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 March 29, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to to
Commission File Number 0-20080
GALEY & LORD, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1593207
(State or other jurisdiction of (IRS Employer
incorporation or organization) (Identification No.)
980 Avenue of the Americas
New York, New York 10018
(Address of principal executive offices) Zip Code
212/465-3000
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last
report.
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value B 11,624,024 shares as of April 29, 1997.
Exhibit Index at page 19
1
<PAGE>
INDEX
GALEY & LORD, INC.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- 3
March 29, 1997, March 30, 1996
and September 28, 1996
Consolidated Statements of Income -- 4
Three and six months ended March 29, 1997
and March 30, 1996
Consolidated Statements of Cash Flows -- 5
Three and six months ended March 29, 1997
and March 30, 1996
Notes to Consolidated Financial Statements -- 6-9
March 29, 1997
Item 2. Management's Discussion and Analysis of 10-14
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security 16
Holders
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALEY & LORD, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
MARCH 29, MARCH 30, SEPTEMBER 28,
1997 1996 1996
ASSETS (Unaudited) (Unaudited) *
Current assets:
Cash and cash equivalents $ 5,028 $ 4,549 $ 3,799
Trade accounts receivable 86,136 76,003 74,180
Sundry notes and accounts receivable 259 79 164
Inventories 85,546 87,068 76,934
Deferred income taxes -- 2,149 404
Prepaid expenses and other current assets 2,375 748 1,853
--------- --------- ---------
Total current assets 179,344 170,596 157,334
Property, plant and equipment, at cost 173,857 144,344 162,199
Less accumulated depreciation and
amortization (61,215) (50,599) (55,178)
--------- -------- -------
112,642 93,745 107,021
Deferred charges 927 796 1,055
Intangibles 38,665 29,043 39,466
--------- --------- ---------
$ 331,578 $ 294,180 $ 304,876
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 13,307 $ 13,597 $ 13,506
Trade accounts payable 22,699 15,166 20,957
Accrued salaries and employee benefits 7,867 7,698 10,766
Accrued liabilities 2,258 3,667 3,311
Deferred income taxes 525 -- --
Income taxes payable 3,515 761 1,115
--------- --------- ---------
Total current liabilities 50,171 40,889 49,655
Commitments
Long-term debt 167,920 155,242 149,265
Other long-term liabilities 104 179 143
Deferred income taxes 15,614 14,875 16,168
Stockholders' equity:
Common stock 120 120 120
Contributed capital in excess of par
value 35,489 34,424 34,687
Retained earnings 64,211 49,270 56,889
Treasury stock, at cost (2,051) (819) (2,051)
--------- ---------- ---------
Total stockholders' equity 97,769 82,995 89,645
-------- --------- ---------
$ 331,578 $ 294,180 $ 304,876
========= ======== =========
*Condensed from audited financial statements
See accompanying notes to consolidated financial
5
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GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
---------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 129,429 $ 100,394 $ 240,357 $ 185,528
Cost of sales 115,567 89,560 213,927 168,223
--------- --------- -------- ----------
Gross profit 13,862 10,834 26,430 17,305
Selling, general and administrative
expenses 4,184 3,530 7,545 6,486
Amortization of goodwill 419 279 837 558
--------- ---------- --------- ---------
Operating income 9,259 7,025 18,048 10,261
Interest expense 3,061 2,826 6,113 5,690
Write-off of merger costs -- -- -- 1,600
--------- --------- -------- ---------
Income before income taxes 6,198 4,199 11,935 2,971
Income tax expense (benefit):
Current 2,601 1,040 4,238 617
Deferred (203) 547 375 495
--------- --------- ------- --------
Net income $ 3,800 $ 2,612 $ 7,322 $ 1,859
========= ========= ========= =========
Net income per common share:
Primary:
Average common shares outstanding 12,052 11,928 11,958 11,969
Net income per common share -
primary $ .32 $ .22 $ .61 $ .16
========= ========= ========= =========
Fully diluted:
Average common shares outstanding 12,059 11,947 11,999 11,978
Net income per common share -
fully diluted $ .32 $ .22 $ .61 $ .16
========= ======== ========== ==========
</TABLE>
<PAGE>
4
<PAGE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Six Months Ended
March 29, March 30,
1997 1996
Cash flows from operating activities:
Net income $ 7,322 $ 1,859
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property, plant and equipment 6,493 4,966
Amortization of intangible assets 837 558
Amortization of deferred charges 148 92
Deferred income taxes 375 495
Non-cash compensation 348 --
(Gain)/loss on disposals of property, plant
and equipment 88 (5)
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable - net (11,956) 11,080
(Increase)/decrease in sundry notes & accounts
receivable (95) 79
(Increase)/decrease in inventories (8,612) (836)
(Increase)/decrease in prepaid expenses and other
current assets (522) (173)
(Decrease)/increase in accounts payable - trade 1,742 (3,249)
(Decrease)/increase in accrued liabilities (3,952) (3,343)
(Decrease)/increase in income taxes payable 2,400 2,250
-------- ------
Net cash provided by (used in) operating activities (5,384) 13,773
Cash flows from investing activities:
Property, plant and equipment expenditures (13,258) (6,702)
Proceeds from sale of property, plant and equipment 1,055 826
Other (35) (89)
-------- --------
Net cash provided by (used in) investing activities (12,238) (5,965)
Cash flows from financing activities:
Increase in revolving line of credit 27,300 400
Principal payments on long-term debt (8,844) (7,320)
Increase in common stock 454 9
Purchase of treasury stock -- (752)
Payment of bank fees and loan costs (20) --
Other (39) (33)
-------- ----------
Net cash provided by (used in) financing activities 18,851 (7,696)
-------- ---------
Net increase/(decrease) in cash and cash equivalents 1,229 112
Cash and cash equivalents at beginning of period 3,799 4,437
-------- ---------
Cash and cash equivalents at end of period $ 5,028 $ 4,549
======== ========
See accompanying notes to consolidated financial statements.
6
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Galey &
Lord, Inc. (the "Company") and its wholly-owned subsidiaries, Galey &
Lord Industries, Inc., G&L Service Company, North America, Inc. ("G&L
Service Company") and Dimmit Industries, S.A. de C.V. ("Dimmit").
Intercompany items have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the financial position as of March 29, 1997 and the results of operations and
cash flows for the periods ended March 29, 1997 and March 30, 1996. Such
adjustments consisted only of normal recurring items. Interim results are not
necessarily indicative of results for a full year. These financial statements
should be read in conjunction with the financial statements and footnotes
included in the Company's annual report on Form 10-K for the fiscal year ended
September 28, 1996.
NOTE B - BUSINESS ACQUISITIONS
On June 7, 1996, the Company, through its newly formed subsidiary, G&L Service
Company, acquired the capital stock of Dimmit and certain related assets from
Farah Incorporated for approximately $22.8 million in cash including certain
costs related to the acquisition (the "Acquisition"). Dimmit sews and finishes
pants and shorts for the casual wear market in its six manufacturing facilities
located in Piedras Negras, Mexico. Funding for the Acquisition was provided
through funds generated by operations, working capital reductions and by the
Company's current bank group through amendments to the Company's term loan and
revolving credit facility. These amendments increased the Company's borrowing
capacity by $20 million. In connection with the Acquisition, which has been
accounted for as a purchase transaction, the Company acquired assets with an
estimated fair value of approximately $12.7 million and assumed liabilities of
approximately $1.1 million. The Company has made a preliminary allocation of the
purchase price and has recorded goodwill of approximately $11.2 million for the
excess of the purchase price over the fair value of the assets acquired. The
goodwill amount is being amortized over a 20-year period. The results of
operations of G&L Service Company and Dimmit have been included in the
consolidated financial statements from the date of the Acquisition.
7
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
NOTE B - BUSINESS ACQUISITIONS (CONTINUED)
On January 25, 1996, the Company and Triarc Companies, Inc. ("Triarc") mutually
agreed not to go forward with their previously announced merger of the Company
and the Graniteville Company, a subsidiary of Triarc, due to current economic
conditions existing at that time in the retail, textile and apparel sectors. The
Company incurred fees and expenses related to the proposed merger of $1.6
million and took a charge during the December quarter 1995 for the write-off of
those costs.
NOTE C - LONG-TERM DEBT
On June 4, 1996, the Company amended its term loan and revolving credit facility
with its bank group, led by First Union National Bank of North Carolina, as
agent and lender. The amendment increased the Company's maximum allowable
borrowings under the revolving credit facility, which expires March 31, 2000,
from $150 million to $170 million. The term loan was restated to the outstanding
principal balance of $48 million and continues to require equal quarterly
principal payments of $3 million through the term loan's expiration on April 30,
2000. The amended term loan and revolving credit facility bear interest at a per
annum rate, at the Company's option, of either (i) the greater of the prime rate
or federal funds rate or (ii) LIBOR plus .5%, LIBOR plus .75%, LIBOR plus 1.0%,
LIBOR plus 1.25% or LIBOR plus 1.5%, in accordance with a pricing grid based on
certain financial ratios. During the March quarter 1997, the spread paid by the
Company on its LIBOR borrowings was 1.25% and will be reduced to 1.0% on May 20,
1997. The average interest rate paid by the Company during the March quarter
1997 was 6.9%.
The Company's obligations under the credit facility are secured by all of the
Company's inventory, equipment, accounts receivable and general intangibles, and
a pledge by the Company of all the outstanding capital stock of its wholly-owned
domestic subsidiaries, Galey & Lord Industries, Inc. and G&L Service Company and
a pledge of 65% of the outstanding capital stock of its foreign subsidiary,
Dimmit.
During January 1996, the Company entered into interest rate swaps on $50 million
of its outstanding bank debt to fix the LIBOR interest rate on which those
borrowings are based. The interest rate swaps assure that the Company under its
current credit agreement will pay a maximum
8
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
NOTE C - LONG-TERM DEBT (CONTINUED)
rate of 6.77% (LIBOR fixed at 5.27% plus the maximum spread allowed under the
credit agreement of 1.5%) on $25 million of bank debt for a two-year period and
7.03% (LIBOR fixed at 5.53% plus the maximum spread allowed under the credit
agreement of 1.5%) on the other $25 million of debt for a five-year period.
NOTE D - INVENTORIES
The components of inventory at March 29, 1997, March 30, 1996 and September 28,
1996 consisted of the following (in thousands):
March 29, March 30, September 28,
1997 1996 1996
--------- --------- ---------
Raw materials $ 5,048 $ 1,893 $ 2,361
Stock in process 15,552 13,274 13,396
Produced goods 67,318 75,816 64,571
Dyes, chemicals and supplies 4,936 4,565 4,805
-------- --------- ---------
92,854 95,548 85,133
Less LIFO and other reserves (7,308) (8,480) (8,199)
-------- -------- ---------
$ 85,546 $ 87,068 $ 76,934
======== ========== =========
NOTE E - NET INCOME PER COMMON SHARE
Net income per common share data is computed based on the average number of
shares of Common Stock and Common Stock equivalents outstanding during the
period.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which will be adopted by the Company on December 27,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the quarter and six months ended
March 29, 1997 of $.01 per share and $.02 per share, respectively, and have no
effect on the quarter and six months ended March 30, 1996. The Company has not
yet determined what the impact of Statement 128 will be on the calculation of
fully diluted earnings per share.
9
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
NOTE F - STOCKHOLDERS' EQUITY
Activity in Stockholders' Equity is as follows (dollar amounts in thousands):
Common Contributed Retained Treasury
Stock Capital Earnings Stock Total
Balance at
September 28, 1996 $ 120 $34,687 56,889 $(2,051) $89,645
Compensation earned
related to stock
options -- 115 -- -- 115
Net income for
December 28, 1996 -- -- 3,522 -- 3,522
------- ------- ------ -------- -------
Balance at
December 28, 1996 $ 120 $34,802 $60,411 $(2,051) $93,282
Issuance of 30,800
shares of Common
Stock for exercise
of options -- 104 -- -- 104
Tax benefit from
exercise of stock
options -- 80 -- -- 80
Issuance of 16,384
shares of Restricted
Common Stock -- 270 -- -- 270
Compensation earned
related to stock
options -- 233 -- -- 233
Net income for
March 29, 1997 -- -- 3,800 -- 3,800
------- ------- ------- ------- -------
Balance at
March 29, 1997 $ 120 $35,489 $64,211 $(2,051) $97,769
'====== ======= ======= ======= =======
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
On April 23, 1997, the Company's Board of Directors authorized the Company's
Management to buy back up to 900,000 shares or 7.7% of the Company's outstanding
common stock over the following twelve months. Shares purchased will be at
prevailing prices in open-market transactions. Under the Company's previous buy
back program, which terminated January 16, 1997, the Company acquired 197,003
shares of its outstanding common stock at an average price of $10.07 per common
share.
On June 7, 1996, Galey & Lord, Inc. (the "Company"), through its newly formed
subsidiary, G&L Service Company North America, Inc. ("AG&L Service Company")
acquired the capital stock of Dimmit Industries, S.A. de C.V. ("Dimmit") and
certain related assets from Farah Incorporated for approximately $22.8 million
in cash including certain costs related to the Acquisition (the "Acquisition")
Dimmit sews and finishes pants and shorts for the casual wear market in its six
manufacturing facilities located in Piedras Negras, Mexico. Funding for the
Acquisition was provided through funds generated by operations, working capital
reductions and by the Company's current bank group through amendments to the
Company's term loan and revolving credit facility. These amendments increased
the Company's borrowing capacity by $20 million.
On January 25, 1996, the Company and Triarc Companies, Inc. ("Triarc") mutually
agreed not to go forward with their previously announced merger of the Company
and the Graniteville Company ("Graniteville"), a subsidiary of Triarc, due to
economic conditions existing at that time in the retail, textile and apparel
sectors. The Company incurred fees and expenses related to the merger of $1.6
million and took a charge during the December quarter 1995 for the write-off of
those costs.
11
<PAGE>
RESULTS OF OPERATIONS
The Company's operations are classified into two business segments, apparel
fabrics and home fabrics. Results for the three and six month periods ended
March 29, 1997 and March 30, 1996 for each segment are shown below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
03/29/97 03/30/96 03/29/97 03/30/96
-------- -------- -------- --------
(dollar amounts in millions)
Net Sales Per Segment
<S> <C> <C> <C> <C>
Apparel fabrics $120.5 $ 89.8 $223.7 $164.2
Home fabrics 8.9 10.6 16.7 21.3
------ ------ ------ ------
Total net sales $129.4 $100.4 $240.4 $185.5
====== ====== ====== ======
Operating Income (Loss) Per Segment
Apparel fabrics $ 9.2 $ 7.2 $ 18.1 $ 9.9
% of Apparel Fabrics Net Sales 7.6% 8.1% 8.1% 6.0%
Home fabrics $ .1 $ (.2) $ (.1) $ .4
% of Home Fabrics Net Sales 1.4% (2.2)% (.2)% 1.6%
------ ------ ------ --------
Total $ 9.3 $ 7.0 $ 18.0 $ 10.3
% of Total Net Sales 7.2% 7.0% 7.5% 5.5%
</TABLE>
Net sales for the March quarter 1997 (the second quarter of fiscal 1997) were
$129.4 million as compared to $100.4 million for the March quarter 1996. Net
sales for the first six months of fiscal 1997 were $240.4 million as compared to
$185.5 million for the first six months of fiscal 1996. Apparel fabrics net
sales increased $30.7 million or 34.1% during the March quarter 1997 and $59.5
million or 36.2% during the first six months of fiscal 1997 while home fabrics
net sales declined $1.7 million or 16.0% during the March quarter 1997 and $4.6
million 21.6% during the first six months of fiscal 1997. The increases in
apparel fabrics net sales reflected a strong business environment as compared to
the same periods of fiscal 1996 when the Company's customers were adjusting
their inventory levels due to a slow retail environment. The decrease in home
fabrics sales was due to a continued weak market for home decorative prints as
well as the Company's decision to significantly reduce its sales of unfinished
fabrics (greige goods) in the home fabrics business because of a lack of
profitability for unfinished fabrics in the home furnishings market.
Operating income was $9.3 million or 7.2% of net sales for the second quarter of
fiscal 1997 as compared to $7.0 million or 7.0% of net sales for the second
quarter of fiscal 1996. Apparel fabrics operating income increased $2.0 million
for the second quarter of fiscal 1997 as compared to the second quarter of
fiscal 1996 while apparel fabrics operating income as a percent of apparel
fabrics net sales decreased .5%. The increased dollars of apparel fabrics
operating income was due to the higher sales volume while the decline in apparel
fabrics operating income as a percentage of apparel fabrics net sales resulted
from temporary manufacturing inefficiencies caused by increasing production
rates to maximum levels to meet higher customer demand for the Company's
products. Despite lower net sales,
12
<PAGE>
home fabrics operating income improved $.3 million for the second quarter of
fiscal 1997 as compared to the second quarter of fiscal 1996 as a result of the
reduction of sales of unfinished fabrics and improved gross margins on home
fabrics finished goods sales. Operating income for the first six months of
fiscal 1997 was $18.0 million or 7.5% of net sales as compared to $10.3 million
or 5.5% of net sales for the first six months of fiscal 1996. The increase in
operating income for the first six months of fiscal 1997 as compared to the
first six months of fiscal 1996 was primarily due to the higher apparel sales
volume.
Interest expense was $3.1 million for the March quarter 1997 and $6.1 million
for the first six months of fiscal 1997 as compared to $2.8 million for the
March quarter 1996 and $5.7 million for the first six months of fiscal 1996. The
increase in interest expense for both the March quarter 1997 and the first six
months of fiscal 1997 was due to higher debt levels and higher interest rates
due to higher spreads over LIBOR, both resulting from the Acquisition, partially
offset by lower working capital requirements. (See "Liquidity and Capital
Resources" for a discussion of the Company's working capital requirements).
Net income for the second quarter of fiscal 1997 was $3.8 million or $.32 per
common share on a fully diluted basis as compared to net income for the second
quarter of fiscal 1996 of $2.6 million or $.22 per common share. Net income for
the first six months of fiscal 1997 was $7.3 million or $.61 per common share as
compared to net income for the first six months of fiscal 1996 of $1.9 million
or $.16 per common share, which included the pre-tax charge of $1.6 million
($1.0 million after-tax) or $.08 per common share for the write-off of fees and
expenses related to the proposed merger with Graniteville. Excluding this
charge, net income for the first six months of fiscal 1996 would have been $2.9
million or $.24 per common share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which will be adopted by the Company on December 27,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the quarter and six months ended
March 29, 1997 of $.01 per share and $.02 per share, respectively, and have no
effect on the quarter and six months ended March 30, 1996. The Company has not
yet determined what the impact of Statement 128 will be on the calculation of
fully diluted earnings per share.
The Company's order backlog at March 29, 1997 was $166 million, a 66% increase
from the March 30, 1996 backlog of $100 million. As a result of a strong
business environment, apparel fabrics backlog was up 82% over the March 30, 1996
level while home fabrics backlog was 3% higher than the previous year.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On June 4, 1996, the Company amended its term loan and revolving credit facility
with its bank group led by First Union National Bank of North Carolina, as agent
and lender. The amendment increased the Company's maximum allowable borrowings
under the revolving credit facility, which expires March 31, 2000, from $150
million to $170 million. The term loan was restated to the outstanding balance
of $48 million and continues to require equal quarterly principal payments of $3
million through the term loan's expiration on April 30, 2000. At March 29, 1997,
the outstanding term loan principal balance and revolving credit facility
principal balance were $37 million and $135.5 million, respectively. The amended
term loan and revolving credit facility bear interest at a per annum rate, at
the Company's option, of either (i) the greater of the prime rate or federal
funds rate or (ii) LIBOR plus .5%, LIBOR plus .75%, LIBOR plus 1.0%, LIBOR plus
1.25% or LIBOR plus 1.5%, in accordance with a pricing grid based on certain
financial ratios. During the March quarter 1997, the spread paid by the Company
on its LIBOR borrowings was 1.25%, and the Company anticipates that the spread
will be reduced to 1.0% on May 20, 1997. The Company's obligations under the
credit facility are secured by all of the Company's inventory, equipment,
accounts receivable and general intangibles, and a pledge by the Company of all
the outstanding capital stock of its wholly-owned domestic subsidiaries, Galey &
Lord Industries, Inc. and G&L Service Company and a pledge of 65% of the
outstanding capital stock of its foreign subsidiary, Dimmit.
During January 1996, the Company entered into interest rate swaps on $50 million
of its outstanding bank debt to fix the LIBOR interest rate on which those
borrowings are based. The interest rate swaps assure that the Company under its
current credit agreement will pay a maximum rate of 6.77% (LIBOR fixed at 5.27%
plus the maximum spread allowed under the credit agreement of 1.5%) on $25
million of bank debt for a two-year period and 7.03% (LIBOR fixed at 5.53% plus
the maximum spread allowed under the credit agreement of 1.5%) on the other $25
million of debt for a five-year period.
For the first six months of fiscal 1997, the Company spent approximately $13.3
million for capital expenditures. In fiscal 1997, the Company expects to spend
in excess of $30 million on capital expenditures. These expenditures will be
primarily for (1) the expansion of the Company's weaving and dyeing and
finishing operations, (2) the modernization of the Company's existing spinning
and weaving facilities and (3) the installation of a cutting operation and
expansion of the Company's garment operations. The Company expects to fund these
expenditures through funds from operations and borrowings under its revolving
credit facility.
Working capital decreased approximately $.5 million to $129.2 million at March
29, 1997 as compared to $129.7 million at March 30, 1996. The decrease in
working capital was primarily attributable to a $7.5
14
<PAGE>
million increase in accounts payable, a $2.7 million change in the Company's
current deferred income tax position, a $2.8 million increase in income taxes
payable and a $1.5 million decrease in inventories, partially offset by a $10.1
million increase in accounts receivable and a $1.6 million increase in prepaid
expenses and other current assets. The $7.5 million increase in accounts payable
resulted from higher outside cloth purchases in the March quarter 1997 due to
higher sales volume and from normal fluctuations in the timing of purchases and
payments. The $2.6 million change in the Company's current portion of deferred
income taxes was the result of the use of Alternative Minimum Tax Credits during
fiscal year 1996. The increase in income taxes payable resulted from higher net
income during the first six months of fiscal 1997 as compared to the first six
months of fiscal 1996. The $1.5 million decrease in inventories was the result
of reductions in home fabrics greige goods inventory levels offset by increased
apparel fabrics inventories to support increased apparel volume levels and the
addition of inventories for G&L Service Company.
The $10.1 million increase in accounts receivable was primarily a result of
increased apparel fabrics net sales. The increase in prepaid expenses and other
current assets was primarily due to payments of security deposits associated
with the modernization and expansion of the Company's facilities.
The Company anticipates that cash requirements including working capital and
capital expenditure needs will be met through funds generated from operations
and through borrowings under the Company's revolving credit facility. In
addition, from time to time, the Company uses borrowings under secured and
unsecured bank loans, through capital leases or through operating leases for
various equipment purchases.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (not applicable)
Item 2. Changes in Securities (not applicable)
Item 3. Defaults Upon Senior Securities (not applicable)
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The following summarizes the votes at the Annual Meeting of
the Company's Stockholders held on February 11, 1997:
<TABLE>
<CAPTION>
Broker
Matter For Against Withheld Abstentions Non-Votes
------ --------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1. Election of Directors:
Arthur C. Wiener 9,212,348 - - 652,201 -
Lee Abraham 9,212,248 - - 652,301 -
Paul G. Gillease 9,212,248 - - 652,301 -
William deR. Holt 9,212,348 - - 652,201 -
Howard S. Jacobs 9,212,348 - - 652,201 -
William M.R. Mapel 9,212,348 - - 652,201 -
Stephen C. Sherrill 9,212,348 - - 652,201 -
David F. Thomas 9,212,348 - - 652,201 -
</TABLE>
2. Adoption of the 1996 Restricted Stock Plan (the "Restricted Stock Plan")
for non-employee directors:
Broker
For Against Withheld Abstentions Non-Votes
--------- ------- -------- ----------- ---------
9,048,736 709,802 - 106,011 -
3. Adoption of the following amendments to the Company's Amended and
Restated 1989 Stock Option Plan (the "Stock Option Plan"):
(a) Increase the number of shares of Common Stock available under the
Stock Option Plan by an aggregate of 250,000 shares:
Broker
For Against Withheld Abstentions Non-Votes
--------- --------- -------- ----------- ---------
8,635,028 1,123,511 - 106,010 -
(b) Provide that each non-employee director of the Company make
an election to receive annually and at the time such person
becomes a director either (i) stock options granted under the Stock
Option Plan, or (ii) shares of Common Stock issued under the
Restricted Stock Plan:
Broker
For Against Withheld Abstentions Non-Votes
--------- --------- --------- ----------- ---------
8,842,983 912,361 - 106,109 3,096
(c) Provide that each non-employee director of the Company make an election
to receive all of his annual director's fee (i) in cash, or (ii) in the
form of a grant of stock options under the Stock Option Plan, or (iii)
in the form of a combination of cash plus shares of Common Stock issued
under the Restricted Stock Plan:
Broker
For Against Withheld Abstentions Non-Votes
--------- --------- -------- ----------- ------------
8,753,532 1,001,862 - 106,059 3,096
4. Ratification of selection of Ernst & Young LLP as independent auditors
for the 1997 fiscal year:
Broker
For Against Withheld Abstentions Non-Votes
--------- -------- -------- ----------- ---------
9,702,593 56,901 - 105,055 -
<PAGE>
17
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The exhibits to this Form 10-Q are listed in
the accompanying Exhibit Index.
(b) Reports on Form 8-K - The Registrant filed a Form 8-K on March
14, 1997 to report its press release announcing that the
Company's expected earnings for the March quarter 1997 would
likely fall short of the average estimates that stock analysts
had projected.
18
<PAGE>
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.
Galey & Lord, Inc.
(Registrant)
/s/ Michael R. Harmon
Michael R. Harmon
Chief Financial Officer
(Principal Financial and Accounting
Officer), Treasurer and Secretary
May 1, 1997
DATE
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page No.
10.32 Amendment to Amended and Restated 1989
Stock Option Plan of the Company dated
February 7, 1995
10.33 Amendment to Amended and Restated 1989
Stock Option Plan of the Company dated
February 11, 1997
11 Statement Regarding Computation
of Per Share Earnings
27 Financial Data Schedule
<PAGE>
Exhibit 10.32
AMENDMENT
TO
AMENDED AND RESTATED
1989 STOCK OPTION PLAN OF
GALEY & LORD, INC.
AMENDMENT (this "Amendment") to Amended and Restated 1989
Stock Option Plan of Galey & Lord, Inc., as amended (the "Plan). Capitalized
terms used herein but not defined herein shall have the meanings ascribed
thereto in the Plan.
WHEREAS, the Board of Directors of Galey & Lord, Inc., a
Delaware Corporation (the "Corporation"), previously adopted the Plan which was
approved by the stockholders of the Corporation;
WHEREAS, the Board of Directors of the Corporation adopted an
amendment to the Plan, subject to the approval of the stockholders of the
Corporation;
WHEREAS, the stockholders of the Corporation approved the
amendment to the Plan set forth hereinbelow at the Annual Meeting of
Stockholders of the Corporation held on February 7, 1995; and
WHEREAS, all terms and conditions of the Plan, other than as
specifically amended as set forth in this Amendment, shall remain in full force
and effect.
NOW THEREFORE, the Plan has been amended as follows:
1. Section 5 of the Plan was amended by inserting the following
sentence immediately after the second sentence thereof:
"No Optionee who is an executive officer of the Corporation
shall, during any period of three fiscal years of the Corporation, be granted
Options to purchase more than an aggregate of 400,000 Shares."
IN WITNESS WHEREOF, the Secretary of the Corporation has
executed this Amendment and certifies that the amendment to the Plan set forth
above accurately reflects the amendment to the Plan adopted by the Board of
Directors of the Corporation and approved by the stockholders of the
Corporation.
/s/ Michael R. Harmon
Michael R. Harmon, Secretary
AMENDMENT
TO
AMENDED AND RESTATED
1989 STOCK OPTION PLAN OF
GALEY & LORD, INC.
AMENDMENT (this "Amendment") to Amended and Restated 1989
Stock Option Plan of Galey & Lord, Inc., as amended (the "Plan). Capitalized
terms used herein but not defined herein shall have the meanings ascribed
thereto in the Plan.
WHEREAS, the Board of Directors of Galey & Lord, Inc., a
Delaware Corporation (the "Corporation"), previously adopted the Plan which was
approved by the stockholders of the Corporation;
WHEREAS, in November 1996, the Board of Directors of the
Corporation adopted amendments to the Plan, subject to the approval of the
stockholders of the Corporation;
WHEREAS, the stockholders of the Corporation approved the
amendments to the Plan set forth hereinbelow at the Annual Meeting of
Stockholders of the Corporation held on February 11, 1997; and
WHEREAS, all terms and conditions of the Plan, other than as
specifically amended as set forth in this Amendment, shall remain in full force
and effect.
NOW THEREFORE, the Plan has been amended as follows:
1. The first sentence of Section 4 of the Plan was deleted in its entirety
and the following sentence was inserted in its place:
"The aggregate number of Shares in respect to which Options
may be granted under the Plan is 1,850,000 Shares, subject to
adjustment in accordance with Section 12 hereof."
2. Subsection (a) of Section 6 of the Plan was deleted in its entirety and
the following new subsection (a) of Section 6 of the Plan was inserted in its
place:
<PAGE>
"(a) General Provisions
(i) On or prior to December 1, 1996 and on or prior to each
December 1 thereafter and at the time each Director
Participant (as defined below) first becomes a director of the
Corporation, each person who is serving as a director of the
Corporation on such date and is not a common law employee of
the Corporation (hereinafter referred to as a "Director
Participant") shall make an irrevocable election in writing
(at such time and in such manner as may be prescribed by the
Corporation) to receive, on December 30, 1996 and annually
thereafter on the third Trading Day (as defined in Section 1
under the definition of "Fair Market Value per Share") after
the date of the Annual Meeting of Stockholders of the
Corporation and on the third Trading Day after the date on
which each Director Participant first becomes a director (if
such date is a date other than the date of the Annual Meeting
of Stockholders of the Corporation), either (A) Options to
purchase up to 2,000 Shares, or (B) 1,200 shares of Common
Stock issued under the Company's 1996 Restricted Stock Plan
(as may be amended from time to time, the "Restricted Stock
Plan"), subject to availability under the Restricted Stock
Plan, and each Director Participant who elects pursuant to
this Section 6(a)(i) to receive Options, shall automatically
be granted Options to purchase up to 2,000 Shares on the third
Trading Day after the date of the Annual Meeting of
Stockholders of the Corporation and on the third Trading Day
after the Date on which each Director Participant becomes a
director (if such date is a date other than the date of the
Annual Meeting of Stockholders of the Corporation).
(ii) On or prior to December 1, 1996 and on or prior to each
December 1 thereafter and at the time each Director
Participant first becomes a director of the Corporation, each
Director Participant shall make an irrevocable election in
writing (at such time and in such manner as may be prescribed
by the Corporation) to receive all of his or her annual
director's fees for the subsequent calendar year (or for the
remainder of the current calendar year, in the case of a
Director Participant who first becomes a director during such
calendar year) in the form of (A) cash in the amount of
$20,000, or (B) Options to purchase 2,500 Shares, or (C) a
combination of ten thousand dollars ($10,000) of cash and
(subject to availability under the Restricted Stock Plan) a
number of shares of Common Stock issued under the Restricted
-2-
<PAGE>
Stock Plan derived by dividing 15,000 by the Fair Market Value
per Share of the Common Stock on the third Trading Day after
January 1 of such calendar year (or the Third Trading Day
after the date on which such Director Participant first
becomes a director, as the case may be), rounded to the next
highest share, and each Director Participant who elects
pursuant to this Section 6(a)(ii) to receive Options, shall
automatically be granted Options to purchase up to 2,500
Shares on the third Trading Day after January 1 of such
subsequent calendar year (or on the Third Trading Day after
the date on which such Director Participant first becomes a
director, as the case may be). Notwithstanding the foregoing
provisions of this Section 6(a)(ii), the amount of the annual
director's fee to be paid (whether in the form of cash,
Options or a combination of cash and shares of Common Stock
issued under the Restricted Stock Plan) with respect to a
calendar year to a Director Participant who first becomes a
director during such calendar year shall be reduced to an
amount calculated by multiplying the amount to which a
Director Participant otherwise would be payable pursuant to
the foregoing provisions of this Section 6(a)(ii) (whether in
the form of cash, Options or a combination of cash and shares
of Common Stock issued under the Restricted Stock Plan) by a
fraction, the numerator of which is the number of calendar
days remaining in such calendar year measured from the date on
which such Director Participant first becomes a director and
the denominator of which is three hundred sixty five (365).
(iii) The form of the Options granted pursuant to this Section
6 shall be non-qualified stock options. The Exercise Price per
Share with respect to Options granted pursuant to this Section
6 shall be the Fair Market Value per Share on the date of the
grant."
IN WITNESS WHEREOF, the Secretary of the Corporation has
executed this Amendment and certifies that the amendments to the Plan set forth
above accurately reflect the amendments to the Plan adopted by the Board of
Directors of the Corporation and approved by the stockholders of the
Corporation.
/s/ Michael R. Harmon
Michael R. Harmon, Secretary
-3-
<PAGE>
Exhibit 11
GALEY & LORD, INC.
STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS
Computation of Average Shares Outstanding (In Thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Mar. 29, 1997 Mar.30, 1996 Mar. 29, 1997 Mar. 30, 1996
<S> <C> <C> <C> <C>
Average Common Shares
Outstanding 11,598 11,742 11,587 11,752
Add Dilutive Options 454 186 371 217
-------- -------- -------- --------
Primary Average Shares 12,052 11,928 11,958 11,969
Incremental Shares Arising
from Full Dilution
Assumption 7 19 41 9
------- --------- -------- --------
Average Shares Assuming
Full Dilution 12,059 11,947 11,999 11,978
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> SEP-29-1996
<CASH> 5,028
<SECURITIES> 0
<RECEIVABLES> 86,136
<ALLOWANCES> 0
<INVENTORY> 85,546
<CURRENT-ASSETS> 179,344
<PP&E> 173,857
<DEPRECIATION> 61,215
<TOTAL-ASSETS> 331,578
<CURRENT-LIABILITIES> 50,171
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 97,649
<TOTAL-LIABILITY-AND-EQUITY> 331,578
<SALES> 240,357
<TOTAL-REVENUES> 240,357
<CGS> 213,927
<TOTAL-COSTS> 213,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,113
<INCOME-PRETAX> 11,935
<INCOME-TAX> 4,613
<INCOME-CONTINUING> 7,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,322
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
