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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 28, 1998
---------------
OR
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 0-20080
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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 - 11,759,187 shares as of May 8, 1998.
Exhibit Index at page 28
1
<PAGE>
INDEX
GALEY & LORD, INC.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- 3
March 28, 1998, March 29, 1997
and September 27, 1997
Consolidated Statements of Income -- 4
Three and six months ended March 28, 1998
and March 29, 1997
Consolidated Statements of Cash Flows -- 5
Six months ended March 28, 1998 and March 29, 1997
Notes to Consolidated Financial Statements -- 6-16
March 28, 1998
Item 2. Management's Discussion and Analysis of 17-24
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures About 24
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security 25
Holders
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
EXHIBIT INDEX 28
2
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<TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALEY & LORD, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
March 28, March 29, SEPTEMBER 27,
1998 1997 1997
(Unaudited) (Unaudited) *
------------ ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,505 $ 5,028 $ 2,277
Trade accounts receivable 197,388 86,136 80,633
Sundry notes and accounts receivable 11,946 259 206
Inventories 178,591 85,546 92,517
Income taxes receivable - - 1,412
Deferred income taxes 13,350 - -
Prepaid expenses and other current
assets 5,751 2,375 3,894
---------------- ------------- --------------
Total current assets 423,531 179,344 180,939
Property, plant and equipment, at cost 490,115 173,857 197,184
Less accumulated depreciation and
amortization (78,639) (61,215) (67,739)
---------------- ------------- --------------
411,476 112,642 129,445
Investment in and advances to associated companies
23,609 - -
Deferred charges 15,743 927 820
Other non current assets 1,078 - -
Intangibles 169,593 38,665 37,987
---------------- ------------- --------------
$ 1,045,030 $ 331,578 $ 349,191
================ ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,250 $ 13,307 $ 13,281
Trade accounts payable 63,981 22,699 23,488
Accrued salaries and employee
benefits 26,725 7,867 9,450
Accrued liabilities 54,883 2,258 3,582
Deferred income taxes - 525 633
Income taxes payable 14 3,515 -
---------------- ------------- --------------
Total current liabilities 149,853 50,171 50,434
Commitments
Long-term debt 698,059 167,920 176,755
Other long-term liabilities 24,251 104 -
Deferred income taxes 64,161 15,614 17,685
Stockholders' equity:
Common stock 121 120 121
Contributed capital in excess of
par value 37,281 35,489 35,877
Retained earnings 74,028 64,211 70,566
Treasury stock, at cost (2,247) (2,051) (2,247)
Currency translation adjustment (477) - -
---------------- ------------- --------------
Total stockholders' equity 108,706 97,769 104,317
---------------- ------------- --------------
$ 1,045,030 $ 331,578 $ 349,191
================ ============= ==============
* Condensed from audited financial statements.
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
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GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands except per share data)
3
<PAGE>
Three Months Ended Six Months Ended
------------------- --------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
-------- ---------- ---------- -----------
Net sales $ 237,645 $ 129,429 $ 364,792 $ 240,357
Cost of sales 203,529 115,567 320,880 213,927
------------- ------------- ------------- -------------
Gross profit 34,116 13,862 43,912 26,430
Selling, general and
administrative expenses 10,523 4,184 13,910 7,545
Amortization of goodwill 952 419 1,373 837
------------- ------------- ------------- -------------
Operating income 22,641 9,259 28,629 18,048
Interest expense 12,629 3,061 16,129 6,113
Equity in the income from associated
companies, net of taxes (832) - (832) -
Bridge financing interest expense 3,549 - 3,928 -
Loss on foreign currency hedges - - 2,745 -
------------- ------------- ------------- -------------
Income before income taxes and
extraordinary loss 7,295 6,198 6,659 11,935
Income tax expense (benefit)
Current 3,161 2,601 2,310 4,238
Deferred 38 (203) 363 375
------------- -------------- ------------- -------------
Income before extraordinary loss 4,096 3,800 3,986 7,322
Extraordinary loss from debt
refinancing, net of taxes of $332 - - (524) -
------------- ------------- ------------- -------------
Net income $ 4,096 $ 3,800 $ 3,462 $ 7,322
============= ============= ============= =============
Net income per common share:
Basic:
Average common shares outstanding 11,682 11,598 11,673 11,587
Income per share before
extraordinary loss $ .35 $ .33 $ .34 $ .63
Extraordinary loss from debt
refinancing - - (.04) -
------------ ------------ ----------- ------------
Net income per common share - basic $ .35 $ .33 $ .30 $ .63
============ ============ ============ ============
Diluted:
Average common shares outstanding 12,088 12,006 12,071 11,947
Income per share before
extraordinary loss $ .34 $ .32 $ .33 $ .61
Extraordinary loss from debt
refinancing - - (.04) -
------------- ------------- ------------ -------------
Net income per common share -
diluted $ .34 $ .32 $ .29 $ .61
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Six Months Ended
---------------------------
March 28, March 29,
1998 1997
------------ -------
Cash flows from operating activities:
Net income $ 3,462 $ 7,322
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property, plant and equipment 11,384 6,493
Amortization of intangible assets 1,373 837
Amortization of deferred charges 2,475 148
Amortization of investment in associated companies 98 -
Deferred income taxes 363 375
Non-cash compensation 782 348
(Gain)/loss on disposals of property, plant and
equipment 221 88
Undistributed income from associated companies (832) -
Dividends received from associated companies 253 -
Foreign currency translation adjustment (477) -
Extraordinary loss from debt refinancing 524 -
Changes in assets and liabilities (net of acquisition):
(Increase)/decrease in accounts receivable - net (40,742) (11,956)
(Increase)/decrease in sundry notes & accounts
receivable 14,441 (95)
(Increase)/decrease in inventories (5,125) (8,612)
(Increase)/decrease in prepaid expenses and other
current assets 5,301 (522)
(Increase)/decrease in other non current assets 3,086 -
(Decrease)/increase in accounts payable - trade (2,039) 1,742
(Decrease)/increase in accrued liabilities 230 (3,952)
(Decrease)/increase in income taxes payable 141 2,400
(Decrease)/increase in other long-term liabilities 2,320 -
-------------- -----------
Net cash provided by (used in) operating activities (2,761) (5,384)
Cash flows from investing activities:
Acquisition of business - net of cash acquired (456,908) -
Property, plant and equipment expenditures (15,029) (13,258)
Proceeds from sale of property, plant and equipment 4,041 1,055
Other 499 (35)
-------------- -----------
Net cash provided by (used in) investing activities (467,397) (12,238)
Cash flows from financing activities:
Increase/(decrease) in revolving line of credit (2,200) 27,300
Issuance of long-term debt 1,319,008 -
Principal payments on long-term debt (814,802) (8,844)
Net proceeds from issuance of common stock 622 454
Payment of bank fees and loan costs (18,242) (20)
Other - (39)
-------------- -----------
Net cash provided by (used in) financing activities 484,386 18,851
--------------- ------------
Net increase/(decrease) in cash and cash equivalents 14,228 1,229
Cash and cash equivalents at beginning of period 2,277 3,799
--------------- -----------
Cash and cash equivalents at end of period $ 16,505 $ 5,028
=============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Galey & Lord, Inc.
(the "Company") and its wholly owned subsidiaries. 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 28, 1998 and the results of operations and
cash flows for the periods ended March 28, 1998 and March 29, 1997. 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 27, 1997.
NOTE B - BUSINESS ACQUISITIONS
On January 29, 1998, the Company entered into a Master Separation Agreement with
Polymer Group, Inc. ("Polymer"), DT Acquisition, Inc. ("DTA"), a subsidiary of
Polymer, Dominion Textile, Inc. ("Dominion") and certain other parties thereto,
pursuant to which the Company acquired (the "Acquisition") the apparel fabrics
business (the "Acquired Business") of Dominion from DTA for approximately $466.1
million in cash including certain costs related to the Acquisition. The Acquired
Business primarily consists of several subsidiaries and operating divisions of
Dominion, which are comprised of Swift Denim, Klopman International, S.p.A.
("Klopman") and Swift Europe. Swift Denim is the second largest supplier of
denim in the world, Klopman is one of the largest suppliers of uniform fabrics
in Europe and Swift Europe is a major international supplier of denim to Europe,
North Africa and Asia. The total purchase price of the Acquisition was funded
with borrowings under the Company's credit facilities (described in Note C
below). The Company used the net proceeds from the private placement on February
24, 1998 of $300.0 million aggregate principal amount of 9 1/8% Senior
Subordinated Notes Due 2008 (the "Initial Notes") to repay portions of such
credit facilities. In connection with the Acquisition, which has been accounted
for as a purchase transaction, the Company acquired assets with a fair market
value of approximately $519.4 million and assumed liabilities of approximately
$186.3 million. The Company has made a preliminary allocation of the purchase
price and has recorded goodwill of approximately $133.0 million for the excess
of purchase price (including assumed liabilities) over the fair market value of
the assets acquired. The goodwill amount is being amortized over a 40-year
period.
6
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE B - BUSINESS ACQUISITIONS (CONTINUED)
The following pro forma unaudited results of operations assume the
Acquisition of the apparel fabrics business of Dominion Textiles, Inc. had
occurred at the beginning of fiscal 1998 and fiscal 1997, respectively. These
pro forma results give effect to certain adjustments, including depreciation of
Acquired Business property, plant and equipment, amortization of the cost of the
Acquisition in excess of net assets acquired, elimination of duplicate corporate
overhead expenses and other costs and increased interest expense resulting from
the Acquisition and related financing.
<TABLE>
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Six Months Ended
----------------
March 28, 1998 March 29, 1997
-------------- --------------
(in thousands except per share data)
Net sales $528,105 $532,602
Loss before extraordinary item $ (4,906) $ (1,206)
Loss before extraordinary item per share-diluted $ (.41) $ (.10)
Net loss $ (5,430) $ (1,206)
Net loss per share-diluted $ (.45) $ (.10)
</TABLE>
NOTE C - LONG-TERM DEBT
On February 24, 1998 the Company closed its private offering of $300.0 million
aggregate principal amount of 9 1/8% Senior Subordinated Notes Due 2008. Net
proceeds from the offering, estimated to be $289.3 million (net of Initial
Purchaser's discount and estimated offering expenses), were used to repay (i)
$275.0 million principal amount of borrowings under a Senior Subordinated Credit
Agreement (the "Bridge Financing") incurred to partially finance the Acquisition
and (ii) a portion of the outstanding amount under a revolving line of credit
provided for under the Senior Credit Facility (as defined herein).
On April 22, 1998 the Company commenced an exchange offer (the "Exchange Offer")
to exchange up to $300.0 million aggregate principal amount of publicly
registered 9 1/8% Senior Subordinated Notes Due 2008 (the "Exchange Notes") for
like aggregate principal amount of Initial Notes properly tendered (and not
withdrawn) on or prior to May 20, 1998 pursuant to the terms and conditions set
forth in a prospectus ("the "Prospectus") dated April 22, 1998 and filed as part
7
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE C - LONG-TERM DEBT (CONTINUED)
of a Registration Statement on Form S-4 with the U.S. Securities and Exchange
Commission which was declared effective on April 22, 1998. The terms of the
Exchange Notes are identical in all material respects to those of the Initial
Notes except that the Exchange Notes are freely transferable by holders and are
not subject to any covenant regarding registration under the Securities Act of
1933, as amended. Interest on the Exchange Notes will be paid March 1 and
September 1 of each year, commencing September 1, 1998.
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company and its subsidiaries and senior in right of payment to any
subordinated indebtedness of the Company. The Exchange Notes will be
unconditionally guaranteed, on an unsecured senior subordinated basis, by Galey
& Lord Industries, Inc., Swift Denim Services, Inc., G&L Service Company North
America, Inc., Swift Textiles Inc. and other future direct and indirect domestic
subsidiaries.
The Exchange Notes will be subject to certain covenants, including, without
limitation, those limiting the Company and its subsidiaries' ability to incur
indebtedness, pay dividends, incur liens, transfer or sell assets, enter into
transactions with affiliates, issue or sell stock of restricted subsidiaries or
merge or consolidate the Company or its restricted subsidiaries.
On January 29, 1998 the Company entered into a new credit agreement as amended,
(the "Senior Credit Facility") with First Union National Bank ("FUNB"), as agent
and lender, and as of March 27, 1998 a syndicate of lenders. The Senior Credit
Facility provides for (i) a revolving line of credit under which the Company may
borrow up to an amount (including letters of credit up to an aggregate of $30.0
million) equal to the lesser of $225.0 million or a borrowing base (comprised of
eligible accounts receivable and eligible inventory, as defined in the Senior
Credit Facility), (ii) a term loan in the principal amount of $155.0 million
("Term Loan B") and (iii) a term loan in the principal amount of $110.0 million
("Term Loan C").
Under the Senior Credit Facility borrowings were used to refinance the Company's
prior senior credit facility with FUNB, to fund the Acquisition, to pay for
certain closing costs and expenses related to the Acquisition and for general
corporate and working capital purposes.
8
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GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE C - LONG-TERM DEBT (CONTINUED)
Under the Senior Credit Facility, the revolving line of credit expires on March
27, 2004 and the principal amount of (i) Term Loan B is repayable in 24
quarterly payments of $387,500 until March 27, 2004 and, thereafter, four
quarterly payments of $36,425,000 until Term Loan B's maturity on April 2, 2005
and (ii) Term Loan C is repayable in 28 quarterly payments of $275,000 until
April 2, 2005 and, thereafter, four quarterly payments of $25,575,000 until Term
Loan C's maturity on April 1, 2006. Under the Senior Credit Facility, the
interest rate on the Company's borrowings under its revolving line of credit and
term loans initially is fixed at a per annum rate, at the Company's option, of
either LIBOR plus 2.25%, LIBOR plus 2.75% and LIBOR plus 3.00%, respectively, or
the greater of the prime rate or the federal funds rate plus .50% plus a margin
of 1.00% for revolving loans, 1.5% for Term Loan B and 1.75% for Term Loan C for
at least two full fiscal quarters following the closing of the Acquisition.
Thereafter, the revolving line of credit borrowings will bear interest at a per
annum rate, at the Company's option, of either (i) (a) the greater of the prime
rate or the federal funds rate plus .50% plus (b) a margin of 0%, .25%, .50%,
.75% or 1.00%, based on the Company achieving certain leverage ratios (as
defined in the Senior Credit Facility) or (ii) LIBOR plus a margin of .75%,
1.00%, 1.25%, 1.50%, 1.75%, 2.00% or 2.25%, based on the Company achieving
certain leverage ratios. Term Loan B and Term Loan C will bear interest at a per
annum rate, at the Company's option, of (A) with respect to Term Loan B either
(i) (a) the greater of the prime rate or federal funds rate plus .50%, plus (b)
a margin of .25%, .50%, .75%, 1.00%, 1.25% or 1.50%, based on the Company
achieving certain leverage ratios or (ii) LIBOR plus a margin of 1.50%, 1.75%,
2.00%, 2.25%, 2.50% or 2.75%, based on the Company achieving certain leverage
ratios or (B) with respect to Term Loan C, either (i) (a)the greater of the
prime rate or federal funds rate plus .50%, plus (b) a margin of .50%, .75%,
1.00%, 1.25%, 1.50% or 1.75%, based on the Company achieving certain leverage
ratios, or (ii) LIBOR plus a margin of 1.75%, 2.00%, 2.25%, 2.50%, 2.75%, or
3.00%, based on the Company's achieving certain leverage ratios.
The Company's obligations under the Senior Credit Facility are secured by all of
the assets (other than real property) of the Company and each of its domestic
subsidiaries, a pledge by the Company and each of its subsidiaries of all the
outstanding capital stock of its respective domestic subsidiaries, a pledge of
65% of the outstanding voting capital stock and 100% of the outstanding
non-voting capital
9
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GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE C - LONG-TERM DEBT (CONTINUED)
stock, of certain of its respective foreign subsidiaries.
In addition, payment of all obligations under the Senior Credit Facility is
guaranteed by each of the Company's domestic subsidiaries. Under the Senior
Credit Facility, the Company is required to make mandatory prepayments of
principal annually in an amount equal to 50% of Excess Cash Flow (as defined in
the Senior Credit Facility), and also in the event of certain dispositions of
assets or debt or equity issuances (all subject to certain exceptions) in an
amount equal to 100% of the net proceeds received by the Company therefrom.
The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility requires the Company to meet certain financial ratio
tests and limits the amount of capital expenditures which the Company and its
subsidiaries may make in any fiscal year.
On December 19, 1997, the Company entered into a $470.0 million credit agreement
(the "Interim Credit Agreement") with FUNB, as agent and lender. Initial
revolving credit line borrowings under the Interim Credit Agreement were used to
refinance the existing term loan and revolving credit facility. The Interim
Credit Agreement was replaced on January 29, 1998 when the Company entered into
the Senior Credit Facility with FUNB, as agent and lender.
On December 19, 1997, the Company entered into a Senior Subordinated Credit
Agreement (the "Bridge Financing") with First Union Corporation, as agent and
lender, which was amended on January 29, 1998, and provided for borrowings of
$275.0 million, of which $145.6 million were initially borrowed on December 19,
1997 and the remainder of which was borrowed on January 29, 1998. All borrowings
under the Bridge Financing were used to fund the Acquisition (including fees and
expenses). The Bridge Financing was repaid on February 24, 1998 when the Company
closed its private offering of $300.0 million aggregate principal amount of
Initial Notes.
10
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GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE C - LONG-TERM DEBT (CONTINUED)
During January 1996, the Company entered into an interest rate swap on $25.0
million of its outstanding bank debt to fix the LIBOR interest rate on which
those borrowings are based. The interest rate swap assures that the Company
under its current credit agreement will pay a maximum rate of 8.53% (LIBOR fixed
at 5.53% plus the maximum spread allowed under the Senior Credit Facility of
3.0%) on the $25.0 million of bank debt for a five-year period.
NOTE D - INVENTORIES
The components of inventory at March 28, 1998, March 29, 1997 and September 27,
1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
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March 28, March 29, September 27,
1998 1997 1997
--------- ------------ -------------
Raw materials $ 12,396 $ 5,048 $ 2,353
Stock in process 38,814 15,552 13,359
Produced goods 123,728 67,318 79,611
Dyes, chemicals and supplies 13,168 4,936 5,448
------- ------- -------
188,106 92,854 100,771
Less LIFO and other reserves (9,515) (7,308) (8,254)
------- ------- -------
$178,591 $85,546 $92,517
======== ======= =======
</TABLE>
11
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GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
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.
Effective December 16, 1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share" (FAS 128). This statement replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. FAS 128 also requires all periods
presented to be restated after adoption of the statement.
Incremental shares for diluted earnings per share represent the dilutive effect
of options outstanding during the quarter. Options to purchase 3,000 shares and
11,750 shares of common stock were outstanding during the three months ended
March 28, 1998 and March 29, 1997, respectively, and options to purchase 2,000
shares and 30,950 shares of common stock were outstanding during the six months
ended March 28, 1998 and March 29, 1997, respectively, but were not included in
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares. Options to
purchase 251,000 shares and 317,000 shares of common stock were outstanding
during the three months ended March 28, 1998 and March 29, 1997, respectively,
and options to purchase 266,166 shares and 317,000 shares of common stock were
outstanding during the six months ended March 28, 1998 and March 29,1997,
respectively, but were not included in the computation of diluted earnings per
share pursuant to the contingent share provisions of FAS 128. Vesting of these
options is contingent upon the market price of common shares reaching certain
target prices, which were greater than the average market price of the common
shares.
Subsequent to March 28, 1998, options to purchase 227,000 shares of common stock
were vested upon the market price of common shares reaching certain target
prices. These options were not included in the computation of diluted earnings
per share for the period ended March 28, 1998 pursuant to the contingent share
provisions of FAS 128.
12
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE F - STOCKHOLDERS' EQUITY
Activity in Stockholders' Equity is as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
CURRENCY
COMMON CONTRIBUTED RETAINED TREASURY TRANSLATION
STOCK CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
------------ ------------------- --------------- --------------- ------------------ ----------------
Balance at
September 27, 1997 $121 $35,877 $70,566 $(2,247) - $104,317
Tax benefit from
Exercise of stock
Options - 6 - - - 6
Compensation earned
Related to stock
Options - 97 - - - 97
Net income (loss) for
December 27, 1997 - - (634) - - (634)
---- ------- ------- ------- ------ --------
Balance at
December 27, 1997 $121 $35,980 $69,932 $(2,247) $ - $103,786
---- ------- ------- ------- ------ --------
Issuance of 56,115
Shares of common
stock upon exercise
of options - 488 - - - 488
Issuance of 7,686
shares of
Restricted Common
Stock - 140 - - - 140
Tax benefit from
exercise of stock
options - 7 - - - 7
Compensation earned
related to issuance
of stock options - 666 - - - 666
Currency translation
adjustment - - - - (477) (477)
Net income for March
28, 1998 - - 4,096 - - 4,096
---- ------- ------- ------- ----- --------
Balance at March 28,
1998 $121 $37,281 $74,028 $(2,247) $(477) $108,706
==== ======= ======= ======= ===== ========
</TABLE>
13
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE G - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following is summarized condensed consolidating financial information for
the Company, segregating Galey and Lord, Inc. (the "Parent") and guarantor
subsidiaries from non-guarantor subsidiaries. The guarantor subsidiaries are
wholly owned subsidiaries of the Company and guarantees are full, unconditional
and joint and several. Separate financial statements of each of the guarantor
subsidiaries are not presented because management believes that these financial
statements would not be material to investors.
<TABLE>
<CAPTION>
<S> <C>
March 28, 1998
------------------------------------------------------------------------------------------
Guarantor SNon-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ---------------- ----------------- ------------ -------------
Financial Position
Current assets:
Trade accounts receivable $ - $ 151,587 $ 45,801 $ - $ 197,388
Inventories - 141,353 37,551 (313) 178,591
Other current assets 55,686 22,561 24,888 (55,583) 47,552
-------- ------------- --------------- ------------- ----------------
Total current assets 55,686 315,501 108,240 (55,896) 423,531
Property, plant and equipment, net -- 300,647 110,829 - 411,476
Intangibles 8,756 160,837 - - 169,593
Other assets 782,357 275 24,687 (766,889) 40,430
-------- ------------- --------------- -------------- ----------------
$846,799 $ 777,260 $ 243,756 $ (822,785) $ 1,045,030
======== ============= =============== ================ ================
Current liabilities:
Trade accounts payable $ 437 $ 36,998 $ 26,546 $ - $ 63,981
Accrued liabilities 36,546 32,509 13,106 (553) 81,608
Other current liabilities 1,988 33,389 24,505 (55,618) 4,264
-------- ------------- --------------- ---------------- ----------------
Total current liabilities 38,971 102,896 64,157 (56,171) 149,853
Long-term debt 690,124 563,500 37,435 (593,000) 698,059
Other non-current liabilities -- 76,552 12,152 (292) 88,412
Stockholders' equity 117,704 34,312 130,012 (173,322) 108,706
-------- ------------- --------------- ---------------- ----------------
$846,799 $ 777,260 $ 243,756 $ (822,785) $ 1,045,030
======== ============= =============== ================ ================
</TABLE>
14
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE G - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended March 28, 1998
-----------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------- -------------
Results of Operations
Sales $ 399 $ 196,888 $ 47,635 $ (7,277) $ 237,645
Gross Profit 389 27,742 6,452 (467) 34,116
Operating Income (44) 18,391 3,963 (331) 22,641
Interest expense and income taxes 730 16,684 1,131 - 18,545
Net income $(774) $ 1,707 $ 2,832 $ (331) $ 4,096
Six Months Ended March 28, 1998
----------------------------------------------------------------------------------------
Guarantor Non-Gurantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ -------------- ------------- ------------ -------------
Results of Operations
Sales $ 493 $ 324,035 $ 51,829 $ (11,565) $ 364,792
Gross Profit 483 37,472 6,518 (561) 43,912
Operating Income (44) 24,219 4,029 425 28,629
Interest expense and income taxes 730 23,260 1,177 - 25,167
Net income $(774) $ 959 $ 2,852 $ 425 $ 3,462
</TABLE>
15
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1998
(UNAUDITED)
NOTE G - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Six Months Ended March 28, 1998
---------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ -------------- ------------- -------------
Cash Flows
Cash provided by (used in)
operating activities $ (446) $ (10,063) $ 7,748 $ - $ (2,761)
Cash provided by (used in)
investing activities (465,945) (13,064) 11,612 - (467,397)
Cash provided by (used in)
financing activities 469,391 22,335 (7,340) - 484,386
--------- ------------- ------------ --------------- -------------
Net change in cash and cash
equivalents 3,000 (792) 12,020 - -
Cash and cash equivalents at
beginning of period - 2,277 - - 2,277
--------- ------------- ------------ --------------- -------------
Cash and cash equivalents at
end of period $ 3,000 $ 1,485 $ 12,020 $ - $ 16,505
========= ============= ============ ================ =============
</TABLE>
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIGNIFICANT EVENTS
On January 29, 1998, the Company entered into a Master Separation Agreement with
Polymer Group, Inc. ("Polymer"), DT Acquisition, Inc. ("DTA"), a subsidiary of
Polymer, Dominion Textile, Inc. ("Dominion") and certain other parties thereto,
pursuant to which the Company acquired (the "Acquisition") the apparel fabrics
business (the "Acquired Business") of Dominion from DTA for approximately $466.1
million in cash including certain costs related to the Acquisition. The Acquired
Business primarily consists of several subsidiaries and operating divisions of
Dominion, which are comprised of Swift Denim, Klopman International, S.p.A.
("Klopman") and Swift Europe. Swift Denim is the second largest supplier of
denim in the world, Klopman is one of the largest suppliers of uniform fabrics
in Europe and Swift Europe is a major international supplier of denim to Europe,
North Africa and Asia. The total purchase price of the Acquisition was funded
with borrowings under the Company's credit (See "Liquidity and Capital
Resources" below). The Company used the net proceeds from the private placement
on February 24, 1998 of $300.0 million aggregate principal amount of 9 1/8%
Senior Subordinated Notes Due 2008 (the "Initial Notes") to repay portions of
such credit facilities. In connection with the Acquisition, which has been
accounted for as a purchase transaction, the Company acquired assets with a fair
market value of approximately $519.4 million and assumed liabilities of
approximately $186.3 million. The Company has made a preliminary allocation of
the purchase price and has recorded goodwill of approximately $133.0 million for
the excess of purchase price (including assumed liabilities) over the fair
market value of the assets acquired. The goodwill amount is being amortized over
a 40-year period
On April 23, 1997, the Company's Board of Directors authorized the Company's
Management to purchase up to 900,000 shares or 7.7% of the Company's outstanding
common stock from time to time over the following twelve months at prevailing
prices in open-market transactions. As of May 8, 1998, under the current buy
back program, the Company has acquired 12,201 shares of its outstanding common
stock at an average price of $16.04 per common share.
17
<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 28, 1998 and March 29, 1997 for each segment are shown below:
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended Six Months Ended
--------------------------- --------------------------
03/28/98* 03/29/97 03/28/98* 03/29/97
----------- -------- --------- ----------
(dollar amounts in millions)
Net Sales Per Segment
Apparel fabrics $225.1 $120.5 $338.8 $223.7
Home fabrics 12.5 8.9 26.0 16.7
------ ------ ------ ------
Total net sales $237.6 $129.4 $364.8 $240.4
====== ====== ====== ======
Operating Income (Loss) Per Segment
Apparel fabrics $ 22.0 $ 9.2 $ 27.1 $18.1
% of apparel fabrics net sales 9.8% 7.6 8.0% 8.1%
Home fabrics .6 $ .1 1.5 $ (.1)
% of home fabrics net sales 5.4% 1.4% 6.0 (.2)
---------- ------- ------ ------
Total $ 22.6 $ 9.3 $ 28.6 $18.0
% of total net sales 9.5% 7.2% 7.9% 7.5%
</TABLE>
* Includes results of operations of the Acquired Business for the two month
period from January 30, 1998 through March 28, 1998.
Net sales for the March quarter 1998 (the second quarter of fiscal 1998) were
$237.6 million as compared to $129.4 million for the March quarter 1997 (second
quarter of fiscal 1997). Net sales for the first six months of fiscal 1998 were
$364.8 million as compared to $240.4 million for the first six months of fiscal
1997. Apparel fabrics net sales increased $104.6 million during the March
quarter 1998 and $115.1 million during the first six months of fiscal 1998 while
home fabrics net sales increased $3.6 million or 40.5% during the March quarter
1998 and $9.3 million or 55.7% during the first six months of fiscal 1998. Of
the apparel fabrics increase, $95.6 million for the March quarter 1998 and the
first six months of fiscal 1998 resulted from the Acquisition and as such
includes net sales of the Acquired Business for the two month period from
January 30, 1998 through March 28, 1998. The remaining $9.0 million or 7.5% of
the apparel fabrics sales increase was due to higher sales in all other areas of
the Company's apparel fabrics business. The increase in home fabrics sales for
the March quarter 1998 and the first six months of fiscal 1998 was due to a
stronger market for home decorative fabrics.
Operating income was $22.6 million or 9.5% of net sales for the second quarter
of fiscal 1998 as compared to $9.3 million or 7.2% of net sales for the second
quarter of fiscal 1997. Apparel fabrics operating income increased $13.3 million
for the second quarter of fiscal 1998 as compared to the second quarter of
fiscal 1997 primarily due to the addition of operating income from the Acquired
Business and improvements in operating income from the other areas of the
Company's apparel fabrics business resulting from higher sales volume and
18
<PAGE>
benefits achieved from increased capacity from newly installed dyeing and
finishing equipment. Home fabrics operating income increased $.5 million for the
second quarter of fiscal 1998 as compared to the second quarter of fiscal 1997.
Operating income for the first six months of fiscal 1998 was $28.6 million or
7.9% of net sales as compared to $18.0 million or 7.5% of net sales for the
first six months of fiscal 1997. Apparel fabrics operating income increased $9.0
million for the first six months of fiscal 1998 as compared to the first six
months of fiscal 1997 primarily due to the addition of operating income from the
Acquired Business. The home fabrics operating income improvement for the second
quarter of fiscal 1998 and the first six months of fiscal 1998 was attributable
to a strong demand for home fabrics goods which resulted in increased sales
volume, improved selling prices and improved margins.
Interest expense was $16.2 million for the March quarter 1998 and $20.1 million
for the first six months of fiscal 1998 as compared to $3.1 million for the
March quarter 1997 and $6.1 million for the first six months of fiscal 1998. The
increase in interest expense for the first six months of fiscal 1998 was
primarily due to added interest expense on additional indebtedness incurred from
the Acquired Business of $8.5 million, interest expense of $1.8 million
(pre-tax) related to borrowings under the Bridge Financing and a charge of $2.1
million (pre-tax) of loan cost related to the Bridge Financing (as defined
herein). Working capital requirements and capital expenditures were higher in
the second quarter of fiscal 1998 as compared to the second quarter of fiscal
1997 in order to support higher sales (See "Liquidity and Capital Resources"
below).
The Company's tax rate for the March quarter 1998 was higher than the statutory
rate primarily due to the effect on pre-tax income of nondeductible goodwill
resulting from the Acquisition.
Net income for the March quarter 1998 was $4.1 million or $.34 per common share
on a diluted basis as compared to $3.8 million or $.32 per common share for the
March quarter 1997. Net income for the March quarter 1998 included interest
expense of $1.4 million pre-tax related to the Bridge Financing and a $2.1
million pre-tax charge for loan costs related to the Bridge Financing. Excluding
these charges, net income for the March quarter 1998 would have been $6.3
million or $.52 per common share on a diluted basis. The Company had net income
for the first six months of fiscal 1998 of $3.5 million or $.29 per common share
on a diluted basis as compared to net income for the first six months of fiscal
1997 of $7.3 million or $.61 per common share. Net income for the first six
months of fiscal 1998 was adversely impacted by nonrecurring charges of $7.5
million pre-tax or $.38 per common share related to the Acquisition. These
charges included (i) a $2.7 million pre-tax or $.14 per common share charge
related to hedging the Canadian dollar against currency fluctuations, allowing
the Company to fix the purchase price for the Acquired Business which was based
in Canadian dollars, (ii) a $1.8 million pre-tax or $.09 per common share charge
for interest on the Bridge Financing,(iii) a $0.9 million pre-tax ($0.5 million
after tax) or $.04 per common share extraordinary
19
<PAGE>
charge due to the write-off of fees and expenses related to the Company's old
credit facility which was refinanced in December in order to provide funds for
the Acquisition, and (iv) a $2.1 million pre-tax or $.11 per common share charge
for loan costs related to the Bridge Financing. Excluding these charges, net
income for the first six months of fiscal 1998 would have been $8.1 million or
$.67 per common share.
Effective December 16,1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share" (FAS 128). This statement replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. FAS 128 also requires all periods
presented to be restated after adoption of the statement.
The Company's order backlog at March 28, 1998 was $261.6 million, a 19.3%
decrease compared to the March 29, 1997 backlog of $324.0 million on a pro forma
basis including the Acquired Business. Apparel fabrics backlog was down 18.7%
compared to the March 29, 1997 level on a pro forma basis including the Acquired
Business. Home fabrics backlog was 27.9% lower than the previous year primarily
due to eliminating low margin greige (unfinished fabric) sales and due to the
Company not committing to sales as far out into the future as it had in the
past.
LIQUIDITY AND CAPITAL RESOURCES
On February 24, 1998 the Company closed its private offering of $300.0 million
aggregate principal amount of 9 1/8% Senior Subordinated Notes Due 2008. Net
proceeds from the offering, estimated to be $289.3 million (net of Initial
Purchaser's discount and estimated offering expenses), were used to repay (i)
$275.0 million principal amount of borrowings under a Senior Subordinated Credit
Agreement (the "Bridge Financing") incurred to partially finance the Acquisition
and (ii) a portion of the outstanding amount under a revolving line of credit
provided for under the Senior Credit Facility (as defined herein).
On April 22, 1998 the Company commenced an exchange offer (the "Exchange Offer")
to exchange up to $300.0 million aggregate principal amount of publicly
registered 9 1/8% Senior Subordinated Notes Due 2008 (the "Exchange Notes") for
like aggregate principal amount of Initial Notes properly tendered (and not
withdrawn) on or prior to May 20, 1998 pursuant to the terms and conditions set
forth in a prospectus ("the "Prospectus") dated April 22, 1998 and filed as part
of a Registration Statement on Form S-4 with the U.S. Securities and Exchange
Commission which was declared effective on April 22, 1998. The terms of the
Exchange Notes are identical in all material respects to those of the Initial
Notes except that the Exchange Notes are freely transferable by holders and are
not subject to any covenant regarding registration under the Securities Act of
1933, as amended. Interest on the Exchange Notes will be paid March 1 and
September 1 of each year,
20
<PAGE>
commencing September 1, 1998.
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness
of the Company and its subsidiaries and senior in right of payment to any
subordinated indebtedness of the Company. The Exchange Notes will be
unconditionally guaranteed, on an unsecured senior subordinated basis, by the
Galey Industries, Inc., Swift Denim Services, Inc., G&L Service Company North
America, Inc., Swift Textiles Inc. and other future direct and indirect domestic
subsidiaries.
The Exchange Notes will be subject to certain covenants, including, without
limitation, those limiting the Company and its subsidiaries' ability to incur
indebtedness, pay dividends, incur liens, transfer or sell assets, enter into
transactions with affiliates, issue or sell stock of restricted subsidiaries or
merge or consolidate the Company or its restricted subsidiaries.
On January 29, 1998 the Company entered into a new credit agreement as amended,
(the "Senior Credit Facility") with First Union National Bank ("FUNB"), as agent
and lender, and as of March 27, 1998 a syndicate of lenders. The Senior Credit
Facility provides for (i) a revolving line of credit under which the Company may
borrow up to an amount (including letters of credit up to an aggregate of $30.0
million) equal to the lesser of $225.0 million or a borrowing base (comprised of
eligible accounts receivable and eligible inventory, as defined in the Senior
Credit Facility), (ii) a term loan in the principal amount of $155.0 million
("Term Loan B") and (iii) a term loan in the principal amount of $110.0 million
("Term Loan C").
Under the Senior Credit Facility borrowings were used to refinance the Company's
prior senior credit facility with FUNB, to fund the Acquisition, to pay for
certain closing costs and expenses related to the Acquisition and for general
corporate and working capital purposes.
Under the Senior Credit Facility, the revolving line of credit expires on March
27, 2004 and the principal amount of (i) Term Loan B is repayable in 24
quarterly payments of $387,500 until March 27, 2004 and, thereafter, four
quarterly payments of $36,425,000 until Term Loan B's maturity on April 2, 2005
and (ii) Term Loan C is repayable in 28 quarterly payments of $275,000 until
April 2, 2005 and, thereafter, four quarterly payments of $25,575,000 until Term
Loan C's maturity on April 1, 2006. Under the Senior Credit Facility, the
interest rate on the Company's borrowings under its revolving line of credit and
term loans initially is fixed at a per annum rate, at the Company's option, of
either LIBOR plus 2.25%, LIBOR plus 2.75% and LIBOR plus 3.00%, respectively, or
the greater of the prime rate or the federal funds rate plus .50% plus a margin
of 1.00% for revolving loans, 1.5% for Term Loan B and 1.75% for Term Loan C for
at least two full fiscal quarters following the closing of the Acquisition.
Thereafter, the revolving line of credit borrowings will bear interest at a per
annum rate, at the Company's option, of either (i) (a) the greater of the prime
rate or the federal funds rate plus .50% plus (b)
21
<PAGE>
a margin of 0%, .25%, .50%, .75% or 1.00%, based on the Company achieving
certain leverage ratios (as defined in the Senior Credit Facility) or (ii) LIBOR
plus a margin of .75%, 1.00%, 1.25%, 1.50%, 1.75%, 2.00% or 2.25%, based on the
Company achieving certain leverage ratios. Term Loan B and Term Loan C will bear
interest at a per annum rate, at the Company's option, of (A) with respect to
Term Loan B either (i) (a) the greater of the prime rate or federal funds rate
plus .50%, plus (b) a margin of .25%, .50%, .75%, 1.00%, 1.25% or 1.50%, based
on the Company achieving certain leverage ratios or (ii) LIBOR plus a margin of
1.50%, 1.75%, 2.00%, 2.25%, 2.50% or 2.75%, based on the Company achieving
certain leverage ratios or (B) with respect to Term Loan C, either (i) (a)the
greater of the prime rate or federal funds rate plus .50%, plus (b) a margin of
.50%, .75%, 1.00%, 1.25%, 1.50% or 1.75%, based on the Company achieving certain
leverage ratios, or (ii) LIBOR plus a margin of 1.75%, 2.00%, 2.25%, 2.50%,
2.75%, or 3.00%, based on the Company's achieving certain leverage ratios.
The Company's obligations under the Senior Credit Facility are secured by all of
the assets (other than real property) of the Company and each of its domestic
subsidiaries, a pledge by the Company and each of its subsidiaries of all the
outstanding capital stock of its respective domestic subsidiaries, a pledge of
65% of the outstanding voting capital stock and 100% of the outstanding
non-voting capital stock, of certain of its respective foreign subsidiaries. In
addition, payment of all obligations under the Senior Credit Facility is
guaranteed by each of the Company's domestic subsidiaries. Under the Senior
Credit Facility, the Company is required to make mandatory prepayments of
principal annually in an amount equal to 50% of Excess Cash Flow (as defined in
the Senior Credit Facility), and also in the event of certain dispositions of
assets or debt or equity issuances (all subject to certain exceptions) in an
amount equal to 100% of the net proceeds received by the Company therefrom.
The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility requires the Company to meet certain financial ratio
tests and limits the amount of capital expenditures which the Company and its
subsidiaries may make in any fiscal year.
On December 19, 1997, the Company entered into a $470.0 million credit agreement
(the "Interim Credit Agreement") with FUNB, as agent and lender. Initial
revolving credit line borrowings under the Interim Credit Agreement were used to
refinance the existing term loan and revolving credit facility. The Interim
Credit Agreement was replaced on January 29, 1998 when the Company entered into
the Senior Credit Facility with FUNB, as agent and lender.
On December 19, 1997, the Company entered into a Senior Subordinated Credit
Agreement (the "Bridge Financing") with First Union Corporation,
22
<PAGE>
as agent and lender, which was amended on January 29, 1998, and provided for
borrowings of $275.0 million, of which $145.6 million were initially borrowed on
December 19, 1997 and the remainder of which was borrowed on January 29, 1998.
All borrowings under the Bridge Financing were used to fund the Acquisition
(including fees and expenses). The Bridge Financing was repaid on February 24,
1998 when the Company closed its private offering of $300.0 million aggregate
principal amount of Initial Notes.
During January 1996, the Company entered into an interest rate swap on $25.0
million of its outstanding bank debt to fix the LIBOR interest rate on which
those borrowings are based. The interest rate swap assures that the Company
under its current credit agreement will pay a maximum rate of 8.53% (LIBOR fixed
at 5.53% plus the maximum spread allowed under the Senior Credit Facility of
3.0%) on the $25.0 million of bank debt for a five-year period.
Pursuant to an agreement (the "Pension Funding Agreement"), dated January 29,
1998, with the Pension Benefit Guaranty Corporation ("PBGC"), the Company will
provide $5.0 million in additional funding to three defined benefit pension
plans previously sponsored by Dominion, $3.0 million of which was paid at the
closing of the Acquisition and the remaining $2.0 million of which is to be paid
in installments over the succeeding two years. The Pension Funding Agreement
also gives the PBGC a first priority lien of $10.0 million on certain land and
building assets of the Company to secure payment of any liability to the PBGC
that might arise if one or more of the pension plans were terminated. The
Company's obligations under the Pension Funding Agreement terminate upon either
the termination of the plans in accordance with ERISA, the plans being fully
funded as defined by the PBGC or the Company achieving an investment grade
rating on its debt.
For the first six months of fiscal 1998, the Company spent approximately $15.0
million for capital expenditures. The Company expects to spend approximately
$35.0 million on capital expenditures in fiscal 1998, including expenditures for
the Acquired Business subsequent to the Acquisition. These expenditures will be
primarily for the ongoing modernization of the Company's weaving and dyeing and
finishing facilities and for the expansion of the Company's garment operations
in Mexico. The Company expects to fund these expenditures through funds from
operations and borrowings under its Senior Credit Facility.
Borrowing availability under the Company's revolving credit agreement was $67.3
million as of March 28, 1998.
Working capital increased approximately $144.5 million to $273.7 million at
March 28, 1998 as compared to $129.2 million at March 29, 1997. Approximately
$98.1 million of the increase occurred as a result of the Acquisition and
related refinancing. The remaining $46.4 million of the increase reflects
changes in the Company's existing
23
<PAGE>
business and changes since January 29, 1998 for the Acquired Business including
a $35.2 million increase in accounts receivable and a $12.1 million increase in
inventories. The increase in accounts receivable was primarily a result of
higher net sales over the same period last year for the previously existing
Galey & Lord apparel fabrics businesses and higher net sales since the
Acquisition for Swift Denim than the period comprising the January 1998 accounts
receivable balance. The $12.1 million increase in inventories primarily resulted
from an increase in apparel fabrics inventories to support higher apparel
fabrics sales and an increase in G&L Service Company inventory levels as it
continues building its customer base.
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.
24
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (not applicable)
Item 2. Changes in Securities and Use of Proceeds (not applicable)
Item 3. Defaults Upon Senior Securities (not applicable)
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 10, 1998:
<TABLE>
<CAPTION>
<S> <C>
Broker
Matter For Against Withheld Abstentions Non-Votes
------ --- ------- -------- ----------- ---------
1. Election of Directors:
Arthur C. Wiener 10,841,923 - - 15,892 -
Lee Abraham 10,841,923 - - 15,892 -
Paul G. Gillease 10,841,922 - - 15,893 -
William deR. Holt 10,841,923 - - 15,892 -
Howard S. Jacobs 10,758,923 - - 98,892 -
William M.R. Mapel 10,841,923 - - 15,892 -
Stephen C. Sherrill 10,431,368 - - 426,447 -
David F. Thomas 10,841,923 - - 15,892 -
2. Ratification of selection of Ernst & Young LLP as independent auditors for
the 1998 fiscal year:
Broker
For Against Withheld Abstentions Non-Votes
10,856,723 - - 1,092 -
Item 5. Other Information (not applicable)
</TABLE>
25
<PAGE>
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
January 15, 1998 to report, among other things, that the
Company had entered into an operating agreement with DT
Acquisition Inc. The filing also disclosed the terms of
the Company's new debt agreements with First Union
The Registrant filed a form 8-K on February 9, 1998 to
report that the Company had completed its acquisition of
Dominion Textile's Apparel Fabrics Business and had
entered into a Master Separation Agreement with Polymer
Group, Inc. and its affiliate, DT Acquisition Inc.,
Dominion Textile, Inc. and certain other parties to
acquire the apparel fabrics business of Dominion Textile,
Inc. from DT Acquisition, Inc. The filing also disclosed
the terms of the Company's new debt agreements with First
Union.
The Registrant filed a Form 8-K on March 10, 1998 to
report that on February 24, 1998 the Company closed its
private offering of $300.0 million of Senior Subordinated
Notes Due 2008.
26
<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
Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer),
Treasurer and Secretary
May 12, 1998
- ------------
Date
27
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page No.
10.36 Waiver, Release and First Amendment to
the Credit Agreement dated as of March
19, 1998, among the Company, Galey &
Lord Industries, Inc., G&L Service Company,
North America, Inc., Swift Textiles Inc.,
Swift Denim Services Inc. and First Union
National Bank, as agent and lender.
10.37 Second Amendment to the Credit Agreement
dated as of March 27, 1998, among the
Company, Galey & Lord Industries, Inc.,
G&L Service Company, North America, Inc.,
Swift Textiles Inc., Swift Denim Services
Inc. and First Union National Bank, as
Agent and lender, and the other lenders'
party thereto.
11 Statement Regarding Computation
of Per Share Earnings
21 Subsidiaries of the Company
27 Financial Data Schedule
28
WAIVER, RELEASE AND AMENDMENT
TO CREDIT AGREEMENT
THIS WAIVER, RELEASE AND AMENDMENT, dated as of March 19, 1998 (the
"Waiver and Amendment") relating to the Credit Agreement referenced below, by
and among GALEY & LORD, INC., a Delaware corporation (the "Borrower"), GALEY &
LORD INDUSTRIES, INC., a Delaware corporation (the "Company"), the additional
Guarantors listed on the signature pages hereto, each of those financial
institutions identified as Lenders on the signature pages hereto (together with
each of their successors and assigns, referred to individually as a "Lender"
and, collectively, as the "Lenders"), and FIRST UNION NATIONAL BANK, as agent
for the Lenders (in such capacity, the "Agent"). Terms used herein but not
otherwise defined herein shall have the meanings provided in the Credit
Agreement referenced below.
W I T N E S S E T H
WHEREAS, a $490,000,000 credit facility has been extended to the
Borrower pursuant to the terms of that certain Credit Agreement dated as of
January 29, 1998 (as amended, modified or otherwise supplemented, the "Credit
Agreement") among the Borrower, the Company, the Lenders and the Agent;
WHEREAS, the Borrower has requested that the Lenders waive certain
requirements contained in Sections 5.12 and 5.13 of the Credit Agreement, that
the Lenders release the Borrower and its Subsidiaries with respect to certain
provisions of the Credit Documents and that the Lenders amend the Credit
Agreement to provide for certain intercompany loans to Foreign Subsidiaries of
the Borrower and the Lenders are willing to accommodate such requests;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
(A) With respect to Foreign Subsidiaries which are not directly owned
by either the Borrower or a Domestic Subsidiary of the Borrower ("Second Tier
Foreign Subsidiaries"), the Agent, on behalf of the Lenders, hereby forever
waives the requirement set forth in Section 5.12(a) of the Credit Agreement that
each Credit Party shall cause 65% of the Capital Stock of such Second Tier
Foreign Subsidiaries to be subject to a first priority, perfected Lien in favor
of the Agent.
(B) The Agent, on behalf of the Lenders, hereby waives the following
requirements set forth in Section 5.13 of the Credit Agreement:
(i) The requirement that each Foreign Subsidiary enter into
the Foreign Subsidiary Pledge Agreement is forever waived;
<PAGE>
(ii) With respect to Dominion Textile International (Asia)
Pte. Ltd., the requirements that the Borrower (A) deliver to
the Agent all stock certificates not delivered on the Closing
Date and (B) provide evidence that the security interest of
the Agent in such stock is perfected are hereby waived for a
period of 180 days following the date hereof; and
(iii) With respect to all other Foreign Subsidiaries of the
Borrower or its Domestic Subsidiaries which are not Second
Tier Foreign Subsidiaries, the requirements that the Borrower
or such Domestic Subsidiary (A) deliver to the Agent all stock
certificates not delivered on the Closing Date and (B) provide
evidence that the security interest of the Agent in such stock
is perfected are hereby waived for a period of 90 days
following the Closing Date.
(C) The Agent, on behalf of the Lenders, hereby releases and discharges
each of 3427808 Canada Limited and the Borrower from all of their respective
obligations under the Foreign Subsidiary Pledge Agreement.
(D) The Credit Agreement is hereby amended as follows:
(i) The definition of Consolidated Interest Expense is amended
by adding the term "Adjusted" immediately prior to the phrase
"Fixed Charge Coverage Ratio" the first time it appears in
such definition and the definition of "Fixed Charge Coverage
Ratio" is deleted in its entirety;
(ii) The definition of Foreign Credit Party is amended by
deleting all text immediately following "Foreign Subsidiary"
the first time it appears in such definition;
(iii) Clause (iii) of the definition of Permitted Investments
is amended by adding to the end of subclause (D) thereof the
phrase", except that such limitation shall not be applicable
to the intercompany loans deemed to have been made to the
Foreign Subsidiaries of the Borrower as a result of the G&L
Acquisition and the funding thereof";
(iv) The definition of Receivables immediately following the
definition of Purchasing Lenders is deleted in its entirety;
(v) Subclause (ii) of Section 2.7(b) is amended by deleting
the word "Term" the first time it appears in such subclause;
(vi) Section 2.12 is amended by (A) deleting from the fourth
sentence thereof the phrase "in accordance with Section 2.7
hereof" and (B) adding to the end thereof the following
sentence: "Notwithstanding the foregoing to the contrary, if
any scheduled principal payment on the Term Loans is due and
payable on a day other than a Business Day, such payment shall
be made on the immediately preceding Business Day";
2
<PAGE>
(vii) Section 6.1(d) is amended by adding to the end of the
second proviso thereof the phrase ", except that such
limitation shall not be applicable to the intercompany loans
deemed to have been made to the Foreign Subsidiaries of the
Borrower as a result of the G&L Acquisition and the funding
thereof";
(viii) All references in Section 4.1(w) to the DTA Credit
Agreement are amended to refer to the DTA Credit Facility;
(ix) The term "Investments" appearing in line one (1) of
Section 3.18 is replaced with the term "investments";
(x) The text of Section 5.6 immediately following the first
semi-colon appearing therein and ending immediately prior to
the parenthetical phrase appearing therein is amended and
replaced in its entirety as follows: "and permit the Agent or,
upon the occurrence of and during the continuance of an Event
of Default, any Lender, during regular business hours and upon
reasonable notice by the Agent or any such Lender, to visit
and inspect any of its properties and examine and make
abstracts from any of its books and records";
(xi) The term "commercial banking" appearing in line one (1)
of Sections 9.6(b) and 9.6(c) is replaced with the term
"lending";
(xii) Section 9.6(c) is further amended by (A) adding the
phrase "or any fund that invests in bank loans and is advised
or managed by an investment advisor to an existing Lender"
immediately following the phrase "any affiliate thereof"
appearing in line three (3) thereof and (B) adding the phrase
"or any affiliate thereof" immediately following the term
"Lender" appearing in the first proviso thereof;
(xiii) The text of Section 9.6(h) is amended and replaced in
its entirety as follows:
Nothing herein shall prohibit any Lender, without the
consent of the Agent or the Borrower, from pledging or
assigning any of its rights under this Agreement as collateral
security for its obligations, including without limitation,
any right to payment of principal and interest under any Note,
to (i) any Federal Reserve Bank in accordance with applicable
laws or (ii) in the case of any Lender which has made Term
Loans hereunder and is an investment fund, to the trustee
under the indenture to which such fund is a party in support
of its obligations to such trustee for the benefit of the
applicable trust beneficiaries; provided, however, that in
either case, (A) such Lender shall remain a "Lender" under
this Agreement and shall continue to be bound by all the terms
and conditions set forth in this Agreement and the other
Credit Documents and (B) any assignment to such trustee shall
be subject to the provisions of Section 9.6(c);
3
<PAGE>
(xiv) Clause (b) of Section 9.16 is amended by adding the
phrase "National Association of Insurance Commissioners or
the" immediately before the phrase "Federal Reserve Board";
and
(xv) Section 9.16 is further amended by adding to the end
thereof "or (f) to any Person listed on Schedule 9.2 hereto
(so long as such Person agrees to be bound by the provisions
of this Section 9.16)".
(E) Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits and Schedules thereto) remain in full force and
effect.
(F) This Waiver and Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and it shall not be necessary in making proof of this Waiver and
Amendment to produce or account for more than one such counterpart.
(G) This Waiver and Amendment shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Waiver and Amendment to be duly executed and delivered as of the date
first above written.
GALEY & LORD, INC. FIRST UNION NATIONAL BANK,
as Agent and a Lender
By: /s/ Michael R. Harmon By: /s/ Braxton B. Comer
------------------------------ ----------------------------
Name: Michael R. Harmon Name: Braxton B. Comer
---------------------------- ----------------------------
Title: Executive Vice President Title: Senior Vice President
--------------------------- ---------------------------
GALEY & LORD INDUSTRIES, INC.
By: /s/ Michael R. Harmon
--------------------------------
Name: Michael R. Harmon
------------------------------
Title: Executive Vice President
-----------------------------
G&L SERVICE COMPANY,
NORTH AMERICA, INC.
By: /s/ Michael R. Harmon
------------------------------
Name: Michael R. Harmon
---------------------------
Title: Vice President
--------------------------
SWIFT TEXTILES INC.
By: /s/ Michael R. Harmon
--------------------------------
Name: Michael R. Harmon
------------------------------
Title: Executive Vice President
-----------------------------
SWIFT DENIM SERVICES INC.
By: /s/ Michael R. Harmon
---------------------------------
Name: Michael R. Harmon
-------------------------------
Title: Executive Vice President
-----------------------------
AMENDMENT NO. 2
THIS AMENDMENT NO. 2 (this "Amendment"), dated as of March 27, 1998, is
by and among GALEY & LORD, INC., a Delaware corporation (the "Borrower"), GALEY
& LORD INDUSTRIES, INC., a Delaware corporation ("G&L Industries"), the other
Domestic Subsidiaries of the Borrower (each a "Guarantor", and together with G&L
Industries, the "Guarantors"), THE PERSON IDENTIFIED AS AN "EXISTING LENDER" ON
THE SIGNATURE PAGES HERETO (the "Existing Lender"), THE PERSONS IDENTIFIED AS
"NEW LENDERS" ON THE SIGNATURE PAGES HERETO (the "New Lenders" and, together
with the Existing Lender, the "Lenders") and FIRST UNION NATIONAL BANK, as Agent
for the Lenders (the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement dated as of January 29, 1998,
as amended (the "Existing Credit Agreement") among the Borrower, the Guarantors,
the Existing Lender and the Agent, the Existing Lender has extended commitments
to make certain credit facilities available to the Borrower; and
WHEREAS, the parties hereto have agreed to amend the Existing Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined
herein or the context otherwise requires, the following terms used in
this Amendment, including its preamble and recitals, have the following
meanings:
"Amended Credit Agreement" means the Existing Credit
Agreement as amended hereby.
"Amendment No. 2 Effective Date" is defined in
Subpart 4.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Amendment,
including its preamble and recitals, have the meanings provided in the
Amended Credit Agreement.
<PAGE>
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 2
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II. Except as so amended, the Existing Credit Agreement shall
continue in full force and effect.
SUBPART 2.1. Amendments to Schedule 2.1(a). Schedule 2.1(a) of
the Existing Credit Agreement is hereby deleted in its entirety and a
new schedule in the form of Schedule 2.1(a) attached hereto is
substituted therefor.
SUBPART 2.2. Amendments to Schedule 9.2. Schedule 9.2 of the
Existing Credit Agreement is hereby deleted in its entirety and a new
schedule in the form of Schedule 9.2 attached hereto is substituted
therefor.
PART III
ASSIGNMENTS AND ASSUMPTIONS
The Existing Lender hereby sells and assigns, without recourse, to the
New Lenders, and the New Lenders hereby purchase and assume, without recourse,
from the Existing Lender, effective as of the Amendment No. 2 Effective Date,
such interests in the Existing Lender's rights and obligations under the
Existing Credit Agreement (including, without limitation, the Commitments of the
Existing Lender on the Amendment No. 2 Effective Date and the Revolving Loans
and the portions of the Term Loans owing to the Existing Lender which are
outstanding on the Amendment No. 2 Effective Date) as shall be necessary in
order to give effect to the reallocations of the Revolving Committed Amount, the
Revolving Commitment Percentages, the Tranche B Term Loan Committed Amount, the
Tranche B Term Loan Commitment Percentages, the Tranche C Term Loan Committed
Amount and the Tranche C Term Loan Commitment Percentages effected by the
amendment to Schedule 2.1(a) to the Existing Credit Agreement pursuant to
Subpart 2.1. The Existing Lender hereby represents and warrants that it is the
lawful owner of the interests being assigned hereby, free and clear of any
adverse claim. The New Lenders shall make payment in exchange for such interests
in the Existing Lender's rights and obligations under the Existing Credit
Agreement on March 27, 1998, in the amounts and in accordance with the
instructions of the Agent. Each New Lender (a) represents and warrants that it
is legally authorized to enter into this Amendment; (b) confirms that it has
received a copy of the Credit Agreement, together with copies of the financial
statements referred to in Section 3.1 thereof, the financial statements
delivered pursuant to Section 5.1 thereof, if any, and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment; (c) agrees that it will, independently
and without reliance upon the Existing Lender, the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement, the other Credit Documents or any other instrument
or document furnished pursuant hereto or thereto; (d) appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such powers
and discretion under
-2-
<PAGE>
the Credit Agreement, the other Credit Documents or any other instrument or
document furnished pursuant hereto or thereto as are delegated to the Agent by
the terms thereof, together with such powers as are incidental thereto; and (e)
agrees that it will be bound by the provisions of the Credit Agreement and will
perform in accordance with its terms all the obligations which by the terms of
the Credit Agreement are required to be performed by it as a Lender including,
if it is organized under the laws of a jurisdiction outside the United States,
its obligations pursuant to subsection 2.18 of the Credit Agreement. The
Existing Lender shall, to the extent of the interests assigned hereby,
relinquish its rights and be released from its obligations under the Existing
Credit Agreement. The Agent shall maintain in its internal records and record in
the Register the information relating to the assignments and assumptions
effected pursuant to this Part III and as required by Section 9.6(d). The Agent
hereby agrees (i) that no transfer fee shall be payable under Section 9.6(e) of
the Existing Credit Agreement or otherwise in connection with the assignments
effected pursuant to this Part III and (ii) to pay to each New Lender its
portion of the upfront fee as set forth in the CONFIDENTIAL INFORMATION
MEMORANDUM DATED FEBRUARY, 1998.
PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1. Amendment No. 2 Effective Date. This Amendment
shall be and become effective as of the date hereof (the "Amendment No.
2 Effective Date") when all of the conditions set forth in this Part IV
shall have been satisfied, and thereafter this Amendment shall be
known, and may be referred to, as "Amendment No. 2."
SUBPART 4.2. Execution of Counterparts of Amendment. The Agent
shall have received counterparts (or other evidence of execution,
including telephonic message, satisfactory to the Agent) of this
Amendment, which collectively shall have been duly executed on behalf
of each of the Borrower, the Guarantors, the Agent and the Lenders.
SUBPART 4.3. Execution and Delivery of New Notes. Each Lender
shall have received a new Note or Notes, as the case may be, each in
the principal amount of its respective Commitments and duly executed on
behalf of the Borrower.
PART V
MISCELLANEOUS
SUBPART 5.1. Cross-References. References in this Amendment to
any Part or Subpart are, unless otherwise specified, to such Part or
Subpart of this Amendment.
-3-
<PAGE>
SUBPART 5.2. Instrument Pursuant to Existing Credit Agreement.
This Amendment is a Credit Document executed pursuant to the Existing
Credit Agreement and shall (unless otherwise expressly indicated
therein) be construed, administered and applied in accordance with the
terms and provisions of the Existing Credit Agreement.
SUBPART 5.3. References in Other Credit Documents. At such
time as this Amendment No. 2 shall become effective pursuant to the
terms of Subpart 4.1, all references in the Existing Credit Agreement
to the "Agreement" and all references in the other Credit Documents to
the "Credit Agreement" shall be deemed to refer to the Existing Credit
Agreement as amended by this Amendment.
SUBPART 5.4. Representations and Warranties of the Borrower.
The Borrower hereby represents and warrants that (a) the conditions
precedent to the initial Loans were satisfied as of the Closing Date
(assuming satisfaction or waiver, if applicable, of all requirements in
such conditions that an item be in form and/or substance reasonably
satisfactory to the Agent or any Lenders or that any event or action
have been completed or performed to the reasonable satisfaction of the
Agent or any Lenders), (b) the representations and warranties contained
in Article III of the Existing Credit Agreement (as amended by this
Amendment) are correct in all material respects on and as of the date
hereof as though made on and as of such date and after giving effect to
the amendments contained herein and (c) no Default or Event of Default
exists under the Existing Credit Agreement on and as of the date hereof
and after giving effect to the amendments contained herein.
SUBPART 5.5. Representations and Warranties of the New
Lenders. Each of the New Lenders hereby represents and warrants to the
Borrower that at least one of the following statements is an accurate
representation as to the source of funds to be used by such New Lender
in connection with the financing under the Credit Agreement:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee
benefit plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes
assets allocated to any separate account maintained by such Lender,
such Lender has disclosed to the Borrower the name of each employee
benefit plan whose assets in such account exceed 10% of the total
assets of such account as of the date of such purchase (and, for
purposes of this subsection (b), all employee benefit plans maintained
by the same employer or employee organization are deemed to be a single
plan);
-4-
<PAGE>
(c) to the extent that any part of such funds constitutes
assets of an insurance company's general account, there is no employee
benefit plan or group of plans maintained by the same employee
organization with respect to which the amount of such insurance
company's general account reserves (as determined under Code Section
807(d)) for all contracts held by or on behalf of such plan or plans
exceeds 10% of the total liabilities of such insurance company's
general account, and such insurance company is relying on Prohibited
Transaction Class Exemption 95-60 (issued July 12, 1995);
(d) to the extent that any part of such funds constitutes
assets of an insurance company's general account, such insurance
company has complied with all of the requirements of the regulations
issued under Section 401(c)(1)(A) of ERISA; or
(e) such funds constitute assets of one or more specific
benefit plans which such Lender has identified in writing to the
Borrower.
As used in this Subpart 5.5, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
SUBPART 5.6. Counterparts. This Amendment may be executed by
the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but
one and the same agreement.
SUBPART 5.7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF NORTH CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
SUBPART 5.8. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
[The remainder of this page has been left blank intentionally]
-5-
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment to be duly
executed and delivered as of the date first above written.
BORROWER: GALEY & LORD, INC.
By: /s/ Michael R. Harmon
--------------------------------
Title: Executive Vice President
GUARANTORS: GALEY & LORD INDUSTRIES, INC.,
By: /s/ Michael R. Harmon
-------------------------------
Title: Executive Vice President
G&L SERVICE COMPANY, NORTH
AMERICA, INC., a Delaware corporation
By: /s/ Michael R. Harmon
------------------------
Title: Vice President
SWIFT TEXTILES INC.,
a Delaware corporation
By: /s/ Michael R. Harmon
---------------------------
Title: Executive Vice President
SWIFT DENIM SERVICES INC.,
a Delaware corporation
By: /s/ Michael R. Harmon
--------------------------------
Title: Executive Vice President
[SIGNATURES CONTINUED]
<PAGE>
EXISTING LENDER: FIRST UNION NATIONAL BANK
individually in its capacity as an
Existing Lender, a Lender and in its
capacity as Agent
By: /s/ Jorge Gonzalez
-------------------------
Name: Jorge Gonzalez
-----------------------
Title: Senior Vice President
------------------------
[SIGNATURES CONTINUED]
<PAGE>
NEW LENDERS: THE CIT GROUP / COMMERCIAL SERVICES, INC.
By: /s/ Peter B. Cooney
--------------------
Peter B. Cooney
Vice President
[SIGNATURES CONTINUED]
<PAGE>
THE FIRST NATIONAL BANK
OF CHICAGO
By: /s/ Judith Cornwell
---------------------
Title: Authorized Agent
[SIGNATURES CONTINUED]
<PAGE>
FLEET BANK, N.A.
By: /s/ Steven R. Navarro
-----------------------
Steven R. Navarro
Vice President
[SIGNATURES CONTINUED]
<PAGE>
NATIONSBANK, N.A.
By: /s/ E. Phifer Helms
------------------------
Title: Senior Vice President
[SIGNATURES CONTINUED]
<PAGE>
SUNTRUST BANK, ATLANTA
By: /s/ Jeffrey D. Drucker
-------------------------
Jeffrey D. Drucker
Title: Banking Officer
By: signature on original is illegible
Title:
[SIGNATURES CONTINUED]
<PAGE>
WACHOVIA BANK, N.A.
By: /s/ Gary C. Gaskill
----------------------
Gary C. Gaskill
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
BANKBOSTON, N.A.
By: /s/ John C. Todd
--------------------
John C. Todd
Title: Director
[SIGNATURES CONTINUED]
<PAGE>
CIBC INC.
By: /s/Roger Colden
--------------------------------
Title: Executive Director, CIBC
Oppenheimer Corp. As Agent
[SIGNATURES CONTINUED]
<PAGE>
NATIONAL BANK OF CANADA
By: /s/ C Collie
-------------------------------
Title: Vice-President & Manager
By: /s/ Alex M. Council III
------------------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
--------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: signature on original is illegible
------------------------------------
Title:
[SIGNATURES CONTINUED]
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Michael Henderlong
---------------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
NATIONAL CITY BANK
By: signature on original is illegible
-------------------------------------
Title:
[SIGNATURES CONTINUED]
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: Rose M. Crump
-----------------
Title: Vice President
Rose M. Crump
[SIGNATURES CONTINUED]
<PAGE>
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH
By: /s/ Ian Reece
------------------------
Title: Senior Credit Officer
By: /s/ Hans F. Breukhoven
------------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By: /s/ Scott H. Page
-------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
ALLIANCE CAPITAL MANAGEMENT
L.P., as Manager on behalf
of ALLIANCE CAPITAL
FUNDING, L.L.C.
By: ALLIANCE CAPITAL MANAGEMENT
CORPORATION, General Partner of
Alliance Capital Management, L.P.
By: /s/ L.I. Savitri Alex
---------------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ Neil Brisson
-------------------
Title: Director
[SIGNATURES CONTINUED]
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Roger M. Burns
---------------------------------
Roger M. Burns
Title: Duly Authorized Signatory
[SIGNATURES CONTINUED]
<PAGE>
PUTNAM PREMIER INCOME TRUST
By: /s/ Joshua Viraui
---------------------
Title: Vice-President
[SIGNATURES CONTINUED]
<PAGE>
PUTNAM DIVERSIFIED INCOME TRUST
By: /s/ Joshua Viraui
-------------------
Title: Vice-President
[SIGNATURES CONTINUED]
<PAGE>
PUTNAM HIGH YIELD TRUST
By: /s/ Joshua Viraui
-------------------
Title: Vice-President
[SIGNATURES CONTINUED]
<PAGE>
MELLONBANK, N.A., SOLELY IN ITS CAPACITY AS TRUSTEE
FOR THE GENERAL MOTORS CASH MANAGEMENT MASTER
TRUST, INC. (AS DIRECTED BY SHENKMAN CAPITAL
MANAGEMENT, INC.) AND NOT IN ITS INDIVIDUAL
CAPACITY, AS ASSIGNEE
By: /s/ Bernadette Rist
--------------------------
Title: Authorized Signatory
[SIGNATURES CONTINUED]
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By: /s/ David G. Parker
---------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Mary Ann McCarthy
-----------------------
Title: Managing Director
[SIGNATURES CONTINUED]
<PAGE>
ML CLO XII PILGRIM AMERICA (CAYMAN) LTD
BY: PILGRIM AMERICA INVESTMENTS, INC.,
ITS INVESTMENT MANAGER
By: /s/ Jeffrey A. Bakalar
--------------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
ALLSTATE INSURANCE COMPANY
By: signatures on original are illegible
-------------------------------------
Title:
[SIGNATURES CONTINUED]
<PAGE>
ARES LEVERAGED INVESTMENT
FUND, L.P.
By: ARES Management, L.P.
By: ARES Operating Member, LLC
Its: General Partner
By: /s/ David A. Sachs
--------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
CYPRESS TREE BOSTON PARTNERS
By: signature on original is illegible
-------------------------------------
Title:
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
TORONTO DOMINION (TEXAS), INC.
By: /s/ David G. Parker
---------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
KZH HOLDING CORPORATION III
By: /s/ Virginia Conway
-------------------------
Title: Authorized Agent
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
DELANO COMPANY
By: Pacific Investment Management Company
as its Investment Advisor
By: /s/ Raymond Kennedy
---------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
THE TRAVELERS INSURANCE COMPANY
By: /s/ Teresa M. Torrey
----------------------------
Title: Second Vice President
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
THE TRAVELERS LIFE AND ANNUITY COMPANY
By: /s/ Teresa M. Torrey
---------------------------
Title: Second Vice President
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
OSPREY INVESTMENTS PORTFOLIO
By: Citibank, N.A., as Manager
By: /s/ Hans L. Christensen
-------------------------
Title: Vice President
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By: /s/ Helen Y. Rhee
---------------------------
Title: AVP & Portfolio Manager
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
KZH-CRESCENT-2 CORPORATION
By: /s/ Virginia Conway
---------------------
Title: Authorized Agent
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc.,
as Collateral Manager
By: /s/ Jeffrey W. Maillet
------------------------------------
Jeffrey W. Maillet
Title: Senior Vice President
and Director
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
BANKERS LIFE & CASUALTY
INSURANCE COMPANY
By: signature on original is illegible
------------------------------------
Title:
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
PRESIDENT & FELLOWS OF
HARVARD COLLEGE
By: /s/ Timothy S. Peterson
--------------------------
Title: Authorized Signatory
By: signature on original is illegible
-------------------------------------
Title:
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar. L.P.,
its General Partner
By: Oak Hill Securities MGP, Inc.,
its General Partner
By: /s/ Scott Krase
--------------------
Scott Krase
Vice President
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
KZH-SOLEIL-2 CORPORATION
By: /s/ Virginia Conway
------------------------------
Title: Authorized Agent
[SIGNATURES CONTINUED]
<PAGE>
Galey & Lord
Signature Pages to
Amendment No. 2
DEEPROCK & COMPANY
By: Eaton Vance Management
as Investment Advisor
By: /s/ Scott H. Page
-------------------
Scott H. Page
Vice President
Exhibit 11
GALEY & LORD, INC.
STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS
Computation of Average Shares Outstanding (In Thousands):
<TABLE>
<CAPTION>
<S> <C>
Three Months Ended Six Months Ended
-------------------- -----------------
Mar. 28, 1998 Mar.29, 1997 Mar. 28, 1998 Mar. 29, 1997
------------- ------------ ------------- -------------
Basic Average Common
Shares Outstanding 11,682 11,598 11,673 11,587
Add Dilutive Options 406 408 398 360
-------- -------- -------- --------
Diluted Average Shares 12,088 12,006 12,071 11,947
</TABLE>
Exhibit 21
<TABLE>
<CAPTION>
<S> <C>
GALEY & LORD, INC.
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Place of Incorporation
----------- -----------------------
Galey & Lord Industries, Inc. Delaware
G&L Service Company, North America, Inc. Delaware
Dimmit Industries, S.A. de C.V. Mexico
Confecciones Alta Loma S.A. De C.V. Mexico
Swift Textiles, Inc. Delaware
Swift Denim Services, Inc. Delaware
Drummondville Services, Inc. Canada
Dominion Textile International (Asia) Pte. Limited Singapore
Swift Textiles (Far East) Limited Hong Kong
Dominion Textile International B.V. Amsterdam (the Netherlands)
Domtex Industries (Far East) Limited Hong Kong
Klopman International S.p.A. Italy
Klopman GmbH Germany
Klopman A.G. Switzerland
Klopman Espana S.A. Spain
Klopman International Limited Ireland
DT (USA) Exports Inc. Barbados
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> MAR-29-1997
<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> 167,920
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> .63
<EPS-DILUTED> .61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000884124
<NAME> GALEY & LORD
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> MAR-28-1998
<CASH> 16,505
<SECURITIES> 0
<RECEIVABLES> 197,388
<ALLOWANCES> 0
<INVENTORY> 178,591
<CURRENT-ASSETS> 423,531
<PP&E> 490,115
<DEPRECIATION> 78,639
<TOTAL-ASSETS> 1,045,030
<CURRENT-LIABILITIES> 149,853
<BONDS> 698,059
0
0
<COMMON> 121
<OTHER-SE> 108,585
<TOTAL-LIABILITY-AND-EQUITY> 1,045,030
<SALES> 364,792
<TOTAL-REVENUES> 364,792
<CGS> 320,880
<TOTAL-COSTS> 320,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,057
<INCOME-PRETAX> 6,659
<INCOME-TAX> 2,673
<INCOME-CONTINUING> 3,986
<DISCONTINUED> 0
<EXTRAORDINARY> 524
<CHANGES> 0
<NET-INCOME> 3,462
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
