Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL)
- Fourth Quarter EPS of U.S. $0.41 and Full Year EPS of U.S.
$1.45 Before Income Tax Charge and Restructuring Charges
- Company Plans for Fiscal 2009 Based on Negative Outlook for
Industry
Gildan Activewear Inc. (TSX: GIL)(NYSE: GIL) today announced its
financial results for its fourth fiscal quarter and fiscal year
ended October 5, 2008. The Company also provided earnings guidance
for fiscal 2009 based on assuming a continuation of current
negative market conditions, which are significantly impacting its
results in the first quarter of fiscal 2009.
The Company believes that, while the current outlook for
business conditions in fiscal 2009 is uniquely challenging, the
economic upheaval in the industry will create opportunities for
Gildan to build further on its leadership position in the U.S.
screenprint channel, and continue to expand its presence in
international markets and the U.S. mass-market retail channel. The
Company continues to feel confident that its competitive strengths,
including its large-scale, vertically-integrated,
strategically-located manufacturing facilities, together with its
strong cash flow generation and low financial leverage, position it
well to successfully achieve its long-term strategic growth
objectives.
Fourth Quarter Sales and Earnings
Gildan reported net earnings of U.S. $21.4 million and diluted
EPS of U.S. $0.18 for the fourth quarter of fiscal 2008, compared
to net earnings of U.S. $40.9 million, or U.S. $0.34 per share,
during the fourth quarter of fiscal 2007. Fourth quarter results in
fiscal 2008 included restructuring and other charges of U.S. $1.0
million after tax. Comparative results for fiscal 2007 included
restructuring and other charges of U.S. $4.9 million after tax, or
U.S. $0.04 per share. Restructuring and other charges in both years
were primarily related to the restructuring and ongoing carrying
costs pursuant to the closure of Canadian and U.S. manufacturing
facilities.
Before reflecting the impact of restructuring charges in both
fiscal years, adjusted net earnings were U.S. $22.4 million in the
fourth quarter of fiscal 2008, compared to adjusted net earnings of
U.S. $45.8 million in the fourth quarter of fiscal 2007. The U.S.
$23.4 million decrease in adjusted net earnings was due to a U.S.
$26.9 million, or U.S. $0.22 per share, one-time income tax charge
resulting from the settlement of the Canada Revenue Agency ("CRA")
audit, which is described in a separate press release issued today.
Excluding the impact of the tax charge, adjusted net earnings in
the fourth quarter of fiscal 2008 were U.S. $49.3 million, or U.S.
$0.41 per share. Compared to the fourth quarter of last year,
higher activewear selling prices, higher activewear unit sales
volumes, increased manufacturing efficiencies from the
consolidation of textile facilities and the accretive impact of the
acquisition of V.I. Prewett & Son, Inc. ("Prewett") were
partially offset by higher cotton and energy costs, more
unfavourable activewear product-mix, higher selling, general and
administrative and depreciation expenses and the non-recurrence of
income tax benefits in the amount of U.S. $1.9 million recognized
in the fourth quarter of fiscal 2007 relating to a prior taxation
year which became statute-barred during fiscal 2007.
Sales in the fourth quarter of fiscal 2008 amounted to U.S.
$324.7 million, up 27.4% from U.S. $254.9 million in the fourth
quarter of last year. The increase in sales revenues was due to the
impact of the acquisition of Prewett, an approximate 10.2% increase
in activewear unit selling prices and an 8.5% increase in unit
sales volumes for activewear and underwear. The growth in
activewear unit sales in the fourth quarter was due to continuing
market share penetration in all product categories in the U.S.
wholesale distributor channel, as overall industry shipments from
U.S. wholesale distributors to screenprinters declined by 3.1% in
the quarter, while unit sales of Gildan products increased by 7.2%
in spite of inventory constraints during the quarter which limited
Gildan's ability to service demand in the U.S. screenprint channel,
as well as demand in Europe. The overall decline in U.S. industry
shipments primarily reflected lower demand for promotional white
T-shirts. 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 September 30, 2008.
Gildan Industry
Gildan Gildan Unit Growth Unit Growth
Market Share Market Share Q4 2008 vs. Q4 2008 vs.
Q4 2008 Q4 2007 Q4 2007 Q4 2007
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53.4% 48.2% All activewear 7.2% (3.1%)
products
54.4% 49.1% T-shirts 7.8% (2.5%)
49.9% 45.5% Fleece 5.2% (4.2%)
37.8% 35.7% Sport shirts (8.7%) (13.8%)
Gross margins of 32.1% in the fourth quarter of fiscal 2008 were
essentially flat compared to last year. The positive gross margin
impact of higher activewear selling prices and favourable
manufacturing efficiencies from the consolidation of textile
facilities was offset by higher cotton and energy costs,
unfavourable product-mix and a higher proportion of U.S.
manufactured socks due to the acquisition of Prewett, which provide
lower gross margins than the Company's activewear products and
socks produced in Gildan's new sock manufacturing facility in
Honduras.
Selling, general and administrative expenses were U.S. $39.1
million, or 12.1% of sales, compared to U.S. $27.9 million, or
10.9% of sales in the fourth 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. $1.5 million for non-collection of
accounts receivable, and higher corporate infrastructure costs. The
increase of U.S. $5.4 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.
The Company recorded an income tax expense of U.S. $25.3 million
in the fourth quarter of fiscal 2008, compared to an income tax
recovery of U.S. $4.6 million in the fourth quarter of fiscal 2007.
The current year expense includes a one-time income tax charge of
U.S. $26.9 million, or U.S. $0.22 per share, related to the
settlement of the CRA audit. The fourth quarter of fiscal 2007
included a one-time income-tax recovery of U.S. $1.9 million
relating to a prior taxation year which became statute-barred
during fiscal 2007.
Full Year Sales and Earnings
Sales for fiscal 2008 were U.S. $1,249.7 million, up 29.6 % from
U.S. $964.4 million in fiscal 2007. The increase in sales was due
to a U.S. $151.5 million increase in sock sales, primarily due to
the acquisition of Prewett, an increase of approximately 6.7% in
activewear selling prices and a 10.2% increase in unit sales
volumes for activewear and underwear.
Net earnings were U.S. $144.6 million, or U.S. $1.19 per share
on a diluted basis, in fiscal 2008, compared to net earnings of
U.S. $130.0 million, or U.S. $1.07 per share in fiscal 2007.
Results included restructuring and other charges of U.S. $4.9
million after tax, or U.S. $0.04 per share, in fiscal 2008 and U.S.
$27.3 million after tax, or U.S. $0.22 per share, in fiscal
2007.
Before reflecting restructuring and other charges in both years,
adjusted net earnings were U.S. $149.5 million, compared to
adjusted net earnings of U.S. $157.3 million in fiscal 2007. The
decrease in adjusted net earnings was due to a one-time income tax
charge of U.S. $26.9 million related to the settlement of the CRA
audit. Excluding the one-time income tax charge, adjusted earnings
and adjusted earnings per share in fiscal 2008 were U.S. $176.4 and
U.S. $1.45, respectively. Compared to fiscal 2007, higher cotton
and energy costs, production inefficiencies in the Dominican
Republic facility, increased selling, general and administrative,
depreciation and interest expenses, and the non-recurrence of
income tax benefits totaling U.S. $7.6 million relating to a prior
taxation year which became statute-barred in fiscal 2007 were more
than offset by the favourable impact of higher activewear selling
prices, growth in activewear unit sales volumes, favourable
manufacturing efficiencies resulting from the consolidation of
textile facilities, and the accretive impact of the Prewett
acquisition.
Adjusted diluted EPS of U.S. $1.45 excluding the income tax
charge and the restructuring charges were at the low end of the
Company's most recent EPS guidance range of U.S. $1.45- U.S. $1.50,
which did not assume the income tax charge related to the
settlement of the CRA audit. The Company was at the low end of its
guidance range due to lower than projected results in the fourth
quarter. In the fourth quarter, favourable activewear selling
prices, due to lower than projected promotional discounts, were
more than offset by lower activewear unit sales, as a result of
inventory constraints, more unfavourable activewear product-mix due
to a lower than anticipated proportion of sport shirts and fleece,
lower than planned sock sales due to a weak back-to-school season
in retail, and a doubtful account provision of U.S. $1.5
million.
Fiscal 2008 Cash Flows
The Company generated free cash flows of U.S. $148.4 million in
fiscal 2008. Cash flows from operating activities for fiscal 2008
amounted to U.S. $238.9 million, which, together with increased
accounts payable of U.S. $27.7 million, was used to finance a U.S.
$32.1 million increase in inventories, capital expenditures of U.S
$97.0 million mainly related to major textile sand sock
manufacturing capacity expansion projects and the acquisition of
Prewett, effective October 15, 2007, for a purchase price of U.S.
$126.8 million, plus a contingent payment of U.S. $10.0
million.
Outlook for Fiscal 2009
Industry demand in the U.S. screenprint channel during the first
two months of the first quarter of fiscal 2009 has been extremely
weak, mirroring the rapid and severe downturn in overall economic
and stock market performance and sentiment during October and
November, which has resulted in a dramatic curtailment of consumer
and corporate spending. According to the S.T.A.R.S. report for the
month of October, overall industry shipments from U.S. wholesale
distributors to screenprinters across all product categories
declined by 12.5% compared to October 2007. Although the S.T.A.R.S.
report indicates that Gildan achieved significant increases in
market share, the Company's unit volume shipments to distributors
in October declined from last year, due to the decline in end-use
demand combined with high inventories at the distributor level in
the context of the current market conditions.
Although final S.T.A.R.S. data for the month of November is not
yet available, market conditions in the U.S. screenprint channel
have deteriorated further. Preliminary S.T.A.R.S. data for November
indicate that overall industry shipments in the month declined from
last year by close to 20%. Consequently, Gildan expects its sales
and EPS in the first quarter of fiscal 2009 to decline materially
from the first quarter of last year as a result of lower unit
shipments and severe promotional discounting in the month of
December, combined with significantly higher cotton costs compared
with the first quarter of fiscal 2008, and the consumption of
inventories produced when energy and commodity costs were at peak
levels. Based on these assumptions, the Company is currently
forecasting first quarter fiscal 2009 adjusted EPS of approximately
U.S. $0.00-U.S. $0.05, compared with adjusted EPS of U.S. $0.23 in
the first quarter of fiscal 2008.
While the first quarter is seasonally the lowest sales quarter
of the fiscal year and as such may not be indicative of full year
trends, the Company is currently planning for the balance of fiscal
2009 on the basis of assuming a continuing negative outlook for
industry demand in the U.S. screenprint channel throughout the
year. The Company's current planning scenario for fiscal 2009
assumes that overall industry unit shipments in the U.S.
screenprint channel will decline by approximately 10% compared with
fiscal 2008, and that the ensuing unfavourable industry
supply/demand balance will result in significant discounting of
industry selling prices, which has already started to occur.
Based on the assumption of continuing unfavourable market
conditions and the assumptions set out below, the Company is
initiating EPS guidance for fiscal 2009 with a wide range of U.S.
$1.10-U.S. $1.30 in fiscal 2009, before restructuring charges which
are not expected to be material.
The Company's EPS guidance assumes an increase of approximately
8% in Gildan's activewear and underwear unit volumes compared with
fiscal 2008, to approximately 48 million dozens, as the Company is
implementing strategies to maximize its unit volume growth in its
target markets, including an increasing focus on servicing its
international markets, for the balance of the year. In addition,
the Company expects EPS in fiscal 2009 to be favourably impacted by
the improved performance of the Dominican Republic facility in line
with the Company's expectations, together with lower projected
energy costs. However, these positive factors are now forecast to
be more than offset by significant selling price discounting, which
is expected to result in a reduction in average activewear selling
prices of 7%-9% in fiscal 2009 compared to fiscal 2008, and by the
impact of higher cotton costs, which are expected to increase by
approximately 10% in fiscal 2009 compared to fiscal 2008.
The Company is assuming weaker market conditions in fiscal 2009
in the mass-market retail channel. However, the Company will
continue its efforts to optimize its product-mix and cost structure
for mass-market retail, and to successfully manage the transition
to major new retailer private label brands, in order to be well
positioned to pursue its growth strategy in retail when new
production capacity comes on-stream in fiscal 2010. The Company's
guidance takes into account the projected impact of cost reduction
initiatives arising from the consolidation of sock manufacturing,
and also assumes the non-recurrence of acquisition integration
issues and charges which occurred in fiscal 2008. No selling price
increases in socks are assumed in fiscal 2009.
In the event these assumptions are not realized, or that
economic conditions are less or more favourable than assumed in the
Company's forecast, EPS may be lower or higher than projected.
In the assumed economic environment, the Company will place
emphasis on careful management of its capital expenditures in
fiscal 2009. The Company intends to undertake an incremental
capacity expansion of its Dominican Republic textile facility, at a
low capital cost, and is also incrementally expanding its Rio Nance
I textile facility in Honduras. These expansions of existing
facilities will increase annual production capacity by
approximately 7-8 million dozens, and allow the Company to support
its projected sales growth while preserving liquidity and
proceeding more slowly and cautiously with its major capital
investment in its new Rio Nance 5 textile facility in Honduras.
However, the Company has not changed its plans to construct both
Rio Nance 5 and its second sock facility in Honduras, which are
integral to its long-term strategic growth and cost reduction
initiatives. The Company today announced plans to phase out sock
finishing operations in the U.S. by the end of June and consolidate
operations in Honduras, in order to remain globally competitive in
the current economic conditions. Gildan regrets the impact on its
U.S. employees affected by this consolidation. Any costs associated
with the closure of sock finishing facilities will be accounted for
as restructuring and other charges in fiscal 2009.
Gildan is now projecting total capital expenditures of
approximately U.S. $115 million in fiscal 2009, compared with its
previous estimate of approximately U.S. $160 million. The Company's
objective in fiscal 2009 is to remain cash positive after taking
account of capital expenditures, approximately U.S. $70 million of
projected additional working capital to support its planned growth
in fiscal 2010 and the cash payments required following the
settlement of the CRA audit.
Disclosure of Outstanding Share Data
As of November 30, 2008, there were 120,544,242 common shares
issued and outstanding along with 1,098,381 stock options and
958,002 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
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 68524462, 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 EST by dialing
888-286-8010 (Canada & U.S.) or 617-801-6888 (international)
and entering passcode 38418101, until Thursday, December 18, 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 screenprint channel in the U.S. and Canada.
It is also a leading supplier to this market in Europe, and is
establishing a growing presence in Mexico and the Asia-Pacific
region. 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. The
Company's products are also utilized for work uniforms and other
end-uses to convey individual, group and team identity. The Company
is also a leading supplier of private label and Gildan branded
socks primarily sold to mass-market retailers. In addition, Gildan
has an objective to become a significant supplier of men's and
boys' underwear and undecorated activewear products to mass-market
retailers in North America.
Forward-Looking Statements
Certain statements included in this press release, in particular
in 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 in the "Outlook"
section.
Forward-looking information is inherently uncertain and 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;
the fact that our customers do not commit to minimum quantity
purchases; the seasonality of our business; our ability to attract
and retain key personnel; our 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.
These factors 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 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 1 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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Q4 2008 Q4 2007 YTD 2008 YTD 2007
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Net earnings 21.4 40.9 144.6 130.0
Restructuring and other charges 1.6 5.7 5.5 28.0
Less: income tax effect thereon (0.6) (0.8) (0.6) (0.7)
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Adjusted net earnings 22.4 45.8 149.5 157.3
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Diluted EPS 0.18 0.34 1.19 1.07
Restructuring and other
charges, net of tax 0.01 0.04 0.04 0.22
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Adjusted diluted EPS 0.18 0.38 1.23 1.29
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Certain minor rounding variances exist between the financial statements and
this summary.
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) Q4 2008 Q4 2007 YTD 2008 YTD 2007
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Cash flows from
operating activities 70.5 19.1 238.9 91.2
Cash flows from investing
activities (14.4) (31.0) (227.3) (134.7)
Add back:
Acquisition of Prewett - - 126.8 -
Restricted cash related
to acquisition - - 10.0 -
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Free cash flow 56.1 (11.9) 148.4 (43.5)
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Certain minor rounding variances exist between the financial statements and
this summary.
Gildan Activewear Inc.
Consolidated Balance Sheets
(in thousands of U.S. dollars)
October 5, September 30,
2008 2007
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(audited) (audited)
Assets
Current assets:
Cash and cash equivalents $12,357 $9,250
Accounts receivable 222,158 206,088
Inventories 316,172 239,963
Prepaid expenses and deposits 10,413 7,959
Future income taxes - 2,610
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561,100 465,870
Property, plant and equipment 436,516 377,617
Intangible assets 59,954 2,024
Other assets 18,067 11,426
Assets held for sale (note 1) 10,497 6,610
Goodwill (note 2) 6,709 -
Future income taxes 9,283 10,939
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Total assets $1,102,126 $874,486
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $155,669 $116,683
Income taxes payable (note 3) 46,627 2,949
Current portion of long-term debt 3,556 3,689
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205,852 123,321
Long-term debt (note 4) 49,448 55,971
Future income taxes (note 3) 27,331 24,612
Non-controlling interest in consolidated
joint venture 7,162 6,932
Shareholders' equity:
Share capital 89,377 88,061
Contributed surplus 6,728 3,953
Retained earnings 689,980 545,388
Accumulated other comprehensive income 26,248 26,248
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716,228 571,636
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Total shareholders' equity 812,333 663,650
Total liabilities and shareholders' equity $1,102,126 $874,486
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See accompanying condensed notes to consolidated financial statements.
Gildan Activewear Inc.
Consolidated Statements of Earnings and Comprehensive Income
(In thousands of U.S. dollars, except per share data)
Three months ended Twelve months ended
October 5, September 30, October 5, September 30,
2008 2007 2008 2007
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(unaudited) (unaudited) (audited) (audited)
Sales $324,717 $254,856 $1,249,711 $964,429
Cost of sales 220,555 172,722 847,392 655,280
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Gross profit 104,162 82,134 402,319 309,149
Selling, general
and administrative
expenses 39,143 27,899 151,453 110,979
Restructuring and
other charges (note 1) 1,560 5,673 5,489 28,012
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Earnings before the
undernoted items 63,459 48,562 245,377 170,158
Depreciation and
amortization 15,683 10,256 58,932 38,777
Interest, net 1,158 1,397 7,223 4,898
Non-controlling
interest of
consolidated joint
venture (127) 653 230 1,278
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Earnings before
income taxes 46,745 36,256 178,992 125,205
Income tax expense
(recovery) (note 3) 25,324 (4,610) 34,400 (4,815)
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Net earnings and
comprehensive income $21,421 $40,866 $144,592 $130,020
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Basic EPS $0.18 $0.34 $1.20 $1.08
Diluted EPS $0.18 $0.34 $1.19 $1.07
Weighted average
number of shares
outstanding (in
thousands)
Basic 120,531 120,401 120,479 120,340
Diluted 121,558 121,577 121,622 121,538
See accompanying condensed notes to consolidated financial statements.
Gildan Activewear Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
Three months ended Twelve months ended
October 5, September 30, October 5, September 30,
2008 2007 2008 2007
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(unaudited) (unaudited) (audited) (audited)
Cash flows from
(used in) operating
activities:
Net earnings $21,421 $40,866 $144,592 $130,020
Adjustments for:
Depreciation and
amortization 15,683 10,256 58,932 38,777
Restructuring
charges related to
assets held for sale
and property, plant
and equipment (note 1) 840 907 2,174 5,523
Loss on disposal of
assets held for sale
and property, plant
and equipment 382 352 1,369 332
Stock-based
compensation costs 882 665 2,965 1,814
Future income taxes (16,040) (5,709) (15,837) (8,919)
Non-controlling interest (127) 653 230 1,278
Unrealized foreign
exchange (gain) loss (2,523) 1,785 (2,270) 3,226
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20,518 49,775 192,155 172,051
Changes in non-cash
working capital
balances:
Accounts receivable 27,060 (20,126) 8,223 (36,392)
Inventories (24,676) (8,425) (32,135) (39,310)
Prepaid expenses
and deposits 1,045 1,614 (881) (2,202)
Accounts payable
and accrued
liabilities 8,918 (4,446) 27,740 (3,327)
Income taxes payable 37,646 681 43,802 343
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70,511 19,073 238,904 91,163
Cash flows from
(used in) financing
activities:
(Decrease) increase
in amounts drawn
under revolving
long-term credit
facility (55,000) 19,000 (4,000) 49,000
Decrease in bank
indebtedness (1,478) (3,500) (2,739) (3,500)
Repayment of other
long-term debt (435) (2,253) (2,656) (23,201)
Proceeds from the
issuance of shares 178 367 1,138 1,316
Repurchase of
shares (12) (65) (12) (65)
--------------------------------------------------------------------------
(56,747) 13,549 (8,269) 23,550
Cash flows from
(used in) investing
activities:
Purchase of property,
plant and equipment (17,239) (25,967) (97,030) (134,282)
Acquisition of V.I.
Prewett & Son, Inc.
(note 2) - - (126,819) -
Restricted cash
related to
acquistion (note 2) - - (10,000) -
Proceeds from the
sale of assets held
for sale 2,612 244 3,736 6,668
Net decrease(increase)
in other assets 255 (5,289) 2,787 (7,075)
--------------------------------------------------------------------------
(14,372) (31,012) (227,326) (134,689)
Effect of exchange
rate changes on cash
and cash equivalents
denominated in
foreign currencies (230) 103 (202) 219
--------------------------------------------------------------------------
Net (decrease)
increase in cash and
cash equivalents
during the period (838) 1,713 3,107 (19,757)
Cash and cash
equivalents,
beginning of period 13,195 7,537 9,250 29,007
--------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $12,357 $9,250 $12,357 $9,250
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements.
Gildan Activewear Inc.
Consolidated Statement of Shareholders' Equity
Years ended October 5, 2008 and September 30, 2007
(in thousands of U.S. dollars)
Share Capital Contri-
---------------------- buted
Number Amount surplus
--------------------------------------------------------------------------
Balance, October 1, 2006 120,227,668 $86,584 $2,365
Stock-based compensation related to
stock options and Treasury restricted
share units - - 1,814
Shares issued under employee share
purchase plan 18,279 530 -
Shares issued pursuant to exercise of
stock options 149,034 786 -
Shares issues pursuant to exercise of
Treasury restricted share units 26,917 - -
Ascribed value credited to share capital
from exercise of stock options and
Treasury restricted share units - 226 (226)
Share repurchases (2,437) (65) -
Net earnings - - -
--------------------------------------------------------------------------
Balance, September 30, 2007 120,419,461 88,061 3,953
Stock-based compensation related to
stock options and Treasury restricted
share units - - 2,965
Shares issued under employee share
purchase plan 21,313 720 -
Shares issued pursuant to exercise of
stock options 81,356 418 -
Shares issued pursuant to the
exercise of Treasury restricted
share units 14,779 - -
Ascribed value credited to share capital
from exercise of stock options and
Treasury restricted share units - 190 (190)
Share repurchases (408) (12) -
Net earnings - - -
--------------------------------------------------------------------------
Balance, October 5, 2008 120,536,501 $89,377 $6,728
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated Total
other share-
comprehensive Retained holders'
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 - - 1,814
Shares issued under employee share
purchase plan - - 530
Shares issued pursuant to exercise of
stock options - - 786
Shares issues pursuant to exercise of
Treasury restricted share units - - -
Ascribed value credited to share capital
from exercise of stock options and
Treasury restricted share units - - -
Share repurchases - - (65)
Net earnings - 130,020 130,020
--------------------------------------------------------------------------
Balance, September 30, 2007 26,248 545,388 663,650
Stock-based compensation related to
stock options and Treasury restricted
share units - - 2,965
Shares issued under employee share
purchase plan - - 720
Shares issued pursuant to exercise of
stock options - - 418
Shares issued pursuant to the
exercise of Treasury restricted
share units - - -
Ascribed value credited to share capital
from exercise of stock options and
Treasury restricted share units - - -
Share repurchases - - (12)
Net earnings - 144,592 144,592
--------------------------------------------------------------------------
Balance, October 5, 2008 $26,248 $689,980 $812,333
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Gildan Activewear Inc. - Condensed notes to consolidated
financial statements
(tabular amounts in thousands of U.S. dollars)
For complete notes to the consolidated financial statements, please refer
to filings with the various securities regulatory authorities which are
expected to be available on December 22, 2008.
1. Restructuring, Other Charges and Assets Held for Sale
The following table summarizes the components of restructuring and
other charges:
Three months ended Twelve months ended
October September October September
5, 30, 5, 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Severance $- $260 $400 $13,619
Accelerated depreciation - 601 - 3,493
Impairment loss and
write-down of property, plant
and equipment and assets held
for sale 1,000 - 2,700 3,560
Net (gain) loss on disposal
of assets held for sale (160) 306 (526) (1,530)
Other exit costs 1,275 4,506 3,470 8,870
Charge (credit) to comply with
employment contract (555) - (555) -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$1,560 $5,673 $5,489 $28,012
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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. In the
fourth quarter of fiscal 2008, the Company recorded a $1.0 million
write-down on the assets held for sale located in Canada. Other
exit costs relate primarily to costs incurred in connection with
the closures noted above, including carrying and dismantling costs
associated with assets held for sale. The Company incurred
additional carrying costs relating to the closed facilities being
held for sale, which were accounted for as restructuring charges as
incurred during fiscal 2008. In the third quarter of fiscal 2008,
the Company recorded restructuring charges of $2.1 million,
consisting of an impairment on property, plant and equipment of
$1.7 million and severance costs of $0.4 million, related to the
planned consolidation of its Haiti sewing operations which is
expected to be finalized in the first half of fiscal 2009.
Assets held for sale of $10.5 million as at October 5, 2008
(September 30, 2007 - $6.6 million) include property, plant and
equipment 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.
2. 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 $128.0 million was comprised of
cash consideration of $125.3 million, a fixed payment of $1.2
million payable in 2009 and transaction costs of $1.5 million. The
purchase agreement provides for an additional purchase
consideration of up to $10.0 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 to the assets
acquired based on their fair values and taking into account all
relevant information available at that time.
The following table summarizes the estimated fair value of assets
acquired and liabilities assumed at the date of acquisition:
--------------------------------------------------------
--------------------------------------------------------
Assets acquired:
Accounts receivable $28,228
Inventories 44,074
Prepaid expenses 1,573
Property, plant and equipment 26,202
Customer contracts and customer relationships 61,000
Other assets 196
--------------------------------------------------------
161,273
Liabilities assumed:
Bank indebtedness (2,739)
Accounts payable and accrued liabilities (12,800)
Future income taxes (24,428)
--------------------------------------------------------
(39,967)
--------------------------------------------------------
Net identifiable assets acquired 121,306
Goodwill 6,709
--------------------------------------------------------
Purchase price $128,015
--------------------------------------------------------
--------------------------------------------------------
Consideration:
Cash $125,294
Transaction costs 1,525
Fixed payment payable in 2009 1,196
--------------------------------------------------------
$128,015
--------------------------------------------------------
--------------------------------------------------------
Immediately following the acquisition, the Company repaid the
entire amount of bank indebtedness assumed at the date of
acquisition.
Goodwill recorded in connection with this acquisition is not
deductible for tax purposes.
3. Canada Revenue Agency Audit
The Canada Revenue Agency ("CRA") has been conducting an audit
of the Company's income tax returns for its 2000, 2001, 2002 and
2003 fiscal years, the scope of which included 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. On December 10, 2008, the Company reached a final
agreement with the CRA and concluded the audit for the 2000, 2001,
2002 and 2003 fiscal years. In connection with the terms of the
agreement, the Company agreed to a tax reassessment related to the
restructuring of its international wholesale business and the
related transfer of the Company's assets to its Barbados
subsidiary, which occurred in fiscal 1999. Based on the results of
the audit, the Company continues to believe its income tax
provisions for fiscal years subsequent to the periods covered by
the audit are appropriate. The terms of the agreement have been
accounted for in the fourth quarter of fiscal 2008 through a charge
to income tax expense of $26.9 million and a reclassification of
$17.3 million of future income tax liabilities to income taxes
payable. There were no penalties assessed as part of the agreement,
and there were no other significant income tax adjustments to
reported taxable income for the years under audit.
4. Long Term Debt
As at October 5, 2008, long-term debt includes $45.0 million
(September 30, 2007 - $49.0 million) drawn on the Company's $400
million revolving long-term credit facility, which matures in June
2013. The facility is unsecured.
5. Comparative Figures
Certain comparative figures have been reclassified in order to
conform to the current period's presentation.
Contacts: Gildan Activewear Inc. Laurence G. Sellyn, Executive
Vice-President, Chief Financial and Administrative Officer
514-343-8805 lsellyn@gildan.com Gildan Activewear Inc. Patrice
Ouimet, Vice-President, Corporate Development and Enterprise Risk
Management 514-340-8933 pouimet@gildan.com Gildan Activewear Inc.
Benoit Leroux, Director, Corporate Development 514-343-8898
bleroux@gildan.com
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