FORM 10-Q-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-6922
GUILFORD MILLS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
---------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) number)
4925 West Market Street, Greensboro, N.C. 27407
-------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (336) 316-4000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Number of shares of common stock outstanding
at March 29, 1998 - 25,835,528
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Page 2
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 29,1998
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by Guilford Mills, Inc. (the "Company" or "Guilford"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Condensed Consolidated Balance Sheet as of September 28, 1997 has been taken
from the audited financial statements as of that date. Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K for the year ended
September 28, 1997.
The condensed consolidated financial statements included herein reflect
all adjustments (none of which are other than normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
information included. The following condensed consolidated financial statements
are included:
Consolidated Statements of Income for the twenty-six weeks ended March 29,
1998 and March 30, 1997
Consolidated Statements of Income for the thirteen weeks ended March 29,
1998 and March 30, 1997
Condensed Consolidated Balance Sheets as of March 29, 1998 and
September 28, 1997
Condensed Consolidated Statements of Cash Flows for the twenty-six weeks
ended March 29, 1998 and March 30, 1997
Condensed Notes to Consolidated Financial Statements
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Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Twenty-Six Weeks Ended March 29, 1998 and March 30, 1997
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 29, March 30,
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 441,825 $ 430,007
- --------------------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 362,167 351,111
Selling and administrative 49,768 47,375
- --------------------------------------------------------------------------------
411,935 398,486
- --------------------------------------------------------------------------------
Operating Income 29,890 31,521
Interest Expense 5,609 9,334
Other Expense, Net 244 2,059
- --------------------------------------------------------------------------------
Income Before Income Tax Provision 24,037 20,128
Income Tax Provision 8,293 7,244
- --------------------------------------------------------------------------------
Net Income $ 15,744 $ 12,884
- --------------------------------------------------------------------------------
Net Income Per Share:
Basic $ .62 $ .59
Diluted .61 .56
- --------------------------------------------------------------------------------
Dividends Per Share $ .22 $ .20
- --------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended March 29, 1998 and March 30, 1997
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 29, March 30,
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 228,448 $ 219,144
- --------------------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 186,791 178,097
Selling and administrative 24,501 24,132
- --------------------------------------------------------------------------------
211,292 202,229
- --------------------------------------------------------------------------------
Operating Income 17,156 16,915
Interest Expense 2,993 4,162
Other Expense, Net 97 1,216
- --------------------------------------------------------------------------------
Income Before Income Tax Provision 14,066 11,537
Income Tax Provision 4,813 4,062
- --------------------------------------------------------------------------------
Net Income $ 9,253 $ 7,475
- --------------------------------------------------------------------------------
Net Income Per Share:
Basic $ .36 $ .34
Diluted .36 .32
- --------------------------------------------------------------------------------
Dividends Per Share $ .11 $ .10
- --------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
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Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 29, 1998 and September 28, 1997
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 29, September 28,
1998 1997
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 14,995 $ 24,349
Accounts receivable, net 180,812 167,347
Inventories 163,646 141,898
Other current assets 11,754 15,023
- --------------------------------------------------------------------------------
Total current assets 371,207 348,617
Property, net 315,493 308,523
Other assets 102,668 72,656
- --------------------------------------------------------------------------------
Total assets $ 789,368 $ 729,796
- --------------------------------------------------------------------------------
Liabilities
Short-term borrowings $ 52,990 $ 6,677
Current maturities of long-term debt 11,832 12,542
Other current liabilities 128,812 115,424
- --------------------------------------------------------------------------------
Total current liabilities 193,634 134,643
Long-term debt 121,880 134,560
Deferred income taxes and other deferred
liabilities 53,611 51,697
- --------------------------------------------------------------------------------
Total liabilities 369,125 320,900
- --------------------------------------------------------------------------------
Stockholders' Investment
Preferred stock -- --
Common stock 655 655
Capital in excess of par 117,947 117,110
Retained earnings 354,722 344,656
Other stockholders' investment (53,081) (53,525)
- --------------------------------------------------------------------------------
Total stockholders' investment 420,243 408,896
- --------------------------------------------------------------------------------
Total liabilities and
stockholders' investment $ 789,368 $ 729,796
- --------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-Six Weeks Ended March 29, 1998 and March 30, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 29, March 30,
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $15,744 $ 12,884
Depreciation and amortization 32,232 31,523
Other adjustments to net income, net (2,478) (65)
Net changes in operating assets and liabilities (33,132) (30)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 12,366 44,312
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property (38,373) (24,468)
Additions to acquisition purchase price (17,000) --
Other investing activities, net 7,677 645
- --------------------------------------------------------------------------------
Net cash used in investing activities (47,696) (23,823)
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net 46,307 (8,807)
Payment of long-term debt (13,374) (12,765)
Other financing activities, net (7,320) (2,209)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 25,613 (23,781)
- --------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 363 (871)
- --------------------------------------------------------------------------------
Net Decrease In Cash and Cash Equivalents
Equivalents (9,354) (4,163)
- --------------------------------------------------------------------------------
Beginning Cash and Cash Equivalents 24,349 31,448
Ending Cash and Cash Equivalents $14,995 $27,285
- --------------------------------------------------------------------------------
Noncash transactions:
Accrual of remaining acquisition purchase price $17,000 --
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
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GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
(In thousands except share data)
(Unaudited)
1. Restatement -- As publicly announced on October 26, 1998, the Company
uncovered potential accounting irregularities related to inappropriate
reductions of certain material costs and a corresponding understatement of
accounts payable amounts at its Hofmann Laces unit. As a result, the Audit
Committee of the Company's Board of Directors ("Audit Committee") engaged Weil,
Gotshal & Manges LLP ("Weil Gotshal") as special legal counsel and Weil Gotshal
engaged Arthur Andersen LLP ("Andersen") to perform an independent investigation
into these potential accounting irregularities. On November 24, 1998 the Company
announced that the Audit Committee, assisted by Weil Gotshal and Andersen, had
completed an investigation of the financial impact of the accounting
irregularities at the Hofmann Laces unit. As a result of the findings of this
investigation, the Company has restated its previously reported financial
results for the first three quarters of the fiscal year ended September 27,
1998.
The restated financial statements, as set forth herein, reverse the net impact
of the inappropriate amounts.
A summary of significant affects of the restatement is as follows (in thousands
except per share data):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
March 29, 1998 March 29, 1998
(unaudited) (unaudited)
------------------------- -------------------------
As As
Previously As Previously As
Reported Restated Reported Restated
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net Sales $ 228,448 $ 228,448 $ 441,825 $ 441,825
Cost and Expenses 210,628 211,292 409,318 411,935
------------ ---------- ------------ ----------
Operating Income 17,820 17,156 32,507 29,890
Interest Expense 2,993 2,993 5,609 5,609
Other Expense, Net 97 97 244 244
------------ ---------- ------------ ----------
Income before income tax
provision 14,730 14,066 26,654 24,037
Income tax provision 5,097 4,813 9,306 8,293
------------ ---------- ------------ ----------
Net Income $ 9,633 $ 9,253 $ 17,348 15,744
============ ========== ============ ==========
Net Income per share:
Basic $ .38 $ .36 $ .68 $ .62
Diluted .37 .36 .67 .61
</TABLE>
Following the October 26, 1998 press release, three purported class action
lawsuits have been filed on behalf of purchasers of the Company's common stock
against the Company and certain of its officers and directors. These lawsuits
purport to allege claims under Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, in connection with
the Company's public disclosure of accounting irregularities at the Hofmann
Laces unit in fiscal year 1998. Specifically, the actions allege that, during
the class period (January 20, 1998 through October 26, 1998), defendants
materially misrepresented the Company's financial condition and overstated the
Company's reported earnings. No specific amount of damages is sought in these
complaints. The Company intends to vigorously defend the lawsuits. It is
management's opinion that the final resolution of these matters will not have
a material adverse effect on the Company's financial position or future results
of operations.
2. Seasonal Fluctuations-- Results for any portion of a year are not necessarily
indicative of the results to be expected for a full year, due to seasonal
aspects of the textile industry.
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Page 8
3. Per Share Information -- The Company has adopted the provisions of Statement
of Financial Accounting No. 128, "Earnings Per Share", and therefore has
restated prior period earnings per share data to conform to this statement.
Basic earnings per share information has been computed by dividing net income by
the weighted average number of shares of common stock, par value $.02 per share,
outstanding during the periods presented. The average shares used in computing
basic net income per share for the twenty-six weeks ended March 29, 1998 and
March 30, 1997 were 25,448,000 and 21,760,000, respectively. The average shares
used in computing basic net income for the thirteen weeks ended March 29, 1998
and March 30, 1997 were 25,444,000 and 21,849,000, respectively.
Diluted earnings per share information also considers as applicable (i) any
dilutive effect for stock options and restricted stock grants and (ii) the
dilutive effect, if any, assuming that the Company's convertible debentures were
converted at the beginning of the respective reporting period, with earnings
being increased by the interest expense, net of income taxes, that would not
have been incurred had conversion taken place. The average shares used in
computing diluted net income per
share for the twenty-six weeks ended March 29, 1998 and March 30, 1997 were
25,874,000 and 25,259,000, respectively. The average shares used in computing
diluted net income per share for the thirteen-week period ended March 29, 1998
and March 30, 1997 were 25,889,000 and 25,385,000, respectively.
The reconciliations of the numerator (income available to common
stockholders) and the denominator (average number of common shares outstanding)
of the earnings per share calculations for the thirteen weeks and twenty-six
weeks ended on March 29, 1998 and March 30, 1997, respectively, are as follows
(net income and share amounts in thousands):
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
----------------------
March 29, March 30,
1998 1997
------------------------ -------------------------
Net Net
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $15,744 25,448 $0.62 $12,884 21,760 $0.59
===== =====
Add effect of dilutive securities:
Options and
Restricted Stock -- 426 -- 134
6% Convertible Debt -- -- 1,205 3,365
------------------------- -------------------------
Diluted EPS $15,744 25,874 $0.61 $14,089 25,259 $0.56
========================= =========================
Thirteen Weeks Ended
----------------------
March 29, March 30,
1998 1997
------------------------ -------------------------
Net Net
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $9,253 25,444 $0.36 $7,475 21,849 $0.34
===== =====
Add effect of dilutive securities:
Options and
Restricted Stock -- 445 -- 171
6% Convertible Debt -- -- 603 3,365
------------------------- -------------------------
Diluted EPS $9,253 25,889 $0.36 $8,078 25,385 $0.32
========================= =========================
</TABLE>
4. Inventories -- Inventories are carried at the lower of cost or market. Cost
is determined by using the LIFO (last-in, first-out) method for the majority of
inventories. Cost for all other inventories has been determined principally by
the FIFO (first-in, first-out) method.
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Inventories at March 29, 1998 and September 28, 1997 consisted of the
following:
<TABLE>
<CAPTION>
March 29, September 28,
1998 1997
------------ -----------
<S> <C> <C>
Finished Goods $ 60,253 $ 53,404
Raw Materials and work in process 113,905 98,499
Manufacturing supplies 8,864 8,758
------------ -----------
Total inventories valued at FIFO cost 183,022 160,661
Less -- Adjustments to reduce FIFO cost to
LIFO cost, net (19,376) (18,763)
------------ -----------
Total inventories $163,646 $141,898
============ ===========
</TABLE>
5. Accumulated Depreciation -- Accumulated depreciation at March 29, 1998 and
September 28, 1997 was $435,790 and $409,654, respectively.
6. Other Assets -- On February 28, 1998, the Company entered into an agreement
to accelerate the payment of the contingent purchase price provisions
pursuant to the Stock Purchase Agreement, dated January 12, 1996 between
Guilford Mills, Inc. and Bruno Hofmann. This resulted in recording $34
million of cost in excess of net assets acquired related to the acquisition
of Hofmann Laces Ltd. which is being amortized on a straight line basis over
the remaining estimated life of 38 years. Intangible assets increased from
$19.1 million at September 28, 1997 to $52.6 million as of March 29, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the six months ended March 29, 1998 were $441.8 million, an
increase of $11.8 million, or 2.7%, over net sales of $430.0 million for the six
months ended March 30, 1997. Net sales for the second quarter of fiscal 1998
were $228.4 million, an increase of $9.3 million, or 4.2%, over net sales of
$219.1 million for the comparable period of the prior year.
For the six months ended March 29, 1998, net sales in the apparel market
declined slightly to $163.0 million as compared to $163.7 million for the same
period of the prior year. For the quarter ended March 29, 1998, net sales in the
apparel market increased 3.2%, to $87.6 million compared to $84.9 million in the
previous year. Sales of elastics/intimate apparel, including lace products,
increased for the quarter and the six month period primarily due to continued
market penetration and strong shapewear sales to key customers. Sales of
swimwear products decreased for the quarter and increased for the six-month
period. This quarter's decrease was attributable to a softening of demand in
certain geographical locations due to unfavorable weather conditions and due to
a shift in consumer demand from value added printed fabrics to textured solids.
Sales of ready to wear fabrics decreased for the quarter and for the six-month
period due to the continued allocation of production capacity to home fashion
products as well as lower demand for high quality fashion stretch velvets.
Sales of worldwide automotive fabrics increased 5.5% for the six-month
period ended March 29, 1998 to $172.1 million from $163.2 million for the
comparable period of the prior year. Sales of worldwide automotive fabrics
increased 7.3% for the second quarter of fiscal 1998 to $86.3 million as
compared to $80.4 million for the same quarter of the previous year. Automotive
sales in the United States and Mexico increased for the current quarter and for
the six month period due to increased sales of certain platforms, pricing
adjustments and increased RV and van market share. This was partially offset by
a decline in Japanese transplant sales due to trim level selections and
temporary delivery delays. Automotive sales in Europe increased for the second
quarter and decreased slightly for the six-month period. The increase, primarily
attributable to the introduction of new woven and circular knit technologies
through product diversification initiatives and an increase in European car
build, has been offset by pricing pressures and the continued strength of the
sterling relative to other key European currencies over the six month period.
<PAGE>
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Home fashion sales for the first half of fiscal 1998 increased 20.9% to
$75.2 million as compared to $62.2 million in the prior year. Home fashion sales
for the quarter increased by 14.8% to $36.4 million from $31.7 million in the
prior year. The increase for the quarter and for the six-month period in home
fashion sales is significantly attributable to the cotton jersey knit sheeting
program and the introduction of new comforter products. These increases were
partially offset by declines in window and shower curtains, mattress tickings
and furniture products.
Sales of Industrial/Specialty market fabrics for the six-month period
ended March 29, 1998 declined 23.0% to $31.5 million from $40.9 million in the
comparable period of the prior year. Sales for the second quarter declined by
18.1% to $18.1 million as compared to $22.1 million for the second quarter of
the previous year. This decline in the quarter and the six-month period is
primarily attributable to a decrease in the sales volume of hook and loop
closure fabrics due to a decline in market share of a customer's premium diaper
product and resourcing of the European business to a local supplier.
Gross margin for the first six months of fiscal 1998 increased to $79.7
million, or 18.0% of net sales, compared to $78.9 million, or 18.3% of net
sales, for the first six months of fiscal 1997. For the quarter ended March 29,
1998, gross margin increased to $41.7 million, or 18.3% of net sales, from $41.0
million, or 18.7% of net sales, for the same quarter a year ago. The gross
margin increase for the quarter and the six month period ended March 29, 1998
resulted from certain increased sales volumes, continued emphasis on value added
products and cost improvements, especially in raw material price and usage.
These productivity improvements have been partially offset by pricing pressure
on specific products due to the current economics of the Asian market and
continued pricing pressures from automotive OEM's. Additionally, overall product
mix has negatively impacted margin and caused a decline in the margin as a
percentage of sales.
Selling and administrative expenses increased to $49.8 million, or 11.3%
of net sales, for the six months ended March 29, 1998, compared to $47.4
million, or 11.0% of net sales, for the same period a year ago. For the quarter
ended March 29, 1998, selling and administrative expenses were $24.5 million, or
10.7% of net sales, compared to $24.1 million, or 11.0% of net sales, for the
same quarter a year ago. The increase in selling and administrative expenses for
the quarter and the six month period ended March 29, 1998 was attributable to
certain design, marketing and research and development efforts related to new
products, new technologies and cooperative developments. This increase was also
attributable to sales volume and promotion related increases especially related
to retail home fashions. Increases were partially offset by reductions in
incentive compensation expense.
Interest expense for the six months ended March 29, 1998 was $5.6 million
compared to $9.3 million for the same period a year ago. For the quarter ended
March 29, 1998, interest expense was $3.0 million compared to $4.2 million for
the quarter ended March 30, 1997. The decrease in interest expense was primarily
attributable to the decrease in long term debt as a result of the conversion of
the convertible debt.
Other expense, net for the six months ended March 29, 1998 was $0.2
million compared to $2.1 million for the same period a year ago. For the quarter
ended March 29, 1998 other expense, net was $0.1 million compared to $1.2
million for the same prior year period. This decrease for the quarter and
six-month period is primarily attributable to sales of property, other
investments and insurance recoveries.
Income tax expense for the first six months of 1998 was $8.3 million, or
34.5% of income before income taxes, compared to $7.2 million, or 36.0% of
income before income taxes for the same period a year ago. The decrease in the
effective tax rate was primarily due to the statutory rate reduction in Europe,
lower effective state tax rates and the full year impact of certain income tax
credits.
Net income for the six months ended March 29, 1998 was $15.7 million, or
$.62 per basic share, compared to $12.9 million, or $.59 per basic share, for
the comparable period of the previous year. For the quarter ended March 29,
1998, net income was $9.3 million, or $.36 per basic share, compared to net
income of $7.5 million, or $.34 per basic share, for the same quarter a year
ago.
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Liquidity and Capital Requirements
At March 29, 1998, working capital was $177.6 million compared to $214.0
million at September 28, 1997. The decrease in working capital was due to the
increase in short term borrowings and current liabilities to fund seasonal
inventory requirements and the accelerated contingent payment for the
acquisition of Hofmann Laces. The Company maintains flexibility with respect to
its seasonal working capital needs through a committed revolving credit facility
of $150 million and its continued access to other traditional sources of funds,
including uncommitted lines of credit aggregating $275 million, and the ability
to receive advances against its factored accounts receivable. At March 29, 1998,
no borrowings were outstanding against the Company's $150 million credit
facility, and the Company's borrowing availability under its uncommitted bank
lines of credit was $166 million. Management believes that the Company's
financial position and operating performance will continue to provide the
Company with the ability to obtain necessary capital from the appropriate
financial markets.
Contingencies and Future Operations
Since January 1992, the Company has been involved in discussions with the
United States Environmental Protection Agency ("EPA") regarding remedial actions
at its Gold Mills, Inc. ("Gold") facility in Pine Grove, Pennsylvania which was
acquired in October 1986. Between 1988 and 1990, the Company implemented a
number of corrective measures at the facility in conjunction with the
Pennsylvania Department of Environmental Resources and incurred approximately
$3.5 million in costs. Subsequently, through negotiations with the EPA, Gold
entered into a Final Administrative Consent Order with the EPA, effective
October 14, 1992. Pursuant to such order, Gold has performed (i) certain
measures designed to prevent any potential threats to the environment at the
facility and (ii) an investigation to fully determine the nature of any release
of hazardous substances at the facility. The Company has not received a response
to its report filed with the EPA. Upon receipt of EPA comments, Gold will
conduct a study to evaluate alternatives for any corrective action which may be
necessary at the facility. The failure of Gold to comply with the terms of the
Consent Order may result in the imposition of monetary penalties against Gold.
In the fourth quarter of 1992, a pre-tax charge of $8.0 million was provided for
the estimated future cost of the additional remediation.
During the fourth quarter of 1992, the Company also received a Notice of
Violation from the North Carolina Division of Environmental Management
concerning ground water contamination on or near one of its North Carolina
facilities. The Company has voluntarily agreed to allow the installation of
monitoring wells at the site but denies that such contaminants originated from
the Company's operations or property. An additional pre-tax charge of $1.3
million was provided in the fourth quarter of 1992 to reflect the estimated
future costs of monitoring this and other environmental matters including the
removal of underground storage tanks at the Company's facilities. The Company
has removed substantially all underground storage tanks at its facilities. At
March 29, 1998, environmental accruals amounted to $5.5 million of which $4.5
million is non-current and is included in other deferred liabilities in the
balance sheet.
The Company is also involved in various litigation arising in the ordinary
course of business. Although the final outcome of these legal and environmental
matters cannot be determined, based on the facts presently known, it is
management's opinion that the final resolution of these matters will not have a
material adverse effect on the Company's financial position or future results of
operations.
The Asian economy has recently experienced significant market and economic
uncertainties. While the fundamentals of our core businesses are sound, we
remain cautious about the impact, if any, that the Asian crisis may have on
certain sectors of our business.
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 compliance within the Company's operational,
manufacturing and financial areas has been a part of this process. The internal
client server technology, which has been or will be implemented in all of the
Company's operating facilities before the turn of the century provides one of
the internal solutions to identified Year 2000 concerns. Engineering and systems
professionals are identifying and rectifying embedded manufacturing Year 2000
system concerns, if any. The Company has continued to work with its customers,
suppliers, and third party service
<PAGE>
Page 12
providers to identify external weaknesses and provide solutions. The Company
expects to successfully implement any systems and programming changes necessary
prior to the turn of the century. While the Company has not completed
segregation of the specific costs related to completion of the Year 2000 tasks,
management does not believe that the cost of such actions will have a material
effect on the Company's results of operations or financial condition. There can
be no assurance, however, that there will not be a delay in, or increased costs
associated with the implementations of such changes. There is also no guarantee
that all of the systems of other companies on which Guilford's systems rely
will be timely converted.
Safe Harbor-Forward-Looking Statements
From time to time, the Company may publish forward-looking statements
relative to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements.
All statements other than statements of historical fact included in this
document, including, without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Important factors
that could cause actual results to differ materially from those discussed in
such forward-looking statements include:
1. general economic factors including, but not limited to, changes in
interest rates, foreign currency translation rates, consumer
confidence, housing starts, trends in disposable income, changes in
consumer demand for goods produced, and cyclical or other downturns
2. the overall level of automotive production and the production of
specific car models
3. fashion trends
4. technological advances
5. cost and availability of raw materials, labor and other resources
6. domestic and foreign competition
7. domestic and foreign governmental regulations and trade policies
8. reliance on significant customers
9. success of marketing, advertising and promotional campaigns
10. inability to achieve cost reductions through consolidation and
restructuring of acquired companies
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Reference is made to Item 3 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1997, which item is
incorporated herein by reference.
Items 2. - 5. Not Applicable
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Page 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No.
(10)(a)* 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.
(10)(b) Second Amendment to Stock Purchase Agreement, dated February 25, 1998,
by and between Guilford Mills, Inc. and Bruno Hofmann.
* Items denoted with an asterisk represent a management contract or compensatory
plan or agreement.
(b) Reports on Form 8-K:
Not Applicable
<PAGE>
Page 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: December 7, 1998 By: /s/ Terrence E. Geremski
---------------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
<PAGE>
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: December 7, 1998 By:
---------------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
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