Gildan Activewear Inc. (TSX: GIL) (NYSE: GIL) today announced its
financial results for the first quarter of its 2009 fiscal year,
and suspended its EPS guidance for the full fiscal year, which it
had initiated on December 11, 2008, due to increasing uncertainty
about macro-economic conditions and the potential impact of the
economic and financial crisis on Gildan's served markets and
customer base. The Company also updated its capital expenditure
plans for fiscal 2009.
First Quarter Sales and Earnings
Gildan reported net earnings of U.S. $4.3 million and diluted
EPS of U.S. $0.04 for its first fiscal quarter ended January 4,
2009, compared with net earnings of U.S. $27.9 million and diluted
EPS of U.S. $0.23 in the first quarter of fiscal 2008. The Company
had provided EPS guidance of US $0.00 - $0.05 for the first quarter
of fiscal 2009.
The reduction in net earnings and EPS in the first quarter
compared to last year was primarily due to significantly lower unit
sales volumes, combined with higher cotton and energy costs
reflected in inventories consumed in cost of sales during the
quarter, more unfavourable activewear product-mix, and increased
provisions for accounts receivable. Cotton costs are projected to
be at their highest point during the year in the first quarter of
fiscal 2009, and were at their lowest point during fiscal 2008 in
the first quarter. These negative factors were partially offset by
favourable manufacturing efficiencies and higher net selling prices
for activewear, compared to the first quarter of fiscal 2008.
Compared to the Company's EPS guidance for the quarter, the impact
of lower than projected selling price discounts was offset by lower
than projected unit sales volumes, due to continuing inventory
destocking by U.S. wholesale distributors, and increased provisions
for accounts receivable.
Sales in the first quarter of fiscal 2009, which is seasonally
the lowest quarter of the fiscal year for Gildan's activewear
sales, amounted to U.S. $184.0 million, down 26.5% from U.S. $250.5
million in the first quarter of last year. Increased market share
penetration in the U.S. screenprint channel was more than offset by
an 11.6% decline in overall industry unit shipments in the channel
and the significant impact of inventory reductions during the
quarter by U.S. wholesale distributors. Sales were also negatively
impacted by more unfavourable activewear product-mix. Sales of
socks included an extra two weeks of sales from the Prewett
acquisition, which was effective from October 15, 2007. However,
unit sales of socks decreased due to the elimination of
unprofitable sock product-lines during fiscal 2008, and a reduction
in inventories carried by retailer. Unit sales of Gildan socks from
the Company's major retail customers to consumers were essentially
unchanged compared with the previous year, in spite of weak overall
retail market conditions.
The table below summarizes data from the S.T.A.R.S. report
produced by ACNielsen Market Decisions, which tracks unit volume
shipments from wholesale distributors to U.S. screenprinters, for
the calendar quarter ended December 31, 2008:
Gildan Gildan Gildan Industry
Market Market Unit Growth Unit Growth
Share Share Q1 2009 vs. Q1 2009 vs.
Q1 2009 Q1 2008 Q1 2008 Q1 2008
----------------------------------------------------------------------
53.3% 49.3% All activewear products (4.7%) (11.6%)
54.2% 50.0% T-shirts (3.8%) (10.9%)
51.9% 49.1% Fleece (7.1%) (12.0%)
35.4% 35.4% Sport shirts (25.7%) (25.8%)
Gross margins in the first quarter were 21.1%, compared to 26.2%
after recasting prior year comparatives to reflect the
reclassification of manufacturing depreciation and certain items
from selling, general and administrative expenses to cost of sales.
Recast prior year comparative figures have been provided in the
Investor Relations section of the Company's website. Compared to
the recast gross margins for the first quarter of fiscal 2008, the
decline in gross margins was due to significantly higher cotton and
energy costs, more unfavourable activewear product-mix due to a
lower proportion of high-valued fleece and long-sleeve T-shirts,
higher depreciation expenses absorbed in cost of sales, a higher
proportion of sales of socks compared to activewear, the temporary
impact of additional packaging costs related to a transition in
sock private label brands for Gildan's largest retail customer,
which is being implemented in the second half of fiscal 2009, and
higher labour costs, partially offset by increased manufacturing
efficiencies, the non-recurrence of sock inventory write-downs in
the first quarter of fiscal 2008, and higher net selling prices
compared to the first quarter of last year.
Selling, general and administrative expenses, after reflecting
the reclassification of certain items in both years as disclosed in
the Company's website, were U.S. $33.5 million, compared with U.S.
$31.7 million in the first quarter of fiscal 2008. The approximate
U.S. $2 million impact of an increase in accounts receivable
provisions, together with higher professional and legal fees, were
partially offset by lower volume-related distribution expenses and
the impact of the reduction in the value of the Canadian dollar on
Gildan's corporate administrative expenses.
EPS Outlook and Guidance for Fiscal 2009
Although the Company initiated EPS guidance for fiscal 2009 in
mid-December, and has so far met its EPS expectations in spite of
difficult market conditions, the Company believes that it is
prudent to suspend its earnings guidance due to increasing
uncertainty regarding the severity and duration of the current
economic and financial crisis. In addition, continuing weak end-use
demand and tighter credit markets may affect the financial
condition and liquidity of wholesale customers, resulting in
increased credit risk and a need for the Company to prudently
balance short-term market share considerations with such increased
customer credit risk.
Gildan's operations are performing well, and the Company
believes that its strong competitive positioning, combined with its
strong balance-sheet and free cash flow generation, will allow it
to take advantage of potential opportunities resulting from any
industry rationalization or restructuring that may occur as a
result of a prolonged industry downturn and crisis in
liquidity.
Cash Flows and Capital Expenditures
The Company generated free cash flow of approximately U.S. $3
million in the first quarter of fiscal 2009, after capital
expenditures and the payment of prior year income taxes pursuant to
the Company's settlement of its transfer pricing audit with the
Canada Revenue Agency. Cash flows from operating activities before
depreciation expenses and other non-cash items, together with
approximately U.S. $120 million of cash inflows from the collection
of accounts receivables in the quarter, were used to finance an
approximate U.S. $66 million increase in inventories to meet
anticipated sales demand and approximately U.S. $14 million of
capital expenditures, as well as to pay approximately U.S. $24
million of income taxes, and U.S. $31 million of accounts payable
and accrued liabilities.
The Company ended the first quarter of fiscal 2009 with net
indebtedness of approximately U.S. $37 million, and continues to
have significant financing capacity and flexibility under its
revolving bank credit facility, which matures in 2013. A major
objective for the Company in fiscal 2009 will be to maintain its
strong financing position and ensure that it continues to be in a
position to take advantage of any strategic growth opportunities
that may arise.
Consequently, in the current economic environment, Gildan
intends to prudently manage its receivable and inventory levels and
its capital expenditures. Inventories will be carefully monitored
in relation to market conditions as they evolve, and the Company
will evaluate the need for production downtime as required to align
inventories with sales demand. The Company is continuing to defer
construction of its Rio Nance 5 facility until the economic outlook
in support of further major capacity expansion becomes clearer. In
addition, the Company has decided to proceed cautiously on other
expansion projects and defer the ramp-up of its second sock
manufacturing facility in Honduras. Gildan plans to transfer its
U.S. sock finishing operations to an existing leased facility in
Honduras in order to achieve planned manufacturing efficiencies
without incurring major capital costs or creating significant new
industry overcapacity. The Rio Nance 4 building will be utilized as
a distribution centre while sock capacity expansion requirements
are re-assessed. Capital expenditures for fiscal 2009 are now
projected at approximately U.S. $80 million, compared with the
Company's most recent forecast of U.S. $115 million.
Disclosure of Outstanding Share Data
As of January 31st, 2009, there were 120,637,793 common shares
issued and outstanding along with 1,081,328 stock options and
890,112 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 2009
First Quarter MD&A dated February 11, 2009 (available at
http://gildan.com/corporate/IR/quarterlyReports.cfm) which is
incorporated by reference in this release, filed by Gildan with the
Canadian securities regulatory authorities and with the U.S.
Securities and Exchange Commission.
Gildan Activewear Inc. will hold a conference call to discuss
these results today at 5:00 PM EST. The conference call can be
accessed by dialing 800-261-3417 (Canada & U.S.) or
617-614-3673 (international) and entering passcode 13357882, or by
live sound webcast on Gildan's Internet site ("Investor Relations"
section) at the following address:
http://gildan.com/corporate/IR/webcastPresentations.cfm. If you are
unable to participate in the conference call, a replay will be
available starting that same day at 8:00 PM EST by dialing
888-286-8010 (Canada & U.S.) or 617-801-6888 (international)
and entering passcode 68475073, until Wednesday, February 18, 2009
at midnight, or by sound webcast 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 and the risks described under the section "Financial Risk
Management" of the 2008 Annual MD&A, as subsequently updated in
our first quarter 2009 interim 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 free cash flow and net indebtedness. 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.
Free cash flow
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) Q1 2009 Q1 2008
---------------------------------------------------------------------
Cash flows from operating activities 15.9 103.4
Cash flows from investing activities (12.1) (169.2)
Add back:
Acquisition of Prewett - 126.8
Restricted cash related to acquisition (0.9) 10.0
---------------------------------------------------------------------
Free cash flow 2.9 71.0
---------------------------------------------------------------------
---------------------------------------------------------------------
Certain minor rounding variances exist between the financial statements
and this summary.
Net indebtedness
We consider total indebtedness and net indebtedness to be important
indicators of the financial leverage of the Company.
(in US$ millions) Q1 2009 Q4 2008 Q1 2008
---------------------------------------------------------------------
Current portion of long-term debt 3.0 3.6 4.6
Long-term debt 48.2 49.4 126.2
---------------------------------------------------------------------
Total indebtedness 51.2 53.0 130.8
Cash and cash equivalents (14.4) (12.4) (13.6)
---------------------------------------------------------------------
Net indebtedness 36.8 40.6 117.2
---------------------------------------------------------------------
---------------------------------------------------------------------
Gildan Activewear Inc.
Interim Consolidated Balance Sheets
(in thousands of US dollars)
January 4, 2009 October 5, 2008 December 30, 2007
--------------------------------------------------------------------------
(unaudited) (audited) (unaudited)
(Recast-note 3) (Recast-note 3)
Current assets:
Cash and cash
equivalents $14,377 $12,357 $13,598
Accounts receivable 98,842 222,158 152,001
Inventories (note 5) 386,378 316,172 294,541
Prepaid expenses and
deposits 8,550 10,413 8,775
Future income taxes - - 3,864
--------------------------------------------------------------------------
508,147 561,100 472,779
Property, plant and
equipment 435,230 436,516 413,303
Intangible assets 59,154 59,954 65,663
Other assets 14,996 17,277 18,377
Assets held for sale
(note 8) 10,497 10,497 12,681
Goodwill 6,709 6,709 -
Future income taxes 8,751 9,283 10,489
--------------------------------------------------------------------------
Total assets $1,043,484 $1,101,336 $993,292
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Current liabilities:
Accounts payable and
accrued liabilities $124,647 $155,669 $118,880
Income taxes payable 17,394 46,627 5,613
Current portion of
long-term debt 3,050 3,556 4,589
--------------------------------------------------------------------------
145,091 205,852 129,082
Long-term debt 48,195 49,448 126,231
Future income taxes 26,516 27,331 40,760
Non-controlling interest
in consolidated joint
venture 6,773 7,162 7,223
Contingencies (note 12)
Shareholders' equity:
Share capital 90,389 89,377 88,463
Contributed surplus 6,733 6,728 4,505
Retained earnings 693,539 689,190 570,780
Accumulated other
comprehensive income 26,248 26,248 26,248
--------------------------------------------------------------------------
719,787 715,438 597,028
--------------------------------------------------------------------------
816,909 811,543 689,996
--------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,043,484 $1,101,336 $993,292
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
Gildan Activewear Inc.
Interim Consolidated Statements of Earnings and Comprehensive Income
(In thousands of US dollars, except per share data)
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
(unaudited) (unaudited)
(Recast-notes
1 and 3)
Net sales $183,995 $250,457
Cost of sales 145,105 184,886
--------------------------------------------------------------------------
Gross profit 38,890 65,571
Selling, general and administrative
expenses 33,479 31,698
Restructuring and other charges (note 8) 925 823
--------------------------------------------------------------------------
Operating income 4,486 33,050
Financial expense, net (note 11(b)) 189 2,739
Non-controlling interest in consolidated
joint venture (389) 291
--------------------------------------------------------------------------
Earnings before income taxes 4,686 30,020
Income taxes 337 2,080
--------------------------------------------------------------------------
Net earnings and comprehensive income $4,349 $27,940
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic EPS (note 9) $0.04 $0.23
Diluted EPS (note 9) $0.04 $0.23
See accompanying notes to interim consolidated financial statements.
Gildan Activewear Inc.
Interim Consolidated Statements of Cash Flows
(In thousands of US dollars)
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
(unaudited) (unaudited)
(Recast-note 3)
Cash flows from (used in) operating
activities:
Net earnings $4,349 $27,940
Adjustments for:
Depreciation and amortization
(note 10(b)) 15,887 12,381
Variation of depreciation included
in inventories (note 10(b)) (4,415) (1,421)
Restructuring charges related to
assets held for sale and property,
plant and equipment - (289)
Loss on disposal of assets held for
sale and property, plant and
equipment 21 59
Stock-based compensation costs 747 678
Future income taxes (178) (1,235)
Non-controlling interest (389) 291
Unrealized net gain on foreign exchange and
forward foreign exchange contracts (1,224) (239)
--------------------------------------------------------------------------
14,798 38,165
Changes in non-cash working capital
balances:
Accounts receivable 119,735 83,347
Inventories (65,791) (9,734)
Prepaid expenses and deposits 1,863 554
Accounts payable and accrued liabilities (30,768) (11,506)
Income taxes payable (23,935) 2,568
--------------------------------------------------------------------------
15,902 103,394
Cash flows from (used in) financing
activities:
Increase in amounts drawn under
revolving long-term credit facility - 71,000
Decrease in bank indebtedness - (1,261)
Increase in other long-term debt 36 1,561
Repayment of other long-term debt (1,795) (1,401)
Proceeds from the issuance of shares 270 276
--------------------------------------------------------------------------
(1,489) 70,175
Cash flows from (used in) investing
activities:
Purchase of property, plant and equipment (13,663) (34,150)
Acquisition of V.I. Prewett & Son, Inc. - (126,819)
Restricted cash related to acquisition 939 (10,000)
Proceeds on disposal of assets held for
sale 212 421
Net decrease in other assets 376 1,381
--------------------------------------------------------------------------
(12,136) (169,167)
Effect of exchange rate changes on cash
and cash equivalents denominated in
foreign currencies (257) (54)
--------------------------------------------------------------------------
Net increase in cash and cash equivalents
during the period 2,020 4,348
Cash and cash equivalents, beginning of
period 12,357 9,250
--------------------------------------------------------------------------
Cash and cash equivalents, end of period $14,377 $13,598
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
Gildan Activewear Inc.
Interim Consolidated Statement of Shareholders' Equity
Three months ended January 4, 2009 and December 30, 2007
(in thousands or thousands of US dollars)
Accumulated
other Total
Share capital Contri- compre- share-
---------------- buted hensive Retained holders'
Number Amount surplus income earnings equity
--------------------------------------------------------------------------
Balance,
September 30,
2007, as
previously
reported 120,419 $88,061 $3,953 $26,248 $545,388 $663,650
Cumulative
effect of
adopting a
new
accounting
policy
(note 3) - - - - (2,548) (2,548)
--------------------------------------------------------------------------
Balance,
September 30,
2007, as
recast 120,419 88,061 3,953 26,248 542,840 661,102
Stock-based
Compensation
related to
stock options
and Treasury
restricted
share units - - 678 - - 678
Shares issued
under employee
share
purchase plan 2 52 - - - 52
Shares issued
pursuant to
exercise of
stock options 28 224 - - - 224
Shares issued
pursuant to
exercise of
Treasury
Restricted
share units 8 - - - - -
Ascribed value
credited to
share capital
from exercise
of Treasury
restricted
share units - 126 (126) - - -
Net earnings,
recast
(note 3) - - - - 27,940 27,940
--------------------------------------------------------------------------
Balance,
December 30,
2007, as
recast
(unaudited) 120,457 $88,463 $4,505 $26,248 $570,780 $689,996
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated
other Total
Share capital Contri- compre- share-
---------------- buted hensive Retained holders'
Number Amount surplus income earnings equity
--------------------------------------------------------------------------
Balance,
October 5,
2008, as
previously
reported 120,536 $89,377 $6,728 $26,248 $689,980 $812,333
Cumulative
effect of
adopting a
new
accounting
policy
(note 3) - - - - (790) (790)
--------------------------------------------------------------------------
Balance,
October 5,
2008, as
recast 120,536 89,377 6,728 26,248 689,190 811,543
Stock-based
Compensation
related to
stock
options and
Treasury
restricted
share units - - 747 - - 747
Shares issued
under
employee
share
purchase plan 10 265 - - - 265
Shares issued
pursuant to
exercise of
stock options 2 5 - - - 5
Shares issued
pursuant to
exercise of
Treasury
Restricted
share units 81 - - - - -
Ascribed value
credited to
share capital
from exercise
of Treasury
restricted
share units - 742 (742) - - -
Net earnings - - - - 4,349 4,349
--------------------------------------------------------------------------
Balance,
January 4,
2009
(unaudited) 120,629 $90,389 $6,733 $26,248 $693,539 $816,909
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(For the period ended January 4, 2009)
(Tabular amounts in thousands or thousands of US 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 statements. Accordingly, they do not
include all of the information and footnotes required by Canadian
generally accepted accounting principles for complete financial
statements, and should be read in conjunction with the Company's
annual consolidated financial statements for the year ended October
5, 2008.
The Company's revenues and income are subject to seasonal
variations. Consequently, the results of operations for the first
fiscal quarter are traditionally not indicative of the results to
be expected for the full fiscal year.
All amounts in the attached notes are unaudited unless
specifically identified.
Statement of earnings classification:
Effective the first quarter of fiscal 2009, the Company changed
certain classifications of its Statement of Earnings and
Comprehensive Income with retrospective application to comparative
figures presented for prior periods. These new classifications
align the results of operations by function and incorporate
presentation requirements under Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3031, Inventories, which has
been adopted effective the first quarter of fiscal 2009. Pursuant
to the requirements of Section 3031, depreciation expense related
to manufacturing activities is included in Cost of sales. The
remaining depreciation and amortization expense has been
reclassified to Selling, general and administrative expenses.
Depreciation and amortization expense is therefore no longer
presented as a separate caption on the Statement of Earnings and
Comprehensive Income. In addition, the Company reclassified certain
other items in its Statement of Earnings and Comprehensive Income.
Outbound freight, previously classified within Selling, general and
administrative expenses, is now reported within Cost of sales.
Also, a new caption is now presented for Financial expenses and
income, which includes interest income and expenses, foreign
exchange gains and losses (including mark-to-market adjustments of
forward foreign exchange contracts), and other financial charges.
Interest expense net of interest income was previously reported as
a separate caption, while foreign exchange gains and losses
(including mark-to-market adjustments of forward foreign exchange
contracts) were previously included in Cost of sales. Other
financial charges were previously reflected in Selling, general and
administrative expenses. These changes in classification have
resulted in a decrease of $13.4 million and $0.9 million in Gross
profit and Selling, general and administrative expenses,
respectively, compared to the amounts previously reported for the
first quarter of fiscal 2008. For the period ended December 30,
2007, the decrease of $13.4 million in Gross profit is due to
reclassifications of $9.5 million of depreciation and amortization
expense, $3.6 million of outbound freight and $0.3 million of
foreign exchange gains and other financial income. There has been
no impact on net earnings as a result of these changes in
classification.
2. Significant accounting policies:
Except for the adoption of the new accounting standards
described in Note 3 below and the Statement of earnings
classification changes in Note 1 above, 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 for the
year ended October 5, 2008.
3. Adoption of new accounting standards:
Inventories:
Effective the commencement of its 2009 fiscal year, the Company
adopted CICA Handbook Section 3031, Inventories, which replaces
Section 3030, Inventories, and harmonizes the Canadian standards
related to inventories with International Financial Reporting
Standards (IFRS). This Section, which was issued in June 2007,
provides changes to the measurement of, and more extensive guidance
on, the determination of cost, including allocation of overhead;
narrows the permitted cost formulas; requires impairment testing;
clarifies that major spare parts not in use should be included in
property, plant and equipment; and expands the disclosure
requirements to increase transparency. The Company compared the
requirements of this new Section with its current measurement and
determination of costs and concluded that the new Section did not
have a significant impact on the results of operations. The Company
previously included and will continue to include the amount of
depreciation related to manufacturing activities as a component of
the cost of inventories. However, the new Section requires
depreciation expense related to inventories which have been sold to
be presented in Cost of sales. As a result, effective the first
quarter of fiscal 2009, depreciation expense related to
manufacturing activities has been reclassified to Cost of sales.
See the section, Statement of earnings classification, in Note 1
above and Note 5 for the new disclosure requirements related to the
adoption of Section 3031.
General Standards of Financial Statement Presentation:
Effective the commencement of its 2009 fiscal year, the Company
adopted the amendment of CICA Handbook Section 1400, General
Standards of Financial Statement Presentation, which is effective
for interim periods beginning on or after October 1, 2008 and which
includes requirements to assess and disclose the Company's ability
to continue as a going concern. The adoption of the amended Section
did not have an impact on the interim consolidated financial
statements of the Company.
Goodwill and intangible assets:
In February 2008, the CICA issued Handbook Section 3064,
Goodwill and Intangible Assets, replacing Section 3062, Goodwill
and Other Intangible Assets, and Section 3450, Research and
Development Costs. Section 3064 establishes revised standards for
the recognition, measurement, presentation and disclosure of
goodwill and intangible assets. The new Section also provides
guidance for the treatment of preproduction and start-up costs and
requires that these costs be expensed as incurred. This Section
applies to interim and annual financial statements relating to the
Company's fiscal year beginning on October 6, 2008 and has been
adopted on a retrospective basis effective from the first quarter
of fiscal 2009.
Prior to the adoption of Section 3064, the Company deferred and
amortized plant start-up costs on a straight-line basis over two
years. The impact of adopting this Section, on a retrospective
basis, is an increase of $0.5 million in net earnings for the
three-month period ended December 30, 2007, with no change in the
reported basic and diluted earnings per share, and a decrease of
$0.8 million and $2.5 million in shareholders' equity at October 5,
2008 and September 30, 2007, respectively.
4. New Accounting Pronouncements:
Credit risk and the fair value of financial assets and financial
liabilities:
On January 20, 2009, the Emerging Issues Committee (EIC) of the
Canadian Accounting Standards Board (AcSB) issued EIC Abstract 173,
Credit Risk and Fair Value of Financial Assets and Financial
Liabilities, which establishes that an entity's own credit risk and
the credit risk of the counterparty should be taken into account in
determining the fair value of financial assets and financial
liabilities, including derivative instruments. EIC 173 should be
applied retrospectively without restatement of prior years to all
financial assets and liabilities measured at fair value in interim
and annual financial statements for periods ending on or after
January 20, 2009 and is applicable to the Company for its second
quarter of fiscal 2009 with retrospective application, if any, to
the beginning of its current fiscal year. The Company is currently
assessing the impact of EIC 173 on its consolidated financial
statements.
Business combinations:
In January 2009, the CICA issued Handbook Section 1582, Business
Combinations, which replaces Section 1581, Business Combinations,
and provides the equivalent to IFRS 3, Business Combinations
(January 2008). The new Section expands the definition of a
business subject to an acquisition and establishes significant new
guidance on the measurement of consideration given, and the
recognition and measurement of assets acquired and liabilities
assumed in a business combination. The new Section requires that
all business acquisitions be measured at the full fair value of the
acquired entity at the acquisition date even if the business
combination is achieved in stages, or if less than 100 percent of
the equity interest in the acquiree is owned at the acquisition
date. The measurement of equity consideration given in a business
combination will no longer be based on the average of the fair
value of the shares a few days before and after the day the terms
and conditions have been agreed to and the acquisition announced,
but rather at the acquisition date. Subsequent changes in fair
value of contingent consideration classified as a liability will be
recognized in earnings and not as an adjustment to the purchase
price. Restructuring and other direct costs of a business
combination are no longer considered part of the acquisition
accounting. Instead, such costs will be expensed as incurred,
unless they constitute the costs associated with issuing debt or
equity securities. The Section applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after January 1, 2011. Earlier adoption is permitted. This new
Section will only have an impact on our consolidated financial
statements for future acquisitions that will be made in periods
subsequent to the date of adoption.
Consolidated financial statements and non-controlling
interests:
In January 2009, the CICA issued Handbook Section 1601,
Consolidated Financial Statements, and Handbook Section 1602,
Non-Controlling Interests, which together replace Section 1600,
Consolidated Financial Statements. These two Sections are the
equivalent to the corresponding provisions of International
Accounting Standard 27, Consolidated and Separate Financial
Statements (January 2008). Section 1602 applies to the accounting
for non-controlling interests and transactions with non-controlling
interest holders in consolidated financial statements. The new
Sections require that, for each business combination, the acquirer
measure any non-controlling interest in the acquiree either at fair
value or at the non-controlling interest's proportionate share of
the acquiree's identifiable net assets. The new Sections also
require non-controlling interest to be presented as a separate
component of shareholders' equity. Under Section 1602,
non-controlling interest in income is not deducted in arriving at
consolidated net income or other comprehensive income. Rather, net
income and each component of other comprehensive income are
allocated to the controlling and non-controlling interests based on
relative ownership interests. These Sections apply to interim and
annual consolidated financial statements relating to fiscal years
beginning on or after January 1, 2011, and should be adopted
concurrently with Section 1582. The Company is currently assessing
the future impact of these new Sections on its consolidated
financial statements.
International Financial Reporting Standards:
In February 2008, Canada's Accounting Standards Board (AcSB)
confirmed that IFRS, as issued by the International Accounting
Standards Board, will replace Canadian generally accepted
accounting principles for publicly accountable enterprises
effective for fiscal years beginning on or after January 1, 2011.
As a result, the Company will be required to change over to IFRS
for its fiscal 2012 interim and annual financial statements with
comparative information for fiscal 2011.
5. Inventories:
Inventories were comprised of the following:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
January 4, 2009 October 5, 2008 December 30, 2007
--------------------------------------------------------------------------
Raw materials and
spare parts
inventories $59,449 $59,742 $47,495
Work in process 30,639 29,086 32,956
Finished goods 296,290 227,344 214,090
--------------------------------------------------------------------------
Total $386,378 $316,172 $294,541
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The amount of inventory recognized as an expense and included in
Cost of sales for the three-month periods ended January 4, 2009 and
December 30, 2007 was $142.9 million and $181.3 million,
respectively, which included an expense of $0.5 million and $1.7
million, respectively, related to the write-down of slow-moving
inventory.
6. 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, October 5, 2008 878 $14.23
Granted 233 23.49
Exercised (2) 4.32
Forfeited (18) 30.96
--------------------------------------------------------------------------
Options outstanding, January 4, 2009 1,091 $15.94
--------------------------------------------------------------------------
--------------------------------------------------------------------------
As at January 4, 2009, 657 of the outstanding options were
exercisable at the weighted average price of CA$7.72. Based on the
Black-Scholes option pricing model, the grant date weighted average
fair value of the options granted during the first quarter ended
January 4, 2009 was CA$9.99.
Changes in outstanding Treasury RSUs were as follows:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average
Number fair value per unit
--------------------------------------------------------------------------
Treasury RSUs outstanding, October 5, 2008 979 $17.43
Granted 50 16.98
Settled through the issuance of common
shares (81) 9.21
Forfeited (38) 27.70
--------------------------------------------------------------------------
Treasury RSUs outstanding, January 4, 2009 910 $17.70
--------------------------------------------------------------------------
--------------------------------------------------------------------------
As at January 4, 2009, none of the awarded and outstanding
Treasury RSUs were vested.
The compensation expense recorded for the three-month periods
ended January 4, 2009 and December 30, 2007, respectively, was $0.7
million and $0.7 million, in respect of the Treasury RSUs and stock
options. The counterpart has been recorded as contributed surplus.
When the 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, October 5, 2008 99
Granted 106
Settled (1)
Forfeited (7)
--------------------------------------------------------------------------
Non-Treasury RSUs outstanding, January 4, 2009 197
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 will be based on the Company's stock price at the
vesting date. As of January 4, 2009, the weighted average fair
value per non-Treasury RSU was $12.20. No common shares are issued
from treasury under such awards and they are therefore
non-dilutive. As of January 4, 2009, none of the awarded and
outstanding non-Treasury RSUs were vested.
The compensation (recovery) expense recorded for the three-month
periods ended January 4, 2009 and December 30, 2007, respectively,
was $(0.2) million and $0.3 million, in respect of the non-Treasury
RSUs. The counterpart has been recorded in Accounts payable and
accrued liabilities.
7. Guarantees:
The Company, and some 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 some of its subsidiaries do not perform their
contractual obligations. As at January 4, 2009, the maximum
potential liability under these guarantees was $9.9 million, of
which $3.9 million was for surety bonds and $6.0 million was for
corporate guarantees and standby letters of credit. The standby
letters of credit mature at various dates up to fiscal 2010, the
surety bonds are automatically renewed on an annual basis and the
corporate guarantees mature at various dates up to fiscal 2010.
As at January 4, 2009, 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.
8. Restructuring and other charges and assets held for sale:
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. In addition, in the third
quarter of fiscal 2008, the Company announced the planned
consolidation of its Haiti sewing operation to be finalized in the
first half of fiscal 2009. The costs incurred in connection with
these initiatives have been recorded as restructuring and other
charges.
Restructuring charges of $0.9 million in the first quarter of
fiscal 2009 include $0.3 million of additional severance relating
to the closures noted above, and $0.6 million of exit costs, mainly
for the closure of the Haiti sewing facility. Restructuring charges
of $0.8 million in the first quarter of fiscal 2008 were composed
of $1.1 million of other exit costs, primarily related to the
closures noted above, including carrying and dismantling costs
associated with assets held for sale less a gain of $0.3 million
recognized on the disposal of assets held for sale.
Assets held for sale of $10.5 million as at January 4, 2009
(October 5, 2008 - $10.5 million; December 30, 2007 - $12.7
million) include property, plant and equipment at these various
locations. The Company expects to incur additional carrying costs
relating to these assets, which will be accounted for as
restructuring charges as incurred during fiscal 2009, until all
property, plant and equipment related to the closures are disposed
of. Any gains or losses on the disposition of the assets held for
sale will also be accounted for as restructuring charges as
incurred.
9. Earnings per share:
A reconciliation between basic and diluted earnings per share is
as follows:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic earnings per share:
Basic weighted average number of
common shares outstanding 120,573 120,428
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Basic earnings per share $0.04 $0.23
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted earnings per share:
Basic weighted average number of
common shares outstanding 120,573 120,428
Plus impact of stock options and
Treasury RSUs 835 1,228
--------------------------------------------------------------------------
Diluted weighted average number of
common shares outstanding 121,408 121,656
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted earnings per share $0.04 $0.23
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Excluded from the above calculation for the three months ended
January 4, 2009 are 467 stock options and 189 Treasury RSUs, which
were deemed to be anti-dilutive. All stock options and Treasury
RSUs outstanding for the three months ended December 30, 2007 were
dilutive.
10. Other information:
(a) Supplemental cash flow disclosure:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash paid during the period for:
Interest $947 $2,826
Income taxes 24,014 917
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
January 4, 2009 October 5, 2008 December 30, 2007
(audited)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance of non-cash
transactions:
Additions to
property, plant
and equipment
included in
Accounts payable
and accrued
liabilities $1,823 $1,720 $1,662
Ascribed value
credited to share
capital from
issuance of
Treasury RSUs 742 190 126
Proceeds on disposal
of long-lived assets
in Other assets 1,236 1,382 1,723
Proceeds on disposal of
long-lived assets in
Accounts receivable - - 1,050
Business acquisition in
Accounts payable and
accrued liabilities 1,196 1,196 -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash and cash equivalents
consist of:
Cash balances with banks $10,130 $8,068 $6,495
Short-term investments,
bearing interest at
rates up to 0.3% at
January 4, 2009, up to
2.22% at October 5, 2008
and up to 4.5% at
December 30, 2007 4,247 4,289 7,103
--------------------------------------------------------------------------
$14,377 $12,357 $13,598
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(b) Depreciation and amortization:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Depreciation and amortization of
property, plant and equipment and
intangible assets $15,887 $12,381
Adjustment for the variation of
depreciation of property, plant and
equipment included in inventories at
the beginning and end of the period (4,415) (1,421)
--------------------------------------------------------------------------
Depreciation and amortization included
in the interim consolidated statements
of earnings and comprehensive income $11,472 $10,960
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Consists of:
Depreciation of property, plant and
equipment $10,550 $10,211
Amortization of intangible assets 800 737
Amortization of deferred financing
costs and other 122 12
--------------------------------------------------------------------------
Depreciation and amortization included
in the interim consolidated statements
of earnings and comprehensive income $11,472 $10,960
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(c) The Company recorded bad debt expense of $1.8 million and
nil for the three-month periods ended January 4, 2009 and December
30, 2007, respectively. Bad debt expense is included in Selling,
general and administrative expenses in the interim consolidated
statements of earnings and comprehensive income.
(d) The Company expensed $2.0 million and $1.4 million in Cost
of sales for the three months ended January 4, 2009 and December
30, 2007, respectively, representing management's best estimate of
the cost of statutory severance and pre-notice benefit obligations
relating to employees located in the Caribbean Basin and Central
America.
11. Financial instruments:
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 ended January 4, 2009, which is included in the Gildan
Q1 2009 Quarterly Report to Shareholders along with these interim
consolidated financial statements. Accordingly, these disclosures
are incorporated into these interim consolidated financial
statements by cross-reference.
(a) Financial instruments - carrying values and fair values:
The fair values of financial assets and liabilities, together
with the carrying amounts included in the consolidated balance
sheet, are as follows:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
January 4, 2009 October 5, 2008
Carrying Fair Carrying Fair
amount value amount value
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Financial assets
Available-for-sale financial
assets:
Cash and cash equivalents $14,377 $14,377 $12,357 $12,357
Loans and receivables:
Accounts receivable - trade 84,171 84,171 206,276 206,276
Accounts receivable - other 14,671 14,671 15,882 15,882
Long-term receivable
included in Other assets 1,623 1,623 1,748 1,748
Restricted cash related to
Prewett acquisition included
in Other assets 9,061 9,061 10,000 10,000
Forward foreign exchange
contracts included in Other
assets 232 232 929 929
Financial liabilities
Other financial liabilities:
Accounts payable and accrued
liabilities 122,503 122,503 155,669 155,669
Long-term debt - bearing
interest at variable rates:
Revolving long-term credit
facility 45,000 45,000 45,000 45,000
Other long-term debt 5,195 5,195 6,319 6,319
Long-term debt - bearing
interest at fixed rates 1,050 1,050 1,685 1,685
Forward foreign exchange
contracts included in
Accounts payable and accrued
liabilities 2,144 2,144 - -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 observable market inputs.
(b) Financial expense, net:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
Interest expense (i) $930 $2,794
Bank and other financial charges 239 262
Foreign exchange gain (ii) (980) (317)
--------------------------------------------------------------------------
$189 $2,739
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(i) Interest expense:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
Interest expense on long-term
indebtedness $883 $2,955
Interest expense on short-term
indebtedness 71 15
Interest income on available-for-sale
financial assets (20) (180)
Interest income on loans and receivables (20) (20)
Other interest expense 16 24
--------------------------------------------------------------------------
$930 $2,794
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
Loss (gain) relating to financial assets
and liabilities, including income taxes
payable $(3,281) $524
Unrealized loss (gain) relating to the
mark-to-market value of forward foreign
exchange contracts 2,842 (848)
Realized loss (gain) relating to forward
foreign exchange contracts (541) 7
--------------------------------------------------------------------------
$(980) $(317)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(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
January 4, 2009 and October 5, 2008:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Notional
foreign Average Notional Carrying and
January 4, currency exchange US fair value
2009 Maturity amount rate equivalent Asset Liability
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Buy CAD/
Sell USD 0-6 months 22,726 0.8856 $20,126 $- $(1,422)
6-12 months 24,420 0.8546 20,868 4 (722)
Sell EUR/
Buy USD 0-6 months 2,650 1.4743 3,907 228 -
--------------------------------------------------------------------------
$44,901 $232 $(2,144)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Notional
foreign Average Notional Carrying and
October 5, currency exchange US fair value
2008 Maturity amount rate equivalent Asset Liability
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Buy CAD/Sell
USD 0-6 months 5,483 0.9302 $5,100 $- $-
Buy EUR/Sell
GPB 0-6 months 962 1.3740 1,322 - -
Sell EUR/
Buy USD 0-6 months 5,650 1.4591 8,244 472 -
Sell GBP/
Buy USD 0-6 months 2,951 1.9177 5,659 457 -
--------------------------------------------------------------------------
$20,325 $929 $-
--------------------------------------------------------------------------
--------------------------------------------------------------------------
12. 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 have been consolidated, and a
consolidated amended complaint has been filed. 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
condition and its financial prospects in its financial guidance
concerning the 2008 fiscal year, which was 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 and an amended complaint along with
affidavit evidence for leave to pursue such statutory liability
claims and class certification have been filed. 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.
13. Segmented information:
The Company manufactures and sells activewear, socks and
underwear. The Company operates in one business segment, being
high-volume, basic, frequently replenished, non-fashion
apparel.
The Company has two customers accounting for at least 10% of
total net sales. For the three-month period ended January 4, 2009,
Customer A accounted for 24.6% of total net sales and Customer B
accounted for 23.5%. For the three-month period ended December 30,
2007, Customer A accounted for 21.2% of total net sales and
Customer B accounted for 23.3%.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended
January 4, 2009 December 30, 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net sales were derived from customers
located in the following geographic
areas:
United States $169,630 $229,709
Canada 4,724 9,936
Europe and other 9,641 10,812
--------------------------------------------------------------------------
$183,995 $250,457
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net sales by major product group:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Activewear and underwear $115,843 $168,448
Socks 68,152 82,009
--------------------------------------------------------------------------
$183,995 $250,457
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
January 4, 2009 October 5, 2008 December 30, 2007
--------------------------------------------------------------------------
Property, plant and (audited)
equipment by
geographic area are
as follows:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Caribbean Basin and
Central America $327,620 $325,670 $315,079
United States 80,378 83,264 83,573
Canada and other 27,232 27,582 14,651
--------------------------------------------------------------------------
$435,230 $436,516 $413,303
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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. 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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