UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999.
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 333-38951
---------
GFSI HOLDINGS, INC.
(Exact name of registrant specified in its charter)
Delaware 74-2810744
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
9700 Commerce Parkway
Lenexa, Kansas 66219
(Address of principal executive offices)
Registrant's telephone number, including area code (913) 888-0445
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes (X) No ( )
(2) Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $0.01 par value per share - 2,000 shares issued and outstanding as
of February 1, 2000.
1
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1999
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II - OTHER INFORMATION 12
SIGNATURE PAGE 13
2
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share data)
<TABLE>
<CAPTION>
July 2, December 31,
1999 1999
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash & cash equivalents $ 10,278 $ 3,124
Accounts receivable, net 28,381 35,709
Inventories, net 36,324 37,538
Prepaid expenses and other current assets 1,041 907
Deferred income taxes 1,790 1,790
---------- ---------
Total current assets 77,814 79,068
Property, plant and equipment, net 20,245 19,933
Other assets:
Deferred financing costs, net 7,616 7,026
Other 5 5
--------- ---------
Total assets $ 105,680 $ 106,032
========= =========
Liabilities and stockholders' equity (deficiency)
Current liabilities:
Accounts payable $ 8,289 $ 7,135
Accrued interest expense 4,484 4,436
Accrued expenses 7,948 7,627
Income taxes payable - 1,284
Current portion of long-term debt 6,550 6,919
--------- ---------
Total current liabilities 27,271 27,401
Deferred income taxes 1,183 1,183
Revolving credit agreement - -
Other long-term obligations 737 566
Long-term debt, less current portion 235,312 232,083
Redeemable preferred stock 4,545 4,698
Stockholders' equity (deficiency):
Common stock, $.01 par value 2,105 shares authorized,
2,000 shares issued at July 2, 1999 and December 31, 1999 - -
Additional paid-in capital 200 200
Accumulated deficiency (163,567) (160,097)
Treasury stock, at cost (7.5 and 33 series A shares at July 2, 1999
and December 31, 1999, respectively) (1) (2)
--------- ---------
Total stockholders' equity (deficiency) (163,368) (159,899)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 105,680 $ 106,032
========= =========
NOTE: The consolidated balance sheet at July 2, 1999 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
-------------------------------- -------------------------------------
January 1, December 31, January 1, December 31,
1999 1999 1999 1999
--------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Net sales $ 55,377 $ 51,506 $ 115,422 $ 106,345
Cost of sales 31,900 30,834 67,727 64,446
--------- --------- --------- ---------
Gross profit 23,477 20,672 47,695 41,899
Operating expenses:
Selling 5,684 5,267 12,106 11,691
General and administrative 7,348 5,769 14,547 11,957
--------- --------- --------- ---------
13,032 11,036 26,653 23,648
--------- --------- --------- ---------
Operating income 10,445 9,636 21,042 18,251
Other income (expense):
Interest expense (6,320) (6,181) (12,651) (12,338)
Other, net 25 34 60 130
--------- --------- --------- ---------
(6,295) (6,147) (12,591) (12,208)
--------- --------- --------- ---------
Income before income taxes 4,150 3,489 8,451 6,043
Provision for income taxes 1,662 1,355 3,391 2,361
--------- --------- --------- ---------
Net income 2,488 2,134 5,060 3,682
Preferred stock dividends (106) (105) (212) (212)
--------- --------- --------- ---------
Net income attributable to
common shareholders $ 2,382 $ 2,029 $ 4,848 $ 3,470
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
January 1, December 31,
1999 1999
--------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,060 $ 3,682
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,516 1,605
Amortization of deferred financing costs 591 591
(Gain) loss on sale or disposal of property, plant and equipment 71 (16)
Deferred income taxes (112) -
Amortization of discount on long-term debt 3,064 3,469
Changes in operating assets and liabilities:
Accounts receivable, net (7,553) (7,327)
Inventories, net 8,379 (1,214)
Prepaid expenses, other current assets and other assets 491 133
Income taxes payable 847 1,284
Accounts payable, accrued expenses and other
long-term obligations (851) (1,694)
-------- --------
Net cash provided by operating activities 11,503 513
-------- --------
Cash flows from investing activities
Proceeds from sales of property, plant and equipment 183 43
Purchases of property, plant and equipment (1,077) (1,154)
-------- --------
Net cash used in investing activities (894) (1,111)
-------- --------
Cash flows from financing activities:
Net changes to short-term borrowings and revolving credit agreement (4,600) -
Redemption of preferred stock - (60)
Treasury stock purchase - (2)
Payments on long-term debt (2,227) (6,494)
-------- --------
Net cash used in financing activities (6,827) (6,556)
-------- --------
Net increase (decrease) in cash and cash equivalents 3,782 (7,154)
Cash and cash equivalents at beginning of period 1,361 10,278
--------- --------
Cash and cash equivalents at end of period $ 5,143 $ 3,124
========= ========
Supplemental cash flow information:
Interest paid $ 9,076 $ 8,199
========= ========
Income taxes paid $ 2,346 $ 597
========= ========
Supplemental schedule of non-cash financing activities:
Accrual of preferred stock dividends $ 212 $ 212
========= ========
Non-cash financing activities:
Equipment purchased under capital lease - $ 166
========
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
GFSI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1999
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of GFSI
Holdings, Inc. ("Holdings" or the "Company") include the accounts of the Company
and the accounts of its wholly owned subsidiary, GFSI, Inc. ("GFSI"). All
intercompany balances and transactions have been eliminated. The unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated
by the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for annual financial statement reporting purposes. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the financial position and operations of
the Company have been included. Operating results for the interim periods are
not necessarily indicative of the results that may be expected for the entire
fiscal year. For further information, refer to the financial statements and
footnotes thereto for the year ended July 2, 1999 included in the Company's
Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Reclassifications
Certain reclassifications have been made to the fiscal year 1999 statement
of income amounts to conform to the fiscal year 2000 presentation.
3. Commitments and Contingencies
The Company, in the normal course of business, may be threatened with or
named as a defendant in various lawsuits. It is not possible to determine the
ultimate disposition of these matters, however, management is of the opinion
that there are no known claims or known contingent claims that are likely to
have a material adverse effect on the results of operations, financial
condition, or cash flows of the Company.
4. New Accounting Standard
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all quarters of fiscal years beginning after June 15, 2000. The
Company is in the process of determining what impact the adoption of SFAS No.
133 will have on its financial position and results of operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussions set forth in this Form 10-Q should be read in conjunction
with the financial information included herein and the Company's Annual Report
on Form 10-K for the year ended July 2, 1999. Management's discussion and
analysis of financial condition and results of operations and other sections of
this report contain forward-looking statements relating to future results of the
Company. Such forward-looking statements are identified by use of
forward-looking words such as "anticipates", "believes", "plans", "estimates",
"expects", and "intends" or words or phrases of similar expression. These
forward-looking statements are subject to various assumptions, risks and
uncertainties, including but not limited to, changes in political and economic
conditions, demand for the Company's products, acceptance of new products,
developments affecting the Company's products and to those discussed in the
Company's filings with the Securities and Exchange Commission. Accordingly,
actual results could differ materially from those contemplated by the
forward-looking statements.
The following sets forth the amount and percentage of net sales for
each of the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------------------------ ----------------------------------------------
January 1, 1999 December 31, 1999 January 1, 1999 December 31, 1999
----------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Resort $ 15,276 27.6% $ 15,174 29.5% $ 32,532 28.2% $ 32,031 30.1%
Corporate 21,946 39.6% 18,269 35.5% 41,203 35.7% 33,259 31.3%
College Bookstore 9,917 17.9% 9,927 19.2% 28,110 24.4% 27,359 25.7%
Sports Specialty 3,559 6.4% 3,112 6.0% 6,829 5.9% 6,335 6.0%
Event 1 3,355 6.1% 2,983 5.8% 3,533 3.1% 3,815 3.6%
Other 1,324 2.4% 2,041 4.0% 3,215 2.7% 3,546 3.3%
-------- -------- --------- --------
Total $ 55,377 $ 51,506 $ 115,422 $106,345
======== ======== ========= ========
</TABLE>
Results of Operations
The following table sets forth certain historical financial information of
the Company, expressed as a percentage of net sales, for the quarters and six
month periods ended January 1, 1999 and December 31, 1999.
Quarter Ended Six Months Ended
------------------------ ------------------------
January 1, December 31, January 1, December 31,
1999 1999 1999 1999
--------- ------------ ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 42.4 40.1 41.3 39.4
EBITDA 20.2 20.3 19.5 18.7
Operating income 18.9 18.7 18.2 17.2
7
<PAGE>
EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flow from operating activities, which
are determined in accordance with generally accepted accounting principles, it
is included herein to provide additional information with respect to the ability
of the Company to meet its future debt service, capital expenditure and working
capital requirements. In addition, the Company believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs. See the Consolidated Statements of Cash Flows of the
Company herein for further information.
Comparison of Operating Results for the Quarters and Six Month
Periods Ended December 31, 1999 and January 1, 1999.
- --------------------------------------------------------------
Net Sales. Net sales for the second quarter of fiscal 2000, the three
months ended December 31, 1999, decreased 7.0% to $51.5 million from $55.4
million in the second quarter of fiscal 1999. Net sales for the first six months
of fiscal 2000 decreased 7.9% to $106.3 million from $115.4 million in the first
six months of fiscal 1999. The decrease in net sales primarily reflects
decreases in net sales for the six months ended December 31, 1999 at the
Company's Corporate, Sports Specialty and College Bookstore divisions of 19%, 7%
and 3% respectively. These declines were attributable to increased competition
and difficulties attributable to the installation of the Company's Enterprise
Resource Planning System. The Corporate division has also experienced a shift in
the buying patterns of its customers from outerwear to other products, and had
some vacancies in its sales representative force during the first half of fiscal
2000. These decreases in net sales were partially offset by an increase in net
sales in the Event 1 subsidiary of 8% for the six months ended December 31,
1999.
Gross Profit. Gross profit for the second quarter of fiscal 2000
decreased 11.9% to $20.7 million from $23.5 million in the second quarter of
fiscal 1999. Gross profit for the first six months of fiscal 2000 decreased
12.2% to $41.9 million from $47.7 million in the first six months of fiscal
1999. The decrease in gross profit is primarily a result of the decline in net
sales noted above and increases in production costs as a percent of sales due to
product mix changes from higher priced seasonal outerwear to lower priced
products. For the second quarter of fiscal 2000, gross profit as a percentage of
net sales decreased to 40.1% compared to 42.4% in the second quarter of fiscal
1999. For the first six months of fiscal 2000, gross profit as a percentage of
net sales decreased to 39.4% compared to 41.3% in the first six months of fiscal
1999.
Operating Expenses. Operating expenses for the second quarter of fiscal
2000 decreased 15.3% to $11.0 million from $13.0 million in the second quarter
of fiscal 1999. For the first six months, operating expenses decreased 11.3% to
$23.6 million from $26.7 million in the first six months of fiscal 1999. The
decrease in operating expenses is primarily related to costs incurred in the
first half of fiscal 1999 associated with the Company's Enterprise Resource
Planning System installation that was completed in the fourth quarter of 1999
and to management cost control efforts. Operating expenses as a percentage of
net sales decreased to 21.4% from 23.5% in the prior year second quarter. For
the first six months of fiscal 2000, operating expenses as a percentage of net
sales decreased to 22.2% from 23.1 % in the prior year period.
EBITDA. EBITDA for the second quarter of fiscal 1999 decreased 6.7% to
$10.4 million from $11.2 million in the second quarter of fiscal 1999. For the
first six months, EBITDA decreased 12.0% to $19.9 million from $22.6 million in
the first six months of fiscal 1999. The decrease for both periods is primarily
a result of the decrease in net sales and related gross profit described above.
EBITDA as a percentage of net sales increased to 20.3% from 20.2% in the second
quarter of fiscal 1999. For the first six months of fiscal 2000, EBITDA as a
percentage of sales decreased to 18.7% from 19.5% in the first six months of
fiscal 1999.
Operating Income. Operating income for the second quarter of fiscal
2000 decreased 7.7% to $9.6 million from $10.5 million in the second quarter of
fiscal 1999. For the first six months, operating income decreased 13.3% to $18.3
million from $21.0 million in the first six months of fiscal 1999. The decrease
is attributable to the decrease in net sales and related gross profit described
above. Operating income as a percentage of net sales decreased for the second
quarter of fiscal 2000 to 18.7% from 18.9% in fiscal 1999, and to 17.2% for the
first six months of fiscal 2000 from 18.2% in the first six months of fiscal
1999.
8
<PAGE>
Other Income (Expense). Other expense for the second quarter of fiscal
2000 decreased to $6.2 million from $6.3 million in the second quarter of fiscal
1999. For the first six months of fiscal 2000, other expense decreased to $12.2
million from $12.6 million in the first six months of fiscal 1999. The decrease
for the periods is primarily a result of decreased interest expenses associated
with borrowings under the Company's $115 million Credit Agreement due to
declining balances on the Company's long-term debt partially offset by
increasing quarterly expense on the Holdings Discount Notes.
Income Taxes. The effective income tax rates for the six months ended
December 31, 1999 and January 1, 1999 were 39.0% and 40.1%, respectively.
Net Income. Net income for the second quarter of fiscal 2000 was $2.1
million compared to $2.5 million in the second quarter of fiscal 1999. For the
first six months of fiscal 2000, net income was $3.7 million compared to $5.1
million in the first six months of fiscal 1999.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the first six months of fiscal
2000 was $513,000 compared to $11.5 million in the first six months of fiscal
1999. The change in cash used in operating activities between the two periods
was primarily attributable to increased use of cash to fund changes in inventory
balances during the first six months of 2000 compared to the first six months of
1999 and decreased income for the six months ended December 31, 1999 compared to
the six months ended January 1, 1999.
Cash used by investing activities in the first six months of fiscal 2000
was $1.1 million compared to $894,000 in the first six months of 1999. The cash
used in both periods was related to acquisitions of property, plant and
equipment.
Cash used in financing activities for the first six months of fiscal 2000
was $6.6 million compared to $6.8 million in the first six months of fiscal
1999. In November 1999, the Company made a $3.3 million term debt prepayment due
to Excess Cash Flows, as defined in the Credit Agreement, in 1999. In the first
six months of fiscal 1999, the Company repaid $4.6 million of revolving loan
balances. The Company continues to review opportunities to prepay portions of
its outstanding debt utilizing available cash.
The Company believes that cash flow from operating activities and
borrowings under the Credit Agreement will be adequate to meet the Company's
short-term and long-term liquidity requirements prior to the maturity of its
credit facilities in 2007, although no assurance can be given in this regard.
Under the Credit Agreement, the Revolver provides $50 million of revolving
credit availability (of which approximately $18.0 million was utilized for
outstanding commercial and stand-by letters of credit as of December 31, 1999).
The Company is dependent upon the cash flows of GFSI to provide funds to
pay certain ordinary course expenses incurred on behalf of the Company and to
service the indebtedness represented by the $50.0 million of 11.375% Series B
Senior Discount Notes due 2009 (the "Discount Notes"). The Discount Notes will
accrete at a rate of 11.375%, compounded semi-annually to an aggregate principal
amount of $108.5 million at September 15, 2004. Thereafter, the Discount Notes
will accrue interest at the rate of 11.375% per annum, payable semi-annually, in
cash on March 15 and September 15 of each year, commencing on March 15, 2005.
The Company will be dependent on GFSI to provide funds to service the
indebtedness. Additionally, the remaining cumulative Holdings Preferred Stock
will accrue dividends totaling approximately $425,000 annually. Holdings
Preferred Stock may be redeemed at stated value (approximately $3.6 million)
plus accrued dividends with mandatory redemption in 2009.
9
<PAGE>
Derivative and Market Risk Disclosure
- -------------------------------------
The Company's market risk exposure is primarily due to possible
fluctuations in interest rates. Derivative financial instruments, including an
interest rate swap agreement are used by the Company to manage its exposure on
variable rate debt obligations. The Company enters into such agreements for
hedging purposes and not with a view toward speculating in the underlying
instruments. The Company uses a balanced mix of debt maturities along with both
fixed rate and variable rate debt to manage its exposure to interest rate
changes. The fixed rate portion of the Company's long-term debt does not bear
significant interest rate risk. The variable rate debt would be affected by
interest rate changes to the extent the debt is not matched with an interest
rate swap or cap agreement or to the extent, in the case of the revolving credit
agreement, that balances are outstanding. An immediate 10 percent change in
interest rates would not have a material effect on the Company's results of
operations over the next fiscal year, although there can be no assurances that
interest rates will not significantly change.
Year 2000 Compliance
- --------------------
The Company continues to assess the impact that the year 2000 will
have on its internal computer systems, facilities and production equipment,
critical business partners and business-critical third parties.
The Company has a program to identify, evaluate and implement changes to
all of its internal computer systems as necessary to address the Year 2000
issue. As part of the program, in fiscal year 1999, the Company upgraded and
implemented its Enterprise Resource Planning System ("ERP"), including Year 2000
functionality, designed to improve the overall efficiency of the Company's
operations and to enable management to more closely track the financial
performance of each of its sales and operating areas. It is not practical to
segregate the cost of the Year 2000 functionality from the cost of the upgrade
and implementation of the ERP.
All of the Company's production and operations departments have completed
their inventory, assessment and remediation efforts in regard to all
non-information technology systems which include hardware, software and
associated embedded computer technologies that are used to operate the Company
facilities and equipment.
The Company has identified, prioritized and is continuing to communicate
with all critical business partners, including all third-party suppliers of
goods and services, to ascertain the status of their Year 2000 compliance
programs. The Company intends to monitor the progress of these critical third
parties.
The Company does not anticipate that the Year 2000 issues related to
internally-controllable systems will significantly impact the overall business
operations or financial results of the Company. However, the Company could face
significant disruptions in business operations and financial losses if certain
business- critical, third parties, such as utility providers, telecommunication
systems, transportation service providers or certain government entities, do not
successfully continue their Year 2000 remediation plans. The Company is
currently in the process of identifying and developing contingency plans for the
most reasonable likely worst case scenarios. To date, The Company has not
experienced any significant disruptions due to Year 2000 issues.
Seasonality and Inflation
- -------------------------
The Company experiences seasonal fluctuations in its sales and
profitability, with generally higher sales and gross profit in the first and
second quarters of its fiscal year. The seasonality of sales and profitability
is primarily due to higher volume at the College Bookstore division during the
first two fiscal quarters. This pattern of sales affects working capital
requirements and liquidity, as the Company generally must finance higher levels
of inventory during these periods prior to fully receiving payment from these
customers. Sales and profitability at the Company's Resort, Corporate and Sports
Specialty divisions typically show no significant seasonal variations. As the
Company continues to expand into other markets in its Resorts, Corporate and
Sports Specialty divisions, seasonal fluctuations in sales and profitability are
expected to decline. Cash requirements of Event 1 are anticipated to be
seasonal, with increasing sales and profitability in the third and fourth
quarters of fiscal years.
10
<PAGE>
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
11
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- ------- -----------------
There has been no change to matters discussed in Business-Legal Proceedings in
Holdings' Form 10-K as filed with the Securities and Exchange Commission on
September 30, 1999.
Item 2. Changes in Securities
- ------ ---------------------
None
Item 3. Defaults Upon Senior Securities
- ------ ---------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
Item 5. Other Information
- ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------ ---------------------------------
(a) Exhibits. The following exhibits are included with this report:
Exhibit 4.1(b) - First Supplemental Indenture, dated as of
October 11, 1999, among GFSI Holdings, Inc. and State Street
Bank and Trust Company as Trustee.
Exhibit 27 - Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the reporting period.
12
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GFSI HOLDINGS, INC.
February 11 , 2000
/s/ ROBERT G. SHAW
---------------------------------------
Robert G. Shaw, Sr. Vice President of Finance and
Principal Accounting Officer
13
<PAGE>
EXHIBIT 4.1(b)
========================================
GFSI Holdings, Inc.
SERIES A AND SERIES B
11-3/8% Senior Discount Notes due 2009
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF OCTOBER 11, 1999
State Street Bank and Trust Company
Trustee
========================================
<PAGE>
This SUPPLEMENTAL INDENTURE, dated as of October__, 1999 among GFSI
Holdings, Inc., a Delaware corporation (the "Company"), and State Street Bank
and Trust Company, as trustee (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee entered into an Indenture, dated
as of September 17, 1997 (the "Indenture"), pursuant to which the Company issued
its 11 3/8% Senior Discount Notes due 2009 (the "Notes"); and
WHEREAS, Section 9.01(a) of the Indenture provides that the Company and
the Trustee may amend or supplement the Indenture in order to cure any
ambiguity, defect or inconsistency without the consent of the Holders of the
Notes; and
WHEREAS, a definition of the term "Senior Indebtedness" was
inadvertently omitted from the Indenture notwithstanding the continued use of
that term in several provisions of the Indenture; and
WHEREAS, several other amendments to the Indenture relating to the
omission of the definition of the term "Senior Indebtedness", or other
ambiguities, defects and inconsistencies, are desirable;
WHEREAS, all acts and things prescribed by the Indenture, by law and by
the Certificate of Incorporation and the Bylaws of the Company and of the
Trustee necessary to make this Supplemental Indenture a valid instrument legally
binding on the Company and the Trustee, in accordance with its terms, have been
duly done and performed;
NOW, THEREFORE, to comply with the provisions of the Indenture and in
consideration of the above premises, the Company and the Trustee covenant and
agree for the equal and proportionate benefit of the respective Holders of the
Notes as follows:
ARTICLE 1
SECTION 1.01. This Supplemental Indenture is supplemental to the
Indenture and does and shall be deemed to form a part of, and shall be construed
in connection with and as part of, the Indenture for any and all purposes.
SECTION 1.02. This Supplemental Indenture shall become effective
immediately upon its execution and delivery by each of the Company and the
Trustee.
2
<PAGE>
ARTICLE 2
SECTION 2.01. ARTICLE I, Section 1.01 of the Indenture is amended by
adding the following definition of "Senior Indebtedness":
"Senior Indebtedness" means, with respect to any person, (i)
all Indebtedness of such person outstanding under the Credit Facilities
and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness of such person permitted to be incurred under the terms of
the Indenture, provided, however, that Senior Indebtedness shall not
include any Indebtedness which by the terms of the instrument creating
or evidencing the same is subordinated or junior in right of payment to
the Notes in any respect, and (iii) all Obligations with respect to the
foregoing, in each case whether outstanding on the date of this
Indenture or thereafter incurred. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (w) any
liability for federal, state, local or other taxes owed or owing by
Holdings, (x) any Indebtedness of such person to any of its
Subsidiaries or other Affiliates (other than Indebtedness arising under
the Credit Facilities), (y) any trade payables or other liability to
trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities or (z)
any Indebtedness that is incurred in violation of this Indenture.".
SECTION 2.02. Clause (iii) (B) of the definition of "Other Permitted
Indebtedness in ARTICLE 1, Section 1.01 of the Indenture is amended to provide
as follows:
"(B) does not apply to Refinancing Indebtedness of Senior
Indebtedness of Holdings or a Restricted Subsidiary, and".
SECTION 2.03. Clause (i) of the definition of "Permitted Liens" in
ARTICLE 1, Section 1.01 of the Indenture is amended to provide as follows:
"(i) Liens securing Senior Indebtedness of Holdings or any
Restricted Subsidiary that was permitted by the terms of Section
4.07(b)(i) or (iii) of this Indenture to be incurred;".
SECTION 2.04. Clause (xvii) of the definition of "Permitted Liens" in
ARTICLE I, Section 1.01 of the Indenture is amended to provide as follows:
" (xvii) any Lien granted to the Trustee and any substantially
equivalent Lien granted to any trustee or similar institution under any
indenture for Senior Indebtedness of Holdings or a Restricted
Subsidiary permitted by the terms of the Indenture;".
3
<PAGE>
SECTION 2.05. The definition of "Pro Forma Basis" in ARTICLE I, Section
1.01 of the Indenture is amended by changing the reference to Section 4.16
therein to Section 4.15.
SECTION 2.06. Clause (C)(2) in ARTICLE 4, Section 4.05(a) of the
Indenture is amended to provide as follows:
"(2) 100% of the aggregate net cash proceeds and the fair
market value of any property or securities, as determined by the Board
of Directors in good faith, received by Holdings or the Company from
the issue or sale of Equity Interests of Holdings or the Company (to
the extent contributed to Holdings) subsequent to the date of original
issuance of the Notes (other than (x) Equity Interests issued or sold
to a Restricted Subsidiary and (y) Disqualified Stock); plus".
SECTION 2.07. Clause (C)(4) in ARTICLE 4, Section 4.05(a) of the
Indenture is amended to provide as follows:
"(4) the amount by which the principal amount of and any
accrued interest on Indebtedness of any Restricted Subsidiary is
reduced on Holdings' consolidated balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary) subsequent to the date
of original issuance of the Notes of any Indebtedness of any Restricted
Subsidiary (not held by Holdings or any Restricted Subsidiary) for
Equity Interests (other than Disqualified Stock) of Holdings (less the
amount of any cash, or the fair market value of any other property or
securities (as determined by the Board of Directors in good faith),
distributed by Holdings or any Restricted Subsidiary (to Persons other
than Holdings or any other Restricted Subsidiary) upon such conversion
or exchange);".
SECTION 2.08. Clause (iii) in ARTICLE 4, Section 4.05(b) of the
Indenture is amended to provide as follows:
"(iii) the repurchase, redemption, retirement or acquisition
of Equity Interests of Holdings or the Company from the executives,
management, employees or consultants of Holdings or its Restricted
Subsidiaries in an aggregate amount not to exceed $10.0 million;".
SECTION 2.09. Clause (v) in ARTICLE 4, Section 4.05(b) of the Indenture
is amended to provide as follows:
"(v) the purchase, redemption, retirement or other acquisition
of the Notes pursuant to Sections 3.08, 4.13 or 4.14;".
4
<PAGE>
SECTION 2.10. ARTICLE 4, Section 4.11(b) of the Indenture is amended to
provide as follows:
" (b) Nothing contained in Section 4.11 shall prevent Holdings
or any Restricted Subsidiary from entering into any agreement or
instrument providing for the incurrence of Permitted Liens or
restricting the sale or other disposition of property or assets of
Holdings or any of its Restricted Subsidiaries that are subject to
Permitted Liens. ".
SECTION 2.11. Clause (d) of ARTICLE 4, Section 4.14(a) of the Indenture
is amended to provide as follows:
"(d) the permanent purchase, redemption or other prepayment or
repayment of outstanding Indebtedness of Holdings' Restricted
Subsidiaries (with a corresponding reduction in any commitment relating
thereto) on or prior to the 365th day following the Asset Sale
Disposition Date or".
ARTICLE 3
SECTION 3.01. Except as specifically modified herein, the Indenture and
the Notes are in all respects ratified and confirmed (mutatis mutandis) and
shall remain in full force and effect in accordance with their terms with all
capitalized terms used herein without definition having the same respective
meanings ascribed to them as in the Indenture.
SECTION 3.02. Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
SECTION 3.03. The laws of the State of New York shall govern this
Supplemental Indenture without regard to the conflict of laws provisions
thereof. The Trustee and the Company agree to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out of or
relating to this Supplemental Indenture.
SECTION 3.04. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
GFSI Holdings, Inc.
By:_________________________________
Name:
Title:
State Street Bank and Trust Company,
as trustee
By:________________________________
Name:
Title:
6
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<ARTICLE> 5
<CIK> 0001036180
<NAME> GFSI Holdings Inc.
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-03-1999
<PERIOD-END> DEC-31-1999
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<PP&E> 40,529
<DEPRECIATION> 20,597
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4,698
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 106,032
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<INCOME-TAX> 2,361
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</TABLE>
