FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6922
GUILFORD MILLS, INC.
---------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-1995928
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
4925 West Market Street, Greensboro, N.C. 27407
--------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code - (336) 316-4000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Number of shares of common stock outstanding
at December 28, 1997 - 25,684,953
<PAGE>
GUILFORD MILLS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 28, 1997
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
The condensed consolidated financial statements included herein have
been prepared by Guilford Mills, Inc. (the "Company" or "Guilford"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The Condensed Consolidated Balance Sheet as of September 28, 1997
has been taken from the audited financial statements as of that date. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest annual report on Form 10-K for
the year ended September 28, 1997.
The condensed consolidated financial statements included herein reflect
all adjustments (none of which are other than normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation of the
information included. The following condensed consolidated financial statements
are included:
Consolidated Statements of Income for the thirteen weeks ended
December 28, 1997 and December 29, 1996
Condensed Consolidated Balance Sheets as of December 28, 1997 and
September 28, 1997
Condensed Consolidated Statements of Cash Flows for the thirteen weeks
ended December 28, 1997 and December 29, 1996
Condensed Notes to Consolidated Financial Statements
<PAGE>
Guilford Mills, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen Weeks Ended December 28, 1997 and December 29, 1996
(In thousands except per share data)
(Unaudited)
December 28, December 29,
1997 1996
- --------------------------------------------------------------------------------
Net Sales $ 213,377 $ 210,863
- --------------------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 173,066 173,014
Selling and administrative 25,624 23,243
- --------------------------------------------------------------------------------
198,690 196,257
- --------------------------------------------------------------------------------
Operating Income 14,687 14,606
Interest Expense 2,616 5,172
Other Expense, Net 147 843
- --------------------------------------------------------------------------------
Income Before Income Tax Provision 11,924 8,591
Income Tax Provision 4,209 3,182
- --------------------------------------------------------------------------------
Net Income $ 7,715 $ 5,409
- --------------------------------------------------------------------------------
Net Income Per Share:
Basic $ .30 $ .25
Diluted .30 .24
- --------------------------------------------------------------------------------
Dividends Per Share $ .11 $ .10
- --------------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements.
<PAGE>
Guilford Mills, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 28, 1997 and September 28, 1997
(In thousands)
December 28, September 28,
1997 1997
(Unaudited)
- --------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 8,849 $ 24,349
Accounts receivable, net 166,672 167,347
Inventories 159,095 141,898
Other current assets 12,965 15,023
- --------------------------------------------------------------------------------
Total current assets 347,581 348,617
Property, net 311,335 308,523
Other assets 71,050 72,656
- --------------------------------------------------------------------------------
Total assets $ 729,966 $ 729,796
- --------------------------------------------------------------------------------
Liabilities
Short-term borrowings $ 21,331 $ 6,677
Current maturities of long-term debt 11,832 12,542
Other current liabilities 97,786 115,424
- --------------------------------------------------------------------------------
Total current liabilities 130,949 134,643
Long-term debt 133,395 134,560
Deferred income taxes and other deferred
liabilities 52,303 51,697
- --------------------------------------------------------------------------------
Total liabilities 316,647 320,900
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Stockholders' Investment
Preferred stock -- --
Common stock 655 655
Capital in excess of par 117,513 117,110
Retained earnings 349,519 344,656
Other stockholders' investment (54,368) (53,525)
- --------------------------------------------------------------------------------
Total stockholders' investment 413,319 408,896
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Total liabilities and stockholders' investment $ 729,966 $ 729,796
- --------------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
Guilford Mills, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirteen Weeks Ended December 28, 1997 and December 29, 1996
(In thousands)
(Unaudited)
<CAPTION>
<S> <C> <C>
December 28, December 29,
1997 1996
Cash Flows From Operating Activities:
Net income $ 7,715 $ 5,409
Depreciation and amortization 16,228 16,171
Other adjustments to net income, net (1,958) (308)
Net changes in operating assets andliabilities (31,269) 9,477
- -----------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (9,284) 30,749
- -----------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property (18,119) (10,522)
Other investing activities, net 3,969 2,715
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Net cash used in investing activities (14,150) (7,807)
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Cash Flows From Financing Activities:
Short-term borrowings (repayments), net 14,654 (16,531)
Other financing activities, net (7,010) (2,644)
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Net cash provided by (used in) financing activities 7,644 (19,175)
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Effect of Exchange Rate Changes on Cash and
Cash Equivalents 290 (20)
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Net (Decrease) Increase In Cash and Cash Equivalents (15,500) 3,747
- -----------------------------------------------------------------------------------------------
Beginning Cash and Cash Equivalents 24,349 31,448
Ending Cash and Cash Equivalents $8,849 $ 35,195
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
GUILFORD MILLS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 1997
(In thousands except share data)
(Unaudited)
1. Seasonal Fluctuations -- Results for any portion of a year are not
necessarily indicative of the results to be expected for a full year, due to
seasonal aspects of the textile industry.
2. Per Share Information -- The Company has adopted the provisions of Statement
of Financial Accounting No. 128, "Earnings per share", and therefore has
restated prior period earnings per share data to conform to this statement.
Basic earnings per share information has been computed by dividing net income by
the weighted average number of shares of common stock, par value $.02 per share,
outstanding during the periods presented. The average shares used in computing
basic net income per share for the thirteen weeks ended December 28, 1997 and
December 29, 1996 were 25,451,000 and 21,671,000, respectively.
Diluted earnings per share information also considers as applicable (i) any
dilutive effect for stock options and restricted stock grants and (ii) the
dilutive effect, if any, assuming that the Company's convertible debentures were
converted at the beginning of the respective reporting period, with earnings
being increased by the interest expense, net of income taxes, that would not
have been incurred had conversion taken place. The average shares used in
computing diluted net income per share for the thirteen weeks ended December 28,
1997 and December 29, 1996 were 25,859,000 and 25,132,000, respectively.
The reconciliations of the numerator (income available to common
stockholders) and the denominator (average number of common shares outstanding)
of the earnings per share calculations for the thirteen weeks ended on December
28, 1997 and December 29, 1996 are as follows (000's have been omitted for net
income and share amounts):
December 28, December 29,
1997 1996
---------------------- ------------------
Net Net
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $7,715 25,451 $0.30 $5,409 21,671 $0.25
==== ====
Add effect of dilutive securities:
Options and Restricted Stock -- 408 -- 96
6% Convertible Debt -- -- 603 3,365
---------------------- -------------------
Diluted EPS $7,715 25,859 $0.30 $6,012 25,132 $0.24
====================== ===================
3. Inventories -- Inventories are carried at the lower of cost or market.
Cost is determined by using the LIFO (last-in, first-out) method for the
majority of inventories. Cost for all other inventories has been determined
principally by the FIFO (first-in, first-out) method.
Inventories at December 28, 1997 and September 28, 1997 consisted of the
following:
December 28, September 28,
1997 1997
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Finished Goods $ 61,079 $ 53,404
Raw Materials and work in process 107,478 98,499
Manufacturing supplies 9,183 8,758
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Total inventories valued at FIFO
cost 177,740 160,661
Less -- Adjustments to reduce FIFO
cost to LIFO cost, net (18,645) (18,763)
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Total inventories $159,095 $141,898
============= ==============
<PAGE>
4. Accumulated Depreciation -- Accumulated depreciation at December 28, 1997
and September 28, 1997 was $421,392 and $409,654, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Consolidated net sales were $213.4 million for the first quarter of fiscal
1998 as compared to $210.9 million for the first quarter of fiscal 1997.
Sales in the apparel market declined 4% to $75.5 million in the first
quarter of fiscal 1998 as compared to $78.8 million for the first quarter of
fiscal 1997. This reduction in apparel sales was primarily attributable to a
decrease in demand and capacity allocated to ready-to-wear fabrics. This was
partially offset by an increase in sales of elastomerics/intimate apparel and
swimwear due to continued customer penetration and improvement of market
conditions.
Sales of worldwide automotive fabrics increased by approximately 4% to
$85.8 million for the first quarter of fiscal 1998 as compared to the comparable
quarter from the previous fiscal year. This was significantly attributable to
increases in Guilford's domestic sales from the ramp up of new programs, trim
level penetration, market share increase of Japanese transplants and the
increase of RV and van fabric sales. These increases were partially offset by a
decrease in sales of the Company's European operations due to temporary customer
resourcing outside the U.K. to offset foreign currency impacts caused by the
strength of the sterling.
Sales of home fashion products increased by almost 27% to $38.7 million
for the first quarter of fiscal 1998 as compared to the first quarter of fiscal
1997. The improvement was attributable to growth in the Company's cotton jersey
knit sheeting program and increased demand for the Company's window curtain and
window treatment fabrics. These increases were slightly offset by a decrease in
demand for the Company's mattress ticking and furniture fabrics.
Product sales in the industrial/specialty markets were $13.4 million for
the first quarter of 1998, a 29% decrease from the corresponding quarter of the
prior fiscal year. The decrease was attributable to a decrease in the sale of
hook and loop closure fabric due to a demand decline at the consumer level for
the diaper product which included it and due to a resourcing of this business to
a European supplier.
Gross margins increased one hundred basis points to 18.9% as compared to
17.9% for the first quarter of the previous year. This increase was due
primarily to volume increases and changes in product mix toward the production
and sale of value-added products as well as raw material price and usage and
other cost improvements. These positive impacts were partially offset by price
reductions to automotive original equipment manufacturers.
Selling and administrative expenses increased to 12% of net sales as
compared to 11% in the first quarter of the prior year. This increase was
attributable to strategically focused marketing programs and research and
development efforts.
Interest expense decreased to $2.6 million for this quarter as compared to
$5.2 million for the first quarter of 1997. This decrease was attributable to
the reduction of both long-term and short-term debt through the conversion and
repayment of $66 million of convertible debt in July 1997 and the repayment of
approximately $25 million of short-term financing.
The effective income tax rate for the first quarter of fiscal 1998 was
35.3% as compared to 37.0% for the corresponding quarter of fiscal 1997. The
rate decreased as a result of increased tax credits in proportion to taxable
income and lower effective state tax rates.
Net income increased 43% to $7.7 million compared to $5.4 million for the
corresponding quarter of fiscal 1997.
<PAGE>
Liquidity and Capital Requirements
At December 28, 1997, working capital was $216.6 million compared to
$214.0 million at September 28, 1997. This increase in working capital was
primarily due to the utilization of resources to fund seasonal inventory
requirements. The Company maintains flexibility with respect to its seasonal
working capital needs through a committed revolving credit facility of $150
million and its continued access to other traditional sources of funds,
including available uncommitted lines of credit aggregating over $200 million,
and the ability to receive advances against its factored accounts receivable. At
December 28, 1997, no borrowings were outstanding against the Company's $150
million credit facility, and the Company's borrowing availability under its
uncommitted bank lines of credit was $119 million. Management believes that the
Company's financial position and operating performance will continue to provide
the Company with the ability to obtain necessary capital from the appropriate
financial markets.
Contingencies and Future Operations
Since January 1992, the Company has been involved in discussions with the
United States Environmental Protection Agency ("EPA") regarding remedial actions
at its Gold Mills, Inc. ("Gold") facility in Pine Grove, Pennsylvania which was
acquired in October 1986. Between 1988 and 1990, the Company implemented a
number of corrective measures at the facility in conjunction with the
Pennsylvania Department of Environmental Resources and incurred approximately
$3.5 million in costs. Subsequently, through negotiations with the EPA, Gold
entered into a Final Administrative Consent Order with the EPA, effective
October 14, 1992. Pursuant to such order, Gold has performed (i) certain
measures designed to prevent any potential threats to the environment at the
facility and (ii) an investigation to fully determine the nature of any release
of hazardous substances at the facility. The Company has not received a response
to its report filed with the EPA. Upon receipt of EPA comments, Gold will
conduct a study to evaluate alternatives for any corrective action which may be
necessary at the facility. The failure of Gold to comply with the terms of the
Consent Order may result in the imposition of monetary penalties against Gold.
In the fourth quarter of 1992, a pre-tax charge of $8.0 million was provided for
the estimated future cost of the additional remediation.
During the fourth quarter of 1992, the Company also received a Notice of
Violation from the North Carolina Division of Environmental Management
concerning ground water contamination on or near one of its North Carolina
facilities. The Company has voluntarily agreed to allow the installation of
monitoring wells at the site but denies that such contaminants originated from
the Company's operations or property. An additional pre-tax charge of $1.3
million was provided in the fourth quarter of 1992 to reflect the estimated
future costs of monitoring this and other environmental matters including the
removal of underground storage tanks at the Company's facilities. The Company
has removed substantially all underground storage tanks at its facilities. At
December 28, 1997, environmental accruals amounted to $5.5 million of which $4.5
million is non-current and is included in other deferred liabilities in the
balance sheet.
The Company is also involved in various litigation arising in the ordinary
course of business. Although the final outcome of these legal and environmental
matters cannot be determined, based on the facts presently known, it is
management's opinion that the final resolution of these matters will not have a
material adverse effect on the Company's financial position or future results of
operations.
Safe Harbor-Forward-Looking Statements
From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements.
<PAGE>
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. - 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. The Company's
fiscal 1997 Annual Meeting of Stockholders was held on February 5, 1998. At such
meeting, the stockholders elected each of Donald B. Dixon, Terrence E. Geremski,
George Greenberg, Dr. Jacobo Zaidenweber and Grant M. Wilson to serve as
directors for a three-year term expiring after the Company's 2000 fiscal year.
The stockholders at such meeting ratified the selection of Arthur Andersen LLP
as independent auditors for the fiscal year ending September 27, 1998. The
number of votes cast for, against or withheld, as well as the number of
abstentions, as the case may be, with respect to each matter voted upon at the
fiscal 1997 Annual Stockholders' Meeting is set forth below:
(1) Election of Directors
Director Votes For Votes Withheld
-------- --------- --------------
Donald B. Dixon 20,057,567 297,946
Terrence E. Geremski 20,027,374 328,139
George Greenberg 20,042,032 313,481
Dr. Jacobo Zaidenweber 20,032,362 323,151
Grant M. Wilson 20,061,290 294,223
<PAGE>
(2) Ratification of Selection of Auditors
Votes For Votes Against Abstentions
--------- ------------- -----------
20,297,100 33,709 24,704
Item 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: February 11, 1998 By: /s/ Terrence E. Geremski
-----------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUILFORD MILLS, INC.
(Registrant)
Date: February 11, 1998 By: /s/ Terrence E. Geremski
----------------------------
Terrence E. Geremski
Executive Vice President/
Chief Financial Officer
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<NAME> GUILFORD MILLS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<CASH> 8,849
<SECURITIES> 0
<RECEIVABLES> 166,672
<ALLOWANCES> 0
<INVENTORY> 159,095
<CURRENT-ASSETS> 347,581
<PP&E> 732,727
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<CURRENT-LIABILITIES> 130,949
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0
0
<COMMON> 655
<OTHER-SE> 412,664
<TOTAL-LIABILITY-AND-EQUITY> 729,966
<SALES> 213,377
<TOTAL-REVENUES> 213,377
<CGS> 173,066
<TOTAL-COSTS> 198,690
<OTHER-EXPENSES> 147
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<INCOME-PRETAX> 11,924
<INCOME-TAX> 4,209
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