares owned by Guilford Mills, Inc. and 500 shares owned by
Mexican Industries of North Carolina, Inc.
(5) Owned by Guilford Mills Limited.
(6) 2,000,000 shares owned by Guilford Mills Europe Limited and 1 share owned
by Guilford Mills, Inc.
(7) 1,999,999 shares owned by Guilford Mills Europe Limited and 1 share owned
by Guilford Europe Limited.
(8) Owned by Guilford Europe Limited.
(9) 1 share owned by Guilford Europe Limited and 1 share owned by Guilford
Mills Europe Limited.
(10) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Grupo
Ambar.
(11) 990 shares owned by Guilford Mills, Inc. and 10 shares owned by Guilford
Airmont, Inc.
(12) 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.
(13) 321,751 shares owned by Grupo Ambar and 1 share owned by American Textil,
S.A. de C.V.
(14) 49,999 shares owned by Guilford Mills, Inc. and 1 share owned by Guilford
Airmont, Inc.
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
reports dated November 24, 1998 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 23, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000044471
<NAME> GUILFORD MILLS, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 30,447
<SECURITIES> 0
<RECEIVABLES> 174,005
<ALLOWANCES> (9,450)
<INVENTORY> 153,006
<CURRENT-ASSETS> 361,909
<PP&E> 784,173
<DEPRECIATION> 457,232
<TOTAL-ASSETS> 789,457
<CURRENT-LIABILITIES> 150,631
<BONDS> 176,872
0
0
<COMMON> 655
<OTHER-SE> 384,522
<TOTAL-LIABILITY-AND-EQUITY> 789,457
<SALES> 894,534
<TOTAL-REVENUES> 894,534
<CGS> 727,218
<TOTAL-COSTS> 831,422
<OTHER-EXPENSES> 1,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,414
<INCOME-PRETAX> 49,106
<INCOME-TAX> 15,960
<INCOME-CONTINUING> 33,146
<DISCONTINUED> 0
<EXTRAORDINARY> (2,940)
<CHANGES> 0
<NET-INCOME> 30,206
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
</TABLE>
