Exhibit 13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Guilford Mills, Inc. produces fabrics using a broad range of technologies for a
variety of customers and markets. It is the largest warp knitter in the world
and a leader in technological advances in textiles. The Company has identified
four segments in which it operates: Automotive, Apparel, Home Fashions and
Other.
Fabrics produced in the Automotive segment are sold to original equipment
manufacturers (OEMs) and their suppliers. These fabrics are fabricated into the
seats and headliners of passenger cars, sports utility vehicles, conversion vans
and light and heavy trucks.
The Apparel segment fabrics are used predominantly in women's intimate apparel,
ready-to-wear and swimwear garments. Other end uses include team sportswear and
linings.
The Home Fashions segment produces upholstery fabrics for use in office and
residential furniture, mattress ticking and window treatment applications. This
segment also includes sales to retailers of knit and/or lace comforters, window
curtains, sheets, shower curtains, pillowcases and bedskirts.
The remainder of Guilford's fabrics are sold for use in a broad range of
industrial/specialty products and are included in the Other segment. The
Company's fibers operations are also included in this segment.
Goods are manufactured in the United States, the United Kingdom, Portugal,
Mexico and Brazil. Approximately 80% of the Company's net sales originate from
the United States. Guilford's foreign operations are subject to fluctuations in
foreign exchange rates that affect the Company's operating results and financial
position due to translation gains and losses recognized in converting such
activity to local currency and to U.S. dollars. Effective January 1, 1999, the
Mexican economy was no longer considered "highly inflationary" for financial
reporting purposes and 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"), returned to the Mexican peso from the U.S. dollar.
RESULTS OF OPERATIONS
2000 Compared to 1999 - Consolidated sales for fiscal 2000 were $814.2 million,
a decrease of 5.0% from fiscal 1999's $856.8 million. Increased sales in the
Automotive segment were more than offset by sales declines in the other three
segments, particularly in the Apparel segment.
Automotive segment sales were $380.6 million, or 46.8% of consolidated net
sales, in fiscal 2000 compared to $361.3 million in fiscal 1999, an increase of
5.3%. This resulted primarily from an increase in the U.S. car build in fiscal
2000 to 17.4 million units compared to car build in fiscal 1999 of 16.9 million
units. Additionally, further penetration into the New Domestics OEMs allowed
Guilford to gain bodycloth market share in the overall U.S. vehicle market.
Internationally, a decrease in sales by the U.K. operations was offset by
increases in Mexico and Brazil. In the U.K., lower build levels and loss of
market share of a major customer, along with the strength of the British pound
sterling compared to the Euro, caused the majority of the decrease. The sales
increase in Mexico was the result of the return of a major customer, combined
with increased sales to existing customers. Sales in Brazil, while small, grew
by nearly 170% over fiscal 1999 due to an increase in the Brazilian car build
and additional market penetration by Guilford.
Apparel segment sales were $292.5 million, or 35.9% of consolidated net sales,
in fiscal 2000 compared to $336.5 million in fiscal 1999, a decrease of 13.1%.
The entire U.S. apparel industry has been negatively affected by lower-priced
fabrics and garments from overseas. While each of the intimate apparel,
ready-to-wear, swimwear and other apparel sectors had year over year declines,
the largest decreases were in the warp knit ready-to-wear, linings,
robewear/sleepwear and solid swimwear product lines. In addition, the Company's
sales in this segment have been impacted by financial difficulties experienced
by some key customers and a weak lace market. Sales of the Company's
Lycra(R)-containing fabrics, used in shapewear, circular knit ready-to-wear and
printed swimwear, increased over fiscal 1999.
The Home Fashions segment sales were $95.5 million, or 11.7% of consolidated net
sales, in fiscal 2000 compared to $111.5 million in fiscal 1999, a decrease of
14.3%. Decreased sales of home fashions fabrics, especially mattress ticking,
caused the majority of the decline. Increased sales in direct-to-retail window
curtains and bedding were more than offset by the discontinuation of the
Company's circular knit sheeting business. The segment also has been impacted by
the financial instability of several large retailers.
Sales in the Other segment were $45.6 million, or 5.6% of consolidated net
sales, in fiscal 2000 compared to $47.5 million in fiscal 1999, a decrease of
4.0%. The continued decline in the Company's sales of hook and loop closure
fabrics, caused mostly by lower sales to a large customer, was partially offset
by sales increases in fibers and other fabrics, particularly in Mexico.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Gross margin decreased to $105.3 million or 12.9% of net sales in fiscal 2000
from $132.3 million or 15.4% of net sales in fiscal 1999. The largest decrease
came in the Apparel segment, where the most significant impact to margin was the
volume decline. Related decreased production caused under-utilization of
equipment. The lower volume caused a decline in gross margin of $15.4 million in
Apparel. The Company reduced fixed costs in several of its facilities to
partially offset the impact of these volume declines. Additionally, the Company
has reduced prices of certain products in order to compete with lower-priced
imports. In the Automotive segment, gross margin was negatively impacted by
higher prices charged by outside processors which were necessary to meet
unexpected demand in the U.S. The high demand also caused inefficiencies
associated with running consecutive 7-day per week operations. Excess costs and
expenses totaled $8.5 million and more than offset incremental gross margin of
$5.7 million from volume increases. Gross margin in the U.K.'s automotive
business declined $1.4 million due to lower volume and equipment utilization.
The strength of the sterling negatively impacted gross margin by $2.9 million.
Gross margins in the automotive business for both Mexico and Brazil improved in
fiscal 2000 compared to fiscal 1999 due to higher sales and strong consumer
demand. Gross margin in the Home Fashions segment improved in fiscal 2000
compared to fiscal 1999, largely due to the fiscal 1999 decision to exit the
low-margin sheeting business and focus on higher margin opportunities in window
curtains and satin bedding. Gross margin in the Other segment decreased due to
lower demand for hook and loop fabric ($2.3 million), lower prices for fibers,
and most significantly, under-utilization of fiber spinning and warping
capacity. The fibers operations' gross margin declined by $3.4 million in fiscal
2000.
Selling and administrative expenses of $97.2 million, or 11.9% of sales, in
fiscal 2000 decreased 5.5% from $102.9 million, or 12.0% of sales, in fiscal
1999. The decrease was due to a Company-wide effort to reduce discretionary
expenses such as travel, advertising and professional fees totaling $2.7
million. In addition, fiscal 1999 included a $3.1 million non-recurring bad debt
expense.
During the fourth quarter of fiscal 2000, Guilford committed to a comprehensive
restructuring plan intended to reduce capacity and improve the profitability of
its apparel operations. The plan includes discontinuing the knitting, dyeing and
finishing operations at the Company's Fishman and Greenberg facilities, in
Greensboro, NC. A portion of the Greenberg operations will be transitioned to
the Company's soon-to-be completed facility in Altamira, Mexico, while other
production is being transferred to Guilford facilities in the U.S. As a result
of this plan, the Company recorded a restructuring charge of $28.6 million in
the fourth quarter of fiscal 2000. The net after-tax effect of this charge is
$0.95 per share in fiscal 2000. This charge is comprised of $17.3 million in
equipment impairment charges (impairment was determined by comparing the net
book value of the assets against the fair market value); $9.1 million in accrued
severance costs payable to the approximately 950 affected employees; $1.6
million in equipment relocation and other costs; and $0.6 million for supplies
obsolescence and other costs. The Company expects to recognize additional period
costs of $13.0 million during fiscal 2001.
The Company had an operating loss of $20.5 million in fiscal 2000 compared to an
operating profit of $29.9 million in fiscal 1999. Operating income for the
Automotive segment declined $5.2 million to $24.8 million in fiscal 2000. This
decrease was due to the volume decline in the U.K. and manufacturing
inefficiencies in the U.S. The Apparel segment experienced the largest decline
in operating income, a decrease of $43.3 million, to an operating loss of $39.8
million. This decline was due primarily to the restructuring plan, and also to
lower sales, soft pricing and excess capacity as a result of increased foreign
competition. The Home Fashions segment's operating loss improved by $4.5
million, to a loss of $1.8 million, mainly due to the elimination of the low
margin circular knit sheeting business. Finally, the segment identified as Other
experienced an operating income decrease of $6.5 million to a loss of $3.7
million, as a result of lower fabric sales, weak internal fiber demand and lower
pricing.
Interest expense increased $2.3 million to $18.9 million from $16.6 million in
fiscal 1999, primarily as a result of increased borrowings to finance
operations. The average short-term interest rate was approximately 7% in fiscal
2000 and 6% in fiscal 1999.
Other income was $6.4 million in fiscal 2000 compared to other expense of $1.2
million in fiscal 1999. Fiscal 2000 other income consisted primarily of
non-recurring items of $7.1 million in gains which occurred when two insurance
mutuals, of which the Company was a member as a policyholder, underwent
demutualizations and
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
converted to stock enterprises, and $2.9 million in gains on foreign currency
hedging, partially offset by a $3.7 million loss from an equity investee and
$0.1 million of various other expenses. Fiscal 1999 other expense was comprised
of losses from equity investees of $1.8 million, investment write-offs of $0.7
million, and various other expenses of $0.9 million that more than offset the
$2.2 million gain on the sale of fixed assets.
The effective tax rate for fiscal 2000 was 36.4% and resulted in an income tax
benefit of $12.0 million. This compared to an effective income tax rate of 15.8%
for fiscal 1999. The lower rate in 1999 was the result of a one-time net benefit
of $3.7 million derived from a dividend paid by Guilford's U.K. subsidiaries to
the parent under the Advance Corporation Tax (ACT) rules and the U.S.-U.K.
Income Tax Treaty.
Net loss in fiscal 2000 was $21.0 million or 2.6% of net sales, compared to
fiscal 1999's net income of $10.2 million or 1.2% of sales. Basic and diluted
loss per share were $1.11 in fiscal 2000 compared to basic and diluted earnings
per share of $0.47 in fiscal 1999. Average shares outstanding decreased in
fiscal 2000 from fiscal 1999 due to the full year impact of the Company's 1999
repurchases of nearly 1.0 million shares of the Company's common stock in the
open market and nearly 3.1 million shares from a beneficial owner in a private
transaction.
1999 Compared to 1998 - Consolidated sales for fiscal 1999 were $856.8 million,
a decrease of 4.2% from fiscal 1998's $894.5 million. Increased sales in the
Automotive segment were more than offset by sales declines in all the other
segments, particularly in the Home Fashions segment.
The Automotive segment accounted for 42.2% of consolidated net sales in fiscal
1999, an increase over 37.8% in fiscal 1998. Sales were $361.3 million and
increased 6.8% over fiscal 1998. This primarily resulted from the increase in
the U.S. car build in fiscal 1999 to 16.9 million units compared to car build in
fiscal 1998 of 15.4 million units. Although Guilford maintained its U.S. market
share of the headliner business, the higher car build and the Company's growth
in value-added, cut-to-size parts resulted in the increased sales over fiscal
1998. Additionally, penetration into the New Domestics OEMs allowed Guilford to
gain bodycloth market share in the overall U.S. vehicle market. Although
domestic operations were strong in fiscal 1999, sales in the U.K. and Mexico
decreased from fiscal 1998. Sales by the U.K. operations fell 14.1% due to the
loss of market share of one of the Company's major customers and lower build
levels of another major customer. Automotive fabric sales in Mexico fell by more
than 50% due to the loss of a major customer program that returned to Guilford
late in fiscal 1999. Sales in Brazil contributed minimally in fiscal 1999 due to
the economic environment.
Apparel segment sales decreased 1.1% to $336.5 million in fiscal 1999 from
$340.2 million in fiscal 1998 and accounted for 39.3% of consolidated net sales.
Increased sales in intimate apparel, swimwear and ready-to-wear were more than
offset by decreased sales of commodity fabrics. Intimate apparel fabric sales
grew in fiscal 1999 due to the Company's strong position with the major branded
retailers and their success at the retail level. Swimwear fabric sales increased
as retail sales increased due to warmer weather and the insolvency and change in
ownership of a competitor. While ready-to-wear fabric sales increased modestly
during fiscal 1999, this sector was impacted by warp knit garment imports from
Asia. Sales declines in the Company's commodity fabrics were also substantially
due to Asian imports. However, the Chapter 11 filing of a major lining customer
as well as a change in consumer lifestyles also contributed to the decline in
commodity fabric sales.
The Home Fashions segment accounted for 13.0% of consolidated net sales in
fiscal 1999 and sales decreased 26.6% from fiscal 1998. Sales for fiscal 1999
were $111.5 million versus $151.9 million in fiscal 1998. This segment was
particularly impacted by foreign imports, which caused the Company to exit the
circular knit sheeting business in fiscal 1999. These imports also had an
adverse effect on sales of lace window curtains. Upholstery fabric and mattress
ticking fabric sales declined in fiscal 1999 and were only partially offset by
an increase in domestics fabric sales.
Sales in the Other segment fell 26.0% to $47.5 million in fiscal 1999 from $64.2
million in fiscal 1998. The Other segment represented 5.5% of consolidated net
sales in fiscal 1999. The Company's decision to exit the nylon fiber business at
the end of fiscal 1998 and the decline in sales of hook and loop closure systems
contributed to the sales decline. The Company's sales of hook and loop closure
systems were impacted by a customer's decision to replace Guilford's fabric with
fabric from a regional European supplier.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Gross margin decreased to $132.3 million or 15.4% of net sales in fiscal 1999
from $166.6 million or 18.6% of net sales in fiscal 1998. The single most
significant impact to margin was the volume decline in the home fashions
segment. The sheeting and window curtains volume decreases dramatically affected
three of Guilford's operations as both products were internally knit, finished,
cut and sewn in Guilford facilities. This vertical integration in the Home
Fashions segment, which contributed so dramatically to performance in fiscal
1998, eroded fiscal 1999 results by $19.9 million. Additionally, profit was
impacted by volume declines in commodity apparel, industrial products and the
U.K., and Mexican automotive businesses. The Company reduced fixed costs in
several of its facilities to partially offset the impact of volume declines.
Apparel segment volume declines were also somewhat offset by a favorable sales
price and product mix combination as the Company continued to shift toward more
value-added intimate apparel, team sports and swimwear and away from commodity
sleepwear, robewear and velvets. Domestic automotive sales prices declined by
nearly $1.5 million overall due to OEM pricing pressures. This was more than
offset by increased sales prices for value-added, cut-to-size headliner parts.
Sales prices for domestic industrial fabrics and polyester fibers also declined
in fiscal 1999. Gross profit was also impacted by the Company's actions to
curtail production and dispose of certain aged inventory in order to lower
inventory levels company-wide. Guilford disposed of approximately $20 million of
aged inventory and incurred an approximate loss of $5.0 million. Hurricane Floyd
affected five locations and resulted in several days of business disruption and
facility shutdowns caused by loss of power and associate safety considerations.
While the Company acted promptly to resume operations and despite minimal
physical property damage, the most significant impact related to shipments to
automotive customers which were delayed beyond the fiscal year. As a result,
gross profit was negatively impacted by $2.0 million. Additionally in fiscal
1999, the gross margin in the Automotive segment was negatively impacted by the
inefficiencies of domestic automotive operations due to the unexpectedly high
car-build which caused seven day operations, the Company's relocation and
consolidation of two woven operations which resulted in a non-recurring expense
of $1.8 million and the slower than expected automotive growth in Brazil which
resulted in a gross margin loss of $1.6 million.
Selling and administrative expenses increased 4.0% to $102.9 million, or 12.0%
of sales, in fiscal 1999 from $98.9 million, or 11.1% of sales, in fiscal 1998.
The increase over fiscal 1998 was due primarily to an additional bad debt
provision of $3.1 million associated with the financial difficulties of an
Apparel segment customer, increased professional fees of $1.0 million associated
with the investigation of accounting irregularities at Hofmann Laces and
increased consulting fees of $1.1 million in the Home Fashions segment. In the
Automotive segment, payroll and fringe benefits increased $1.7 million in the
U.S. as unexpected record car builds resulted in continuous seven day
operations. Offsetting these increases were cost reductions in the Company's
U.K. and Mexican operations totaling $1.9 million.
During fiscal 1998 a plant restructuring charge of $6.5 million was recorded for
the termination and exit cost for two of the Company's facilities. During fiscal
1999, the Company reversed $0.5 million of the original charge into income due
to the actual amount of severance falling below management's original estimate.
Operating income in fiscal 1999 decreased to $29.9 million from $61.2 million.
Operating income decreased in each segment from fiscal 1998. The Home Fashions
segment experienced the largest decline in operating income of $18.7 million
which generated an operating loss of $6.4 million. This decline was due to the
lower volume as a result of the Company's decision to exit jersey knit sheeting,
inventory reductions and increased selling and administrative expenses. The
Apparel and Other segment's operating income fell $4.3 million and $5.8 million,
respectively, to $3.5 million and $2.8 million, respectively, in fiscal 1999
from fiscal 1998. These decreases were also due to lower volumes, which resulted
from the foreign competition. Operating income for the Automotive segment fell
$2.5 million to $30.0 million in fiscal 1999. This decline was due to the volume
declines in the foreign operations, Hurricane Floyd and increased payroll and
fringe benefits in domestic operations.
Interest expense increased $4.2 million to $16.6 million from $12.4 million in
fiscal 1998 as short-term borrowings increased $51.8 million, primarily as a
result of the repurchase of shares of the Company's common stock. The average
short-term interest rate was approximately 6% in both fiscal 1999 and fiscal
1998.
Other expense was $1.2 million in fiscal 1999 compared to other income of $0.3
million in fiscal 1998. Fiscal 1999 included losses of $1.8 million from an
equity investee, investment write-offs of $0.7 million, and $0.9 million of
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
various other expenses that more than offset the $2.2 million gain on the sale
of fixed assets. Fiscal 1998 included a gain on the sale of assets of $2.4
million, partially offset by losses of $0.4 million from an equity investee, and
$1.7 million of various other expenses.
The effective income tax rate for fiscal 1999 was 15.8% versus 32.5% for fiscal
1998. This reduction reflected a one-time net benefit of $3.7 million derived
from a dividend paid by Guilford U.K. subsidiaries to the parent under the
Advance Corporation Tax (ACT) rules and the U.S.-U.K. Income Tax Treaty. The
decrease in the effective income tax rate was also due to lower pre-tax book
income, an effective tax rate reduction in the U.K. and a charitable
contribution of a building. The reduction of certain credits and a reduction in
the foreign sales commission due to reduced margins on export sales partially
offset the decline.
An extraordinary charge net of tax of $2.9 million, for the prepayment of debt
was recorded in fiscal 1998.
Net income in fiscal 1999 was $10.2 million or 1.2% of net sales a decrease of
66.1% from fiscal 1998's net income of $30.2 million or 3.4% of sales. Basic and
diluted earnings per share were $0.47 in fiscal 1999 compared to basic earnings
per share of $1.20 and diluted earnings per share of $1.19 in fiscal 1998.
Average shares outstanding decreased substantially during fiscal 1999 as the
Company repurchased nearly 1.0 million shares of the Company's common stock in
the open market and nearly 3.1 million shares from a beneficial owner in a
private transaction.
LIQUIDITY AND CAPITAL REQUIREMENTS
Cash provided by operations decreased to $51.6 million in fiscal 2000 compared
to $92.9 million in fiscal 1999. The decrease resulted primarily from working
capital increases of $21.4 million and lower operating income before non-cash
restructuring costs of $21.3 million.
Cash used by investing activities increased to $58.0 million in fiscal 2000 from
$47.1 million in the prior year. An increase in capital expenditures resulting
substantially from the Company's expansion in Mexico was partially offset by
proceeds from the sale of assets and investments, and from the settlement of
forward contracts.
Cash provided by financing activities was $8.2 million in fiscal 2000, compared
to cash used in financing activities of $53.2 million in fiscal 1999. The
increased cash outflow in fiscal 1999 consisted primarily of $42.0 million used
to repurchase of the Company's stock, $17.0 million paid as the final purchase
price for the acquisition of Hofmann Laces, as well as an additional $3.7
million in dividends paid to stockholders.
At the end of fiscal 2000, cash and cash equivalents of $23.9 million were
available for future capital and other operational and business needs.
Working capital was $213.1 million at the end of fiscal 2000, compared to $127.7
million in the prior year. The increase in working capital was primarily the
result of a $101.1 million decrease in short-term debt due to the
reclassification of borrowings from short-term to long-term debt with the
securing of the Company's new 3-year revolving credit facility. This was
partially offset by decreases in accounts receivable and inventories. Long-term
debt increased $116.7 million primarily as a result of the reclassification.
As part of the original 1996 purchase agreement between Guilford Mills and
Hofmann Laces, the Company agreed to pay additional consideration based upon the
Company's price-earnings' multiple and Hofmann Laces' performance through the
end of calendar year 2000. The purchase agreement was amended in fiscal year
1998 to fix the amount of the additional payment. A $17.0 million payment of the
acquisition price was made during fiscal 1998 with the final cash payment of
$17.3 million, including interest, being made during fiscal 1999.
Capital expenditures were $66.2 million in fiscal 2000 compared to $48.6 million
in fiscal 1999. The increase from 1999 was related to the Company's expansion in
Mexico. The Company generally maintains its average capital expenditures near
the average depreciation expense; however, capital expenditure levels for fiscal
2001 are again expected to be above depreciation expense due to the
above-mentioned expansion and the Company's strategic realignment of its apparel
operations.
Raw material prices were stable overall in fiscal 2000 and had an insignificant
impact on Guilford's liquidity. At the end of fiscal 1999, yarn suppliers began
to announce price increases. Thus far, these have been denied as Guilford's
customers have refused to allow corresponding selling price increases
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
On May 26, 2000, the Company entered into a new $130 million revolving credit
facility, replacing a $150 million revolving credit facility. On November 6,
2000, the facility was amended so as to anticipate the consequences of the
restructuring actions (See Note 3 to the consolidated statements which are
included herein). The new revolving credit facility is secured by substantially
all of the Company's assets and will mature on May 26, 2003. The new revolving
credit facility has higher effective interest rates and more restrictive
covenants than the Company's previous facility. At the same time the Company
entered into the new revolving credit facility, its 7.06% Senior Notes due 2008
became ratably secured with the bank facility. Proceeds from the new revolving
credit facility were used to repay borrowings on uncommitted lines of credit and
the previous revolving credit facility. In addition, the Company's previously
uncommitted credit facilities have been terminated. The Company maintains
limited flexibility with respect to its working capital needs through the $130
million revolving credit facility and the ability to receive advances of up to
$30 million against its factored accounts receivable. At October 1, 2000,
borrowing availability under the Company's revolving credit facility was $14.0
million. There were no advances against factored accounts receivables.
The textile industry has continued to experience tightened lending practices
from traditional financial institutions due principally to lower reported
earnings. Management believes that while the Company has less liquidity under
current facilities than previously, it has the ability to obtain additional
capital from the appropriate financial markets if required. The Company believes
that internally generated operating funds and funds available under its credit
facilities will be sufficient to meet its needs for normal working capital and
capital spending as permitted under the terms of the Company's loan agreements.
The Company obtained a pre-emptive waiver as of October 1, 2000 and therefore
remained in compliance at its fiscal year end with its loan covenants.
During the third quarter of fiscal 2000, the Company's Board of Directors
suspended the payment of quarterly dividends to shareholders. The revolving
credit facility and senior notes prohibit the payment of dividends throughout
their respective terms.
INFLATION
The Company believes that the relatively moderate inflation rate of the past
decade has not significantly impacted its operations.
CONTINGENCIES
The Company is involved in various litigation and environmental matters arising
in the ordinary course of business. These are discussed in Note 12 to the
consolidated 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
The U.S. textile industry has suffered significant declines in sales, production
and earnings since 1998 when the Asian financial crisis prompted many of the
continent's countries to export low-priced textile and apparel products into the
robust U.S. marketplace. Today, imports continue to surge, as U.S. retail
apparel sales have remained strong. Poor earnings and stock performance for U.S.
textile companies have resulted in tightened lending, unpredictability and
manufacturing plant closings.
These events eroded margins at Guilford Mills and caused capacity utilization to
decline to 60% in its apparel operations. Consequently, the Company accelerated
its strategic realignment of the apparel business, intended to permanently
reduce capacity by consolidating production into three dyeing and finishing
facilities. The actions, once fully implemented, are expected to result in
significant fixed cost reductions and operational efficiency improvements.
Central to the apparel strategy is the start-up of a state-of-the-art operation
in Altamira, Mexico in early 2001. In management's opinion, textile
manufacturers in the Western Hemisphere can be competitive. NAFTA and Caribbean
trade opportunities afford U.S. fabric manufacturers such as Guilford Mills
logistical advantages over the Far East and Indian subcontinent. In fact, some
of the Company's retail and cut and sew customers have already begun to move
material sourcing from the Far East to Mexico and the CBI region.
Guilford has exited many commodity apparel fabrics and will focus on
value-added, innovative products in the intimate apparel, ready-to-wear and
swimwear sectors. Fiscal 2001 will be a transitional year with apparel segment
sales declining and profitability negatively impacted by final restructuring
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
costs and operational run-out. However, with its reputation of technological
excellence and its strong customer relationships, the Company expects to
maintain its position as a leader in the apparel industry.
The Company's diversification into Automotive, Home Fashions and
Industrial/Specialty fabrics and fiber products has continued to provide it with
flexibility. Worldwide market penetration in automotive, innovation and
technical superiority in industrial/specialty and licensing opportunities in
direct-to-retail home fashions are expected to provide growth in non-apparel
segments. As a result of the highly specified, technical requirements of both
Automotive and Industrial/Specialty products, management believes these areas to
be less susceptible to low-priced imports into the U.S. The recent softening of
the U.S. economy has caused a slight decline in consumer spending for durable
goods. Consequently, automotive industry analysts have projected the calendar
year 2001 car build to be slightly below that of 2000. The Company expects this
decline to negatively impact U.S. Automotive headliner fabric sales by
approximately 5% to 8%.
Although credit markets have tightened for textile manufacturers, the Company
secured a three-year $130 million revolving credit facility in May 2000. The
agreement has more restrictive covenants and higher effective interest rates.
Continued depressed operating margins, restructuring costs and higher interest
expense are expected to result in a net loss for the first half of fiscal year
2001.
YEAR 2000
Guilford spent approximately $1.4 million for Year 2000 readiness, including the
costs to cover the execution of contingency plans prior to December 31, 1999.
These amounts were expensed as part of the Company's normal operating results.
The Company did not experience any material business interruptions related to
the Year 2000 issue.
MARKET RISK
The Company is exposed to market risk for changes in interest rates and foreign
currency exchange rates. Guilford has limited exposure to commodity price risk.
The Company does not hold or issue any financial instruments for trading or
other speculative purposes.
Interest Rate Risk: The Company's obligations under the bank credit bear
interest at floating rates and therefore, the Company is impacted by changes in
prevailing interest rates. However, the senior notes bear fixed interest coupons
and therefore are not subject to the risk of interest rate fluctuations. A 10%
change in market interest rates that affect the Company's financial instruments
would impact earnings during fiscal 2001 by approximately $1.3 million before
taxes and would change the fair value of the Company's financial instruments by
approximately $7.4 million.
Foreign Currency Risk: The Company is subject to foreign currency risk primarily
related to sales and expenditures and other transactions denominated in foreign
currencies and investments in foreign subsidiaries. The Company manages the
exposure related to capital expenditures and other firm commitments denominated
in foreign currencies primarily through forward exchange contracts with
durations of generally less than 12 months. The Company enters into these
contracts in the normal course of business. The changes in market value of such
contracts have a high correlation to the price changes in the currency of the
related hedged transactions. On October 1, 2000, the Company had the following
outstanding foreign currency forward contracts:
Forward (2) (3) (4) (5)
Currency Nominal Gain
Contracts(1) Amount Average Fair Value (Loss)
Rate
(Hedge of Firm Commitments) (In thousands)
--------------------------------------------------------------
Receive Swiss Francs/Pay U.S. Dollar
$931 1.7288 $934 ($3)
--------------------------------------------------------------
Receive U.S. Dollar/Pay Swiss Francs
$2,180 1.7292 $2,190 $10
--------------------------------------------------------------
Receive German Deutsche Marks/Pay U.S. Dollar
$1,367 2.1400 $1,326 ($41)
--------------------------------------------------------------
Receive Euro/Pay Mexican Peso
$272 13.3157 $213 ($59)
--------------------------------------------------------------
Receive U.S. Dollar/Pay British Pound
$7,997 1.4645 $7,994 ($3)
--------------------------------------------------------------
(1) Contracts generally mature within 12 months
(2) Nominal contract amount as reflected in the underlying contract
(3) Weighted average contract rates represent the rates of exchange, stated in
the currency sold, as reflected in the underlying contract
(4) Fair value equals the contract amount presented in U.S. dollar equivalents
based upon the year-end exchange rates obtained from brokers or referenced from
publicly available market information
(5) Gain(Loss) represents the net unrecognized gain(loss) based upon the
year-end exchange rate
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Effective in fiscal 2000, the Company adopted a policy to manage the exposure
related to sales denominated in foreign currencies through the use of forward
exchange contracts. In fiscal 2000, these forward exchange contracts covered
approximately 75% of the Company's anticipated sales in the Euro, which
represented the majority of the Company's foreign currency sales. The duration
of these contracts was less than 12 months and matched the anticipated
receivable collections. For fiscal 2001, the Company has determined that its
anticipated sales in the Euro for fiscal 2001 are naturally hedged by
anticipated Euro payables and therefore, no contracts have been purchased.
Commodity Price Risk: The Company is a purchaser of cotton and generally buys
cotton based upon market prices that are established with the vendor as part of
the purchase process. Guilford does not use commodity financial instruments to
hedge cotton prices due to the high correlation between the cost of cotton and
the ultimate selling price of the Company's product.
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 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
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 or
11. inability to obtain financing on favorable terms or to obtain amendments or
waivers with respect to non-compliance with certain covenants in loan
agreements
<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 October 1, 2000 and October
3, 1999, and the related consolidated statements of operations, stockholders'
investment and cash flows for each of the three years in the period ended
October 1, 2000. 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 auditing standards generally accepted
in the United States. 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 October 1, 2000 and October 3, 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
October 1, 2000, in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Greensboro, North Carolina,
November 10, 2000.
<PAGE>
CONSOLIDATED BALANCE SHEETS
October 1, 2000 and October 3, 1999
(In thousands except share data)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,874 $ 22,554
Accounts receivable, net 148,270 160,071
Inventories 127,550 136,772
Prepaid income taxes 7,680 7,032
Other current assets 15,485 12,312
-------------------------------------------------------------------------------------------------------------------------------
Total current assets 322,859 338,741
-------------------------------------------------------------------------------------------------------------------------------
Property, net 297,425 312,415
Other assets 103,928 102,275
-------------------------------------------------------------------------------------------------------------------------------
Total assets $ 724,212 $ 753,431
-------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings $ 10,915 $ 112,009
Current maturities of long-term debt 530 532
Accounts payable 54,400 58,355
Other current liabilities 43,904 40,185
-------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 109,749 211,081
-------------------------------------------------------------------------------------------------------------------------------
Long-term debt 262,845 146,137
Deferred income taxes 14,052 26,776
Other liabilities 27,794 28,492
-------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 304,691 201,405
-------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 12 & 13)
STOCKHOLDERS' INVESTMENT
Preferred stock, $1 par; 1,000,000 shares authorized, none issued - -
Common stock, $.02 par; 65,000,000 shares authorized, 32,750,094
shares issued, 19,194,295 shares outstanding at October 1, 2000
and 19,199,642 shares outstanding at October 3, 1999 655 655
Capital in excess of par 120,371 120,532
Retained earnings 336,505 363,812
Accumulated other comprehensive loss (17,164) (12,279)
Unamortized stock compensation (2,084) (3,310)
Treasury stock, at cost (13,555,799 shares at October 1, 2000 and
13,550,452 shares at October 3, 1999 (128,511) (128,465)
-------------------------------------------------------------------------------------------------------------------------------
Total stockholders' investment 309,772 340,945
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' investment $ 724,212 $ 753,431
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 1, 2000, October 3, 1999 and September 27, 1998
(In thousands except per share data)
<TABLE>
<CAPTION>
2000 1999 1998
(52 WEEKS) (53 weeks) (52 weeks)
NET SALES $ 814,226 $ 856,838 $ 894,534
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Cost of goods sold 708,883 724,529 727,934
Selling and administrative 97,192 102,871 98,894
Restructuring and impaired asset charges 28,643 (470) 6,470
--------------------------------------------------------------------------------------------------------------------------
834,718 826,930 833,298
--------------------------------------------------------------------------------------------------------------------------
OPERATING (LOSS) INCOME (20,492) 29,908 61,236
--------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE (INCOME):
Interest expense 18,882 16,598 12,414
Other (income) expense, net (6,392) 1,155 (284)
--------------------------------------------------------------------------------------------------------------------------
12,490 17,753 12,130
--------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAX
(BENEFIT) PROVISION AND EXTRAORDINARY ITEM (32,982) 12,155 49,106
INCOME TAX (BENEFIT) PROVISION (12,008) 1,925 15,960
--------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (20,974) 10,230 33,146
EXTRAORDINARY ITEM, NET OF TAX (NOTE 8) - - (2,940)
--------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (20,974) $ 10,230 $ 30,206
--------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME PER SHARE BEFORE EXTRAORDINARY ITEM:
Basic $ (1.11) $ 0.47 $ 1.32
Diluted (1.11) 0.47 1.30
--------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME PER SHARE:
Basic $ (1.11) $ 0.47 $ 1.20
Diluted (1.11) 0.47 1.19
--------------------------------------------------------------------------------------------------------------------------
</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 October 1, 2000, October 3, 1999 and September 27, 1998
(In thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Current Year Common Stock Capital in
Comprehensive -------------------------- Excess of
Income (Loss) Shares $ Amount Par
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1997 32,750 $ 655 $ 117,110
Comprehensive income:
Net income $ 30,206
Other comprehensive income, net of tax:
Foreign currency translation gain 2,027
--------------------
Total comprehensive income $ 32,233
--------------------
Grant of shares under the restricted
stock plan 765
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan
Issuance of shares under the
employee stock ownership plan 64
Stock option exercises 947
Other transactions, including return of treasury
stock received as payment for options exercised (238)
Purchases of treasury stock
U.S. income tax benefit from stock options and
restricted stock 1,000
Cash dividends ($.44 per share)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998 32,750 655 119,648
Comprehensive income:
Net income $ 10,230
Other comprehensive income, net of tax:
Foreign currency translation loss (4,036)
Pension equity adjustment (666)
--------------------
Total comprehensive income $ 5,528
--------------------
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan
Stock option exercises 53
Other transactions, including return of treasury
stock received as payment for options exercised 61
Purchases of treasury stock
U.S. income tax benefit from stock options and
restricted stock 770
Cash dividends ($.44 per share)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999 32,750 655 120,532
Comprehensive income:
Net Loss $ (20,974)
Other comprehensive income, net of tax:
Foreign currency translation loss (5,274)
Pension equity adjustment 389
--------------------
Total comprehensive loss $ (25,859)
--------------------
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan
U.S. income tax effect from restricted stock (161)
Cash dividends ($.33 per share)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 2000 32,750 $ 655 $ 120,371
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Table continued...
<PAGE>
----------------------------------------------------------------------------------------------------------------------
Accumulated
Other Unamortized
Retained Comprehensive Stock
Earnings Loss Compensation
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1997 $ 344,656 $ (9,604) $ (5,091)
Comprehensive income:
Net income 30,206
Other comprehensive income, net of tax:
Foreign currency translation gain 2,027
Total comprehensive income
Grant of shares under the restricted
stock plan (1,136)
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan 1,468
Issuance of shares under the
employee stock ownership plan
Stock option exercises
Other transactions, including return of treasury
stock received as payment for options exercised
Purchases of treasury stock
U.S. income tax benefit from stock options and
restricted stock
Cash dividends ($.44 per share) (11,256)
---------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998 363,606 (7,577) (4,759)
Comprehensive income:
Net income 10,230
Other comprehensive income, net of tax:
Foreign currency translation loss (4,036)
Pension equity adjustment (666)
Total comprehensive income
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan 1,449
Stock option exercises
Other transactions, including return of treasury
stock received as payment for options exercised
Purchases of treasury stock
U.S. income tax benefit from stock options and
restricted stock
Cash dividends ($.44 per share) (10,024)
---------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999 363,812 (12,279) (3,310)
Comprehensive income:
Net Loss (20,974)
Other comprehensive income, net of tax:
Foreign currency translation loss (5,274)
Pension equity adjustment 389
Total comprehensive loss
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations
Compensation under restricted stock plan 1,226
U.S. income tax effect from restricted stock
Cash dividends ($.33 per share) (6,333)
---------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 2000 $ 336,505 $ (17,164) $ (2,084)
---------------------------------------------------------------------------------------------------------------------
Table continued...
<PAGE>
--------------------------------------------------------------------------------------------------------------
Treasury Stock
------------------------------ Total
Shares $ Amount Equity
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1997 6,993 $ (38,830) $ 408,896
Comprehensive income:
Net income 30,206
Other comprehensive income, net of tax:
Foreign currency translation gain 2,027
Total comprehensive income
Grant of shares under the restricted
stock plan (58) 371
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations 11 (256) (256)
Compensation under restricted stock plan 1,468
Issuance of shares under the
employee stock ownership plan (105) 619 683
Stock option exercises (119) 684 1,631
Other transactions, including return of treasury
stock received as payment for options exercised 5 206 (32)
Purchases of treasury stock 2,797 (49,190) (49,190)
U.S. income tax benefit from stock options and
restricted stock 1,000
Cash dividends ($.44 per share) (11,256)
--------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998 9,524 (86,396) 385,177
Comprehensive income:
Net income 10,230
Other comprehensive income, net of tax:
Foreign currency translation loss (4,036)
Pension equity adjustment (666)
Total comprehensive income
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations 6 (94) (94)
Compensation under restricted stock plan 1,449
Stock option exercises (13) 121 174
Other transactions, including return of treasury
stock received as payment for options exercised 1 (52) 9
Purchases of treasury stock 4,033 (42,044) (42,044)
U.S. income tax benefit from stock options and
restricted stock 770
Cash dividends ($.44 per share) (10,024)
--------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999 13,551 (128,465) 340,945
Comprehensive income:
Net Loss (20,974)
Other comprehensive income, net of tax:
Foreign currency translation loss (5,274)
Pension equity adjustment 389
Total comprehensive loss
Vesting of shares under the restricted stock
plan, less return of shares to treasury stock
to satisfy recipients' individual tax obligations 5 (46) (46)
Compensation under restricted stock plan 1,226
U.S. income tax effect from restricted stock (161)
Cash dividends ($.33 per share) (6,333)
--------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 2000 13,556 $ (128,511) $ 309,772
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 1, 2000, October 3, 1999 and September 27, 1998
(in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
(52 WEEKS) (53 weeks) (52 weeks)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (20,974) $ 10,230 $ 30,206
Non-cash items included in net (loss)/income :
Depreciation and amortization 64,692 64,633 63,951
Unexpended restructuring costs 26,538 (470) 6,184
Gain on forward contracts (2,856) - -
Gain on sale of investments (7,131) - -
Extraordinary loss on debt extinquishment - - 4,356
Gain on disposition of property (70) (2,239) (2,382)
Loss on equity method investments 3,730 1,835 371
Provision for bad debts 1,404 4,748 834
Minority interest in net income 60 92 97
Deferred income taxes (14,050) (20) 9,032
Increase in cash surrender value of life insurance, net of policy loans (2,705) (3,186) (2,630)
Compensation earned under restricted stock plan 1,226 1,449 1,468
Changes in assets and liabilities:
Receivables 6,434 4,817 (2,462)
Inventories 6,755 16,302 (10,708)
Other current assets (3,425) (5,468) 278
Accounts payable (3,273) 902 (1,345)
Accrued liabilities (5,303) 2,675 (21,744)
Other assets and liabilities 503 (3,441) 898
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,555 92,859 76,404
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (66,187) (48,609) (84,015)
Proceeds from dispositions of property 7 2,260 4,331
Proceeds from sale of other assets 2,094 1,491 12,763
Proceeds from settlement of forward contracts 2,856 - -
Proceeds from sale of investments 7,131 - -
Increase in other assets - (1,207) (4,009)
Purchase of business, net of cash acquired - - (34,778)
Investment in equity investee (3,879) (995) (3,500)
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (57,978) (47,060) (109,208)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term (repayment)/borrowings, net (101,165) 51,802 53,847
Payments of long-term debt (22,389) (176,353) (88,010)
Proceeds from issuance of long-term debt, net of deferred financing costs paid 138,164 140,233 135,235
Payments arising from early extinquishment of debt - - (3,896)
Payment of purchase agreement - (17,000) -
Cash dividends (6,333) (10,024) (11,256)
Proceeds from exercise of common stock options - 174 1,631
Purchases of treasury stock - (42,044) (49,190)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 8,277 (53,212) 38,361
----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (534) (480) 541
----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,320 (7,893) 6,098
BEGINNING CASH AND CASH EQUIVALENTS 22,554 30,447 24,349
----------------------------------------------------------------------------------------------------------------------------------
ENDING CASH AND CASH EQUIVALENTS $ 23,874 $ 22,554 $ 30,447
----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 20,449 $ 12,971 $ 13,862
Cash paid for income taxes 696 13,851 16,406
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock under restricted stock plan $ - $ - $ 1,136
</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, flat-woven and
woven velour fabrics as well as lace. The Company sells its finished fabrics to
customers who manufacture a broad range of apparel, automotive, home fashions
and specialty products. The Company also cuts and sews lace fabrics into
finished home fashions products which are sold directly to retailers.
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
Fiscal Year End - The Company's fiscal year ends on the Sunday nearest to
September 30. Fiscal year 2000 ended October 1, 2000, fiscal year 1999 ended
October 3, 1999 and fiscal year 1998 ended September 27, 1998. Such years
include the results of operations for 52, 53 and 52 weeks, respectively.
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 1999 and
1998 financial statements have been reclassified to conform with the 2000
presentation.
Cash Equivalents - All highly liquid investments with an original maturity of
three months or less are considered to be cash equivalents.
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 $22,800 of certain outstanding accounts
receivable. The Company factors a portion of its trade accounts receivable to
several different factors, who provide credit approval on a non-recourse basis.
As of October 1, 2000 and October 3, 1999, approximately 19% and 17%,
respectively, of the Company's trade accounts receivable were factored. The
factoring agreements allow the Company to formally borrow against the factored
receivables using negotiated interest rates prior to the maturity dates. The
Company has not borrowed against the factored receivables in the last three
fiscal years. The Company performs on-going credit evaluations of its
non-factored customers' financial condition and generally does not require
collateral from those customers. The Company's fabrics are used primarily in the
apparel, automotive, and home fashions markets with a multitude of customers in
numerous geographical locations throughout the world. There is no
disproportionate concentration of credit risk. During fiscal 2000, 1999 and
1998, no single customer accounted for 10% or more of net sales, however, the
Company's net sales reflected substantial direct and indirect sales to certain
large automotive original equipment manufacturers.
Allowances for doubtful accounts were $11,080 and $17,393 at October 1, 2000 and
October 3, 1999, respectively. The Company maintains fully reserved receivables
for accounts which are either in bankruptcy or have been turned over to a
collection agency and also reserves for sales returns and allowances and
customer chargebacks.
Minority Interest - Minority interest represents the minority stockholders'
proportionate share of the equity of Grupo Ambar, S.A. de C.V. At October 1,
2000, the Company owned 95% of the capital stock of Grupo Ambar, S.A. de C.V.
Minority interest is included in other long-term liabilities in the accompanying
consolidated balance sheets.
Inventories - Inventories are carried at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for approximately 48% and
54% of inventories in fiscal 2000 and 1999, respectively. 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. Labor and interest costs for the
purchase and construction of qualifying fixed assets, are capitalized and are
amortized over the related assets' estimated useful lives.
Investment in Affiliated Companies - The equity method of accounting is used for
investments in which the Company has significant influence. Generally this
represents common stock ownership or partnership equity of at least 20% and not
more than 50%. For equity method investments that have been reduced to $0
through equity method losses, additional equity losses incurred have been used
to reduce loans to and investment in other securities of the investee. The cost
method of accounting is used for investments in which the Company does not have
significant influence. Generally this represents common stock ownership or
partnership equity of less than 20%.
<PAGE>
Goodwill and Intangible Assets - Goodwill is amortized using the straight-line
method over periods ranging from twenty to forty years. Goodwill amortization
was $1,920, $2,115 and $1,876 in fiscal 2000, 1999 and 1998, respectively.
Accumulated amortization at October 1, 2000 and October 3, 1999 was $14,397 and
$12,477, respectively.
Long-term Assets - The Company reviews the carrying value of long-term assets
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. In
the event such cash flows are not expected to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated
fair value (Note 3).
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. 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. In fiscal 1999, the
Company repatriated $20,000 to take advantage of the expiring Advanced
Corporation Tax rules and the U.S.-U.K. Income Tax Treaty. This non-recurring
dividend resulted in an income tax benefit in 1999. Undistributed earnings of
foreign operations were $10,388 at October 1, 2000 and $8,673 at October 3,
1999.
Foreign Currency Translation/Remeasurement - 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 accumulated other comprehensive loss 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 remeasured using a combination
of current and historical exchange rates. Remeasurement adjustments are included
in the results of operations along with transaction gains and losses for the
period.
The Company has a majority-owned foreign subsidiary that operates in Mexico.
Mexico became highly inflationary January 1, 1997 and subsequent financial
results for the Company's Mexican subsidiary were remeasured. Effective January
1, 1999, Mexico's economy was no longer considered highly inflationary for
financial reporting purposes because the cumulative Mexican inflation rate for
the immediately preceding three years fell below 100%. As a result, subsequent
to January 1, 1999, the financial results for the Mexican subsidiary have been
translated using year-end and average exchange rates as described above.
Revenue Recognition - The Company recognizes a sale when goods are shipped. The
Company estimates and records provisions for sales returns and allowances in the
period that the sale is reported based on its historical experience or
contractual agreements.
Research and Development - The Company expenses research and development costs
as incurred. Such costs were $18,269, $17,181 and $19,588 in fiscal 2000, 1999
and 1998, respectively.
Per Share Information - 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 the dilutive effect for stock options and restricted
stock.
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 to carrying amounts when the hedged transaction occurs.
The Company does not currently hold or issue any financial instruments for
trading or other speculative purposes. For fiscal 2000, the Company adopted a
policy to manage the exposure related to anticipated sales denominated in
foreign currencies through the use of forward exchange contracts and natural
hedges. The duration of these contracts is typically less than 12 months and the
duration attempts to match the anticipated receivable collections.
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.
<PAGE>
Recent Accounting Pronouncements - In June 2000, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". This Statement amends the
accounting and reporting standards of Statement No. 133 for certain derivative
instruments and certain hedging activities. SFAS No. 133 establishes accounting
and reporting standards 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. The Company has adopted
Statement No. 133 as of October 2, 2000, and has determined that the impact of
adopting the Statement is immaterial.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing Financial Assets and Extinguishment of Liabilities". This statement
replaces SFAS No. 125, but carries over most of the provisions of SFAS No. 125
without reconsideration. Management is currently analyzing the impact of
adopting SFAS No. 140, which will become effective for the Company during the
third quarter of fiscal 2001.
2. ACQUISITIONS:
As part of the original 1996 purchase agreement between Guilford Mills and
Hofmann Laces, the Company agreed to pay additional consideration based upon the
Company's price-earnings' multiple and Hofmann Laces' performance through the
end of calendar year 2000. The purchase agreement was amended in fiscal year
1998 to fix the amount of the additional payment. A $17,000 payment of the
acquisition price was made during fiscal 1998 and a final cash payment of
$17,283 was made during fiscal 1999.
3. RESTRUCTURING AND IMPAIRED ASSET CHARGES:
During the fourth quarter of fiscal 2000, the Company committed to a
comprehensive restructuring plan in its Apparel segment, and recorded
restructuring and impaired asset charges of $28,643. The restructuring plan
provided for the closing of two dye and finishing facilities, the relocation of
certain knitting, dyeing and finishing operations to plants in Mexico, New York
and Pennsylvania and the severance of approximately 950 associates. The closing
of facilities and relocation of operations resulted in impairment of certain
assets, consisting primarily of dyeing and finishing, warping and knitting
equipment and buildings which were written down to the lower of carrying value
or fair market value. Determination of fair market value was based upon: (1)
in-house engineering appraisals utilizing prices for currently available new and
used equipment, (2) real property tax values and (3) zero where intent is to
scrap. The Company will be operating these two facilities and equipment for a
portion of fiscal 2001. Eventually, the Company will sell the facilities and
certain equipment, transfer certain equipment to other facilities, and scrap the
remaining equipment. At October 1, 2000, these assets have a carrying value of
$23,000, which will continue to be depreciated until such assets are classified
as held for sale. The Company expects to recognize additional period costs of
$13,000 relating to this restructuring during fiscal 2001. The Company expects
to save approximately $35,000 in fiscal 2001 as a result of this restructuring
action, and savings in future years are expected to be far greater on an
annualized basis. The restructuring actions are expected to be completed during
fiscal 2001.
The following summarizes the fiscal 2000 restructuring:
Write-down
of
property
and
equipment October
Fourth to net 1, 2000
quarter realizable Reserves reserve
charges value utilized balance
-------- ------------ --------- ----------
Non-cash
write-downs
of property and
equipment to net $17,270 $17,270 $ -- $ --
realizable value
Severance and
related employee
benefit cost 9,105 --- 435 8,670
Equipment 1,631 --- 1,631 ---
relocation and
other costs
Other costs 637 --- 39 598
------------------- -------- ------------ --------- ----------
Total $28,643 $17,270 $2,105 $9,268
------------------- -------- ------------ --------- ----------
During fiscal 1998, the Company commenced restructuring of two of its operations
and recorded restructuring and impaired asset charges of $6,470. The
restructuring plan provided 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. The impaired assets consisted primarily of a building and fiber spinning,
warping, dyeing and finishing equipment. The Company used the same methods to
determine fair market value as were used in the fiscal 2000 restructuring
described above. Equipment was either idled or disposed of through external
sales to third parties.
The following summarizes the fiscal 1998 restructuring:
SEVERANCE AND OTHER
----------------------------------------- -------------
Fiscal 1998 restructuring charge $2,962
Fiscal 1998 costs against the reserve (286)
Balance at September 27, 1998 2,676
----------------------------------------- -------------
Fiscal 1999 costs against the reserve (2,206)
Fiscal 1999 reversal of excess reserve (470)
Balance at October 3, 1999 $ --
----------------------------------------- -------------
In September 1999, the Company sold the fiber facility and completed all
restructuring activities by fiscal year end. In fiscal 1999, $470 of the
original charge was reversed into income due to the actual amount of severance
falling below the original estimate.
<PAGE>
4. INVENTORIES:
Inventories at October 1, 2000 and October 3, 1999 consisted of the following:
------------------------------------- ------------- ------------
2000 1999
------------------------------------- ------------- ------------
Finished goods $44,666 $ 45,143
Raw materials and work in process 87,196 96,527
Manufacturing supplies 8,640 8,056
------------------------------------- ------------- ------------
Total inventories valued at
the lower of FIFO cost or
market value 140,502 149,726
Adjustments to reduce FIFO
cost to LIFO cost, net 12,952 12,954
------------------------------------- ------------- ------------
Total inventories $127,550 $136,772
------------------------------------- ------------- ------------
5. PROPERTY:
Property at October 1, 2000 and October 3, 1999 consisted of the following:
---------------------------------- ------------- -------------
2000 1999
---------------------------------- ------------- -------------
Land $ 14,099 $ 13,294
Buildings 122,316 120,137
Machinery and equipment 626,947 654,472
Construction in progress 45,696 22,383
---------------------------------- ------------- -------------
809,058 810,286
Less - Accumulated depreciation 511,633 497,871
---------------------------------- ------------- -------------
Property, net $ 297,425 $ 312,415
---------------------------------- ------------- -------------
Depreciation expense recorded during fiscal 2000, 1999 and 1998 was $61,636,
$61,869 and $59,627, respectively.
6. OTHER ASSETS:
Other assets at October 1, 2000 and October 3, 1999 consisted of the following:
------------------------------------------------ -------------
2000 1999
---------------------------------- ------------- -------------
Goodwill $48,444 $50,333
Cash surrender value of life 37,090 36,479
insurance
Other 18,394 15,463
---------------------------------- ------------- -------------
Total other assets $103,928 $102,275
---------------------------------- ------------- -------------
7. ACCRUED LIABILITIES:
Accrued liabilities at October 1, 2000 and October 3, 1999 consisted of the
following:
---------------------------------- ------------- -------------
2000 1999
---------------------------------- ------------- -------------
Payroll and related benefits $13,922 $18,046
Restructuring 8,670 -0-
Accrued interest 3,813 3,128
Property taxes 2,564 3,162
Other 14,935 15,849
---------------------------------- ------------- -------------
Total accrued liabilities $43,904 $40,185
---------------------------------- ------------- -------------
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
fiscal 2000, 1999 and 1998 were $137,057, $112,009 and $82,918, respectively;
the average borrowings were $120,478, $68,246 and $30,230, respectively; and the
weighted average interest rates were 8%, 6% and 7% (7%, 6% and 6% for U.S.
borrowings), respectively. Interest cost was $20,882, $17,798 and $13,814, for
fiscal years 2000, 1999 and 1998, respectively. Interest costs of $2,000, $1,200
and $1,400, for fiscal 2000, 1999 and 1998, respectively, were capitalized to
property, plant and equipment.
Long-term debt at October 1, 2000 and October 3, 1999 consisted of the
following:
------------------------------------- ------------ -------------
2000 1999
------------------------------------- ------------ -------------
Senior notes, due in 2008,
interest at 7.06% $145,000 $145,000
Revolving line of credit, due in 2003,
interest at 8.88% 116,000 - 0 -
Term loan with a Mexican bank with
various due dates and a variable
interest rate (20.5% at October 1,
2000) 795 1,340
Term loan with a Portuguese bank with
various due dates and a variable
interest rate (5.4% at October 1,
2000) 1,489 -0-
Other 91 329
------------------------------------- ------------ -------------
263,375 146,669
Less - Current maturities 530 532
------------------------------------- ------------ -------------
Total long-term debt $262,845 $146,137
------------------------------------- ------------ -------------
On May 26, 2000, the Company entered into a new $130,000 revolving credit
facility, replacing a $150,000 revolving credit facility. The new revolving
credit facility is secured by substantially all of the Company's assets and will
mature on May 26, 2003. This facility has higher effective interest rates and
more restrictive covenants than the Company's previous facility. At the same
time the Company entered into the new revolving credit facility, its 7.06%
Senior Notes due 2008 became ratably secured with the bank facility. Proceeds
from the new revolving credit facility were used to repay borrowings on
uncommitted lines of credit and the previous revolving credit facility. As of
October 1, 2000, the Company had availability under its revolving line of credit
of $14,000.
In the first quarter of fiscal 1999, the Company issued $145,000 of unsecured,
ten-year notes with a fixed coupon rate of 7.06%. The net proceeds were used to
repay a portion of the Company's outstanding borrowings on its uncommitted lines
of credit and revolving credit facility. During the fourth quarter of fiscal
1998, the Company entered into two treasury lock agreements with two financial
institutions to provide interest rate protection related to these notes. These
treasury lock agreements effectively fixed the U.S. Treasury portion 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. During the first quarter of fiscal 1999, the
treasury lock agreements were terminated and a payment of $4,366 was made and is
being amortized as additional interest expense over the period of the related
debt.
During fiscal 1998, the Company repaid all of the senior unsecured notes
outstanding due through 2003. 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.
<PAGE>
In July 2000, the Company announced that it did not expect to be in compliance
with the covenants in its loan agreements due to the announced restructuring
plan (Note 3). As a result, the Company obtained a pre-emptive waiver as of
October 1, 2000 and therefore remained in compliance at its fiscal year-end with
its loan covenants. An amendment to this waiver was issued on October 13, 2000,
extending the waiver to November 6, 2000. On November 6, 2000, the revolving
credit facility and senior notes were amended so as to anticipate the
consequences of the restructuring actions.
Under the terms of the Company's debt agreements, certain requirements and
restrictions apply to future indebtedness, stockholders' investment, and
tangible net worth. The loan agreements include restrictions prohibiting the
payments of dividends to shareholders, prohibiting Guilford Mills from
acquisitions of other companies and limiting the amount of foreign investments
the Company can make. The loan agreements contain mandatory prepayment
provisions in certain events, as defined. The interest rate on the revolving
credit facility is variable, based on prime, or based on LIBOR plus 1.25% to
4.25%, depending on the Company's leverage ratio.
The senior notes were also amended on November 6, 2000, such that the interest
rate was increased to 7.91%, providing for reductions back to 7.06% if certain
conditions are met. In addition, the maturity date of the senior notes may be
accelerated if a new revolving credit facility agreement, which is acceptable to
the note holders, is not in place prior to the expiration of the existing
agreement in May 2003.
Annual scheduled maturities of long-term debt for the next five years are $530
in 2001, $276 in 2002, $116,300 in 2003, $300 in 2004 and $300 in 2005.
9. FINANCIAL INSTRUMENTS:
The Company's financial instruments include cash, accounts receivable, accounts
payable, short-term borrowings, long-term debt and foreign currency exchange
contracts. Because of their short maturity, the carrying amount of cash,
accounts receivable and accounts payable approximates fair value. Fair value of
short-term borrowings and long-term debt is estimated based on current rates
offered for similar debt. At October 1, 2000 and October 3, 1999, the carrying
amount of short-term borrowings and long-term debt, including the current
portion, approximates fair value. The fair value of foreign currency forward
agreements is based on quoted market prices as if the agreements were entered
into on the measurement date. At October 1, 2000 and October 3, 1999, the fair
value of the foreign currency exchange contracts was $(95) and $(336),
respectively.
10. INCOME TAXES:
The net deferred income tax liability at October 1, 2000 and October 3, 1999 was
comprised of the following:
--------------------------------- --------------- -------------
2000 1999
--------------------------------- --------------- -------------
Assets $34,072 $33,576
Liabilities (40,444) (53,320)
--------------------------------- --------------- -------------
Total $(6,372) $(19,744)
--------------------------------- --------------- -------------
Temporary differences and carryforwards which gave rise to significant deferred
income tax assets (liabilities) as of October 1, 2000 and October 3, 1999 were
as follows:
------------------------------- ---------------- ---------------
2000 1999
------------------------------- ---------------- ---------------
Current prepaid (deferred)
income taxes:
Income tax credit carryforwards $ - $ 245
Inventory valuation differences (3,063) (4,061)
Allowances for doubtful accounts 2,029 5,184
Accrued expenses and reserves
not currently deductible for tax 5,063 4,506
Restructuring reserves 2,979 0
Other, net 672 1,158
------------------------------- ---------------- ---------------
Total current prepaid
income taxes $ 7,680 $ 7,032
------------------------------- ---------------- ---------------
Long-term prepaid (deferred)
income taxes:
Property $(30,271) $(41,507)
Income tax credit carryforwards
(expire 2004-2012) 6,858 11,372
Accrued pension and other
employee benefits 10,125 8,089
Alternative minimum and other
tax credit carryforwards
(no expiration) 5,641 3,124
State and foreign net operating loss
carryfowards (expire 2005-2015) 1,720 0
Investments in limited partnerships (2,143) (2,827)
Goodwill amortization (3,575) (3,076)
Financing costs (1,390) (1,554)
Other, net -- 788
------------------------------- ---------------- ---------------
Total long-term deferred
income taxes (13,035) (25,591)
Valuation allowance (1,017) (1,185)
------------------------------- ---------------- ---------------
Total long-term
deferred income taxes $(14,052) $(26,776)
------------------------------- ---------------- ---------------
The domestic and foreign components of (loss) income before income taxes were as
follows:
---------------------------- ------------ ----------- ------------
2000 1999 1998
---------------------------- ------------ ----------- ------------
Domestic $(32,864) $11,377 $34,562
Foreign (118) 778 14,544
---------------------------- ------------ ----------- ------------
Total $(32,982) $12,155 $49,106
---------------------------- ------------ ----------- ------------
The income tax (benefit) provision consisted of the following elements:
---------------------------- ------------ ----------- -----------
2000 1999 1998
---------------------------- ------------ ----------- -----------
Current (benefit) provision:
U.S. Federal $ - $2,238 $4,499
State 500 320 823
Foreign 1,542 (613) 1,606
Deferred (benefit)
provision:
U.S. Federal (11,663) (1,575) 6,115
State (1,516) (175) 795
Foreign (871) 1,730 2,122
---------------------------- ------------ ----------- -----------
Total $(12,008) $1,925 $15,960
---------------------------- ------------ ----------- -----------
The income tax provision as a percentage of pre-tax income differs from the
statutory U.S. Federal rate for the following reasons:
---------------------------- ------------ ----------- -----------
2000 1999 1998
---------------------------- ------------ ----------- -----------
Statutory U.S. Federal
income tax rate (35.0%) 35.0% 35.0%
State income taxes, net of
federal income tax reduction (3.1) 4.8 2.1
Foreign taxes 1.5 9.9 (1.6)
Tax credits (1.4) (33.3) (3.0)
Nondeductible goodwill 1.0 2.7 0.8
Charitable contribution -- (1.9) --
Other 0.6 (1.4) (0.8)
---------------------------- ------------ ----------- -----------
Effective income tax rate (36.4%) 15.8% 32.5%
---------------------------- ------------ ----------- -----------
During fiscal 1999, the Company generated a one-time net tax benefit from a
dividend from the Company's United Kingdom subsidiary under the Advanced
Corporation Tax rules and the U.S.-U.K. Income Tax Treaty. As a result, the
Company generated $4,836 of foreign tax credits which are available for U.S.
federal income tax purposes. Due to the uncertainty of realization of a portion
of these credits because of the annual limitations and the expiration period,
the Company has established a related valuation allowance of $1,185 during
fiscal 1999 which was reduced to $1,017 in fiscal 2000.
11. BENEFIT PLANS:
Guilford Mills, Inc. has a non-contributory defined benefit plan for the
majority of its hourly employees (the Guilford Plan). 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. Guilford
Europe Limited, a wholly-owned subsidiary, has a defined benefit pension plan
covering the majority of its employees. The funded status of defined benefit
plans at the measurement dates for fiscal 2000 and fiscal 1999 were:
---------------------------------------- ------------ -------------
2000 1999
---------------------------------------- ------------ -------------
PROJECTED BENEFIT OBLIGATION:
Beginning of year $50,353 $47,287
Service cost 1,914 2,080
Interest cost 3,206 3,109
Plan participants contributions 265 248
Actuarial (gain)/loss (150) 948
Benefit payments (3,134) (2,878)
Foreign currency adjustment (2,327) (441)
---------------------------------------- ------------ -------------
End of year $50,127 $50,353
---------------------------------------- ------------ -------------
FAIR VALUE OF PLAN ASSETS:
Beginning of year $49,033 $45,450
Actual return on plan assets 5,428 4,667
Employer contributions 2,041 1,999
Plan participant contributions 265 248
Benefit payments (3,134) (2,878)
Foreign currency adjustment (2,497) (453)
---------------------------------------- ------------ -------------
End of year $51,136 $49,033
---------------------------------------- ------------ -------------
RECONCILIATION OF FUNDED STATUS TO NET
AMOUNT RECOGNIZED:
Funded status $1,009 ($1,320)
Unrecognized transition asset (1,623) (1,810)
Unrecognized prior service cost (51) (56)
Unrecognized loss 1,872 3,624
---------------------------------------- ------------ -------------
Net amount recognized $1,207 $438
---------------------------------------- ------------ -------------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEETS:
Other current assets $1,284 $909
Other current liabilities (555) (1,589)
Other assets 201 452
Accumulated other comprehensive income 277 666
---------------------------------------- ------------ -------------
Net amount recognized $1,207 $438
---------------------------------------- ------------ -------------
Funded status is determined using assumptions as of the end of each year. The
Guilford Plan was under funded as of October 1, 2000 and October 3, 1999. The
projected benefit obligation, accumulated benefit obligation and fair value of
net assets of the Guilford Plan were $27,174, $26,136 and $25,581, respectively,
as of October 1, 2000. The projected benefit obligation, accumulated benefit
obligation and fair value of net assets of the Guilford Plan were $25,910,
$25,215, and $23,627, respectively, as of October 3, 1999. Net pension expense
is determined using assumptions as of the beginning of each year. The weighted
average assumptions at the respective measurement dates were:
---------------------------------- ------------- ------------
2000 1999
---------------------------------- ------------- ------------
Discount rate 6.91% 6.58%
Long-term rate of return on plan
assets 7.92% 8.39%
Long-term rate of salary
progression 4.00% 3.18%
---------------------------------- ------------- ------------
The components of the defined benefit plan expenses were:
------------------------ ----------- ----------- ----------
2000 1999 1998
------------------------ ----------- ----------- ----------
Defined benefit plans:
Service cost $1,869 $2,080 $2,080
Interest cost 3,142 3,109 3,339
Expected return on
plan assets (3,712) (3,731) (3,726)
Amortization of:
Transition asset (187) (187) (187)
Prior service cost (5) (5) (5)
Loss 101 132 89
------------------------ ----------- ----------- ----------
Net periodic pension cost 1,208 1,398 1,590
Domestic multi-
employer plan 281 265 270
------------------------ ----------- ----------- ----------
Total $1,489 $1,663 $1,860
------------------------ ----------- ----------- ----------
The Company maintains defined contribution plans for certain officers and
salaried employees. Contributions under these plans are determined by the Board
of Directors. During fiscal 2000, 1999 and 1998, the provisions under the
defined contribution plans were $3,080, $3,323 and $3,444, respectively.
The Company also maintains deferred compensation plans for certain officers and
salaried employees which provide post-retirement cash payments for various
specified periods and amounts. These plans are being provided for currently.
During fiscal 2000, 1999 and 1998, the provisions under these plans were $2,136,
$2,173 and $2,310, respectively. The liability for deferred compensation was
$18,803 at October 1, 2000 and $18,252 at October 3, 1999 and was included in
other long-term liabilities in the accompanying balance sheets.
Life 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. These insurance policies are payable to
the Company and use of the proceeds are restricted to the extent of trust
requirements. There are no loans outstanding against these policies.
<PAGE>
12. 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 25
years. Rent expense under these leases was $7,135 in 2000, $6,673 in 1999, and
$6,337 in 1998. At October 1, 2000, future minimum rental payments applicable to
these leases are $4,836 in 2001, $3,734 in 2002, $2,092 in 2003, $1,851 in 2004,
$1,801 in 2005, and $18,377 thereafter.
During 1998, several purported class action lawsuits were filed on behalf of
purchasers of the Company's common stock against the Company and certain of its
officers and directors. After these lawsuits were consolidated by the Court, a
Consolidated and Amended Class Action Complaint (the "Consolidated Complaint")
was filed on February 8, 1999, purporting to allege claims under Sections 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
Consolidated Complaint alleged that, during the alleged class period (January
20, 1998 through October 26, 1998), defendants materially misrepresented the
Company's financial condition and overstated the Company's reported earnings.
In response to defendants' motion, the Court entered an order in July 1999
dismissing all claims against one of the Company's officers, but denied the
motion to dismiss of the Company and the remaining individual defendant (Bruno
Hofmann).
After the Court granted plaintiff's motion for class certification, the parties
reached a settlement agreement in May 2000, which was approved by the Court in
September, 2000. The parties agreed to settle the litigation for $2,350, all of
which was covered by insurance.
The Company consented to the entry of a cease and desist order, issued by the
Securities and Exchange Commission ("SEC") on July 24, 2000, relating to the
previously announced SEC investigation into accounting irregularities at the
Company's Hofmann Laces unit. Without admitting or denying any findings in the
order, the Company agreed to cease and desist from committing or causing any
violation of certain provisions of the federal securities laws. No monetary
fines or penalties were imposed against the Company. No current officer,
director or employee of the Company or Hofmann Laces was charged by the SEC with
any wrongdoing nor were any fines or penalties imposed against any such person.
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 Resource. 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, upon
instruction by the EPA, 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.
During fiscal 1992, the Company received a Notice of Violation from the North
Carolina Division of Environmental Management concerning ground water
contamination on or near one of its 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. The Company
has removed all underground storage tanks at all of its U.S. facilities.
At October 1, 2000, environmental accruals amounted to $3,866 of which $2,866 is
non-current and was included in other long-term liabilities in the accompanying
balance sheet.
The Company is also involved in various litigation, including the matters
described above, arising out of 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.
13. CAPITAL STOCK AND STOCK COMPENSATION:
On February 4, 1999, the stockholders of the Company approved an amendment to
the Company's Certificate of Incorporation increasing the number of authorized
shares of Common Stock from 40,000,000 to 65,000,000.
The Company has a stock option plan for key employees and directors. On June 23,
1999, the Compensation Committee of the Company's Board of Directors increased
the number of shares authorized under the stock option plan from 2,500,000 to
2,750,000. Options granted may be either incentive stock options or
non-qualified options with only non-qualified options granted to the directors.
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. The purchase price of shares subject to each non-qualified option is
<PAGE>
determined by the Company's Board of Directors, the Executive Committee or the
Option Committee. Options granted to directors under the formula provision of
the plan vest one-third on the date of grant and one-third each year for the
next two years. Options granted to employees (pursuant to an agreement with each
employee) vest according to various schedules. The options have a life of either
five or ten years from the grant date. As of October 1, 2000 and October 3,
1999, 524,989 and 287,428 shares, respectively, were available for grant.
Option activity under the plan was as follows:
----------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price Exercise Price
Under Option Per Share Per Share
----------------------------------------------------------------------
Balance, September 28,
1997 1,374,903 $12.44 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
Granted 434,000 8.63 to 14.72 10.00
Exercised (24,000) 13.46 to 13.87 13.49
Forfeited (77,622) 9.22 to 19.75 16.94
--------------------------------------------------------------------
Balance, October 3,
1999 1,898,869 8.63 to 27.59 17.15
GRANTED 80,000 2.03 TO 9.38 6.87
EXERCISED 0 - TO - -
FORFEITED (302,561) 9.22 TO 19.75 14.21
--------------------------------------------------------------------
BALANCE, OCTOBER 1, 2000 1,676,308 $ 2.03 TO $27.59 $17.19
--------------------------------------------------------------------
These options expire at various dates through fiscal 2010. The weighted average
remaining contractual life of the options outstanding at October 1, 2000 was
6.32 years. Options exercisable at October 1, 2000, October 3, 1999 and
September 27, 1998 were 875,525, 656,159 and 291,795, respectively. The weighted
average exercise price of the options exercisable was $19.06, $17.60, and $15.41
on October 1, 2000, October 3, 1999 and September 27, 1998, respectively. The
weighted average fair market value of the Company's common stock at the date of
grant was $6.87, $10.00 and $20.84 for grants made in fiscal 2000, 1999 and
1998, 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 (loss) and earnings per share ("EPS") would have been had the Company
adopted the 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:
-------------------------------------- --------- --------- -------
2000 1999 1998
-------------------------------------- --------- --------- -------
(Loss) Income Before Extraordinary Item:
As reported $(20,974) $10,230 $33,146
Pro forma $(21,820) $9,182 $32,272
-------------------------------------- --------- --------- -------
Net (Loss) Income:
As reported $(20,974) $10,230 $30,206
Pro forma $(21,820) $9,182 $29,332
-------------------------------------- --------- --------- -------
Basic EPS Before Extraordinary Item:
As reported $(1.11) $ 0.47 $ 1.32
Pro forma $(1.15) $ 0.42 $ 1.28
-------------------------------------- --------- --------- -------
Diluted EPS Before Extraordinary Item:
As reported $(1.11) $ 0.47 $ 1.30
Pro forma $(1.15) $ 0.42 $ 1.27
-------------------------------------- --------- --------- -------
Basic EPS:
As reported $(1.11) $ 0.47 $ 1.20
Pro forma $(1.15) $ 0.42 $ 1.17
-------------------------------------- --------- --------- -------
Diluted EPS:
As reported $(1.11) $ 0.47 $ 1.19
Pro forma $(1.15) $ 0.42 $ 1.15
-------------------------------------- --------- --------- -------
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 2000, 1999 and 1998: (i)
expected volatility ranging from 20% to 45%, (ii) expected lives ranging from 4
to 7 years, (iii) risk free interest rates ranging from 4.3% to 6.6% and (iv) an
expected dividend yield of 1.8% to 5.0%. The weighted average calculated value
in excess of the grant value of an option granted during fiscal 2000, 1999, and
1998 under the Black-Scholes model was $2.56, $2.44, and $6.36, 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 authorized 2,250,000 shares of common stock for the 1989 Restricted
Stock Plan, which covered certain key salaried employees. This plan expired in
June 1999, but allows the vesting of the 276,200 shares that were outstanding
(held in trust) under the plan at October 1, 2000. These shares carry voting and
dividend rights; however, sale of the shares is restricted prior to vesting. The
remaining shares will vest in various increments through 2005, 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 in fiscal 2000, 1999 and 1998 was $1,226,
$1,449 and $1,468, 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. Employees immediately vest in 50% of the annual award and can
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. Shares of common stock in the plan carry normal voting and
dividend rights. There was no compensation expense
<PAGE>
for the plan for fiscal 2000, 1999 and 1998. As of October 1, 2000, the plan
held 879,975 shares of the Company's common stock. These shares are considered
outstanding and are included in the basic and diluted earnings per share
calculations. The Company is replacing this plan with a defined contribution
plan in fiscal 2001.
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 common
stock. As of October 1, 2000, the Company had repurchased 3,496,793 shares on
the open market at an average price of $15.57. In August 1999, the Company's
Board of Directors authorized the repurchase of 3,071,712 shares of the
Company's stock from a beneficial owner at $9.50 per share, the fair market
value at the date of the transaction. The Company's repurchases of shares were
recorded as treasury stock and resulted in a reduction of stockholders' equity.
The Company had agreements with three of its directors whereby the Company might
exercise a right of first 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 $29.06, the fair market value at the date of the
transactions. As of October 1, 2000, the Company maintains this agreement with
two of its directors. Pursuant to the terms of the Company's loan agreements,
the Company is currently not permitted to exercise (in the absence of a waiver
of, or an amendment to, such loan agreements) the foregoing right of first
refusal.
The Company has an agreement with one of its directors whereby the Company will,
in the event of his death prior to June 22, 2001, purchase common stock of the
Company owned by the director in the amount of $2,900. 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.
On July 26, 2000, the Board of Directors adopted a new stockholders' rights plan
to replace the then existing rights plan scheduled to expire in accordance with
its terms on August 23, 2000. In connection with the adoption of such
replacement rights plan, the Board declared a dividend of one preferred stock
purchase right on each share of the Company's common stock outstanding on August
23, 2000. 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 of an acquiring company if the
Company were to be acquired in certain business combinations. 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 15% of the
Company's common stock is made. Rights issued to acquiring persons or their
affiliates or associates, as such terms are defined in the rights plan, may not
be exercised. The rights are redeemable by the Company at a fixed price
generally at any time prior to the tenth day after the occurrence of certain
defined events. As of October 1, 2000, the Company had reserved 400,000
preferred shares as issuable pursuant to these rights. At the present time, the
rights have no dilutive effect on the earnings per share calculation.
14. OTHER (INCOME) EXPENSE, NET:
Other (income) expense, net, for each of the fiscal years indicated was
comprised of the following:
------------------------------- ---------- ---------- ----------
2000 1999 1998
------------------------------- ---------- ---------- ----------
Insurance demutualization $(7,131) $ - $ -
Loss on equity method
investments 3,730 1,835 371
Currency hedging (2,856) - -
Gain on sale of assets (70) (2,239) (2,382)
Other (65) 1,559 1,727
------------------------------- ---------- ---------- ----------
Total other (income)expense,
net $(6,392) $1,155 $(284)
------------------------------- ---------- ---------- ----------
During fiscal 2000, two insurance mutuals, for which the Company was a member as
a policyholder, underwent demutualizations and converted to stock enterprises.
As a result, the Company received stock and cash distributions. The
distributions were accounted for at fair value and a gain was recognized in
other income in 2000. As of October 1, 2000, all distributions have been
received from these demutualizations, and all stock received was sold and
converted to cash.
15. COMPREHENSIVE LOSS:
The accumulated balances and activity for each component of Accumulated Other
Comprehensive Loss are as follows:
Foreign Accumulated
Currency Pension Other
Translation Equity Comprehensive
Adjustment Adjustment Loss
---------------------------- ----------- ----------- ---------------
Balance at September 28,
1997 $(9,604) -- $(9,604)
Change in balance 2,027 -- 2,027
---------------------------- ----------- ----------- ---------------
Balance at September 27,
1998 (7,577) -- (7,577)
Change in balance (4,036) (666) (4,702)
---------------------------- ----------- ----------- ---------------
Balance at October 3, 1999 (11,613) (666) (12,279)
CHANGE IN BALANCE (5,274) 389 (4,885)
---------------------------- ----------- ----------- ---------------
BALANCE AT OCTOBER 1, 2000 $(16,887) $(277) $(17,164)
---------------------------- ----------- ----------- ---------------
The income tax benefits for the pension equity adjustments in fiscal 2000 and
1999 were $186 and $436, respectively. No income taxes have been provided for
the foreign currency translation adjustments.
16. EARNINGS PER SHARE:
The following table reconciles basic and diluted earnings per share:
<PAGE>
--------------- ---------- ------------- ------------ --------- ---------
(Loss)
Income
Before EPS Before Net Earnings
Extraordinary Extraordinary (Loss) per
Shares Item Item Income share
--------------- ---------- ------------- ------------ --------- ---------
2000:
BASIC EPS 18,899,000 $ (20,974) $ (1.11) $(20,974) $ (1.11)
------ ------
DILUTIVE
SECURITIES:
OPTIONS AND
RESTRICTED
STOCK -0- -0- -0-
---------- ------------- ------------ --------- ---------
DILUTED EPS 18,899,000 $ (20,974) $ (1.11) $(20,974) $ (1.11)
--------------- ---------- ------------- ------------ --------- ---------
1999:
Basic EPS 21,952,000 $ 10,230 $ 0.47 $ 10,230 $ 0.47
---- ----
Dilutive
securities:
Options and
restricted
stock 10,000 -0- -0-
---------- ------------- ------------ --------- ---------
Diluted EPS 21,962,000 $ 10,230 $ 0.47 $ 10,230 $ 0.47
--------------- ---------- ------------- ------------ --------- ---------
1998:
Basic EPS 25,134,000 $ 33,146 $ 1.32 $ 30,206 $ 1.20
---- ----
Dilutive
securities:
Options and
restricted
stock 343,000 -0- -0-
---------- ------------- ------------ --------- ---------
Diluted EPS 25,477,000 $ 33,146 $ 1.30 $ 30,206 $ 1.19
--------------- ---------- ------------- ------------ --------- ---------
The number of outstanding stock options and shares of restricted stock
considered antidilutive for either part or all of the fiscal year and not
included in the calculation of diluted net income per share for the fiscal years
ended 2000, 1999, and 1998 were 1,676,308, 1,898,869, and 1,534,650,
respectively. These antidilutive stock options and restricted stock were
outstanding at the end of each fiscal year.
17. SEGMENT INFORMATION:
The Company operates as a matrix-form organization comprised of business units
and market sectors. The operating segments are based on markets and the Company
has identified four reportable segments based on these markets: Automotive,
Apparel, Home Fashions and Other.
Automotive: The Company supplies a broad range of fabrics to automotive original
equipment manufacturers, "Tier 1", "Tier 2", and "Tier 3" suppliers worldwide.
These fabrics are further fabricated into the seats and headliners of passenger
cars, sport utility vehicles, conversion vans and light trucks. The Company
manufactures automotive fabric in the U.S., U.K., Mexico, Brazil and Portugal.
Apparel: The Company manufactures fabrics in the U.S. and Mexico for a variety
of apparel applications. Guilford Mills, Inc. is one of the major producers of
synthetic fabrics. Fabric uses range from basic intimate apparel to high fashion
swimwear, shapewear and ready-to-wear predominately used in women's garments.
Home Fashions: The Company produces and distributes directly to retail a broad
line of products for the home including window curtains, sheets, comforters,
pillowcases, bedskirts and shower curtains. The Company also produces fabrics
used in mattress ticking, residential and office furniture and in window
treatments.
Other : The Company also produces specialty fabrics that are used in diverse
consumer and industrial applications. Many of these fabrics are proprietary or
patented. These specialty fabrics as well as the Company's fibers operations are
combined into this segment.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements. The Company
neither allocates to the segments nor bases segment decisions on the following:
o Interest revenue
o Interest expense
o Unusual items
o Investment income
o Income tax expense or benefit
o Extraordinary items
o Noncash items other than depreciation or
amortization expense
Many of the Company's assets are used by multiple segments. While certain assets
are identifiable by segment, an allocation of the substantial remaining assets
is not meaningful.
------------------- --------- ---------- -------- -------- ---------
Home
Apparel Automotive Fashions Other Total
------------------- --------- ---------- -------- -------- ---------
2000
External Sales $ 292,467 $ 380,620 $ 95,529 $ 45,610 $ 814,226
Intersegment Sales 109,183 109,183
Operating
(Loss) Profit (39,804) 24,821 (1,853) (3,656) (20,492)
Interest Expense 18,882
Other Income, net (6,392)
Loss Before
Income Taxes (32,982)
Depreciation Expense 21,024 18,170 10,257 12,185 61,636
------------------- --------- ---------- -------- -------- ---------
1999
External Sales $ 336,511 $ 361,269 $111,530 $ 47,528 $ 856,838
Intersegment Sales 127,873 127,873
Operating Profit
(Loss) 3,534 29,982 (6,361) 2,753 29,908
Interest Expense 16,598
Other Expense, net 1,155
Income Before Income
Taxes 12,155
Depreciation Expense 19,855 18,591 10,641 12,782 61,869
------------------- --------- ---------- -------- -------- ---------
1998
External Sales $ 340,224 $ 338,221 $151,889 $ 64,200 $ 894,534
Intersegment Sales 141,905 141,905
Operating Profit 7,811 32,484 12,378 8,563 61,236
Interest Expense 12,414
Other Income, net (284)
Income Before Income
Taxes 49,106
Extraordinary item (2,940)
Depreciation Expense 17,567 19,062 9,516 13,482 59,627
------------------- --------- ---------- -------- -------- ---------
18. GEOGRAPHIC INFORMATION:
The accompanying financial statements include the following amounts related to
the operations of the Company's subsidiaries in the United Kingdom, Mexico and
Brazil:
<PAGE>
------------------------ ------------- -------------- -------------
2000 1999 1998
------------------------ ------------- -------------- -------------
Net sales to
unaffiliated
customers:
United States $654,290 $705,628 $716,687
United Kingdom 96,095 108,394 126,067
Mexico 60,272 40,637 51,780
Brazil 3,569 2,179 --
------------------------ ------------- -------------- -------------
Total net sales $814,226 $856,838 $894,534
------------------------ ------------- -------------- -------------
Long-lived assets:
United States $239,639 $272,209
United Kingdom 28,212 30,195
Mexico 44,391 21,629
Brazil 3,577 3,845
------------------------ ------------- --------------
Total long-lived
assets $315,819 $327,878
------------------------ ------------- --------------
19. SUMMARY OF QUARTERLY EARNINGS (UNAUDITED):
--------------------- ---------- --------- ---------- ---------
2000 QUARTER: FIRST SECOND THIRD FOURTH
--------------------- ---------- --------- ---------- ---------
NET SALES $206,502 $211,089 $211,678 $184,957
GROSS PROFIT 30,939 32,709 26,128 15,567
NET INCOME (LOSS) 3,027 2,774 (2,597) (24,178)
--------------------- ---------- --------- ---------- ---------
NET INCOME (LOSS)
PER SHARE:
BASIC .16 .15 (.14) (1.28)
DILUTED .16 .15 (.14) (1.28)
--------------------- ---------- --------- ---------- ---------
--------------------- ---------- --------- ---------- ---------
1999 Quarter:
--------------------- ---------- --------- ---------- ---------
Net sales $214,913 $218,270 $217,923 $205,732
Gross profit 35,198 37,119 30,772 29,220
Net income 2,363 4,755 931 2,181
--------------------- ---------- --------- ---------- ---------
Net income per
share:
Basic .10 .21 .04 .11
Diluted .10 .21 .04 .11
--------------------- ---------- --------- ---------- ---------
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The management of Guilford Mills, Inc. has the responsibility for the
preparation and integrity of all information contained in the Annual Report. The
financial statements, including footnotes, have been prepared in accordance with
accounting principles generally accepted in the United States and include
amounts that are based on management's best estimates and judgments.
The Company maintains an internal accounting control system designed to provide
reasonable assurance of the safeguarding and accountability of Company assets,
and to ensure that its financial records provide a reliable basis for the
preparation of financial statements and other data. The 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. In addition, the
achievement of effective operations is promoted by this system. There are limits
inherent in all systems of internal control based on the recognition that the
cost of such systems should not exceed the benefits derived and the likelihood
of achievement of objectives can be affected by human judgment, failure or
circumvention. Management believes the Company's system of internal controls
provides 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
financial statements have been audited by independent public accountants who
have expressed their opinion with respect to the fairness of the presentation of
these statements in conformity with accounting principles generally accepted in
the United States. 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. Management has made available to the independent
public accountants all of the Company's financial records and related data, as
well as the minutes of the stockholders' and directors' meetings.
Recommendations by both internal and external auditors concerning internal
control deficiencies are considered and are implemented with an appropriate
urgency by management.
The Audit Committee of the Board of Directors, which is formally chartered, is
comprised solely of non-employee directors who meet periodically with the
independent auditors, management and the Company's internal auditors to review
the work of each and to evaluate the accounting, auditing, internal controls and
financial reporting matters. The independent auditors and the Company's internal
auditors have free access to the Audit Committee, without the presence of
management.
/s/ Kim A. Thompson
-------------------
Kim A. Thompson
Vice President/Chief Financial Officer
<PAGE>
STOCK PRICE AND DIVIDENDS
FISCAL 2000
------------------------------------------------------------------
QUARTER High Low Dividends
------------------------------------------------------------------
First $ 9 1/8 $ 5 5/8 $ .11
Second 9 3/4 7 1/8 .11
Third 8 1/4 4 .11
Fourth 5 5/8 1 7/8 -
Year $ 9 3/4 $ 1 7/8 $ .33
Fiscal 1999
------------------------------------------------------------------
Quarter High Low Dividends
------------------------------------------------------------------
First $ 17 $ 11 1/2 $ .11
Second 18 8 3/4 .11
Third 11 8 1/8 .11
Fourth 10 5/8 8 1/2 .11
Year $ 18 $ 8 1/8 $ .44
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 November 15, 2000 there were 443 stockholders of
record.
The Company's Board of Directors suspended the quarterly dividend after the
third quarter of fiscal 2000. Based on restrictions in the Company's new debt
agreements, the Company is prohibited from paying dividends.
