MONTREAL, QUEBEC (NYSE: GIL) today announced its financial
results for its second fiscal quarter ended March 30, 2008. The
Company also reconfirmed its most recently revised earnings
guidance for the full fiscal year, which it had updated on April
29, 2008. In addition, the Company announced plans to construct a
third textile facility in Honduras, to support its projected sales
growth beyond 2009.
Second Quarter Sales and Earnings
Gildan reported second quarter net earnings of U.S. $41.7
million and diluted EPS of U.S. $0.34, compared to net earnings of
U.S. $21.1 million and diluted EPS of U.S. $0.17 in the second
quarter of fiscal 2007. Results for the second quarter of fiscal
2008 include a charge of U.S. $0.8 million or U.S. $0.01 per share
to reflect ongoing carrying costs for Canadian and U.S.
manufacturing facilities, pursuant to the closure of these
facilities in fiscal 2007. Before reflecting the restructuring
charges in both fiscal years, adjusted net earnings for the second
quarter were U.S. $42.5 million, or U.S. $0.35 per share, up
respectively 13.3% and 12.9% from adjusted net earnings of U.S.
$37.5 million, or U.S. $0.31 per share, in the second quarter of
last year. The growth in EPS was due to more favourable unit sales
volumes, selling prices and product-mix for activewear, partially
offset by increased selling, general and administrative,
depreciation and interest expenses, and a higher effective income
tax rate, as well as the U.S. $0.07 per share negative impact of
continuing issues arising from the integration of the Kentucky
Derby Hosiery acquisition into Gildan's retail business.
The Company did not achieve its previous guidance for the second
quarter of approximately U.S. $0.42 adjusted diluted EPS, which it
had provided on January 30, 2008, as a result of the retail
integration issues combined with lower than projected unit sales
growth in activewear resulting from a shortfall in production for
the Dominican Republic textile facility, partially offset by more
favourable activewear product-mix and lower than anticipated
promotional discounts in the U.S. wholesale distributor
channel.
Sales in the second quarter amounted to U.S. $293.8 million, up
26.5% from U.S. $232.1 million in the second quarter of last year.
The increase in sales revenues was due to an increase of 98.4% in
sock sales due to the acquisition of Prewett and new retail sock
programs obtained in fiscal 2007, a 7.5% increase in unit volumes
for activewear, an approximate 3% increase in activewear unit
selling prices and a more favourable activewear product-mix. Growth
in activewear unit volumes was constrained by lower than
anticipated production, including delays in the introduction of new
high-value ring-spun T-shirt and sport shirt products at the
Company's textile facility in the Dominican Republic. The increase
in sock sales was net of the impact of exiting unprofitable sock
product-lines which did not fit with Gildan's strategy to focus
primarily on high-volume basic sock programs in the U.S. mass
retail channel. In addition, average selling prices for socks were
reduced, as selling prices for new sock programs were based on the
projected cost structure of Gildan's new sock facility in Honduras,
which is currently being ramped up to full capacity.
The growth in activewear unit sales was due to continuing market
share penetration in T-shirts and fleece in the U.S. wholesale
distributor channel. The table below summarizes data from the
S.T.A.R.S. report produced by ACNielsen Market Decisions, which
tracks unit volume shipments from U.S. wholesale distributors to
U.S. screenprinters, for the quarter ended March 31, 2008.
Gildan Gildan Gildan Industry
Market Share Market Share Unit Growth Unit Growth
Q2 2008 Q2 2007 Q2 2008 vs. Q2 2008 vs.
Q2 2007 Q2 2007
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50.1% 47.4% All activewear (0.4)% (5.9)%
products
50.7% 48.2% T-shirts (0.7)% (5.9)%
48.8% 42.5% Fleece 12.4% (1.9)%
35.5% 35.7% Sport shirts (14.2)% (13.6)%
The Company achieved record market shares in the T-shirt and
fleece categories during the second quarter of fiscal 2008. The
Company believes that the 5.9% reduction in overall industry
shipments for T-shirts in the quarter is attributable to
unseasonably cold spring weather and timing delays in screenprinter
purchases of promotional white T-shirts. The Company had a strong
open order position during the second quarter, which has
significantly further increased since the quarter-end, and believes
that demand for its products in the U.S. wholesale distributor
channel continues to be strong. The Company continues to believe
that overall demand for activewear products in the screenprint
channel has not at this time been materially impacted by the
weakening of overall economic conditions and the downturn in
consumer spending.
Unit shipments of activewear to Europe increased by 1.1% during
the quarter. The slower growth in shipments to Europe in the
quarter was also due to the shortfall in production and delay in
new product introductions as a result of the issues in the
Dominican Republic textile facility.
Gross margins in the second quarter of fiscal 2008 were 33.9%,
the same as in the second quarter of fiscal 2007. Gross margins in
the second quarter compared to last year were positively impacted
by higher activewear selling prices and lower promotional
discounts, a higher-valued activewear product-mix and increased
manufacturing efficiencies from the Company's manufacturing
operations in Central America. These positive factors were offset
by a higher proportion of sock sales, which currently generate
lower gross margins than activewear, production inefficiencies in
the Dominican Republic facility, higher energy costs, the impact of
inventory write-downs in order to accelerate the liquidation of
sock product-lines which have been discontinued, and additional
costs incurred to service mass-market retailers during the
integration of the Company's retail information systems.
Selling, general and administrative expenses were U.S. $36.6
million, or 12.5% of sales, compared to U.S. $28.5 million, or
12.3% of sales in the second quarter of fiscal 2007. The increase
in selling, general and administrative expenses is due to the
acquisition of Prewett, higher distribution expenses, increased
expenditures for the development of information systems, and the
impact of the stronger Canadian dollar on corporate administrative
costs. The increase of U.S. $5.6 million in depreciation and
amortization costs was due to the Company's continued investments
in new capacity expansion, and the impact of the Prewett
acquisition.
Interest expense in the second quarter increased by U.S. $1.0
million compared to the second quarter of last year, due to the
increased utilization of the Company's revolving long-term credit
facility to fund the acquisition of Prewett on October 15, 2007,
partially offset by the impact of lower interest rates.
The Company's effective income tax rate for the second quarter
was approximately 7.7%, compared to 5.0% in the second quarter of
last year, excluding the impact of restructuring and other charges.
The increase in the effective income tax rate was primarily due to
the higher tax rate attributable to the Company's U.S. sock
business, which is currently taxed at higher effective income tax
rates.
Year-to-date Sales and Earnings
Sales for the six months ended March 30, 2008 were U.S. $544.2
million, up 30.2% compared to the same period last year. The
increase in sales was due to a U.S. $71.8 million increase in sock
sales due to the acquisition of Prewett, an 8.9% increase in unit
sales volumes for activewear and underwear, higher selling prices
and a higher valued product-mix for activewear.
For the first six months of fiscal 2008, net earnings amounted
to U.S. $69.2 million, or U.S. $0.57 per share on a diluted basis,
compared to net earnings of U.S. $36.8 million, or U.S. $0.30 per
share, for the same period in fiscal 2007. Before the impact of
restructuring and other charges, adjusted net earnings in the first
six months of fiscal 2008 amounted to U.S. $70.8 million, or U.S.
$0.58 per share on a diluted basis compared to adjusted net
earnings of U.S. $54.5 million, or U.S. $0.45 per share on a
diluted basis for the same period last year. The increase in
adjusted net earnings and adjusted diluted EPS was primarily due to
growth in unit sales volumes, higher selling prices, a higher
valued product-mix, and manufacturing efficiencies for activewear
in the Central American operations. These positive factors were
partially offset by increases in selling, general and
administrative expenses, depreciation and amortization, interest
expense and the impact of a higher effective income tax rate.
Additional costs incurred to service mass-market retailers during
the integration of our retail information systems and the
write-down of inventories of discontinued sock product-lines also
negatively impacted growth in adjusted net earnings.
Cash Flow
Net earnings before depreciation and other non-cash items in the
quarter amounted to U.S. $58.5 million, which was used to finance
seasonal increases in accounts receivable and inventories, as well
as capital expenditures amounting to U.S. $25.9 million. However,
the investment in increased inventories to support seasonal peak
demand for T-shirts in the third quarter of the fiscal year was
significantly lower than the Company had projected, due to the
shortfall in production from Gildan's Dominican Republic textile
facility. At the end of the second quarter, the Company continued
to have significant unused financing capacity to be able to pursue
its organic growth plans and to pursue selective acquisition
opportunities.
Outlook
On April 29, 2008, the Company lowered its adjusted diluted EPS
guidance for the full year to a range of U.S. $1.45-$1.50, up
12%-16% from adjusted net earnings of U.S. $1.29 per share in
fiscal 2007. The Company had previously projected adjusted diluted
EPS of U.S. $1.85-$1.90 for the fiscal year, up 42%-47% from last
year.
The decrease in projected EPS compared to the Company's earlier
guidance is primarily due to the production issues at the Dominican
Republic facility, which will result in lower than anticipated unit
sales growth in the second half of the fiscal year, together with
higher than projected manufacturing costs and supply chain
inefficiencies. In addition, the Company expects to be negatively
impacted by higher than projected increases in transportation and
energy costs in the second half of the fiscal year. These factors,
together with the impact of the retail integration issues which
caused the shortfall in EPS in the second fiscal quarter, are
expected to be partially moderated by the impact of assumed more
favourable selling prices in the U.S. screenprint channel, as a
result of a recently announced selling price increase.
The projected increase in adjusted diluted EPS of 12%-16%
compared to last year is primarily due to 11% projected unit sales
growth in activewear and underwear, compared with our previous
projection of 14% unit sales growth, and higher selling prices for
activewear in the screenprint channel. The Company continues to
assume that the positive impact of these factors will be partially
offset by higher selling, general and administrative expenses,
higher depreciation and interest expenses, increases in cotton,
energy and transportation costs, and a higher effective income tax
rate including the non-recurrence of income tax recoveries which
were recorded in fiscal 2007.
The Company expects EPS for the third fiscal quarter to be
slightly reduced from adjusted EPS of U.S. $0.47 per share in the
third quarter of fiscal 2007. The impact of the lower sales volumes
and higher operating costs resulting from the Dominican Republic
issues will be primarily reflected in the third quarter. The
Company will be in a better position to service demand in the
wholesale distributor channel in the fourth quarter. The Company
also noted that its ability to support growth in demand for fleece
is not expected to be constrained by the lower production from the
Dominican Republic facility, as fleece requirements are being
produced at the Company's new facility in Honduras, which has been
ramped up successfully and is meeting or exceeding the Company's
objectives for production and manufacturing efficiencies.
New Capacity Expansion Projects
The Company is confident that its production issues in the
Dominican Republic will be fully resolved in the second half of
fiscal 2008, and that these issues will not impact its ability to
support its unit sales growth in fiscal 2009. With the Company's
projected product-mix, Gildan expects to be able to produce in
excess of 50 million dozens of activewear and underwear in fiscal
2009 in its vertically-integrated manufacturing facilities.
However, new capacity will be required in order to be able to meet
projected sales demand for the Company's products in fiscal 2010.
The Company is therefore announcing its intention to construct a
third large-scale, vertically-integrated textile facility in
Honduras, where Gildan can leverage its existing infrastructure and
manufacturing management resources. The capital cost of the new
facility, which will be constructed in fiscal 2008 and fiscal 2009,
is expected to be in the range of U.S. $100-$110 million, the
majority of which will be incurred in fiscal 2009.
In addition, the Company has also announced its intention to
construct a new distribution centre in Honduras. In addition to
supporting the Company's continuing sales growth, the new
distribution facility in Honduras will permit direct shipments to
both U.S. and international customers, where appropriate, as well
as provide a lower cost structure to handle labour-intensive
activities for mass-market retail customers.
Disclosure of Outstanding Share Data
As of April 30, 2008, there were 120,477,689 common shares
issued and outstanding along with 930,776 stock options and 902,000
dilutive restricted share units (Treasury RSUs) outstanding. Each
stock option entitles the holder to purchase one common share at
the end of the vesting period at a pre-determined option price.
Each Treasury RSU entitles the holder to receive one common share
at the end of the vesting period, without any monetary
consideration being paid to the Company. However, the vesting of
50% of the restricted share grant is dependent upon the financial
performance of the Company, relative to a benchmark group of
Canadian publicly-listed companies.
Information for shareholders
This release should be read in conjunction with Gildan's 2008
Second Quarter MD&A dated May 7, 2008 (available at
http://gildan.com/corporate/IR/quarterlyReports.cfm) which is
incorporated by reference in this release, filed by Gildan with the
Canadian securities regulatory authorities and with the U.S.
Securities and Exchange Commission.
Gildan Activewear Inc. will hold a conference call to discuss
these results today at 5:00 PM Eastern Time. The conference call
can be accessed by dialing 800-261-3417 (Canada & U.S.) or
617-614-3673 (international) and entering passcode 80323574, or by
live sound webcast on Gildan's Internet site ("Investor Relations"
section) at the following address: www.gildan.com. If you are
unable to participate in the conference call, a replay will be
available starting that same day at 7:00 PM EDT by dialing
888-286-8010 (Canada & U.S.) or 617-801-6888 (international)
and entering passcode 29444872, until Wednesday, May 14, 2008 at
midnight, or by audio webcast on Gildan's web site for 30 days.
Profile
Gildan is a vertically-integrated marketer and manufacturer of
quality branded basic apparel. The Company is the leading supplier
of activewear for the wholesale imprinted sportswear market in the
U.S. and Canada, and also a leading supplier to this market in
Europe. The Company sells T-shirts, sport shirts and fleece in
large quantities to wholesale distributors as undecorated "blanks",
which are subsequently decorated by screenprinters with designs and
logos. Consumers ultimately purchase the Company's products, with
the Gildan label, in venues such as sports, entertainment and
corporate events, and travel and tourism destinations. Other
end-uses include work uniforms and similar applications to convey
individual, group and team identity. In addition to continuing its
growth within the wholesale channel, Gildan is implementing a major
growth initiative to sell athletic socks, underwear and activewear
to mass-market retailers in North America.
Forward-Looking Statements
Certain statements included in this press release, in particular
the "Outlook" section, constitute "forward-looking statements"
within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995 and Canadian securities legislation and regulations,
and are subject to important risks, uncertainties and assumptions.
This forward-looking information includes amongst others,
information with respect to our objectives and the strategies to
achieve these objectives, as well as information with respect to
our beliefs, plans, expectations, anticipations, estimates and
intentions. Forward-looking statements generally can be identified
by the use of conditional or forward-looking terminology such as
"may", "will", "expect", "intend", "estimate", "project", "
assume", "anticipate", "plan", "foresee", "believe" or "continue"
or the negatives of these terms or variations of them or similar
terminology. We refer you to the Company's filings with the
Canadian securities regulatory authorities and the U.S. Securities
and Exchange Commission, as well as the "Risks and Uncertainties"
section of the 2007 Annual MD&A, as subsequently updated in our
first and second quarter 2008 MD&A, for a discussion of the
various factors that may affect the Company's future results.
Material factors and assumptions that were applied in drawing a
conclusion or making a forecast or projection are also set out
throughout this press release, in particular the "Outlook"
section.
The results or events predicted in such forward-looking
information may differ materially from actual results or events.
Material factors, which could cause actual results or events to
differ materially from a conclusion, forecast or projection in such
forward-looking information, include, but are not limited to:
general economic conditions such as commodity prices, currency
exchange rates, interest rates and other factors over which we have
no control; the impact of economic and business conditions,
industry trends and other external and political factors in the
countries in which we operate; the intensity of competitive
activity; changes in environmental, tax, trade and other laws and
regulations; our ability to implement our strategies and plans; our
ability to complete and successfully integrate acquisitions; our
reliance on a small number of significant customers; changes in
consumer preferences, customer demand for our products and our
ability to maintain customer relationships and grow our business;
our customers do not commit to minimum quantity purchases; the
seasonality of our business; our ability to attract and retain key
personnel; high reliance on computerized information systems;
changes in accounting policies and estimates; and disruption to
manufacturing and distribution activities due to labour
disruptions, bad weather, natural disasters and other unforeseen
adverse events.
This may cause the Company's actual performance and financial
results in future periods to differ materially from any estimates
or projections of future performance or results expressed or
implied by such forward-looking statements. Forward-looking
statements do not take into account the effect that transactions or
non-recurring or other special items announced or occurring after
the statements are made have on the Company's business. For
example, they do not include the effect of business dispositions,
acquisitions, other business transactions, asset writedowns or
other charges announced or occurring after forward-looking
statements are made. The financial impact of such transactions and
non-recurring and other special items can be complex and
necessarily depends on the facts particular to each of them.
We believe that the expectations represented by our
forward-looking statements are reasonable, yet there can be no
assurance that such expectations will prove to be correct. The
purpose of the forward-looking statements is to provide the reader
with a description of management's expectations regarding the
Company's fiscal 2008 financial performance and may not be
appropriate for other purposes. Furthermore, unless otherwise
stated, the forward-looking statements contained in this press
release are made as of the date of this press release, and we do
not undertake any obligation to update publicly or to revise any of
the included forward-looking statements, whether as a result of new
information, future events or otherwise unless required by
applicable legislation or regulation. The forward-looking
statements contained in this press release are expressly qualified
by this cautionary statement.
Non-GAAP Financial Measures
This release includes reference to certain non-GAAP financial
measures such as adjusted net earnings and adjusted diluted
earnings per share. These non-GAAP measures do not have any
standardized meanings prescribed by Canadian GAAP and are therefore
unlikely to be comparable to similar measures presented by other
companies. Accordingly, they should not be considered in isolation.
The terms and definitions of the non-GAAP measures used in this
press release and a reconciliation of each non-GAAP measure to the
most directly comparable GAAP measure are provided below.
Adjusted net earnings and adjusted diluted earnings per share
are calculated as net earnings and earnings per share excluding
restructuring and other charges, as discussed in Note 7 to the
unaudited interim consolidated financial statements. The Company
uses and presents these non-GAAP measures to assess its operating
performance from one period to the next without the variation
caused by restructuring and other charges that could potentially
distort the analysis of trends in our business performance.
Excluding these items does not imply they are necessarily
non-recurring.
(in US$ millions, except per share amounts)
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Q2 2008 Q2 2007 YTD 2008 YTD 2007
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Net earnings 41.7 21.1 69.2 36.8
Restructuring and other charges 0.8 16.4 1.6 17.7
Less: income tax effect thereon - - - -
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Adjusted net earnings 42.5 37.5 70.8 54.5
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Diluted EPS 0.34 0.17 0.57 0.30
Restructuring and other charges,
net of tax 0.01 0.13 0.01 0.15
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Adjusted diluted EPS 0.35 0.31 0.58 0.45
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Certain minor rounding variances exist between the financial statements and
this summary. EPS may not add due to rounding.
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Gildan Activewear Inc.
Interim Consolidated Balance Sheets
(in thousands of U.S. dollars)
March 30, 2008 September 30, 2007 April 1, 2007
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(unaudited) (audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $29,311 $9,250 $35,481
Accounts receivable 185,788 206,088 139,754
Inventories 300,057 239,963 242,589
Prepaid expenses and
deposits 8,989 7,959 7,074
Future income taxes 3,763 2,610 5,038
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527,908 465,870 429,936
Property, plant and
equipment 424,002 377,617 348,809
Goodwill and identifiable
intangible assets 64,926 2,024 9,191
Assets held for sale
(note 7) 12,681 6,610 2,895
Other assets 19,500 11,426 4,724
Future income taxes 10,489 10,939 -
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Total assets $1,059,506 $874,486 $795,555
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Liabilities and
Shareholders' Equity
Current liabilities:
Bank indebtedness $- $- $3,500
Accounts payable and
accrued liabilities 123,436 116,683 113,086
Income taxes payable 8,190 2,949 237
Current portion of
long-term debt 4,129 3,689 21,449
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135,755 123,321 138,272
Long-term debt 142,206 55,971 52,730
Future income taxes 39,538 24,612 29,908
Non-controlling interest in
consolidated joint venture 7,104 6,932 5,776
Shareholders' equity:
Share capital 88,796 88,061 87,353
Contributed surplus 5,311 3,953 3,143
Retained earnings 614,548 545,388 452,125
Accumulated other
comprehensive income 26,248 26,248 26,248
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640,796 571,636 478,373
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734,903 663,650 568,869
Total liabilities and
shareholders' equity $1,059,506 $874,486 $795,555
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See accompanying notes to interim consolidated financial statements
Gildan Activewear Inc.
Interim Consolidated Statements of Earnings and Comprehensive Income
(In thousands of U.S. dollars, except per share data)
Three months ended Six months ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
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(unaudited) (unaudited) (unaudited) (unaudited)
Sales $293,763 $232,134 $544,220 $417,963
Cost of sales 194,092 153,386 365,633 285,337
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Gross profit 99,671 78,748 178,587 132,626
Selling, general and
administrative expenses 36,596 28,540 69,203 54,650
Restructuring and other
charges (note 7) 817 16,359 1,640 17,750
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Earnings before the
undernoted items 62,258 33,849 107,744 60,226
Depreciation and
amortization 15,076 9,475 27,923 18,249
Interest, net (note 10) 2,067 1,077 4,861 2,048
Non-controlling interest
in (loss) income of
consolidated joint venture (119) 186 172 122
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Earnings before income taxes 45,234 23,111 74,788 39,807
Income taxes 3,548 1,965 5,628 3,050
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Net earnings and
comprehensive income $41,686 $21,146 $69,160 $36,757
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Basic EPS (note 8) $0.35 $0.18 $0.57 $0.31
Diluted EPS (note 8) $0.34 $0.17 $0.57 $0.30
See accompanying notes to interim consolidated financial statements
Gildan Activewear Inc.
Interim Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
Three months ended Six months ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
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(unaudited) (unaudited) (unaudited) (unaudited)
Cash flows from
operating activities:
Net earnings $41,686 $21,146 $69,160 $36,757
Adjustments for:
Depreciation and
amortization (note 9) 15,076 10,477 27,923 20,375
Impairment loss and
writedown of property,
plant and equipment
(note 7) - 3,560 - 3,560
Loss (gain) on disposal
of assets held for sale
and property, plant and
equipment 28 (2,096) (202) (1,738)
Stock-based compensation
costs 806 310 1,484 778
Future income taxes (280) 1,235 (1,515) 1,479
Non-controlling interest (119) 186 172 122
Unrealized foreign
exchange loss (gain) 1,254 (130) 1,015 (1,588)
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58,451 34,688 98,037 59,745
Changes in non-cash
working capital balances:
Accounts receivable (33,477) (37,971) 49,870 29,446
Inventories (5,516) (9,075) (16,671) (41,936)
Prepaid expenses and
deposits (214) (397) 340 (1,317)
Accounts payable and
accrued liabilities 2,587 14,209 (8,919) (4,235)
Income taxes payable 2,507 (1,169) 5,075 (1,945)
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24,338 285 127,732 39,758
Cash flows (used in) from
financing activities:
Increase in amounts drawn
under revolving long-term
credit facility 17,000 43,000 88,000 43,000
Decrease in bank indebtedness - - (1,261) -
Net decrease in other
long-term debt (1,485) (974) (1,325) (2,682)
Proceeds from the issuance
of shares 333 400 609 769
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15,848 42,426 86,023 41,087
Cash flows from (used in)
investing activities:
Purchase of property,
plant and equipment (25,868) (45,109) (60,018) (75,451)
Acquisition of V.I.
Prewett & Son, Inc. (note 4) - - (126,819) -
Restricted cash related
to acquistion (note 4) - - (10,000) -
Proceeds on disposal of
assets held for sale 693 1,995 1,114 1,995
Net decrease (increase) in
other assets 586 (487) 1,967 (1,008)
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(24,589) (43,601) (193,756) (74,464)
Effect of exchange rate
changes on cash and cash
equivalents denominated
in foreign currencies 116 42 62 93
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Net increase (decrease) in
cash and cash equivalents
during the period 15,713 (848) 20,061 6,474
Cash and cash equivalents,
beginning of period 13,598 36,329 9,250 29,007
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Cash and cash equivalents,
end of period $29,311 $35,481 $29,311 $35,481
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See accompanying notes to interim consolidated financial statements
Supplemental disclosure of cash flow information (note 9)
Gildan Activewear Inc.
Interim Consolidated Statement of Shareholders' Equity and
Comprehensive Income
Six months ended March 30, 2008 and April 1, 2007
(in thousands and thousands of U.S. dollars)
Share Capital
---------------- Contributed
Number Amount surplus
------------------------------------------------------------------------
Balance, September 30, 2007 120,419 $88,061 $3,953
Stock-based compensation related
to stock options and restricted
share units - - 1,484
Shares issued under employee share
purchase plan 9 314 -
Shares issued pursuant to exercise
of stock options 39 295 -
Shares issued pursuant to the
settlement of Treasury restricted
share units 8 126 (126)
Net earnings - - -
------------------------------------------------------------------------
Balance, March 30, 2008 (unaudited) 120,475 $88,796 $5,311
------------------------------------------------------------------------
------------------------------------------------------------------------
Accumulated
other Total
comprehensive Retained shareholders'
income earnings equity
------------------------------------------------------------------------
Balance, September 30, 2007 $26,248 $545,388 $663,650
Stock-based compensation related
to stock options and restricted
share units - - 1,484
Shares issued under employee share
purchase plan - - 314
Shares issued pursuant to exercise
of stock options - - 295
Shares issued pursuant to the
settlement of Treasury restricted
share units - - -
Net earnings - 69,160 69,160
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Balance, March 30, 2008 (unaudited) $26,248 $614,548 $734,903
------------------------------------------------------------------------
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Share Capital
---------------- Contributed
Number Amount surplus
------------------------------------------------------------------------
Balance, October 1, 2006 120,228 $86,584 $2,365
Stock-based compensation related
to stock options and restricted
share units - - 778
Shares issued under employee share
purchase plan 10 228 -
Shares issued pursuant to exercise
of stock options 110 541 -
Net earnings - - -
------------------------------------------------------------------------
Balance, April 1, 2007 (unaudited) 120,348 $87,353 $3,143
------------------------------------------------------------------------
------------------------------------------------------------------------
Accumulated
other Total
comprehensive Retained shareholders'
income earnings equity
-----------------------------------------------------------------------
Balance, October 1, 2006 $26,248 $415,368 $530,565
Stock-based compensation related to
stock options and restricted share
units - - 778
Shares issued under employee share
purchase plan - - 228
Shares issued pursuant to exercise
of stock options - - 541
Net earnings - 36,757 36,757
-----------------------------------------------------------------------
Balance, April 1, 2007 (unaudited) $26,248 $452,125 $568,869
-----------------------------------------------------------------------
-----------------------------------------------------------------------
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(For the period ended March 30, 2008)
(Tabular amounts in thousands or thousands of U.S. dollars, except per
share data or unless otherwise noted)
(unaudited)
1. Basis of presentation:
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with Canadian generally
accepted accounting principles for interim financial information
and include all normal and recurring entries that are necessary for
a fair presentation of the financial statements. Accordingly, they
do not include all of the information and footnotes required by
Canadian generally accepted accounting principles for annual
financial statements, and should be read in conjunction with the
Company's most recently prepared annual consolidated financial
statements for the year ended September 30, 2007.
The Company's revenues and income are subject to seasonal
variations. Consequently, the results of operations for the second
fiscal quarter are traditionally not indicative of the results to
be expected for the full fiscal year.
All share and per share data in these interim consolidated
financial statements reflect the effect of the two-for-one stock
split declared in May 2007.
Certain comparative figures have been reclassified in order to
conform with the current period's presentation.
All amounts in the attached notes are unaudited unless
specifically identified.
2. Significant accounting policies:
Except for the adoption of the new accounting standards
described in Note 3, the Company applied the same accounting
policies in the preparation of the interim consolidated financial
statements, as disclosed in Note 1(a) and Note 2 of its audited
consolidated financial statements in the Company's annual report
for the year ended September 30, 2007.
3. Adoption of new accounting standards:
Effective the commencement of its 2008 fiscal year, the Company
has adopted the Canadian Institute of Chartered Accountants
("CICA") Handbook Section 1535, Capital Disclosures, CICA Handbook
Section 3862, Financial Instruments - Disclosure, and CICA Handbook
Section 3863, Financial Instruments - Presentation. These new
Handbook Sections apply to fiscal years beginning on or after
October 1, 2007. These Sections relate to disclosure and
presentation only and did not have an impact on our financial
results. See Notes 10 and 11.
4. Business acquisition:
On October 15, 2007, the Company acquired 100% of the capital
stock of V.I.Prewett & Son, Inc. ("Prewett"), a U.S. supplier
of basic family socks primarily to U.S. mass-market retailers.
Prewett's corporate headquarters are located in Fort Payne,
Alabama. The acquisition is intended to enhance further the
Company's position as a full-product supplier of socks, activewear
and underwear for the retail channel.
The aggregate purchase price of $126.8 million (including
transaction costs of $1.5 million) paid in cash on closing is
subject to adjustments based on working capital balances as at the
date of acquisition, which have not yet been finalized. In
addition, the purchase agreement provides for an additional
purchase consideration of $10 million contingent on specified
future events. This amount was paid into escrow by the Company and
is included in "Other assets" on the consolidated balance sheet.
Any further purchase price consideration paid by the Company will
be accounted for as additional goodwill.
The Company accounted for this acquisition using the purchase
method and the results of Prewett have been consolidated with those
of the Company from the date of acquisition.
The Company has allocated the purchase price on a preliminary
basis to the assets acquired and the liabilities assumed based on
management's best estimate of their fair values and taking into
account all relevant information available at that time. Since the
Company is still in the process of finalizing the independent
valuation of certain intangible assets and other assets acquired
and liabilities assumed at the date of acquisition, the allocation
of the purchase price is subject to change. The Company expects to
finalize the purchase price by the end of fiscal 2008.
The following table summarizes the estimated fair value of
assets acquired and liabilities assumed at the date of
acquisition:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Assets acquired:
Accounts receivable $28,805
Inventory 43,423
Prepaid expenses 1,370
Property, plant and equipement 20,202
Goodwill and identifiable intangible assets 64,376
Other assets 176
Liabilities assumed:
Bank indebtedness $(1,261)
Accounts payable and accrued liabilities (14,178)
Future income taxes (16,094)
--------------------------------------------------------------------------
Net assets acquired $126,819
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Consideration:
Cash $125,294
Transaction costs 1,525
--------------------------------------------------------------------------
Purchase price $126,819
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill recorded in connection with this acquisition is not
expected to be deductible for tax purposes. Identifiable intangible
assets consists primarily of customer contracts and customer
relationships and are currently being amortized on a straight-line
basis over a period of 15 years based on preliminary estimates of
the useful life of these assets.
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. Goodwill is not amortized and is
tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired.
When the carrying amount of a reporting unit exceeds the estimated
fair value of the reporting unit, an impairment loss is recognized
in an amount equal to the excess of the carrying value over the
fair value of the goodwill, if any.
5. Stock-based compensation:
The Company's Long Term Incentive Plan (the "LTIP") includes
stock options and restricted share units. The LTIP allows the Board
of Directors to grant stock options, dilutive restricted share
units ("Treasury RSUs") and non-dilutive restricted share units
("Non-Treasury RSUs") to officers and other key employees of the
Company and its subsidiaries.
Changes in outstanding stock options were as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
Number exercise price
-------------------------------------------------------------------------
(in Canadian dollars)
Options outstanding, September 30, 2007 853 10.08
Granted 127 39.37
Exercised (39) 7.62
Forfeited (9) 31.09
-------------------------------------------------------------------------
Options outstanding, March 30, 2008 932 13.99
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at March 30, 2008, 667,200 of the outstanding options were exercisable
at the weighted average price of CA$6.45. Based on the Black-Scholes
option pricing model, the grant date weighted average fair value of the
options granted during the six months ended March 30, 2008 was CA$12.98.
Changes in outstanding Treasury RSUs were as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
Number fair value per unit
-------------------------------------------------------------------------
(in Canadian dollars)
Treasury RSUs outstanding,
September 30, 2007 941 18.83
Granted 38 37.54
Settled through the issuance of common shares (8) 17.89
Forfeited (69) 27.85
-------------------------------------------------------------------------
Treasury RSUs outstanding, March 30, 2008 902 18.94
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As of March 30, 2008, none of the awarded and outstanding
Treasury RSUs were vested.
The compensation expense recorded for the three-month periods
ended March 30, 2008 and April 1, 2007, respectively, was $0.8
million and $0.3 million, in respect of the Treasury RSUs and stock
options. The compensation expense recorded for the six-month
periods ended March 30, 2008 and April 1, 2007, respectively, was
$1.5 million and $0.8 million, in respect of the Treasury RSUs and
stock options. The counterpart has been recorded as contributed
surplus. When the common shares are issued to the employees, the
amounts previously credited to contributed surplus are reclassified
to share capital.
Changes in outstanding Non-Treasury RSUs were as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number
-------------------------------------------------------------------------
Non-Treasury RSUs outstanding, September 30, 2007 56
Granted 50
Forfeited (3)
-------------------------------------------------------------------------
Non-Treasury RSUs outstanding, March 30, 2008 103
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-Treasury RSUs have the same features as Treasury RSUs except
that their vesting period is a maximum of three years and they will
be settled in cash at the end of the vesting period. The settlement
amount is based on the Company's stock price at the vesting date.
As of March 30, 2008, the weighted average fair value per
non-Treasury RSU was CA$37.21. No common shares are issued from
treasury under such awards and they are therefore non-dilutive. As
of March 30, 2008, none of the awarded and outstanding non-Treasury
RSUs were vested.
The compensation expense recorded for the three-month periods
ended March 30, 2008 and April 1, 2007, respectively, was $0.2
million and $0.2 million, in respect of the non-Treasury RSUs. The
compensation expense recorded for the six-month periods ended March
30, 2008 and April 1, 2007, respectively, was $0.5 million and $0.3
million, in respect of the non-Treasury RSUs. The counterpart has
been recorded in accounts payable and accrued liabilities.
6. Guarantees:
The Company, and certain of its subsidiaries, have granted
corporate guarantees, irrevocable standby letters of credit and
surety bonds to third parties to indemnify them in the event the
Company and certain of its subsidiaries do not perform their
contractual obligations. As at March 30, 2008, the maximum
potential liability under these guarantees was $19.9 million, of
which $5.7 million was for surety bonds and $14.2 million was for
corporate guarantees and standby letters of credit. The standby
letters of credit mature at various dates during 2008, the surety
bonds are automatically renewed on an annual basis and the
corporate guarantees mature at various dates up to fiscal 2010.
As at March 30, 2008, the Company has recorded no liability with
respect to these guarantees, as the Company does not expect to make
any payments for the aforementioned items. Management has
determined that the fair value of the non-contingent obligations
requiring performance under the guarantees in the event that
specified triggering events or conditions occur approximates the
cost of obtaining the standby letters of credit and surety
bonds.
7. Restructuring and other charges, and assets held for
sale:
The following table summarizes the components of restructuring
and other charges:
Three months ended Six months ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accelerated depreciation $- $1,002 $- $2,126
Gain on disposal of long-lived
assets (39) (1,778) (328) (1,778)
Asset impairment loss - 3,560 - 3,560
Severance - 11,858 - 12,062
Other 856 1,717 1,968 1,780
-------------------------------------------------------------------------
$817 $16,359 $1,640 $17,750
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In fiscal 2006 and 2007, the Company announced the closure,
relocation and consolidation of manufacturing and distribution
facilities in Canada, the United States and Mexico, as well as the
relocation of its corporate office. The costs incurred in
connection with these announcements have been recorded as
restructuring and other charges, and included severance and other
costs, asset impairment losses and accelerated depreciation
resulting from the reduction in the estimated remaining economic
lives of property, plant and equipment at these facilities. Other
costs relate primarily to exits costs incurred in connection with
the closures noted above, including carrying and dismantling costs
associated with assets held for sale. The Company expects to incur
additional carrying costs relating to the closed facilities being
held for sale, which will be accounted for as restructuring charges
as incurred during fiscal 2008, until all property, plant and
equipment related to the closures are disposed of. Any gains or
losses on the disposition of the assets held for sale will also be
accounted for as restructuring charges as incurred.
Assets held for sale of $12.7 million as at March 30, 2008
(September 30, 2007 - $6.6 million; April 1, 2007 - $2.9 million)
include property, plant and equipment at these various
locations.
8. Earnings per share:
A reconciliation between basic and diluted earnings per share is as
follows:
Three months ended Six months ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings per share:
Basic weighted average
number of common shares
outstanding 120,464 120,320 120,446 120,299
-------------------------------------------------------------------------
Basic earnings per share $0.35 $0.18 $0.57 $0.31
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per share:
Basic weighted average
number or common shares
outstanding 120,464 120,320 120,446 120,299
Plus impact of stock options
and Treasury RSUs 1,185 1,209 1,207 1,189
-------------------------------------------------------------------------
Diluted weighted average
number of common shares
outstanding 121,649 121,529 121,653 121,488
-------------------------------------------------------------------------
Diluted earnings per share $0.34 $0.17 $0.57 $0.30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Excluded from the above calculation for the three months ended
March 30, 2008 are 124,825 stock options ranging in price from
CA$38.10 to CA$39.39, which were deemed to be anti-dilutive because
the exercise prices were greater than the average market price of
the common shares for the period. All stock options outstanding for
the three months ended December 30, 2007 and for fiscal 2007 were
dilutive.
9. Other information:
(a) The following items were
included in depreciation Three months ended Six months ended
and amortization in the March 30, April 1, March 30, April 1,
statement of cash flow: 2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation of property,
plant and equipment $13,886 $8,803 $25,518 $17,179
Accelerated depreciation of
property, plant and equipment - 1,002 - 2,126
Amortization expense of
deferred start-up costs and
other 453 511 931 748
Amortization expense of
intangible assets 737 161 1,474 322
-------------------------------------------------------------------------
$15,076 $10,477 $27,923 $20,375
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(b) Cash paid during the period for:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest $2,230 $1,062 $5,056 $2,223
Income taxes 1,421 1,845 2,338 3,316
-------------------------------------------------------------------------
-------------------------------------------------------------------------
March 30, September 30, April 1,
2008 2007 2007
� Non-cash transactions: (audited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant
and equipment included in
accounts payable
and accrued liablities $1,194 $2,566 $3,002
Ascribed value credited to
share capital from
issuance of Treasury RSUs 126 226 -
Reversal of valuation allowance
on acquired future income tax
assets credited to intangible
assets - 7,340 -
Proceeds on disposal of
long-lived assets in
long-term receivable 1,637 1,855 -
Proceeds on disposal of
long-lived assets in accounts
receivable 1,230 1,050 3,325
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(d) Cash and cash equivalents
consist of:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash balances with banks $24,723 $9,250 $35,481
Short-term investments 4,588 - -
-------------------------------------------------------------------------
$29,311 $9,250 $35,481
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Financial instruments:
In the first quarter of fiscal 2008, the Company adopted the
requirements of the CICA Handbook Section 3862, "Financial
Instruments Disclosures", which apply to fiscal years beginning on
or after October 1, 2007. This new Handbook Section requires
disclosures to enable users to evaluate the significance of
financial instruments for the entity's financial position and
performance, and the nature and extent of an entity's exposure to
risks arising from financial instruments, including how the entity
manages those risks.
Disclosures relating to exposure to risks, in particular credit
risk, liquidity risk, foreign currency risk and interest rate risk,
are included in the section entitled "Financial Risk Management" of
the Management's Discussion and Analysis of the Company's
operations, performance and financial condition as at and for the
three months and six months ended March 30, 2008, which is included
in the Gildan Q2 2008 Quarterly Report to Shareholders along with
these interim consolidated financial statements. Accordingly, these
disclosures are incorporated into these interim consolidated
financial statements by cross-reference.
(a) Financial instruments - carrying values and fair values:
The fair values of financial assets and liabilities, together
with the carrying amounts included in the consolidated balance
sheet, are as follows:
March 30, 2008 September 30, 2007
--------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Financial assets
Available-for-sale financial
assets:
Cash and cash equivalents $29,311 $29,311 $9,250 $9,250
Loans and receivables:
Accounts receivable - trade 169,467 169,467 189,070 189,070
Accounts receivable - other 16,321 16,321 17,018 17,018
Long-term receivable included
in other assets 1,637 1,637 1,855 1,855
Restricted cash related to
Prewett acquisition included
in other assets 10,000 10,000 - -
Forward foreign exchange contracts 220 220 293 293
Financial liabilities
Other financial liabilities:
Accounts payable and accrued
liabilities 120,393 120,393 115,596 115,596
Long-term debt - bearing
interest at variable rates:
Revolving long-term credit
facility 137,000 137,000 49,000 49,000
Other long-term debt 7,135 7,135 8,803 8,803
Long-term debt - bearing
interest at fixed rates 2,200 2,200 1,857 1,857
Forward foreign exchange contracts 3,043 3,043 1,087 1,087
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The Company has determined that the fair value of its short-term
financial assets and liabilities approximates their respective
carrying amounts as at the balance sheet dates because of the
short-term maturity of those instruments. The fair values of the
long-term receivable and the restricted cash related to the
acquisition of Prewett, and the Company's interest-bearing
financial liabilities also approximate their respective carrying
amounts. The fair value of forward foreign exchange contracts was
determined using quoted market values.
(b) Financial income and expense:
The following components of income and expense relating to
financial instruments are included in the consolidated statement of
earnings:
(i) Interest income and expense:
Three months ended Six months ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense on long-term
indebtedness $2,108 $1,132 $5,063 $2,185
Interest expense on short-term
indebtedness 19 68 34 140
Interest income on available-
for-sale financial assets (63) (141) (243) (315)
Interest income on loans and
receivables (20) - (40) -
Other interest 23 18 47 38
-------------------------------------------------------------------------
Interest expense - net $2,067 $1,077 $4,861 $2,048
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest income on available-for-sale financial assets consists
of interest earned from cash and cash equivalents invested in
short-term deposits. Interest income on loans and receivables
relates to interest earned on the Company's long-term receivable
included in other assets.
(ii) Foreign exchange gain (loss):
Three months ended Six months ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gain relating to financial
assets and liabilities,
excluding forward foreign
exchange contracts $1,150 $523 $1,201 $1,103
Gain (loss) relating to
forward exchange contracts,
including amounts realized
on contract maturity
and changes in fair value of
open positions (3,215) 116 (2,374) 326
-------------------------------------------------------------------------
Foreign exchange gain (loss)
relating to financial
instruments (2,065) 639 (1,173) 1,429
Other foreign exchange
gain (loss) 771 (92) 196 963
-------------------------------------------------------------------------
Foreign exchange gain (loss) $(1,294) $547 $(977) $2,392
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(iii) Impairment losses recognized on trade receivables:
The Company recorded bad debt expense of $ nil (2007 - $0.2
million) for the three month period ended March 30, 2008 and nil
(2007 - $0.3 million) for the six month period ended March 30,
2008. Bad debt expense is included in "Selling, general and
administrative expenses" in the interim consolidated statements of
earnings and comprehensive income.
� Forward foreign exchange contracts:
The following table summarizes the Company's derivative
financial instruments relating to commitments to buy and sell
foreign currencies through forward foreign exchange contracts as at
March 30, 2008 and September 30, 2007:
Notional foreign
March 30, 2008 Maturity currency amount
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Buy CAD/Sell USD 0-6 months 42,100
Sell EUR/Buy USD 0-6 months 9,081
6-12 months 5,650
Sell GBP/Buy USD 0-6 months 6,019
6-12 months 1,700
-------------------------------------------------------------------------
Carrying & fair value
Average Notional USD -----------------
March 30, 2008 exchange rate equivalent Asset Liability
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Buy CAD/Sell USD 0.9902 $41,689 - $(581)
Sell EUR/Buy USD 1.3678 12,421 - (1,915)
1.4591 8,244 - (547)
Sell GBP/Buy USD 1.9841 11,942 83 -
2.0318 3,454 137 -
-------------------------------------------------------------------------
$77,750 $220 $(3,043)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notional foreign
September 30, 2007 Maturity currency amount
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Buy EUR/Sell USD 0-6 months 4,425
Sell EUR/Buy USD 0-6 months 4,899
6-12 months 9,081
Sell GBP/Buy USD 0-6 months 4,781
6-12 months 6,019
Sell CAD/Buy USD 0-6 months 3,800
-------------------------------------------------------------------------
Carrying & fair value
Average Notional USD -----------------
September 30, 2007 exchange rate equivalent Asset Liability
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Buy EUR/Sell USD 1.3616 $6,025 $293 $-
Sell EUR/Buy USD 1.3626 6,675 - (278)
1.3677 12,421 - (467)
Sell GBP/Buy USD 1.9988 9,558 - (146)
1.9841 11,942 - (196)
Sell CAD/Buy USD 1.0055 3,821 - -
-------------------------------------------------------------------------
$50,442 $293 $(1,087)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Capital disclosures:
The Company's objective in managing capital is to ensure
sufficient liquidity to pursue its organic growth strategy and
undertake selective acquisitions, while at the same time taking a
conservative approach towards financial leverage and management of
financial risk.
The Company's capital is composed of net debt and shareholders'
equity. Net debt consists of interest-bearing debt less cash and
cash equivalents. The Company's primary uses of capital are to
finance increases in non-cash working capital and capital
expenditures for capacity expansion as well as acquisitions. The
Company currently funds these requirements out of its
internally-generated cash flows and the periodic use of its
revolving long-term bank credit facility.
The primary measure used by the Company to monitor its financial
leverage is its ratio of net debt to earnings before interest,
taxes, depreciation and amortization, non-controlling interest, and
restructuring and other charges ("EBITDA"), which it aims to
maintain at less than 3.0:1. Net debt is computed as at the most
recent quarterly balance sheet date. EBITDA is based on the last
four quarters ending on the same date as the balance sheet date
used to compute net debt. The net debt to EBITDA ratio as at March
30, 2008, September 30, 2007 and April 1, 2007 was as follows:
March 30, September 30, April 1,
2008 2007 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bank indebtedness $- $- $3,500
Current portion of long-term
debt 4,129 3,689 21,449
Long-term debt 142,206 55,971 52,730
Less: cash and cash equivalents (29,311) (9,250) (35,481)
-------------------------------------------------------------------------
Net debt $117,024 $50,410 $42,198
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the last four quarters ending on
March 30, September 30, April 1,
2008 2007 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings $162,423 $130,020 $96,376
Restructuring and other
charges 11,902 28,012 38,136
Depreciation and amortization 48,451 38,777 35,490
Interest, net 7,711 4,898 3,846
Income tax expense (recovery) (2,237) (4,815) 5,967
Non-controlling interest
in income of consolidated
joint venture 1,328 1,278 334
-------------------------------------------------------------------------
EBITDA $229,578 $198,170 $180,149
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net debt to EBITDA ratio 0.5:1 0.3:1 0.2:1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The terms of the revolving credit facility require the Company
to maintain a net debt to EBITDA ratio below 3.0:1, although this
limit may be exceeded under certain circumstances. The Company used
its revolving credit facility to finance the acquisition of
Prewett, which closed on October 15, 2007. The financing of the
acquisition resulted in debt leverage, but which is still well
below the Company's maximum net debt to EBITDA ratio. The Company
does not currently plan to refinance its revolving credit facility,
or a portion thereof, with debt of longer maturities or to raise
additional equity capital.
In order to maintain or adjust its capital structure, the
Company, upon approval from its Board of Directors, may issue or
repay long-term debt, issue shares, repurchase shares, pay
dividends or undertake other activities as deemed appropriate under
the specific circumstances. The Company does not currently pay a
dividend. However, the Company's Board of Directors periodically
evaluate the merits of introducing a dividend.
The Company is not subject to any capital requirements imposed
by a regulator.
12. Income taxes:
The Canada Revenue Agency ("CRA") is currently conducting an
audit of the Company's income tax returns for its 2000, 2001, 2002
and 2003 fiscal years, the scope of which includes a review of
transfer pricing and the allocation of income between the Company's
Canadian legal entity and its foreign subsidiaries. In the third
quarter of fiscal 2008, management will meet with the CRA for the
first time to discuss preliminary transfer pricing audit issues
and, in particular, explain the roles and responsibilities
performed in the Company's foreign subsidiaries where the majority
of its taxable income is earned. While the outcome of the audit
cannot be predicted with certainty, the Company is confident that
the merits of its transfer pricing methodology, which is supported
by annual transfer pricing studies conducted by external experts,
and the economic substance of its legal and operating structure
support its tax filings. The Company believes that its tax filing
positions will be sustained and that the final resolution of this
matter will not materially affect the estimates and assumptions
used by management in determining the Company's provision for
income taxes and in valuing its income tax assets and
liabilities.
13. Segmented information:
The Company manufactures and sells activewear, socks and
underwear. The Company operates in one business segment, being
high-volume, basic, frequently replenished, non-fashion
apparel.
The company has two customers Three months ended Six months ended
accounting for at least March 30, April 1, March 30, April 1,
10% of total sales: 2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Company A 22.5% 24.9% 21.9% 22.3%
Company B 13.8% 5.7% 18.2% 7.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales were derived from
customers located
in the following geographic areas:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
United States $265,391 $203,413 $495,100 $372,477
Canada 12,677 14,600 22,613 22,565
Europe and other 15,695 14,121 26,507 22,921
-------------------------------------------------------------------------
$293,763 $232,134 $544,220 $417,963
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales by major product group:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Activewear and underwear $228,602 $199,287 $397,050 $342,559
Socks 65,161 32,847 147,170 75,404
-------------------------------------------------------------------------
$293,763 $232,134 $544,220 $417,963
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill and intangible assets relate to acquisitions located in the
United States.
Property, plant and equipment March 30, September 30, April 1,
by geographic areas are as 2008 2007 2007
follows: (audited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Basin and Central
America $321,347 $294,063 $254,749
United States 81,330 65,399 70,507
Canada and other 21,325 18,155 23,553
-------------------------------------------------------------------------
$424,002 $377,617 $348,809
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets held for sale by March 30, September 30, April 1,
geographic areas 2008 2007 2007
are as follows: (audited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
United States $2,278 $2,278 $2,395
Canada and other 10,403 4,332 500
-------------------------------------------------------------------------
$12,681 $6,610 $2,895
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contacts: Gildan Activewear Inc. Laurence G. Sellyn, Executive
Vice-President, Chief Financial and Administrative Officer
514-343-8805 lsellyn@gildan.com Gildan Activewear Inc. Sophie
Argiriou, Director, Investor Communications 514-343-8815
sargiriou@gildan.com
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