Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL) today announced its
financial results for its third fiscal quarter ended July 6, 2008.
The Company also reconfirmed its most recent full year EPS guidance
for fiscal 2008, which it had revised on April 29, 2008.
Third Quarter Sales and Earnings
Gildan reported net earnings of U.S. $54.0 million and diluted
EPS of U.S. $0.44 for the third quarter of fiscal 2008. Results for
the third quarter include U.S. $2.3 million or U.S. $0.02 per share
of restructuring charges, related to ongoing carrying costs
pursuant to the closure of Canadian and U.S. manufacturing
facilities, and a planned consolidation of sewing operations in
Haiti. In the third quarter of fiscal 2007, the Company reported
net earnings of U.S. $52.4 million or U.S. $0.43 per share,
including $4.6 million or U.S. $0.04 per share of restructuring
charges related to manufacturing closures. Before reflecting the
impact of restructuring charges in both fiscal years, adjusted net
earnings and adjusted diluted EPS were U.S. $56.3 million and U.S.
$0.46 respectively, compared to adjusted net earnings of U.S. $57.0
million and EPS of U.S. $0.47 in the third quarter of fiscal
2007.
The change in adjusted EPS, before restructuring charges, was
due primarily to higher activewear selling prices and unit sales
volumes, which were more than offset by higher cotton and energy
costs, more unfavourable activewear product-mix, higher selling,
general and administrative and depreciation expenses, the
non-recurrence of a prior year income tax recovery which positively
impacted EPS by U.S. $0.05 in the third quarter of last year, a
provision for a doubtful receivable account, and charges to write
off or dispose of surplus fixed assets.
As reflected in the Company's guidance for the year, the third
quarter of the 2008 fiscal year comprised 14 weeks instead of the
normal 13 weeks for a fiscal quarter. The inclusion of an extra
week is required in every fifth or sixth fiscal year to maintain
the alignment of the Company's financial reporting cycle with the
calendar year. Consistent with the Company's prior practice, the
extra week is included in the third quarter.
The Company's results for its third fiscal quarter were in line
with its most recent EPS guidance. More favourable than projected
activewear selling prices, unit volumes and product-mix were offset
by a provision for a doubtful receivable account, and charges to
write off or dispose of surplus fixed assets.
Sales in the third quarter amounted to U.S. $380.8 million, up
30.6% from U.S. $291.6 million in the third quarter of last year.
The increase in sales revenues was due to an increase of U.S. $43.8
million in sock sales due to the acquisition of V.I. Prewett &
Son in the first quarter of fiscal 2008, an approximate 6% increase
in activewear unit selling prices and a 10.4% increase in unit
sales volumes for activewear and underwear. Growth in activewear
unit sales was significantly constrained by lack of inventory, as a
result of lower than anticipated production from the Company's
Dominican Republic textile manufacturing facility. The Company has
made good progress in improving the performance of the Dominican
Republic facility during the third quarter, although its inventory
levels for activewear continue to be very low.
The growth in activewear unit sales in the third fiscal quarter
was due to the additional week of shipments and continuing market
share penetration in all product categories 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 June 30, 2008.
Gildan Gildan Gildan Industry
Market Share Market Share Unit Growth Unit Growth
Q3 2008 Q3 2007 Q3 2008 vs. Q3 2008 vs.
Q3 2007 Q3 2007
51.9% 47.6% All activewear products 5.5% (3.5)%
52.6% 48.3% T-shirts 5.5% (3.2)%
51.7% 42.2% Fleece 23.4% 0.3%
34.6% 34.0% Sport shirts (10.6)% (12.6)%
Although overall industry shipments from distributors to
screenprinters declined by 3.5% during the June quarter, according
to the S.T.A.R.S. report, distributor demand for Gildan products
remained very strong. The Company had a high open order position
throughout the quarter, which has continued into the fourth
quarter. Overall inventories in the channel continue to be in good
balance in relation to expected industry demand.
During the third quarter, the Company began shipment of its
first retail underwear program. The Company is pleased with
consumer demand for its retail products during the third quarter,
and with the improvement in its service levels to mass retailers.
Also, the Company has continued to implement its strategy to
rationalize its sock product-mix, in order to focus on basic
higher-volume products and programs which capitalize on Gildan's
modern large-scale manufacturing capacity.
Gross margins in the third quarter of fiscal 2008 declined
slightly to 31.6%, compared to 32.4% in the third quarter of fiscal
2007. The positive gross margin impact of higher activewear selling
prices and favourable manufacturing efficiencies arising from the
consolidation of textile facilities in the fourth quarter of fiscal
2007 was more than offset by higher cotton, energy, chemicals and
transportation costs, the impact of production inefficiencies in
the Dominican Republic textile facility, as inventories produced in
the second fiscal quarter were consumed in cost of sales, a lower
proportion of high-valued sport shirt sales, and the impact of the
acquisition of Prewett. Socks manufactured by Gildan in the U.S.
have lower gross margins than activewear and sock products
manufactured in the Company's Honduran manufacturing facilities,
and therefore dilute overall gross margins.
Selling, general and administrative expenses were U.S. $43.9
million, or 11.5% of sales, compared to U.S. $28.4 million, or 9.7%
of sales in the third quarter of fiscal 2007. The increase in
selling, general and administrative expenses was due to the
acquisition of Prewett, higher distribution and transportation
expenses, a provision of U.S. $2.6 million for non-collection of
accounts receivable from a U.S. retail customer, which filed for
bankruptcy protection during the third quarter, higher corporate
infrastructure costs, including the impact of the higher-valued
Canadian dollar, a charge for the disposal of surplus fixed assets,
and professional fees for special projects. The increase of U.S.
$5.1 million in depreciation and amortization expenses was
primarily due to the ramp-up of major capacity expansion projects
and the acquisition of Prewett, including the amortization of
acquired intangible assets, as well as a charge to write down
surplus fixed assets.
Year-to-date Sales and Earnings
Sales for the first nine months of fiscal 2008 were U.S. $925.0
million, up 30.4% compared to the same period last year. The
increase in sales was due to a U.S. $115.6 million increase in sock
sales due to the acquisition of Prewett, a 10.7% increase in unit
sales volumes for activewear and underwear, higher activewear
selling prices and a higher valued product-mix for activewear.
For the first nine months of fiscal 2008, net earnings amounted
to U.S. $123.2 million, or U.S. $1.01 per share on a diluted basis,
compared to net earnings of U.S. $89.2 million, or U.S. $0.73 per
share, for the same period in fiscal 2007. Before the impact of
restructuring and other charges, adjusted net earnings in the first
nine months of fiscal 2008 amounted to U.S. $127.1 million, or U.S.
$1.04 per share on a diluted basis, compared to adjusted net
earnings of U.S. $111.5 million, or U.S. $0.92 per share on a
diluted basis, for the same period last year. The increase in
adjusted net earnings and adjusted diluted EPS in fiscal 2008 was
primarily due to growth in unit sales volumes for activewear and
underwear, higher activewear selling prices, more favourable
activewear product-mix and further manufacturing efficiencies for
activewear. These positive factors were partially offset by
increases in cotton, energy, chemicals and transportation costs,
production inefficiencies in the Dominican Republic textile
facility, higher selling, general and administrative and
depreciation and amortization expenses, and the non-recurrence of
the income tax recovery in the third quarter of fiscal 2007. Net
earnings and diluted EPS for the first nine months of fiscal 2008
were also negatively impacted by additional costs to service
mass-market retailers in the second quarter during the integration
of retail information systems, a write-down of inventories of
discontinued sock product-lines in the second quarter, a provision
for non-collection of accounts receivable from a U.S. retail
customer in the third quarter, and charges in the third quarter for
the write-down or disposal of surplus assets.
Cash Flow
Net earnings before depreciation and other non-cash items in the
third quarter amounted to U.S. $73.6 million, which, together with
increased accounts payable, was used to finance seasonal increases
in accounts receivable, and capital expenditures amounting to U.S.
$19.8 million. Free cash flow in the third quarter amounted to U.S.
$21.5 million. Free cash flow for the first nine months of fiscal
2008 amounted to U.S. $92.2 million. At the end of the third
quarter, the Company continued to have significant unused financing
capacity to be able to pursue its organic growth plans and to be in
a position to implement selective acquisition opportunities.
Outlook
The Company continues to be comfortable with its previous
guidance of EPS of U.S. $1.45 - U.S. $1.50 for the full 2008 fiscal
year.
The Company has determined that it is not yet in a position to
provide earnings guidance for fiscal 2009, due to lack of
visibility on certain key external factors impacting the Company's
results. The Company continues to believe that it will generate
significant manufacturing efficiencies in fiscal 2009 from the
improved performance of the Dominican Republic textile facility and
the successful ramp-up of the Rio Nance II and III capacity
expansions in Honduras, as well as from the assumed non-recurrence
of acquisition integration issues which negatively impacted results
in fiscal 2008. The Company also expects to benefit from a more
favourable product-mix, as a result of a higher proportion of
ring-spun products and fleece, and continuing to rationalize its
sock product-mix. However, even with these positive factors,
further increases in selling prices will be required in order to
offset the impact of projected significant increases in cotton and
energy costs, as well as inflation in other cost inputs such as
chemicals, dyestuffs and labour rates. The Company has yet to
purchase a significant portion of its cotton requirements for
fiscal 2009. In this environment, the Company will seek to obtain
selling price increases in both the wholesale and retail channels,
and expects to provide earnings guidance at such time as it has
sufficient visibility on all of the major assumptions impacting its
gross margins and EPS.
The Company currently expects to have production capacity for
activewear and underwear combined of approximately 51 million
dozens in fiscal 2009, based on its projected product-mix,
including a higher than previously projected proportion of fleece
and ring-spun products. A portion of the Company's activewear
capacity in fiscal 2009 is projected to be utilized to rebuild
inventories from current low levels. Capital expenditures for
fiscal 2009 are projected at approximately U.S. $160 million,
primarily for the Rio Nance IV and V capacity expansion
projects.
Disclosure of Outstanding Share Data
As of July 31, 2008, there were 120,525,039 common shares issued
and outstanding along with 884,071 stock options and 906,800
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
Third Quarter MD&A dated August 12, 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 8:30 AM Eastern Time. The conference call
can be accessed by dialing 800-261-3417 (Canada & U.S.) or
617-614-3673 (international) and entering passcode 90911731, 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 10:30 AM EDT by dialing
888-286-8010 (Canada & U.S.) or 617-801-6888 (international)
and entering passcode 23643734, until Wednesday, August 20, 2008 at
midnight, or by sound web cast on Gildan's Internet 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, second and third 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, political and social factors in
the countries in which we operate; the intensity of competitive
activity; changes in environmental, tax, trade, employment 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 and 2009 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, adjusted diluted earnings
per share and free cash flow. 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)
---------------------------------------------------------------------------
Q3 2008 Q3 2007 YTD 2008 YTD 2007
---------------------------------------------------------------------------
Net earnings 54.0 52.4 123.2 89.2
Restructuring and other charges 2.3 4.6 3.9 22.3
Less: income tax effect thereon - - - -
---------------------------------------------------------------------------
Adjusted net earnings 56.3 57.0 127.1 111.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Diluted EPS 0.44 0.43 1.01 0.73
Restructuring and other charges,
net of tax 0.02 0.04 0.03 0.18
---------------------------------------------------------------------------
Adjusted diluted EPS 0.46 0.47 1.04 0.92
---------------------------------------------------------------------------
Certain minor rounding variances exist between the financial statements and
this summary. EPS may not add due to rounding.
Free cash flow is defined as cash from operating activities
including net changes in non-cash working capital balances, less
cash flow used in investing activities excluding business
acquisitions. We consider free cash flow to be an important
indicator of the financial strength and performance of our
business, because it shows how much cash is available after capital
expenditures to repay debt and to reinvest in our business. We
believe this measure is commonly used by investors and analysts
when valuing a business and its underlying assets.
(in US$ millions)
Q3 2008 Q3 2007 YTD 2008 YTD 2007
--------------------------------------------------------------------------
Cash flows from operating activities 40.7 32.3 168.4 72.1
Cash flows from investing activities (19.2) (29.2) (213.0) (103.7)
Add back:
Acquisition of Prewett - - 126.8 -
Restricted cash related to acquisition - - 10.0 -
--------------------------------------------------------------------------
Free cash flow 21.5 3.1 92.2 (31.6)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Certain minor rounding variances exist between the financial statements
and this summary.
Gildan Activewear Inc.
Interim Consolidated Balance Sheets
(in thousands of U.S. dollars)
July 6, 2008 September 30, July 1, 2007
2007
-----------------------------------------------------------------------
(unaudited) (audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $13,195 $9,250 $7,537
Accounts receivable 254,511 206,088 183,557
Inventories 290,845 239,963 231,538
Prepaid expenses and
deposits 11,255 7,959 9,573
Future income taxes 3,765 2,610 4,601
-----------------------------------------------------------------------
573,571 465,870 436,806
Property, plant and equipment 426,781 377,617 368,477
Goodwill and identifiable
intangible assets 63,910 2,024 9,030
Assets held for sale (note 7) 12,603 6,610 2,434
Other assets 18,227 11,426 8,266
Future income taxes 10,489 10,939 -
-----------------------------------------------------------------------
Total assets $1,105,581 $874,486 $825,013
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Liabilities and Shareholders'
Equity
Current liabilities:
Bank indebtedness $- $- $3,500
Accounts payable and accrued
liabilities 149,486 116,683 120,229
Income taxes payable 9,238 2,949 2,054
Current portion of long-term
debt 3,762 3,689 3,934
-----------------------------------------------------------------------
162,486 123,321 129,717
Long-term debt 104,677 55,971 38,979
Future income taxes 41,265 24,612 28,221
Non-controlling interest in
consolidated joint venture 7,289 6,932 6,279
Contingencies (note 13)
Shareholders' equity:
Share capital 89,147 88,061 87,686
Contributed surplus 5,910 3,953 3,361
Retained earnings 668,559 545,388 504,522
Accumulated other
comprehensive income 26,248 26,248 26,248
-----------------------------------------------------------------------
694,807 571,636 530,770
-----------------------------------------------------------------------
789,864 663,650 621,817
Total liabilities and
shareholders' equity $1,105,581 $874,486 $825,013
-----------------------------------------------------------------------
-----------------------------------------------------------------------
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 Nine months ended
July 6, 2008 July 1, 2007 July 6, 2008 July 1, 2007
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales $380,774 $291,610 $924,994 $709,573
Cost of sales 260,418 197,221 626,051 482,558
--------------------------------------------------------------------------
Gross profit 120,356 94,389 298,943 227,015
Selling, general and
administrative
expenses 43,893 28,430 113,096 83,080
Restructuring and other
charges (note 7) 2,289 4,589 3,929 22,339
--------------------------------------------------------------------------
Earnings before the
undernoted items 74,174 61,370 181,918 121,596
Depreciation and
amortization (note 9a) 15,326 10,272 43,249 28,521
Interest, net (note 10b) 1,204 1,453 6,065 3,501
Non-controlling interest
of consolidated joint
venture 185 503 357 625
--------------------------------------------------------------------------
Earnings before income
taxes 57,459 49,142 132,247 88,949
Income tax expense
(recovery) (note 12) 3,448 (3,255) 9,076 (205)
--------------------------------------------------------------------------
Net earnings and
comprehensive income $54,011 $52,397 $123,171 $89,154
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic EPS (note 8) $0.45 $0.44 $1.02 $0.74
Diluted EPS (note 8) $0.44 $0.43 $1.01 $0.73
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 Nine months ended
July 6, 2008 July 1, 2007 July 6, 2008 July 1, 2007
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash flows from
operating activities:
Net earnings $54,011 $52,397 $123,171 $89,154
Adjustments for:
Restructuring charges
related to assets
held for sale
and property, plant
and equipment
(note 7) 1,662 708 1,334 4,616
Depreciation and
amortization
(note 9a) 15,326 10,272 43,249 28,521
Loss (gain) on
disposal of assets
held for sale and
property, plant and
equipment 861 (60) 987 (20)
Stock-based
compensation costs 599 371 2,083 1,149
Future income taxes 1,718 (4,689) 203 (3,210)
Non-controlling
interest 185 503 357 625
Unrealized foreign
exchange (gain) loss (762) 3,029 253 1,441
--------------------------------------------------------------------------
73,600 62,531 171,637 122,276
Changes in non-cash
working capital
balances:
Accounts receivable (68,707) (45,712) (18,837) (16,266)
Inventories 9,212 11,051 (7,459) (30,885)
Prepaid expenses and
deposits (2,266) (2,499) (1,926) (3,816)
Accounts payable and
accrued liabilities 27,741 5,354 18,822 1,119
Income taxes payable 1,081 1,607 6,156 (338)
--------------------------------------------------------------------------
40,661 32,332 168,393 72,090
Cash flows (used in)
from financing
activities:
(Decrease) increase in
amounts drawn under
revolving long-term
credit facility (37,000) (13,000) 51,000 30,000
Decrease in bank
indebtedness - - (1,261) -
Net decrease in other
long-term debt (896) (18,266) (2,221) (20,948)
Proceeds from the
issuance of shares 351 180 960 949
--------------------------------------------------------------------------
(37,545) (31,086) 48,478 10,001
Cash flows used in
investing activities:
Purchase of property,
plant and equipment (19,773) (32,864) (79,791) (108,315)
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 10 4,429 1,124 6,424
Net decrease (increase)
in other assets 565 (778) 2,532 (1,786)
--------------------------------------------------------------------------
(19,198) (29,213) (212,954) (103,677)
Effect of exchange
rate changes on cash and
cash equivalents
denominated in foreign
currencies (34) 23 28 116
--------------------------------------------------------------------------
Net (decrease) increase
in cash and cash
equivalents during the
period (16,116) (27,944) 3,945 (21,470)
Cash and cash equivalents,
beginning of period 29,311 35,481 9,250 29,007
--------------------------------------------------------------------------
Cash and cash equivalents,
end of period $13,195 $7,537 $13,195 $7,537
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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
Nine months ended July 6, 2008 and July 1, 2007
(in thousands and thousands of U.S. dollars)
Share Capital Contributed
--------------------- surplus
Number Amount
--------------------------------------------------------------------------
Balance, September 30, 2007 120,419 $88,061 $3,953
Stock-based compensation related
to stock options and Treasury
restricted share units - - 2,083
Shares issued under employee
share purchase plan 16 543 -
Shares issued pursuant to
exercise of stock options 81 417 -
Shares issued pursuant to the
settlement of Treasury
restricted share units 8 126 (126)
Net earnings - - -
--------------------------------------------------------------------------
Balance, July 6, 2008 (unaudited) 120,524 $89,147 $5,910
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Share Capital Contributed
--------------------- surplus
Number Amount
--------------------------------------------------------------------------
Balance, October 1, 2006 120,228 $86,584 $2,365
Stock-based compensation related
to stock options and Treasury
restricted share units - - 1,149
Shares issued under employee
share purchase plan 13 378 -
Shares issued pursuant to
exercise of stock options 117 571 -
Shares issued pursuant to the
settlement of Treasury
restricted share units 18 153 (153)
Net earnings - - -
--------------------------------------------------------------------------
Balance, July 1, 2007 (unaudited) 120,376 $87,686 $3,361
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 Treasury
restricted share units - - 2,083
Shares issued under employee
share purchase plan - - 543
Shares issued pursuant to
exercise of stock options - - 417
Shares issued pursuant to the
settlement of Treasury
restricted share units - - -
Net earnings - 123,171 123,171
--------------------------------------------------------------------------
Balance, July 6, 2008 (unaudited) $26,248 $668,559 $789,864
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 Treasury
restricted share units - - 1,149
Shares issued under employee
share purchase plan - - 378
Shares issued pursuant to
exercise of stock options - - 571
Shares issued pursuant to the
settlement of Treasury
restricted share units - - -
Net earnings - 89,154 89,154
--------------------------------------------------------------------------
Balance, July 1, 2007 (unaudited) $26,248 $504,522 $621,817
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(For the period ended July 6, 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 third
fiscal quarter are traditionally not indicative of the results to
be expected for the full fiscal year.
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
Inventories 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
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 (81) 5.32
Forfeited (13) 32.41
--------------------------------------------------------------------------
Options outstanding, July 6, 2008 886 14.42
--------------------------------------------------------------------------
--------------------------------------------------------------------------
As at July 6, 2008, 625,200 of the outstanding options were
exercisable at the weighted average price of CA$6.67. Based on the
Black-Scholes option pricing model, the grant date weighted average
fair value of the options granted during the nine months ended July
6, 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 43 36.47
Settled through the issuance of common shares (8) 17.89
Forfeited (69) 27.85
--------------------------------------------------------------------------
Treasury RSUs outstanding, July 6, 2008 907 18.99
--------------------------------------------------------------------------
--------------------------------------------------------------------------
As at July 6, 2008, none of the awarded and outstanding Treasury
RSUs were vested.
The compensation expense recorded for the three-month periods
ended July 6, 2008 and July 1, 2007, respectively, was $0.6 million
and $0.4 million, in respect of the Treasury RSUs and stock
options. The compensation expense recorded for the nine-month
periods ended July 6, 2008 and July 1, 2007, respectively, was $2.1
million and $1.2 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 (4)
--------------------------------------------------------------------------
Non-Treasury RSUs outstanding, July 6, 2008 102
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 July 6, 2008, the weighted average fair value per
non-Treasury RSU was CA$24.36. No common shares are issued from
treasury under such awards and they are therefore non-dilutive. As
of July 6, 2008, none of the awarded and outstanding non-Treasury
RSUs were vested.
The compensation (recovery) expense recorded for the three-month
periods ended July 6, 2008 and July 1, 2007, respectively, was
$(0.1) million and $0.1 million, in respect of the non-Treasury
RSUs. The compensation expense recorded for the nine-month periods
ended July 6, 2008 and July 1, 2007, respectively, was $0.4 million
and $0.4 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 July 6, 2008, the maximum potential
liability under these guarantees was $17.4 million, of which $5.2
million was for surety bonds and $12.2 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 July 6, 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 Nine months ended
July 6, July 1, July 6, July 1,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accelerated depreciation $- $766 $- $2,892
Gain on disposal of long-lived
assets (38) (58) (366) (1,836)
Asset impairment loss 1,700 - 1,700 3,560
Severance 400 1,234 400 13,296
Other 227 2,647 2,195 4,427
--------------------------------------------------------------------------
$2,289 $4,589 $3,929 $22,339
--------------------------------------------------------------------------
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 exit costs incurred in connection with
the closures noted above, including carrying and dismantling costs
associated with assets held for sale. During the third quarter of
fiscal 2008, the Company recorded an impairment loss on property,
plant and equipment of $1.7 million resulting from a planned
consolidation of its sewing operations in Haiti.
Assets held for sale of $12.6 million as at July 6, 2008
(September 30, 2007 - $6.6 million; July 1, 2007 - $2.4 million)
primarily related to closed facilities at these various locations
and are recorded at the lower of their carrying value or fair value
less costs to sell. Additional carrying costs related to these
closed facilities and any gains or losses on the disposition of the
assets held for sale will be accounted for as restructuring charges
as incurred.
8. Earnings per share:
A reconciliation between basic and diluted earnings per share is
as follows:
Three months ended Nine months ended
July 6, July 1, July 6, July 1,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic earnings per share:
Basic weighted average number
of common shares outstanding 120,492 120,359 120,462 120,319
--------------------------------------------------------------------------
Basic earnings per share $0.45 $0.44 $1.02 $0.74
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted earnings per share:
Basic weighted average number
or common shares outstanding 120,492 120,359 120,462 120,319
Plus impact of stock options
and Treasury RSUs 1,130 1,240 1,181 1,206
--------------------------------------------------------------------------
Diluted weighted average number
of common shares outstanding 121,622 121,599 121,643 121,525
--------------------------------------------------------------------------
Diluted earnings per share $0.44 $0.43 $1.01 $0.73
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Excluded from the above calculation for the three months ended
July 6, 2008 are 123,565 stock options, 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. Excluded
from the above calculation for the nine months ended July 6, 2008
are 81,968 stock options, 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 Three months ended Nine months ended
included in depreciation July 6, July 1, July 6, July 1,
and amortization: 2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Depreciation of property,
plant and equipment $13,155 $9,612 $38,673 $26,791
Impairment loss and writedown
of property, plant and equipment 700 - 700 -
Amortization expense of deferred
start-up costs and other 454 499 1,385 1,247
Amortization expense of
intangible assets 1,017 161 2,491 483
--------------------------------------------------------------------------
$15,326 $10,272 $43,249 $28,521
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(b) Cash paid during the period
for:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Interest $1,459 $1,842 $6,515 $4,065
Income taxes 461 482 2,799 3,798
--------------------------------------------------------------------------
--------------------------------------------------------------------------
July 6, 2008 September 30, July 1, 2007
2007
(c) Non-cash transactions as at: (audited)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Additions to property, plant
and equipment included in
accounts payable and accrued
liabilities $500 $2,566 $2,652
Ascribed value credited to
share capital from issuance
of Treasury RSUs 126 226 153
Reversal of valuation allowance
on acquired future income
tax assets credited to intangible
assets - 7,340 -
Proceeds on disposal of long-
lived assets in other assets 1,477 1,855 1,943
Proceeds on disposal of long-
lived assets in accounts
receivable 1,380 1,050 -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(d) Cash and cash equivalents
consist of:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash balances with banks $10,237 $9,250 $7,537
Short-term investments 2,958 - -
--------------------------------------------------------------------------
$13,195 $9,250 $7,537
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 nine months ended July 6, 2008, which is included
in the Gildan Q3 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
sheets, are as follows:
July 6, 2008 September 30, 2007
Carrying Fair Carrying Fair
amount value amount value
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Financial assets
Available-for-sale financial
assets:
Cash and cash equivalents $13,195 $13,195 $9,250 $9,250
Loans and receivables:
Accounts receivable - trade 236,912 236,912 189,070 189,070
Accounts receivable - other 17,599 17,599 17,018 17,018
Long-term receivable included
in other assets 1,477 1,477 1,855 1,855
Restricted cash related to
Prewett acquisition included
in other assets 10,000 10,000 - -
Forward foreign exchange
contracts 123 123 293 293
Financial liabilities
Other financial liabilities:
Accounts payable and accrued
liabilities 147,428 147,428 115,596 115,596
Long-term debt - bearing
interest at variable rates:
Revolving long-term credit
facility 100,000 100,000 49,000 49,000
Other long-term debt 6,727 6,727 8,803 8,803
Long-term debt - bearing
interest at fixed rates 1,712 1,712 1,857 1,857
Forward foreign exchange
contracts 2,058 2,058 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 Nine months ended
July 6, July 1, July 6, July 1,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Interest expense on long-term
indebtedness $1,294 $1,393 $6,357 $3,578
Interest expense on short-term
indebtedness 4 79 38 219
Interest income on available-
for-sale financial assets (106) (85) (349) (400)
Interest income on loans and
receivables (20) - (60) -
Other interest 32 66 79 104
--------------------------------------------------------------------------
Interest expense - net $1,204 $1,453 $6,065 $3,501
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 Nine months ended
July 6, July 1, July 6, July 1,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gain (loss) relating to financial
assets and liabilities,
excluding forward foreign
exchange contracts $120 $(759) $1,321 $344
Gain (loss) relating to forward
exchange contracts, including
amounts realized on contract
maturity and changes in fair
value of open positions 185 2,333 (2,189) 2,659
--------------------------------------------------------------------------
Foreign exchange gain (loss)
relating to financial instruments 305 1,574 (868) 3,003
Other foreign exchange gain (loss) 26 (2,282) 222 (1,319)
--------------------------------------------------------------------------
Foreign exchange gain (loss) $331 $(708) $(646) $1,684
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(iii) Impairment losses recognized on trade receivables:
The Company recorded bad debt expense (recovery) of $2.5 million
(2007 - $(0.2) million) for the three month period ended July 6,
2008 and $2.6 million (2007 - $0.1 million) for the nine month
period ended July 6, 2008. Bad debt expense is included in
"Selling, general and administrative expenses" in the interim
consolidated statements of earnings and comprehensive income.
(c) 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
July 6, 2008 and September 30, 2007:
Notional foreign Average
July 6, 2008 Maturity currency amount exchange rate
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Buy CAD/Sell USD 0-6 months 35,500 0.9923
Sell EUR/Buy USD 0-6 months 8,485 1.3963
6-12 months 2,650 1.4743
Sell GBP/Buy USD 0-6 months 5,172 1.9952
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Notional foreign Average
September 30, 2007 Maturity currency amount exchange rate
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Buy EUR/Sell USD 0-6 months 4,425 1.3616
Sell EUR/Buy USD 0-6 months 4,899 1.3626
6-12 months 9,081 1.3677
Sell GBP/Buy USD 0-6 months 4,781 1.9988
6-12 months 6,019 1.9841
Sell CAD/Buy USD 0-6 months 3,800 1.0055
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Notional USD Carrying & fair value
July 6, 2008 equivalent Asset Liability
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Buy CAD/Sell USD $35,225 $- $(457)
Sell EUR/Buy USD 11,848 - (1,404)
3,907 - (197)
Sell GBP/Buy USD 10,319 123 -
--------------------------------------------------------------------------
$61,299 $123 $(2,058)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Notional USD Carrying & fair value
September 30, 2007 equivalent Asset Liability
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Buy EUR/Sell USD $6,025 $293 $-
Sell EUR/Buy USD 6,675 - (278)
12,421 - (467)
Sell GBP/Buy USD 9,558 - (146)
11,942 - (196)
Sell CAD/Buy USD 3,821 - -
--------------------------------------------------------------------------
$50,442 $293 $(1,087)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The forward exchange contracts are reported on a mark-to-market
basis and the gains or losses are included in earnings as the
Company has elected not to follow hedge accounting for these
derivatives.
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 July
6, 2008, September 30, 2007 and July 1, 2007 was as follows:
July 6, 2008 September 30, July 1, 2007
2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Bank indebtedness $- $- $3,500
Current portion of long-term
debt 3,762 3,689 3,934
Long-term debt 104,677 55,971 38,979
Less: cash and cash equivalents (13,195) (9,250) (7,537)
--------------------------------------------------------------------------
Net debt $95,244 $50,410 $38,876
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the last four quarters ending on
July 6, 2008 September 30, July 1, 2007
2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net earnings $164,037 $130,020 $105,942
Restructuring and other charges 9,602 28,012 42,725
Depreciation and amortization 53,505 38,777 37,593
Interest, net 7,462 4,898 4,540
Income tax expense (recovery) 4,466 (4,815) 917
Non-controlling interest in
income of consolidated joint
venture 1,010 1,278 645
--------------------------------------------------------------------------
EBITDA $240,082 $198,170 $192,362
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net debt to EBITDA ratio 0.4:1 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, which is 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
evaluates 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 met 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. The Company is continuing its discussion with the
CRA and 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. While the
outcome of the audit cannot be predicted with certainty, the
Company believes that its tax filing positions will be sustained
and that the final resolution of this matter will not materially
affect the Company's results of operations or financial
position.
The income tax recovery of $3.3 million for the three-month
period ended July 1, 2007 and of $0.2 million for the nine-month
period ended July 1, 2007 includes the recognition of previously
unrecorded tax benefits in the amount of $5.7 million relating to a
prior taxation year.
13. Contingencies:
The Company and certain of its senior officers have been named
as defendants in a number of proposed class action lawsuits filed
in the United States District Court for the Southern District of
New York. These U.S. lawsuits will likely be consolidated into one
proposed class action with a lead plaintiff. A proposed class
action has also been filed in the Ontario Superior Court of Justice
and a petition for authorization to commence a class action has
been filed in the Quebec Superior Court. Each of these U.S. and
Canadian lawsuits, which have yet to be certified as a class action
by the respective courts at this stage, seek to represent a class
comprised of persons who acquired the Company's common shares
between August 2, 2007 and April 29, 2008 and allege, among other
things, that the defendants misrepresented the Company's financial
prospects in its financial guidance concerning the 2008 fiscal
year, subsequently revised on April 29, 2008. The U.S. lawsuits are
based on United States federal securities laws. In addition to
pursuing common law claims, the Ontario action proposes to seek
leave from the Ontario court to also bring statutory
misrepresentation civil liability claims under Ontario's Securities
Act. The Company strongly contests the basis upon which these
actions are predicated and intends to vigorously defend its
position. However, due to the inherent uncertainties of litigation,
it is not possible to predict the final outcome of these lawsuits
or determine the amount of any potential losses, if any. No
provision for contingent loss has been recorded in the interim
consolidated financial statements.
14. 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 Nine months ended
accounting for at least 10% July 6, July 1, July 6, July 1,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Company A 25.1% 22.2% 23.2% 22.2%
Company B 11.7% 2.6% 15.5% 5.5%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales were derived from customers
located in the following
geographic areas:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
United States $338,130 $255,281 $833,230 $627,758
Canada 19,604 16,456 42,217 39,021
Europe and other 23,040 19,873 49,547 42,794
--------------------------------------------------------------------------
$380,774 $291,610 $924,994 $709,573
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales by major product group:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Activewear and underwear $306,407 $261,087 $703,457 $603,646
Socks 74,367 30,523 221,537 105,927
--------------------------------------------------------------------------
$380,774 $291,610 $924,994 $709,573
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Property, plant and equipment July 6, 2008 September 30, July 1, 2007
by geographic areas are as 2007
follows: (audited)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Caribbean Basin and Central
America $321,613 $294,063 $276,000
United States 80,486 65,399 69,163
Canada and other 24,682 18,155 23,314
--------------------------------------------------------------------------
$426,781 $377,617 $368,477
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Assets held for sale by July 6, 2008 September 30, July 1, 2007
geographic areas are as 2007
follows: (audited)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
United States $2,200 $2,278 $1,934
Canada and other 10,403 4,332 500
--------------------------------------------------------------------------
$12,603 $6,610 $2,434
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Goodwill and intangible assets relate to acquisitions located in the United
States.
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
Gildan Activewear (TSX:GIL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Gildan Activewear (TSX:GIL)
Historical Stock Chart
From Jul 2023 to Jul 2024
