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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended Commission File Number 0-20080
September 28, 1996
GALEY & LORD, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1593207
(State of Incorporation) (I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, Par Value $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price on November 30, 1996, was approximately
$77,300,000.
The number of shares outstanding of Common Stock, as of November 30, 1996, was
11,576,841 shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A for the 1997 annual meeting of
stockholders of the Company are incorporated by reference into Part III.
Exhibit Index at Pages 42-44
1
PART I
ITEM 1. BUSINESS
GENERAL
Galey & Lord, Inc. (the "Company" or the "Registrant") is a leading
developer, manufacturer and marketer of high quality woven cotton and cotton
blended apparel fabrics. It principally sells fabrics to well-known
manufacturers of sportswear for use in the production of men's, women's and
children's pants and shorts and to manufacturers of commercial uniforms. The
Company's technical expertise in finishing enables it to provide a number of
fabrics to its customers that are not otherwise available in the domestic
marketplace. The location of the Company's facilities in the United States and
Mexico enables it to respond quickly to customers' changing needs, as well as
their increasing demands for tight production schedules and rapid delivery.
The Company was incorporated in Delaware in 1987 for the purpose of
acquiring, in February 1988, substantially all of the assets of the Blends
Apparel and Prints divisions of Burlington Industries, Inc. ("Burlington"). The
Company acquired these businesses through its wholly-owned subsidiary Galey &
Lord Industries, Inc. ("Industries") and conducts all of its operations through
Industries and Industries' subsidiaries and has no significant assets other than
shares of Industries. Prior to April 1992, the Company was known as Galey & Lord
Holdings, Inc., and its operating subsidiary was known as Galey & Lord, Inc.
In April 1994, the Company, through Industries, acquired the Decorative
Prints Division of Burlington. This business, which was renamed Galey & Lord
Home Fashion Fabrics, sells greige, dyed and printed fabrics to the home
furnishings trade for use in bedspreads, comforters and curtains. This segment
reported sales for the last twenty-two weeks of fiscal 1994 and for the full
years of fiscal 1995 and 1996.
On September 19, 1995, the Company closed its printed apparel fabrics
businesses, made up of Galey & Lord Prints and Galey & Lord Group II, due to
declining business conditions that the printed apparel fabrics businesses had
experienced since 1992. As a result of the closing, the Company ceased
operations at its Specialty Plant on that date and laid off approximately
450 employees located primarily in Society Hill, South Carolina and New York
City.
2
On June 7, 1996, the Company, through its newly formed subsidiary, G&L
Service Company, North America, Inc. ("G&L Service Company") acquired the
capital stock of Dimmit Industries, S.A. de C.V. ("Dimmit") and certain related
assets from Farah Incorporated for approximately $22.8 million in cash including
certain costs related to the acquisition (the "Acquisition"). Dimmit is composed
of six manufacturing facilities located in Piedras Negras, Mexico and sews and
finishes pants and shorts for the casual wear market. Funding for the
Acquisition was provided through funds generated by operations, working capital
reductions and by the Company's current bank group through amendments to the
Company's term loan and revolving credit facility. The results of operations of
G&L Service Company and Dimmit have been included in the consolidated financial
statements from the date of acquisition.
Unless otherwise specified herein, all references to the Company or the
Registrant include the Registrant and its subsidiaries, Industries, G&L Service
Company and Dimmit.
PRODUCTS AND CUSTOMERS
The following chart sets forth the Company's net sales for both the
apparel fabrics segment, comprised of woven fabrics, printed fabrics, synthetic
fabrics and G&L Service Company, and the home fabrics segment, comprised of Home
Fashion Fabrics, for each of the last three fiscal years.
Fiscal Year
1996 1995 1994
------------------------ ------------------------- ----------------------
(dollar amounts in thousands)
Apparel fabrics..................... $364,157 88.5% $443,544 88.3% $424,254 94.0%
Home fabrics........................ 47,298 11.5% 58,676 11.7% 26,876 6.0%
----------- -------- ---------- ------- ----------- --------
Totals........................ $411,455 100.0% $502,220 100.0% $451,130 100.0%
======== ====== ======== ====== ======== ========
For additional financial information with respect to the apparel
fabrics segment and home fabrics segment, see Note M to the Company's
consolidated financial statements contained herein.
APPAREL FABRICS. The Company's principal products are spun woven
mediumweight cotton and cotton blended apparel fabrics. Fabric styles are
distinguished by weave (twills, poplins, canvas and corduroy), interlacing and
weight. In conjunction with the formation of G&L Service Company and the
Acquisition of Dimmit in June 1996, the Company began offering sewn and finished
garments to its current customer base.
The Company's strategy is to manufacture a relatively limited number of
basic fabric styles and to enhance the value of fabrics to its customers through
a wide variety of sophisticated mechanical and chemical finishing processes,
including dyeing, napping, sueding and prewashing. The Company offers fabrics in
a variety of finishes, including wrinkle-resistant and soil release finishes,
and offers an extensive range of colors to respond to its customers' particular
product requirements. The Company works closely with its customers and weaves
basic fabrics according to projected sales based on strong indications from
major customers, but dyes and finishes according to specific purchase orders.
This practice allows the Company to respond quickly to actual demand and has
resulted in improved operating efficiencies and inventory control.
3
The Company's woven apparel fabrics are sold to apparel manufacturers
that sell principally to four end-user customer groups: menswear, uniforms,
branded womenswear and private label womenswear. Fabrics produced by the Company
for menswear apparel manufacturers are principally high quality mediumweight
fabrics used to manufacture pants and shorts. The Company's leading menswear
customers are Levi Strauss & Co., Haggar Apparel Co., Farah Incorporated and
Tropical Sportswear International Corp. The Company also sells to suppliers of
private label mail order marketers, including Lands' End, Inc. and L.L. Bean,
Inc.
In the branded womenswear apparel fabric market, the Company sells
woven fabrics principally for women's pants, skirts and shorts. The Company's
primary customers are leading women's apparel manufacturers, including Levi
Strauss & Co., Inc., Polo Ralph Lauren Corp., Koret of California Inc., Gap
Banana Republic, Calvin Klein Jeanswear and Liz Claiborne.
Fabrics for private label womenswear are principally sold to garment
manufacturers that supply women's pants, skirts and shorts to mass merchandisers
which generally require a large volume of garments made with 60% cotton/40%
polyester blended fabrics. Major end-use customers include Wal-Mart Stores,
Inc., Kmart Corporation, J.C. Penney Co. Inc., Sears Roebuck & Company and
Montgomery Ward. Many end-use customers are working directly with the Company to
develop fabrics for garments sold by them and specify that the Company's fabrics
be used by their suppliers.
The Company manufactures corduroy to customer order in various wales
and widths. Corduroy is sold to manufacturers of menswear, womenswear and
childrenswear. The Company believes that it is the only vertically-integrated
domestic producer of corduroy. The major corduroy customers include Haggar
Apparel Co., Aalfs Manufacturing, Oxford Industries, Tropical Sportswear
International Corp., Levi Strauss & Co. and H.D. Lee Co., Inc.
The Company's uniform fabrics are distributed to the industrial laundry
market, the hospitality market and to the healthcare market. Durability of
fabric, compliance with strict standards for fitness for use, continuity of
color and customer service are the factors most important to the Company's
customers. The Company sells chemically treated fabrics, including fabrics
treated with Flamex(TM), a fire retardant finish, and Bioguard(TM), an
anti-bacterial finish. Customers for uniform fabrics include Riverside Mfg. Co.,
Landau Uniforms, Inc., Cintas Corporation and Kellwood Company.
In June 1996, the Company formed a new subsidiary, G&L Service Company,
and purchased Dimmit to take advantage of the movement of garment manufacturing
from the Pacific Rim to the Western Hemisphere. Dimmit sews and finishes pants
and shorts for the casual wear market. Also, a number of the Company's apparel
fabrics customers outsource some or all of their garment production, often
dealing with several suppliers to complete each garment. The Acquisition will
allow the Company to offer a package of fabric and garments from one source to
its current customers. The Company believes that by purchasing garments from a
single source of supply, its customers will reduce their logistical and quality
problems and their lead times. The Company believes that offering its customers
a single source of supply represents a major step in changing the current
manufacturing chain and that it will lead to an increase in the Company's
apparel business in the future.
4
HOME FABRICS. As a result of the April 1994 acquisition of the Home
Fashion Fabrics Division from Burlington, the Company entered into the
non-apparel textile market. This division sells greige, dyed and printed fabrics
to the home furnishing trade for use in bedspreads, comforters, curtains and
accessories. Home Fashion Fabrics' major customers include Arley Merchandise
Corp., Regency Home Fashions Inc., Burlington Industries, Inc., CHF Industries,
Inc., and American Home Ensembles.
GENERAL. Apparel fabric sales for fiscal year 1996 and fiscal year 1995
to various divisions of Levi Strauss & Co., Inc. accounted for approximately
17.4% and 16.6% , respectively, of the Company's total net sales for each year.
These various divisions of Levi Strauss & Co. Inc. purchase fabrics from the
Company independently of each other, and the loss of business from any one
division would not necessarily affect the Company's orders from other divisions.
No other customer accounts for more than 7% of the Company's total net sales.
At September 28, 1996, the Company had more than 2,600 customer
accounts.
MARKETING
The Company markets its products through two segments, apparel fabrics
and home fabrics, with six main areas of distribution: Sportswear, Uniform
Fabrics, Corduroy Fabrics, Synthetic Apparel Fabrics, G&L Service Company and
Home Fashion Fabrics. The Company's principal marketing functions are based in
New York City to be close to major apparel manufacturing customers. The Company
also has regional sales offices located in Los Angeles, San Francisco and
Dallas. The Company employs marketing executives and salespersons and several
independent sales agents.
Sales personnel work continually with major fabric and garment
customers to develop product lines well in advance of actual shipment. Until a
customer selects particular colors and finishes and the dyeing and finishing
process begins (between two and six weeks before anticipated shipment),
unfinished woven fabrics can be used for a large variety of customers. The
Company believes that the coordination of its marketing and production processes
enhances its flexibility to respond quickly to both apparel and home furnishings
manufacturers' requirements.
MANUFACTURING
APPAREL FABRICS. The Company is a vertically-integrated manufacturer of
dyed and finished woven cotton and cotton blended apparel fabrics with various
plants involved in spinning, weaving and state-of-the-art dyeing and finishing.
In conjunction with the formation of G&L Service Company and the Acquisition of
Dimmit in June 1996, the Company began offering sewn and finished garments, made
from the Company's fabric, to its current customer base.
The Company either spins or purchases the yarn it uses to weave
fabrics. The yarn is woven into fabric using high-speed air-jet looms. All woven
fabrics sold by the Company are either dyed or finished. Special chemicals and
resins may be applied to a fabric to give it special properties, including
wrinkle resistance and soil release. The finishing process used by the Company
depends upon the type and style of fabrics being produced in accordance with
customer specifications. Fabrics are woven by the Company based on projected
sales but are dyed and finished according to customer purchase orders. Customer
fabric orders typically are completed between three and five weeks after a
customer selects colors and finishes.
5
The Company's weaving, dyeing and finishing equipment and processes may
be used to produce both corduroy and other woven cotton and cotton blended
apparel fabrics. The ability to produce both types of fabric using substantially
the same equipment and processes allows the Company to adapt to changes in
demand which varies seasonally (corduroy for the fall/winter selling season and
sportswear for the spring/summer selling season) and to maintain consistent
levels of production throughout the entire year. The Company manufactures
corduroy seasonally to customer order rather than year round.
In order to operate its dyeing and finishing facility at optimum
capacity, the Company purchases greige fabrics from outside sources to fill
orders and does not rely solely on production by its spinning and weaving
facilities. During periods of lower demand for dyed and finished fabrics, the
Company reduces its purchases of greige fabrics from outside sources to keep its
spinning and weaving facilities operating at full or near full capacity. In
fiscal 1996, the Company's greige manufacturing facilities operated at full
capacity while the Company's dyeing and finishing facility was impacted by weak
market conditions during the first two quarters and operated below capacity
during these periods. The Company also purchases some greige fabrics which are
sent to outside processors for dyeing and finishing.
Through G&L Service Company, the Company sews and finishes garments for
its apparel customers. The location of the Company's garment manufacturing
facilities in Mexico allows the Company to respond quickly to the needs of its
United States apparel customers and to compete effectively with competitors in
the Far East who have longer lead times for delivery of goods to the United
States.
HOME FABRICS. The Company operates its own yarn and greige
manufacturing facilities to produce polyester/cotton sheeting fabrics for the
home furnishings trade. The Home Fashion Fabrics Division's weaving facility
operates wide Sulzer looms, which allow it to manufacture fabrics ranging from
48" to 127" in width. The Company believes that having wide weaving capability
is key to being able to offer wider fabrics required by the home furnishings
trade for comforters and bedspreads. These looms also have the capability of
producing apparel fabrics, allowing the Company flexibility to shift production
with market demand. The Company purchases outside dyeing and printing services
from various suppliers to dye and print fabrics according to customers'
specifications.
GENERAL. The Company maintains rigorous quality control throughout each
production process. Testing and inspection occur at various stages in the
spinning, weaving, dyeing, finishing, sewing and laundering processes. The
Company's plants employ computers to monitor and control manufacturing processes
and the flow of products.
RAW MATERIALS AND SERVICES
The principal raw materials used by the Company are cotton and man-made
fibers and yarns. Cotton is available from a large number of suppliers. Weather,
crop conditions, agricultural policies and market conditions can significantly
affect the cost and availability of cotton, but, to date, the Company has
experienced no difficulty obtaining adequate supplies of cotton. The Company
enters into contracts for cotton several months in advance of expected delivery
to ensure availability. The prices associated with these contracts may be either
fixed at the time the contract is signed or at a later date.
6
The United States restricts the importation of cotton. In order to make
the price of domestic cotton competitive with prices quoted in the world market,
the United States Department of Agriculture has adopted a program under which it
pays rebates to users of domestically produced cotton when domestic prices
exceed world prices, based upon a formula. Due to the fluctuation in the world
price of cotton to a level approximately the same as the U.S. price for cotton,
the criteria for receiving rebates was not met during fiscal 1996 and thus no
rebates were received.
7
The principal man-made fiber purchased by the Company is polyester. The
Company currently purchases man-made fibers for its woven fabrics from two
principal suppliers. Such fibers are readily available from other suppliers. The
Company has not experienced any difficulty in obtaining sufficient quantities of
man-made fibers.
The Company purchases greige cotton, cotton blended fabrics and
selected synthetic fabrics for its apparel fabrics and home fabrics segments to
supplement its own production. Greige fabric is available from a large number of
suppliers.
The Company purchases its dyes and chemicals from several suppliers.
Dyes and chemicals are available from a large number of suppliers, and the
Company has not experienced any difficulty in obtaining sufficient quantities.
The Company employs the services of several outside processors to dye
or print the greige fabric in accordance with the customer's specifications. The
Company has established strong relationships with the outside processors and has
not experienced any difficulty in meeting customer delivery dates. These
services are available from many outside processors which are also capable of
meeting the same production schedules (delivery within three to four weeks after
ordered).
TRADEMARKS AND PATENTS
The Company owns, or has the right to use under license various
patents, trademarks and service marks. The "Flamex" and "Galey & Lord"
trademarks are registered with the United States Patent and Trademark Office.
Other than the "Galey & Lord" trademark, which expires in May 2009 and may be
renewed thereafter for a 20-year term, the Company does not consider any of its
patents, licensed technology, trademarks or service marks to be material to the
conduct of its business.
BACKLOG
During the December quarter 1995 and March quarter 1996, order backlog
was adversely impacted by customers adjusting their inventories due to a slow
retail environment. The Company's core apparel fabrics businesses began to
improve during the March quarter 1996 and continued to improve through the
remainder of the fiscal year. At September 28, 1996, the Company had
approximately $99 million of unfilled customer orders for goods, as compared to
$77 million at September 30, 1995. The order backlog for the apparel fabrics
business increased 48% returning to a more normal level. Home fabrics order
backlog decreased 25% as the market for home decorative fabrics remained weak.
The Company's order backlog consists of orders that are not subject to
cancellation prior to shipment, although the Company has in the past
accommodated customer requests for order deferments due to unusual
circumstances. Approximately 74% of the orders outstanding at September 28, 1996
require delivery by December 28, 1996 and the remainder by December 27, 1997.
8
SEASONALITY
The Company's business is not highly seasonal. The apparel fabrics
segment product mix varies seasonally (with demand for corduroy fabric primarily
in the fall/winter selling season and sportswear in the spring/summer selling
season). The Company's weaving, dyeing and finishing equipment and processes are
configured to produce both corduroy and other woven fabrics, allowing the
Company to adapt to seasonal demand and to maintain consistent levels of
production throughout the entire year. The Home Fashion Fabrics Division
experiences a very minimal fluctuation in the demand for the products it
produces.
COMPETITION
DOMESTIC. The Company has numerous competitors. Principal competitive
factors are product type, price, service, delivery time, quality and
flexibility, with the significance of each factor depending upon the product
involved. The Company's competitive position varies among the different fabrics
produced.
There are several major domestic competitors in the finished woven
cotton and cotton blended apparel fabrics business, none of which dominates the
market and some of which have greater resources than the Company. The Company's
major competitors include Milliken & Company, Delta Woodside Industries, Inc.,
Springs Industries, Inc., Graniteville Company, a division of Avondale Mills,
Inc., and Riegel, a division of Mount Vernon Mills Inc. The Company believes
that it has a strong competitive position with respect to the manufacture of
dyed and finished woven cotton and cotton blended apparel fabrics because of its
experience in performing highly sophisticated and technical manufacturing
processes and its state-of-the-art equipment.
The Company believes it is the only vertically-integrated domestic
producer of corduroy fabrics.
Home Fashion Fabrics competes with a number of suppliers in the greige
goods market including Clinton Mills, Alice Manufacturing Co., Inc., Greenwood
Mills, Inc. and Mayfair Mills, Inc. In the dyed and printed goods market, there
are numerous converting and commission finishing competitors including Spartan
Mills, Raytex Finishing Company, Santee Print Works, Inc. and Slater Screen
Print Works.
IMPORTS. Import decisions by United States retailers and apparel
manufacturers are influenced by a number of factors, including changing relative
labor and raw material costs, lead times, political instability and
infrastructure deficiencies of newly industrializing countries, fluctuating
currency exchange rates, individual government policies and international
agreements regarding textile and apparel trade. The Company concentrates on
developing, manufacturing and marketing mediumweight woven cotton and cotton
blended apparel fabrics and home fabrics that have been less vulnerable to
import penetration. The location of the Company's fabric manufacturing
facilities in the United States and garment manufacturing facilities in Mexico
and its emphasis on shortening production and delivery times allows the Company
to respond more quickly than foreign producers to its customers' demands for
tight production schedules, rapid delivery and changing needs. Capital
expenditures have modernized and consolidated operations, increasing
productivity, adding flexibility, lowering costs and improving quality. The
Company believes that the technical infrastructure necessary to produce high
quality, high-value-added dyed and finished fabrics and garments currently does
not exist in many countries with lower cost structures.
9
United States government policy, which is designed to benefit Western
Hemisphere nations, has been favorable to the United States textile industry.
Under the United States "807" tariff program, many of the Company's customers
purchase fabric from domestic suppliers and ship the fabric offshore to be sewn
into garments which are then returned to the United States market where duty is
charged only on the value added on the sewing of the garment. Because the fabric
is shipped to domestic destinations prior to shipment offshore, it is impossible
for the Company to give an accurate percentage as to what portion of those
fabrics are produced under the "807" tariff program, but the Company believes
that it is the majority.
The passage of the North American Free Trade Agreement ("NAFTA") during
1994 is believed to have a positive effect on the Company. NAFTA phases out
quotas and duties on textiles and apparel shipped between Mexico, the United
States and Canada. NAFTA's yarn forward rule of origin assures that only those
textiles produced in NAFTA countries will benefit from the phasing out of quotas
and duties. The Company believes that with the NAFTA benefits noted above and
with Mexican labor costs, NAFTA is resulting in increased apparel fabric and
garment manufacturing in this hemisphere.
The Company believes that the General Agreement on Trade and Tariffs
("GATT"), as passed, will have a negative effect on the textile and apparel
industry of this country. The ten-year phaseout of quotas under GATT will
gradually allow more imports to enter the country. The GATT agreement will
replace and end the existing Multifiber Arrangements which are currently used to
bilaterally limit the amount of imports allowed into the United States. Although
the Company cannot determine with certainty the long-term impact of GATT, the
Company believes that the positive results of NAFTA will offset the potential
negative implications of GATT.
Under the "807" tariff program and NAFTA, many of the Company's
customers have purchased fabric from the Company and shipped it to contract
sewing and finishing companies outside the United States to be made into
garments. By forming G&L Service Company and purchasing Dimmit in June 1996, the
Company is now a direct participant in this process and a total supplier of
garments under NAFTA. Dimmit sews and finishes pants and shorts for the casual
wear market in its six manufacturing facilities located in Piedras Negras,
Mexico. This Acquisition allows the Company to offer its current apparel
customers a quality, finished garment. The Company believes it has a competitive
advantage over contract sewing and finishing companies located in Mexico and the
Caribbean because it can reduce required lead times and improve the quality of
the finished garment by controlling the entire manufacturing process. The
Company also believes that the combination of United States fabric and Mexican
sewing costs will allow it to compete effectively with garment producers in the
Far East.
EMPLOYEES
At September 28, 1996, the Company had 3,490 United States employees,
none of whom were covered by a collective bargaining agreement. Of these
employees, 2,952 were employed in manufacturing and 538 in administration and
sales. Substantially all of the Company's employees are full-time. The Company
believes that its employee relations are excellent.
10
At September 28, 1996, Dimmit had 1,961 employees in Mexico. The
majority of these employees are covered by a collective bargaining agreement
which expires January 7, 1997. The Company believes that its relationships with
the union and the workforce are excellent and is in the process of renegotiating
this agreement. The Company anticipates that these negotiations will provide for
normal wage rate increases for the employees covered by this agreement.
REGULATION
The Company is subject to various federal, state and local
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances, particularly the Federal Water Pollution
Control Act, the Federal Clean Air Act of 1970 (as amended in 1990), the
Resource Conservation and Recovery Act, as amended, and the Federal
Comprehensive Environmental Response Compensation and Liability Act, as amended.
The Company does not believe that there is a reasonable likelihood that its
compliance efforts with currently applicable environmental laws and regulations
will materially affect its operations or financial condition.
The Company also is subject to Federal, state and local laws and
regulations relating to workplace safety and worker health, including those
promulgated under the Occupational Safety and Health Act ("OSHA"). The Company
does not believe that there is a reasonable likelihood that its compliance
efforts with currently applicable laws and regulations relating to workplace
safety and worker health will materially affect its operations or financial
condition.
FORWARD-LOOKING STATEMENTS
This 1996 Annual Report on Form 10-K contains statements which
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Those statements include statements regarding the
intent, belief or current expectations of the Company and its management team.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, among other
things, competitive and economic factors in the textile, apparel and home
furnishings markets, raw materials and other costs, weather-related delays,
general economic conditions and other risks and uncertainties that may be
detailed herein.
11
ITEM 2. PROPERTIES
The following table sets forth the general location, principal uses and
approximate size of the Company's principal properties and whether such
properties are leased or owned:
APPROXIMATE LEASED
AREA IN OR
FACILITY NAME LOCATION USE SQUARE FEET OWNED
Flint...................... Gastonia, NC Spinning 250,000 Owned
Brighton................... Shannon, GA Spinning and weaving 877,000 Owned
McDowell................... Marion, NC Weaving 222,000 Owned
Society Hill............... Society Hill, SC Dyeing and finishing 527,000 Owned
Asheboro................... Asheboro, NC Weaving and greige cloth storage 386,000 Owned
Caroleen................... Caroleen, NC Spinning 375,000 Owned
Corporate Offices.......... Greensboro, NC Corporate 24,000 Leased
Executive Offices.......... New York, NY Executive and sales office 22,000 Leased
Blue Warehouse............. Society Hill, SC Greige and finished cloth storage 100,000 Owned
Riverside Warehouse........ Rome, GA Cotton and yarn storage 45,000 Leased
Red Warehouse.............. Marion, NC Yarn storage 33,000 Owned
Elm Street Warehouse....... Greensboro, NC Finished cloth storage 108,000 Owned
Specialty Plant............ Society Hill, SC Warehouse (formerly printing & dyeing) 250,000 Owned
Dimmit Industries.......... Piedras Negras, MX 6 sewing & garment finishing facilities 228,000 Leased
Eagle Pass Facilities...... Eagle Pass, TX 1 cutting and 1 warehousing facility 16,000 Leased
The Company believes that its facilities are suitable for its current level
of operations and that the Company could expand productive capacity for its
foreseeable needs at relatively low capital cost.
The Company's executive and sales offices located at 980 Avenue of the
Americas, New York, New York are occupied pursuant to a lease that expires in
1998, with a five-year renewal option. The lease for corporate offices in
Greensboro, North Carolina also expires in 1998, with two five-year renewal
options.
ITEM 3. LEGAL PROCEEDINGS
The Company has been recently notified by the South Carolina Department
of Health and Environmental Control that tests of two boilers at its Society
Hill facility located in Society Hill, South Carolina, showed that such boilers
were operating outside the parameters of the facility's South Carolina air
quality permit. No official administrative enforcement proceedings have been
initiated at this time, and the Company is taking steps to bring this facility
into compliance with air permit limitations. The Company does not believe that
the costs of compliance will be material.
12
The Company is involved in various lawsuits incidental to its business
operations, as well as product liability litigation. In the opinion of the
Company, none of such litigation in which it is currently involved will have a
material effect on the Company's financial condition or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value (the "Common Stock"), has
been traded on the New York Stock Exchange under the symbol "GNL" since December
27, 1994. Prior to that date, the Company's common stock was traded on the
Nasdaq National Market under the symbol "GANL." As of November 30, 1996, the
Company had approximately 2,200 stockholders of record. The following table sets
forth the high and low sales prices for the Common Stock for the periods
indicated.
1996 1995
-------------------- -----------------
High Low High Low
First Quarter........... $13 5/8 $9 1/2 $23 1/2 $13
Second Quarter.......... $11 1/8 $9 1/8 $16 $11 1/4
Third Quarter........... $11 1/2 $8 7/8 $13 7/8 $11 3/8
Fourth Quarter.......... $12 3/4 $9 1/4 $16 $12 1/8
No dividend or other distribution with respect to the Common Stock has
ever been paid by the Company. Any payment of future dividends and the amounts
thereof will be dependent upon the Company's earnings, financial requirements
and other factors deemed relevant by the Company's Board of Directors. The
Company currently does not intend to pay any cash dividends in the foreseeable
future; rather, the Company intends to retain earnings to provide for the
operations and expansion of its business.
14
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR
STATEMENTS OF OPERATIONS DATA (1): 1996(2) 1995 (3) 1994 (4) 1993 1992
------- ----- ----- ---- ----
Net sales...................................................... $ 411,455 $ 502,220 $451,130 $385,841 $352,765
Cost of sales.................................................. 367,992 451,314 396,911 344,007 309,711
Gross profit................................................... 43,463 50,906 54,219 41,834 43,054
Selling, general and administrative expenses................... 13,526 15,877 14,705 13,799 13,362
Amortization of goodwill....................................... 1,298 1,119 549 145 146
Business closing charge........................................ - 12,065 - - -
Operating income............................................... 28,639 21,845 38,965 27,890 29,546
Interest expense............................................... 11,579 13,103 8,276 6,465 9,653
Write-off of merger costs...................................... 1,600 - - - -
Income before income taxes and extraordinary items............. 15,460 8,742 30,689 21,425 19,893
Income tax expense............................................. 5,982 3,390 11,803 8,014 6,784
Income before extraordinary items
and accounting change....................................... 9,478 5,352 18,886 13,411 13,109
Extraordinary items............................................ - (1,342) - - (1,729)
Cumulative effect of change in accounting method............... - - (1,603) - -
Net income..................................................... 9,478 4,010 17,283 13,411 11,380
Accrued dividends and accretion of Senior Preferred Stock(5)... - - - - (666)
Early redemption premium on Senior Preferred Stock(5).......... - - - - (1,485)
Net income applicable to common stock.......................... $ 9,478 $ 4,010 $ 17,283 $ 13,411 $ 9,229
Weighted average number of shares outstanding.................. 11,960 12,041 12,106 11,972 9,575
Net income per common share - fully diluted:
Income before early redemption premium
and extraordinary items..................................... $ .79 $ .44 $ 1.56 $ 1.12 $ 1.30
Early redemption premium....................................... - - - - (0.16)
Income before extraordinary items.............................. $ .79 $ .44 $ 1.56 $ 1.12 $ 1.14
Extraordinary items............................................ - (0.11) - - (0.18)
Cumulative effect of change in accounting method............... - - (0.13) - -
Net income - fully diluted..................................... $ .79 $ .33 $ 1.43 $ 1.12 $ 0.96
Cash dividends per common share................................ $ - $ - $ - $ - $ -
BALANCE SHEET DATA:
Total assets................................................. $ 304,876 $ 305,039 $299,015 $202,350 $172,932
Long-term debt............................................... 149,265 162,084 149,899 95,223 80,286
Stockholders' equity......................................... 89,645 81,879 77,719 59,067 45,203
(1) The Company uses a 52-53 week fiscal year. Fiscal 1992 was a 53-week
year and all other fiscal years presented were 52-week years.
(2) Includes the write-off of merger costs associated with the termination of
the previously announced merger of the Company and the Graniteville Company.
(3) Includes the business closing charge related to closing the Company's
printed apparel fabrics businesses. See Note C to the Company's consolidated
financial statements.
(4) Includes the acquisition of Home Fashion Fabrics which occurred on April
29, 1994.
(5) Represents the carrying value of the Senior Preferred Stock, plus
accrued dividends. During 1992, the Company redeemed the Senior Preferred Stock
and recorded a $1.5 million charge to retained earnings for the excess of the
redemption price over the carrying value.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
On June 7, 1996, the Company , through its newly formed subsidiary, G&L Service
Company, acquired the capital stock of Dimmit and certain related assets from
Farah Incorporated for approximately $22.8 million in cash including certain
costs related to the Acquisition. Dimmit is composed of six manufacturing
facilities located in Piedras Negras, Mexico and sews and finishes pants and
shorts for the casual wear market. Funding for the Acquisition was provided
through funds generated by operations, working capital reductions and by the
Company's current bank group through amendments to the Company's term loan and
revolving credit facility. These amendments increased the Company's borrowing
capacity by $20 million.
On January 25, 1996, the Company and Triarc Companies, Inc. ("Triarc") mutually
agreed not to go forward with their previously announced merger of the Company
and the Graniteville Company, a subsidiary of Triarc, due to economic conditions
existing at that time in the retail, textile and apparel sectors. The Company
incurred fees and expenses related to the merger of $1.6 million and took a
charge during the December quarter 1995 for the write-off of those costs.
On January 16, 1996, the Company's Board of Directors authorized the Company's
Management to buy back up to 1.2 million shares or 10.2% of the Company's
outstanding common stock over the next twelve months. Shares purchased will be
at prevailing prices in open-market transactions. In conjunction with this plan,
as of September 28, 1996, the Company had acquired 197,003 shares of the
Company's outstanding common stock at an average price of $10.07 per common
share.
On September 19, 1995, the Company closed its printed apparel fabrics businesses
due to declining business conditions that the printed apparel fabrics businesses
had experienced since 1992. As a result of the closing, the Company ceased
operations at its Specialty Plant on that date and laid off approximately 450
employees located primarily in Society Hill, South Carolina and New York City.
During the September quarter 1995, the Company incurred a $12.1 million business
closing charge ($7.4 million or $.62 per share after tax), consisting primarily
of $3.2 million of severance and other employee related costs associated with
employee layoffs, substantially all of which has been paid, $5.4 million of
losses on the disposal of machinery and equipment and $2.9 million of losses on
the disposal of raw material and supply inventory. As of September 28, 1996, the
Company had incurred substantially all of the losses associated with the
disposal of its machinery and equipment and raw material and supply inventory.
Printed apparel fabrics, made up of Galey & Lord Prints and Galey & Lord Group
II, represented $33.8 million or 6.7% of the Company's net sales in fiscal 1995
and $30.1 million or 6.7% in fiscal 1994 and had operating losses of $13.4
million and $9.4 million in fiscal 1995 and 1994, respectively.
16
RESULTS OF OPERATIONS
Net sales and earnings for fiscal 1996 were adversely impacted by customers
adjusting their inventory levels during the December quarter 1995 and March
quarter 1996 due to a slow retail environment. The Company's core apparel
fabrics businesses began to improve during the March quarter 1996 and continued
to improve through the remainder of the fiscal year. The Company's order backlog
at September 28, 1996 was $99 million as compared to $77 million at September
30, 1995. The order backlog for the apparel fabrics business increased 48%,
returning to a more normal level. Home fabrics order backlog decreased 25% as
the market for home decorative prints remained weak.
The Company's operations are classified into two business segments: apparel
fabrics, comprised of woven fabrics, printed fabrics, synthetic fabrics and G&L
Service Company, and home fabrics, comprised of Home Fashion Fabrics. Results
for 1996, 1995 and 1994 for each segment are shown below:
Fiscal Year Ended
September 28, September 30, October 1,
1996 1995 1994
(in millions except percentages)
Net Sales Per Segment
Apparel Fabrics $ 364.2 $ 443.5* $ 424.2*
Home Fabrics 47.3 58.7 26.9**
------- ------- -------
Total $ 411.5 $ 502.2 $451.1
======= ======= =======
Operating Income (Loss) Per Segment
Apparel Fabrics $ 29.9 $ 29.2* $ 35.7*
% of Net Sales 8.2% 6.6%* 8.4%*
Home Fabrics $ (1.3) $ 4.7 $ 3.3**
% of Net Sales (2.7%) 8.0% 12.1%**
Business Closing Charge $ - $ (12.1) $ -
------- ------- -----
Total $ 28.6 $ 21.8 $ 39.0
% of Net Sales 7.0% 4.3% 8.6%
* Net sales and operating income for the apparel fabrics segment for fiscal
1995 and 1994 include the results for the printed apparel fabrics
businesses, which were closed on September 19, 1995.
** Net sales and operating income for the home fabrics segment represent
results for the twenty-two week period from April 30, 1994 (the effective
date of the acquisition of the home fabrics business) through October 1,
1994.
17
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
Net sales for fiscal 1996 were $411.5 million compared to $502.2 million for
fiscal 1995. The decrease in net sales was due to the elimination of $33.8
million of net sales from the printed apparel fabrics businesses which were
closed in September 1995, a $45.5 million decline in other apparel fabric sales
and an $11.4 million decline in Home Fashion Fabrics sales. The decline in other
apparel fabric sales occurred primarily in the December quarter 1995 and March
quarter 1996 as the Company's customers adjusted their inventory levels due to a
slow retail environment. The remainder of fiscal 1996 showed improvement with
net sales returning to a more normal level in the June and September quarters.
OPERATING INCOME
Operating income for fiscal 1996 was $28.6 million compared to $21.8 million in
fiscal 1995. Fiscal 1995 operating income was impacted by a $12.1 million
pre-tax business closing charge related to the closing of the Company's printed
apparel fabrics businesses and a $13.4 million operating loss related to the
printed apparel fabrics business. Excluding these items, operating income for
the Company's ongoing businesses for fiscal 1995 was $47.3 million. The decrease
in operating income, excluding prints, was primarily a result of lower gross
margins resulting from the lower sales volume and the impact of lower volume on
manufacturing costs during the first two quarters of fiscal 1996.
INTEREST EXPENSE
Interest expense was $11.6 million in fiscal 1996 compared to $13.1 million in
fiscal 1995. The decrease was due to lower average debt levels during the year,
a reduction in interest rates resulting from a lower spread over LIBOR achieved
in the refinancing of the Company's bank debt completed in April 1995 and
decreases in LIBOR and prime market interest rates on which the Company's bank
loans are based. The average interest rate paid by the Company on its bank debt
in fiscal 1996 was 6.7% as compared to 7.3% in fiscal 1995.
NET INCOME AND NET INCOME PER SHARE
Net income for fiscal 1996 was $9.5 million or $.79 per common share which
included the pre-tax charge of $1.6 million ($1.0 million after-tax) or $.08 per
common share for the write-off of fees and expenses related to the proposed
Graniteville merger. Net income for fiscal 1995 was $4.0 million or $.33 per
common share which included the $12.1 million pre-tax business closing charge,
$13.4 million of operating losses related to the printed apparel fabrics
businesses and a $1.3 million extraordinary charge for the write-off of loan
fees and prepayment penalties associated with the Company's debt refinancing in
April 1995. Excluding the one-time charges and above losses for both years, net
income would have been $10.5 million or $.87 per common share in fiscal 1996 and
$21.0 million or $1.74 per common share in fiscal 1995.
18
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES
Net sales for fiscal 1995 were $502.2 million, an increase of $51.1 million or
11.3% over fiscal 1994. The increase in net sales was due to a $9.1 million or
2.4% increase in woven fabric sales, a $3.6 million or 12.1% increase in printed
fabric sales, a $6.6 million or 53.2% increase in synthetic fabric sales and a
full year of sales from Home Fashion Fabrics as compared to twenty-two weeks of
sales in fiscal 1994. Selling prices for woven fabrics increased during fiscal
1995 as the Company was able to pass on to its customers a portion of higher raw
material costs. These increased selling prices were partially offset by lower
unit volume resulting from customers adjusting to the slower than expected
retail environment. Sales volume for printed fabrics increased due to the
addition of Galey & Lord Group II at the end of fiscal 1994; however, the
increase was partially offset by depressed selling prices resulting from a weak
printed apparel market. Synthetic fabric sales continued its significant growth
pattern.
OPERATING INCOME
Operating income in fiscal 1995 was $21.8 million, a decrease of $17.1 million
from fiscal 1994. Fiscal 1995 operating income was impacted by a $12.1 million
pre-tax business closing charge related to the closing of the Company's printed
apparel fabrics businesses and a $13.4 million operating loss related to the
printed apparel fabrics businesses. Excluding these items, operating income for
the Company's ongoing businesses for fiscal 1995 was $47.3 million versus $48.4
million for fiscal 1994 (excluding $9.4 million of operating losses in fiscal
1994 related to the printed apparel fabrics division). The decrease in operating
income for the ongoing businesses was due to a $2.5 million reduction in the
ongoing apparel fabrics segment, which was partially offset by a $1.4 million
improvement in the home fabrics segment. The reduction in the apparel fabrics
segment resulted from woven apparel experiencing lower unit volume and raw
material price increases which were not fully covered by selling price
increases, partially offset by increased volume and improved margins in the
synthetics business. The improvement in the home fabrics segment was due to
twelve months of operations in fiscal 1995 versus twenty-two weeks in fiscal
1994.
INTEREST EXPENSE
Interest expense increased $4.8 million from $8.3 million in fiscal 1994 to
$13.1 million in fiscal 1995 primarily due to increased borrowings related to
the acquisition of Home Fashion Fabrics in April 1994 and due to increases in
LIBOR and prime market interest rates on which the Company's bank loans are
based, partially offset by the lower spread over LIBOR achieved in the
refinancing of the Company's bank debt completed in April 1995. The average
interest rate paid by the Company on its bank debt in fiscal 1995 was 7.3% as
compared to 5.6% in fiscal 1994.
NET INCOME AND NET INCOME PER SHARE
Net income for fiscal 1995, which includes a $12.1 million pre-tax business
closing charge, $13.4 million of operating losses related to the printed apparel
fabrics businesses and a $1.3 million extraordinary charge for the write-off of
loan fees and prepayment penalties associated with the Company's debt
refinancing in April 1995, was $4.0 million or $.33 per share compared to net
income of $17.3 million or $1.43 per share in fiscal 1994. The fiscal 1994 net
income included $9.4 million of operating losses related to the printed apparel
fabrics division and a $1.6 million charge for the Company's adoption of the
19
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Excluding the above losses and one-time charges for both years, net
income for the ongoing business would have been $21.0 million or $1.74 per share
in fiscal 1995 as compared to $24.7 million or $2.04 per share in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
On June 4, 1996, the Company amended its term loan and revolving credit facility
with its bank group led by First Union National Bank of North America, as agent
and lender. The amendment increased the Company's maximum allowable borrowings
under the revolving credit facility, which expires March 31, 2000, from $150
million to $170 million. The term loan was restated to the outstanding balance
of $48 million and continues to require equal quarterly principal payments of $3
million through the term loan's expiration on April 30, 2000. At September 28,
1996, the outstanding term loan balance and revolving credit facility balance
were $45 million and $108.2 million, respectively. The amended term loan and
revolving credit facility bear interest at a per annum rate, at the Company's
option, of either (i) the greater of the prime rate or federal funds rate or
(ii) LIBOR plus .5%, LIBOR plus .75%, LIBOR plus 1.0%, LIBOR plus 1.25% or LIBOR
plus 1.5%, in accordance with a pricing grid based on certain financial ratios.
The Company's obligations under the credit facility are secured by all of the
Company's inventory, equipment, accounts receivable and general intangibles, and
a pledge by the Company of all the outstanding capital stock of its wholly-owned
domestic subsidiaries, Galey & Lord Industries, Inc. and G&L Service Company,
and a pledge of 65% of the outstanding capital stock of its foreign subsidiary,
Dimmit.
During January 1996, the Company entered into interest rate swaps on $50 million
of its outstanding bank debt to fix the LIBOR interest rate on which those
borrowings are based. The interest rate swaps assure that the Company, under its
current credit agreement, will pay a maximum rate of 6.77% (LIBOR fixed at 5.27%
plus the maximum spread allowed under the credit agreement of 1.5%) on $25
million of bank debt for a two-year period and 7.03% (LIBOR fixed at 5.53% plus
the maximum spread allowed under the credit agreement of 1.5%) on the other $25
million of debt for a five-year period. The amount paid or received under the
swap agreements is based on the changes in actual interest rates and is recorded
as an adjustment to interest expense. The fair value of these interest rate
swaps, as determined by a member of the Company's bank group, at September 28,
1996, was $1.6 million and was not recognized in the financial statements. The
Company is exposed to credit loss in the event of nonperformance by the other
parties to the interest rate swap agreements; however, the Company does not
anticipate nonperformance by any of the other parties.
In fiscal 1996, the Company spent $13.5 million for capital expenditures, a
significant portion of which was used to modernize the Company's dyeing and
finishing plant. The Company expects to spend approximately $24 million for
capital expenditures in fiscal 1997. These expenditures will be primarily for
modernization of the Company's spinning and weaving facilities and for the
installation of a cutting operation for the Company's garment operations. The
Company expects to fund these expenditures through funds from operations and
borrowings under its revolving credit facility.
Working capital decreased approximately $27.3 million to $107.7 million at
September 28, 1996 as compared to $135.0 million at September 30, 1995. The
decrease in working capital was attributable to a $12.9 million decrease in
accounts receivable, a $9.3 million decrease in inventories, the elimination of
a $1.5 million income tax receivable and the generation of a $1.1 million income
tax payable and a $2.5
20
million increase in accounts payable. Approximately $5.8 million of the accounts
receivable decrease was due to the closure of the printed apparel fabrics
businesses in September 1995. The remainder of the accounts receivable decrease
was due to normal fluctuations in the timing of sales and accounts receivable
collections. The decrease in inventories was due to the sell-off of $2.4 million
of printed apparel fabrics inventory and the Company's continued efforts to
reduce its inventory levels. The $2.6 million change in the Company's income tax
position was due to higher income levels in fiscal 1996 compared to fiscal 1995.
The $2.5 million increase in accounts payable resulted from normal fluctuations
in the timing of purchases and payments, slightly decreased by the elimination
of printed apparel accounts payable.
At September 28, 1996, the Company's additional borrowing availability under its
revolving credit facility was $52.7 million. The average interest rate on
balances outstanding under the Company's term loan and revolving credit facility
was 7.15% at September 28, 1996 as compared to an average rate of 6.71% at
September 30, 1995.
The Company anticipates that cash requirements, including working capital and
capital expenditures, 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 bank loans, through
capital leases or through operating leases for various equipment purchases.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective October 1, 1995, the Company adopted the accounting provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which require that the Company recognize expense for
the fair value of stock-based compensation awarded during the year. In 1996, the
Company recorded an expense of $258,000 as a result of its adoption of SFAS 123.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Galey & Lord, Inc.
We have audited the accompanying consolidated balance sheets of Galey &
Lord, Inc. as of September 28, 1996 and September 30, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 28, 1996. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Galey & Lord, Inc. at September 28, 1996 and September 30, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 28, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial statements,
effective October 1, 1995, the Company changed its method of accounting for
stock-based compensation. As discussed in Note F to the consolidated financial
statements, effective October 3, 1993, the Company also changed its method of
accounting for income taxes.
Ernst & Young LLP
Greensboro, North Carolina
October 29, 1996
22
GALEY & LORD, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
ASSETS
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
-------------- ----------
Current assets:
Cash and cash equivalents.................................................................... $ 3,799 $ 4,437
Trade accounts receivable, less deductions for doubtful receivables, discounts, returns and
allowances of $1,434 in 1996 and $1,492 in 1995 (Note E)................................... 74,180 87,083
Sundry notes and accounts receivable......................................................... 164 158
Inventories (Notes D and E).................................................................. 76,934 86,232
Income taxes receivable (Note F)............................................................. - 1,489
Deferred income taxes (Note F)............................................................... 404 1,835
Prepaid expenses and other current assets.................................................... 1,853 575
-------- --------
Total current assets.................................................................... 157,334 181,809
Property, plant and equipment, at cost (Note E):
Land......................................................................................... 1,529 1,529
Buildings.................................................................................... 34,954 34,008
Machinery, fixtures and equipment............................................................ 118,923 99,296
Equipment under capital leases............................................................... 6,793 7,781
-------- --------
162,199 142,614
Less accumulated depreciation and amortization............................................... (55,178) (49,784)
-------- --------
107,021 92,830
Deferred charges less accumulated amortization of $302 in 1996 and $81 in 1995................... 1,055 811
Intangibles less accumulated amortization of $3,730 in 1996 and $2,432 in 1995................... 39,466 29,589
-------- --------
$304,876 $305,039
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note E)................................................... $ 13,506 $ 13,675
Trade accounts payable....................................................................... 20,957 18,415
Accrued salaries and employee benefits....................................................... 10,766 8,678
Accrued liabilities.......................................................................... 3,311 6,030
Income taxes payable (Note F)................................................................ 1,115 -
-------- --------
Total current liabilities............................................................... 49,655 46,798
Commitments and contingencies (Note I)
Long-term debt (Note E).......................................................................... 149,265 162,084
Other long-term liabilities...................................................................... 143 212
Deferred income taxes (Note F)................................................................... 16,168 14,066
Stockholders' equity:
Common Stock-$.01 par value, authorized 25,000,000 shares; issued 11,951,844
shares in 1996 and 11,941,744 shares in 1995,
outstanding 11,574,841 shares in 1996 and 11,761,744 shares in 1995 (Note J)............. 120 119
Contributed capital in excess of par value................................................... 34,687 34,416
Retained earnings............................................................................ 56,889 47,411
Less 377,003 Common Stock shares in 1996 and 180,000 Common Stock shares
in 1995 in treasury, at cost.............................................................. (2,051) (67)
-------- --------
Total stockholders' equity.............................................................. 89,645 81,879
-------- --------
$304,876 $305,039
======== ========
See accompanying notes to consolidated financial statements
23
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED
SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
1996 1995 1994
------------- ------------- -------
Net sales............................................................................... $411,455 $502,220 $451,130
Cost of sales........................................................................... 367,992 451,314 396,911
--------- --------- ----------
Gross profit............................................................................ 43,463 50,906 54,219
Selling, general and administrative expenses............................................ 13,526 15,877 14,705
Amortization of goodwill................................................................ 1,298 1,119 549
Business closing charge................................................................. - 12,065 -
--------- --------- ---------
Operating income........................................................................ 28,639 21,845 38,965
Interest expense........................................................................ 11,579 13,103 8,276
Write-off of merger costs............................................................... 1,600 - -
--------- --------- ---------
Income before income taxes, extraordinary item and accounting change.................... 15,460 8,742 30,689
Income tax expense:
Current............................................................................... 2,449 3,357 6,706
Deferred.............................................................................. 3,533 33 5,097
--------- --------- ----------
5,982 3,390 11,803
--------- --------- ----------
Income before extraordinary item and accounting change.................................. 9,478 5,352 18,886
Extraordinary loss on extinguishment of debt (net of income tax benefit of $770)........ - (1,342) -
Cumulative effect of change in the method of accounting for income taxes................ - - (1,603)
--------- --------- ----------
Net income.............................................................................. $ 9,478 $ 4,010 $ 17,283
========= ========= ==========
Net income per common share:
Primary:
Average common shares outstanding..................................................... 11,921 12,035 12,057
Income per share before extraordinary item and accounting change...................... $ .80 $ .44 $ 1.56
Extraordinary item.................................................................... - (.11) -
Cumulative effect of change in the method of accounting for income taxes.............. - - (.13)
--------- --------- ----------
Net income per common share - primary................................................. $ .80 $ .33 $ 1.43
========= ========= ==========
Fully diluted:
Average common shares outstanding..................................................... 11,960 12,041 12,106
Income per share before extraordinary item and accounting change...................... $ .79 $ .44 $ 1.56
Extraordinary item.................................................................... - (.11) -
Cumulative effect of change in the method of accounting for income taxes.............. - - (.13)
--------- --------- ----------
Net income per common share - fully diluted........................................... $ .79 $ .33 $ 1.43
========= ========= ==========
See accompanying notes to consolidated financial statements.
24
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED
SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
1996 1995 1994
------------- ------------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 9,478 $ 4,010 $ 17,283
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property, plant and equipment...................................... 10,340 9,905 7,938
Amortization of intangible assets.................................................. 1,298 1,119 549
Amortization of deferred charges................................................... 221 441 525
Deferred income taxes.............................................................. 3,533 33 5,097
Non-cash compensation.............................................................. 258 - -
(Gain)/loss on disposals of property, plant and equipment.......................... 22 234 (8)
Extraordinary loss from debt refinancing..........................................- - 1,342 -
Cumulative effect of change in accounting principle................................ - - 1,603
Business closing charge............................................................ - 12,065 -
Changes in assets and liabilities (net of acquisition):
Accounts receivable - net........................................................ 12,903 (311) (3,935)
Sundry notes and accounts receivable............................................. 5 12 (24)
Inventories...................................................................... 9,298 (10,480) (2,584)
Prepaid expenses and other current assets........................................ (1,190) 750 (793)
Trade accounts payable........................................................... 2,392 (2,568) (6,219)
Accrued liabilities.............................................................. (1,532) (5,073) 3,366
Income taxes payable............................................................. 2,590 (1,788) 657
--------- --------- ---------
Total adjustments............................................................. 40,138 5,681 6,172
--------- --------- ---------
Net cash provided by (used in) operating activities................................ 49,616 9,691 23,455
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business - net of cash acquired....................................... (22,823) - (64,082)
Property, plant and equipment expenditures........................................... (13,524) (14,795) (22,361)
Proceeds from sale of property, plant and equipment.................................. 1,608 171 107
Other................................................................................ (23) (26) -
--------- --------- ---------
Net cash provided by (used in) investing activities................................ (34,762) (14,650) (86,336)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in revolving line of credit...................................... (1,400) 23,958 23,716
Principal payments on long-term debt................................................. (11,588) (185,579) (12,139)
Issuance of long-term debt........................................................... - 166,000 55,482
Net proceeds from issuance of Common Stock........................................... 9 91 370
Tax benefit from exercise of stock options........................................... 5 59 999
Purchase of treasury stock........................................................... (1,984) - -
Payment of bank fees and loan costs.................................................. (465) (1,121) (2,133)
Other................................................................................ (69) (65) (103)
--------- --------- ---------
Net cash provided by (used in) financing activities................................ (15,492) 3,343 66,192
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................. (638) (1,616) 3,311
Cash and cash equivalents at beginning of period..................................... 4,437 6,053 2,742
--------- --------- ---------
Cash and cash equivalents at end of period........................................... $ 3,799 $ 4,437 $ 6,053
========= ========= =========
See accompanying notes to consolidated financial statements.
25
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Common Contributed Retained Treasury
Stock Capital Earnings Stock Total
Balance at October 2, 1993.......................... $116 $32,900 $26,118 $ (67) $59,067
Issuance of 277,260 shares of Common Stock
upon exercise of options......................... 3 367 - - 370
Tax benefit from exercise of stock options.......... - 999 - - 999
Net income for fiscal 1994.......................... - - 17,283 - 17,283
---- ------- ------- ------- --------
Balance at October 1, 1994.......................... $119 $34,266 $43,401 $ (67) $77,719
---- ------- ------- -------- --------
Issuance of 32,200 shares of Common Stock
upon exercise of options......................... - 91 - - 91
Tax benefit from exercise of stock options......... - 59 - - 59
Net income for fiscal 1995.......................... - - 4,010 - 4,010
---- ------- ------- ------- --------
Balance at September 30, 1995....................... $119 $34,416 $47,411 $ (67) $81,879
---- ------- ------- ------- --------
Issuance of 10,100 shares of Common Stock
upon exercise of options......................... 1 8 - - 9
Tax benefit from exercise of stock options.......... - 5 - - 5
Compensation earned related to issuance of
stock options.................................... - 258 - - 258
Purchase of 197,003 shares of Treasury Stock........ - - - (1,984) (1,984)
Net income for fiscal 1996.......................... - - 9,478 - 9,478
---- ------- ------- ------- --------
Balance at September 28, 1996....................... $120 $34,687 $56,889 $(2,051) $ 89,645
==== ======= ======= ======= ========
See accompanying notes to consolidated financial statements.
26
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Galey & Lord, Inc. (the "Company") and its wholly-owned
subsidiaries, Galey & Lord Industries, Inc., G&L Service Company, North America,
Inc. and Dimmit Industries, S.A. de C.V. Intercompany items have been eliminated
in consolidation. Certain prior year items have been reclassified to conform to
the 1996 presentation.
CASH EQUIVALENTS: The Company considers investments in marketable
securities with an original maturity of three months or less to be cash
equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost of
substantially all inventories is determined using the last-in, first-out (LIFO)
method.
PROPERTY, PLANT AND EQUIPMENT: Depreciation is provided over the estimated
useful lives of the respective assets using straight-line methods. Estimated
useful lives are 40 years for buildings and 5 to 15 years for machinery,
fixtures and equipment.
REVENUE RECOGNITION: The Company recognizes revenues from product sales
when goods are shipped or when ownership is assumed by the customer.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
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.
ACCOUNTING FOR STOCK-BASED COMPENSATION: Effective October 1, 1995, the
Company adopted the accounting provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which
require that the Company recognize expense for the fair value of stock-based
compensation awarded during the year. In 1996, the Company recorded an expense
of $258,000 as a result of its adoption of SFAS 123. In 1995 and 1994, the
Company accounted for stock options in accordance with Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under
APB 25, compensation expense is determined on the measurement date and
compensation expense, if any, is measured based on the award's intrinsic value,
the excess of the market price of the stock over the exercise price on the
measurement date. In 1995 and 1994, the Company did not recognize any
compensation expense under APB 25.
INCOME TAXES: Effective October 3, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability method
required by Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting For Income Taxes." The liability method of accounting for deferred
income taxes requires the recognition of deferred income tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. The cumulative
effect of adopting SFAS 109 as of October 3, 1993 was to decrease net income for
fiscal year 1994 by $1.6 million.
INTANGIBLES AND DEFERRED CHARGES: The excess of the purchase cost over the
fair value of assets acquired is being amortized over 20 to 30 years. The
Company evaluates whether events and circumstances have occurred that indicate
the remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of the undiscounted future cash flows over the remaining life to
determine whether goodwill is recoverable. The Company believes that no material
impairment of goodwill exists at September 28, 1996. Deferred debt charges are
being amortized over the lives of related debt.
FISCAL YEAR: The Company uses a 52-53 week fiscal year. The years ending
September 28, 1996, September 30, 1995 and October 1, 1994 were 52-week years.
27
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE B - BUSINESS ACQUISITIONS
On June 7, 1996, the Company, through its newly formed subsidiary, G&L Service
Company, North America, Inc. ("G&L Service Company") acquired the capital stock
of Dimmit Industries, S.A. de C.V. ("Dimmit") and certain related assets from
Farah Incorporated for approximately $22.8 million in cash including certain
costs related to the acquisition (the "Acquisition"). Dimmit is composed of six
manufacturing facilities located in Piedras Negras, Mexico and sews and finishes
pants and shorts for the men's casual wear market. Funding for the Acquisition
was provided through funds generated by operations, working capital reductions
and by the Company's current bank group through amendments to the Company's term
loan and revolving credit facility. These amendments increased the Company's
borrowing capacity by $20 million. In connection with the Acquisition, which has
been accounted for as a purchase transaction, the Company acquired assets with
an estimated fair value of approximately $12.7 million and assumed liabilities
of approximately $1.1 million. The Company has made a preliminary allocation of
the purchase price and has recorded goodwill of approximately $11.2 million for
the excess of the purchase price over the fair value of the assets acquired. The
goodwill amount is being amortized over a 20-year period. The results of
operations of G&L Service Company and Dimmit have been included in the
consolidated financial statements from the date of Acquisition.
On January 25, 1996, the Company and Triarc Companies, Inc. ("Triarc")
mutually agreed not to go forward with their previously announced merger of the
Company and the Graniteville Company, a subsidiary of Triarc, due to economic
conditions existing at that time in the retail, textile and apparel sectors. The
Company incurred fees and expenses related to the proposed merger of $1.6
million and took a charge during the December quarter 1995 for the write-off of
those costs.
NOTE C - CLOSURE OF PRINTED APPAREL FABRICS BUSINESSES
On September 19, 1995, the Company closed its printed apparel fabrics
businesses, made up of Galey & Lord Prints and Galey & Lord Group II, due to
declining business conditions that the printed apparel fabrics businesses had
experienced since 1992. As a result of the closing, the Company ceased
operations at its Specialty Plant on that date and laid off approximately 450
employees located primarily in Society Hill, South Carolina and New York City.
In connection with this closing, the Company incurred in the September
quarter 1995 a $12.1 million business closing charge ($7.4 million or $.62 per
share after tax), consisting primarily of $3.2 million of severance and other
employee related costs associated with employee layoffs, substantially all of
which had been paid as of September 28, 1996, $5.4 million of losses on the
disposal of machinery and equipment and $2.9 million of losses on the disposal
of raw material and supply inventory. As of September 28, 1996, the Company had
incurred substantially all of the losses associated with the disposal of its
machinery and equipment and raw material and supply inventory. The printed
apparel fabrics businesses represented $33.8 million or 6.7% of the Company's
net sales in fiscal 1995 and $30.1 million or 6.7% in fiscal 1994 and had
operating losses of $13.4 million and $9.4 million in 1995 and 1994,
respectively.
NOTE D - INVENTORIES
Inventories at September 28, 1996 and September 30, 1995 are summarized as
follows (in thousands):
1996 1995
---- ----
Raw materials........................................ $ 2,361 $ 1,931
Stock in process..................................... 13,396 14,345
Produced goods....................................... 64,571 75,283
Dyes, chemicals and supplies......................... 4,805 4,661
------- -------
Total inventory at first-in, first-out (FIFO) cost... 85,133 96,220
Less LIFO and other reserves......................... (8,199) (9,988)
------- -------
$76,934 $86,232
======= =======
Inventories valued using the LIFO method comprised approximately 97% of
inventories at September 28, 1996 and September 30, 1995.
28
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE E - LONG-TERM DEBT
1996 1995
---- ----
Long-term debt consists of the following (in thousands):
Revolving Credit Note, interest at LIBOR + .5%, LIBOR + .75%, LIBOR +
1%, LIBOR +1.25% or LIBOR +1.5%, in accordance with a pricing grid, or
prime, due on April 30, 2000, collateralized by trade accounts
receivable, inventory, machinery and equipment and intangibles....................... $ 108,200 $109,600
Term Loan, interest at LIBOR + .5%, LIBOR + .75%, LIBOR + 1%, LIBOR
+1.25% or LIBOR +1.5%, in accordance with a pricing grid, or prime,
due March 31, 2000, collateralized by trade accounts receivable,
inventory, machinery and equipment and
intangibles.......................................................................... 45,000 54,000
Warehouse loan, interest at 9%, due in equal monthly installments of principal and
interest of $11, which was paid off on November 29, 1995............................. - 580
SC JEDA tax exempt bonds, variable interest rate, reset weekly to market
demand for AA+ tax exempt bonds, quarterly interest payments through
May 1, 2014, principal due in 19 yearly installments of $300 through
May 1, 2013, plus a final
payment of $1,500 on May 1, 2014, collateralized by wastewater treatment facility.... 6,600 6,900
Obligations under capital leases (Note I).............................................. 2,971 4,679
--------- ---------
162,771 175,759
Less current portion................................................................. 13,506 13,675
--------- ---------
Total long-term debt.......................................................... $ 149,265 $162,084
========= =========
At September 28, 1996, the annual maturities of the principal amounts of
long-term debt excluding obligations under capital leases are (in thousands):
1997............................................ $ 12,300
1998............................................ 12,300
1999............................................. 12,300
2000............................................ 117,500
2001............................................ 300
Thereafter...................................... 5,100
On June 4, 1996, the Company amended its term loan and revolving credit
facility with its bank group led by First Union National Bank of North America,
as agent and lender. The amendment increased the Company's maximum allowable
borrowings under the revolving credit facility, which expires March 31, 2000,
from $150 million to $170 million. The term loan was restated to the outstanding
balance of $48 million and continues to require equal quarterly principal
payments of $3 million through the term loan's expiration on April 30, 2000. The
amended term loan and revolving credit facility bear interest at a per annum
rate, at the Company's option, of either (i) the greater of the prime rate or
federal funds rate or (ii) LIBOR plus .5%, LIBOR plus .75%, LIBOR plus 1.0%,
LIBOR plus 1.25% or LIBOR plus 1.5%, in accordance with a pricing grid based on
certain financial ratios.
The Company's obligations under the credit facility are secured by all of
the Company's inventory, equipment, accounts receivable and general intangibles,
and a pledge by the Company of all the outstanding capital stock of its
wholly-owned domestic subsidiaries, Galey & Lord Industries, Inc. and G&L
Service Company and a pledge of 65% of the outstanding capital stock of its
foreign subsidiary, Dimmit.
29
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE E - LONG-TERM DEBT (Continued)
At September 28, 1996, the Company's term loan and revolving credit
borrowings were based on one and three-month market LIBOR rates averaging 5.62%
and on a prime rate of 8.25%. The Company's weighted average borrowing rate on
these loans at September 28, 1996 was 7.15%, which includes a spread of 1.5% on
the LIBOR borrowings. Effective November 19, 1996, the spread on the Company's
LIBOR borrowings was reduced to 1.25%.
During January 1996, the Company entered into interest rate swaps on $50
million of its outstanding bank debt to fix the LIBOR interest rate on which
those borrowings are based. The interest rate swaps assure that the Company
under its current credit agreement will pay a maximum rate of 6.77% (LIBOR fixed
at 5.27% plus the maximum spread allowed under the credit agreement of 1.5%) on
$25 million of bank debt for a two-year period and 7.03% (LIBOR fixed at 5.53%
plus the maximum spread allowed under the credit agreement of 1.5%) on the other
$25 million of debt for a five-year period. The amount paid or received under
the swap agreements is based on the changes in actual interest rates and is
recorded as an adjustment to interest expense. The fair value of these interest
rate swap agreements, as determined by a member of the Company's bank group, at
September 28, 1996 was $1.6 million and was not recognized in the financial
statements. The Company is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate swap agreements; however, the Company
does not anticipate nonperformance by any of the other parties.
On April 28, 1995, the Company refinanced its term loan and revolving
credit facility resulting in a one-time extraordinary charge of $1.3 million or
$.11 per share (net of taxes of $.8 million) in the June quarter 1995 to write
off fees associated with the previous loan agreements and pre-payment penalties.
Under the Company's financing agreements, the Company has covenants
relating to working capital, leverage, fixed charges, net worth and capital
expenditures. Certain restrictive covenants contained in the financing
agreements currently limit its ability to make dividend payments.
On May 17, 1994, the Company borrowed $7,200,000 in tax-exempt adjustable
mode economic development revenue bonds from the South Carolina Jobs-Economic
Development Authority. Bond proceeds were used to finance the construction and
equipping of a wastewater treatment facility for the Company's manufacturing
facilities in Society Hill, South Carolina. The bonds are secured by an
irrevocable standby letter of credit of $7,830,000 from Wachovia Bank of North
Carolina. The bonds require yearly principal payments of $300,000 for nineteen
years with a final payment of $1,500,000 due May 1, 2014. The coupon rate on the
bonds is reset weekly and interest is paid quarterly. As of September 28, 1996,
the interest rate on the bonds was 5.59%.
The Company capitalized interest cost of $67,000 in 1996 and $11,000 in
1995 with respect to qualifying construction projects. Total interest cost
incurred before recognition of the capitalized amount in 1996 and 1995 was
$11,646,000 and $13,114,000, respectively.
NOTE F - INCOME TAXES
Effective October 3, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." The liability method of accounting for deferred income taxes
requires the recognition of deferred income tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
As permitted under the rules, prior years' financial statements have not
been restated. The cumulative effect of adopting SFAS 109 as of October 3, 1993
was to decrease fiscal year 1994 net income by $1.6 million.
30
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE F - INCOME TAXES (Continued)
At September 28, 1996 and September 30, 1995, the Company had $2.5 million
and $4.1 million, respectively, of deferred income tax assets and $18.3 million
and $16.3 million, respectively, of deferred income tax liabilities which have
been netted for presentation purposes. The significant components of these
amounts as shown on the balance sheet are as follows (in thousands):
September 28, 1996 September 30, 1995
-------------------------- ----------------------
Current Noncurrent Current Noncurrent
Liability Liability Liability Liability
(Asset) (Asset) (Asset) (Asset)
Inventory valuation................................ $ 1,937 $ - $ 1,981 $ -
Property, plant & equipment........................ - 14,468 - 11,452
Alternative minimum tax credit carryforward........ - - (1,181) -
Accruals and allowances............................ (2,502) - (2,893) -
Goodwill........................................... - 1,147 - 1,982
Other.............................................. 161 553 258 632
------- ------- ------- -------
Current and noncurrent deferred income tax
liabilities (assets)............................. $ (404) $16,168 $(1,835) $14,066
======= ======= ======= =======
The components of the provision for Federal and state income taxes for
1996, 1995 and 1994 are as follows (in thousands):
1996 1995 1994
---- ---- ----
Current
Federal.................... $ 1,939 $ 2,921 $ 5,491
State...................... 454 436 1,215
-------- -------- --------
2,393 3,357 6,706
Deferred
Federal.................... 3,194 (30) 5,509
State...................... 339 63 (412)
-------- -------- --------
3,533 33 5,097
-------- -------- --------
Total Domestic 5,926 3,390 11,803
Foreign 56 - -
-------- -------- --------
$ 5,982 $ 3,390 $ 11,803
======== ======== ========
31
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE F - INCOME TAXES (Continued)
Following is a reconciliation of the United States statutory tax rate to
the effective rate expressed as a percentage of pre-tax income:
1996 1995 1994
---- ---- ----
United States statutory tax rate..... 35.0% 35.0% 35.0%
State taxes net of Federal benefit... 3.2 3.7 3.5
Foreign tax.......................... 0.4 - -
Other................................ 0.1 0.1 -
---- ---- ----
38.7% 38.8% 38.5%
==== ==== ====
NOTE G - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) for interest and income taxes is as follows (in
thousands):
1996 1995 1994
--------- ------- -----
Interest...................... $12,137 $12,680 $6,272
Income taxes.................. $ (70) $ 4,815 $5,050
NOTE H - BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The Company has a defined benefit pension plan covering qualified salaried
and wage employees. Effective April 1, 1992, the plan was modified to be
non-contributory and the benefit formula was amended to be based on the
employee's average compensation and years of service. Prior to April 1, 1992,
benefits were based on employee contributions to the plan. The Company's funding
policy is to contribute annually the amount recommended by the plan's actuary.
Plan assets, which consist of common stocks, bonds and cash equivalents, are
maintained in trust accounts.
Effective for fiscal 1994, the Company established a nonqualified,
unfunded supplementary retirement plan under which the Company will pay
supplemental pension benefits to key executives in addition to the amount
participants will receive under the Company's retirement plan. The annual cost
of this plan has been included in the determination of the net periodic pension
cost shown below and amounted to $179,500 and $158,000 for 1996 and 1995,
respectively.
32
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE H - BENEFIT PLANS (Continued)
The following sets forth the funded status of the plans at September 28,
1996 and September 30, 1995 (in thousands):
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Defined Benefit Plan Supplemental Plan
1996 1995 1996 1995
Accumulated benefit obligation, including vested
benefits of $16,000, $15,007, $325 and $119, respectively.... $ 16,042 $16,426 $ 325 $ 129
======== ======== ===== =====
Projected benefit obligation for service rendered to date........ $ 19,686 $19,207 $ 768 $ 577
Less plan assets at fair value................................... 17,240 15,952 - -
-------- -------- ----- -----
Projected benefit obligation in excess of plan assets............ 2,446 3,255 768 577
Unrecognized prior service cost.................................. 1,308 1,395 (207) (230)
Unrecognized net loss............................................ (3,382) (3,114) (123) (88)
-------- -------- ----- -----
Pension liability recognized in the balance sheet................ $ 372 $ 1,536 $ 438 $ 259
======== ======== ===== =====
Net pension cost for the plans for the years ended September 28, 1996,
September 30, 1995 and October 1, 1994 included the following components (in
thousands):
1996 1995 1994
---- ---- ----
Service cost - benefits earned during the period.. $ 3,227 $3,261 $ 2,887
Interest cost on projected benefit obligation..... 1,470 1,341 1,048
Return on assets.................................. (1,258) (1,467) (229)
Amortization of unrecognized prior service cost... (64) (86) (86)
Amortization of unrecognized net loss............. 83 117 121
Other............................................. (276) 100 (1,008)
-------- ------ --------
Net periodic pension cost......................... $ 3,182 $3,266 $ 2,733
======== ====== ========
The projected benefit obligation for both plans at September 28, 1996 and
September 30, 1995 was determined using assumed discount rates of 8% for both
years. For all years presented, the assumed long-term rate of increase in
compensation was 5.5%, and the assumed long-term rate of return on plan assets
was 9%.
DEFINED CONTRIBUTION PLAN
The Company has a profit sharing plan covering qualified employees. The
plan includes a provision which allows employees to make pre-tax contributions
under Section 401(k) of the Internal Revenue Code. Employer contributions to the
plan are made at the discretion of the Company. The Company contributions for
1996, 1995 and 1994 were approximately $1.6 million, $0 and $1.9 million,
respectively.
In addition, the Company provides life and health benefits to
substantially all employees. Employees contribute a fixed amount weekly or
monthly as set forth in the plan with the balance paid by the Company. The
Company contributions for 1996, 1995 and 1994 were approximately $8.4 million,
$6.9 million and $5.8 million, respectively.
33
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE H - BENEFIT PLANS (Continued)
DEFERRED COMPENSATION PLAN
Effective for fiscal 1994, the Company established a nonqualified,
unfunded deferred compensation plan which provides certain key executives with a
deferred compensation award which will earn interest at the United States
Treasury Bill rate. The award, which is based on the year's operating results,
was $247,000, $0 and $325,500 for 1996, 1995 and 1994, respectively. The plan
participants will be vested in the awards upon the completion of five years of
service after the date of the award, upon normal retirement, upon involuntary
termination subject to certain limitations, upon permanent and total disability
or death, whichever occurs first. In the event of retirement or disability, any
unpaid deferred awards will be paid on the normal five-year maturity schedule.
Upon the death of a participant, the Company has the option to either
immediately pay the award to the participant's estate or pay the award on the
normal five-year maturity schedule.
NOTE I - COMMITMENTS AND CONTINGENCIES
Future minimum commitments for all leases at September 28, 1996 are as
follows (in thousands):
Operating Capital
1997......................................... $ 4,717 $1,374
1998......................................... 4,235 1,172
1999......................................... 2,925 717
2000......................................... 2,283 -
2001......................................... 2,067 -
Thereafter................................... 2,237 -
-------- ------
Total minimum lease payments................. $18,464 $3,263
=======
Less amount representing interest............ 292
------
Present value of future minimum lease payments 2,971
Less amounts due in one year................. 1,206
------
$1,765
======
Approximately 22.9% of minimum lease payments on operating leases pertain
to real estate as of September 28, 1996. The remainder covers a variety of
machinery and equipment. Rental expense for all operating leases was
approximately $4.3 million, $2.9 million and $2.5 million in 1996, 1995 and
1994, respectively.
The Company is involved in various litigation arising in the ordinary
course of business. Although the final outcome of these matters cannot be
determined, based on the facts presently known, it is Management's opinion that
the final resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
34
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE J - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of (i) 25,000,000
shares of Common Stock, par value $.01 per share, of which 11,574,841 shares are
currently outstanding, (ii) 5,000,000 shares of Nonvoting Common Stock, par
value $.01 per share, none of which is outstanding, and (iii) 5,000,000 shares
of Preferred Stock, par value $.01 per share, none of which is outstanding.
In April 1989, the Company adopted a Stock Option Plan (the "Plan")
authorizing the granting of qualified and non-qualified stock options to
officers, directors, consultants and key employees of the Company. Effective
August 25, 1994, the Plan was amended to increase the number of shares of
Company common stock available for issuance from 1.1 million to 1.6 million.
Options may be granted through the plan's expiration in February 1999 at an
exercise price of not less than fair market value. Currently, the Company has
both fixed stock options and target stock price performance options outstanding
under the Plan. As of September 28, 1996, the Company had no availability for
the issuance of stock options under the Plan.
FIXED STOCK OPTIONS
The exercise price of each fixed option granted is equal to the market
price of the Company's common stock on the date of grant with a maximum term of
10 years. Options granted to directors vest 12 months from the date of grant
while options granted to certain management employees vest 20% each year over a
five-year period from the date of grant.
The fair value of each option granted after September 30, 1995 was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used for grants in 1996: expected dividend yield of
0%; expected volatility of 34%; weighted average risk-free interest rate of
6.55%; and expected lives of 5 to 7 years.
A summary of the status of the Company's fixed stock options as of
September 28, 1996 and changes during the year are presented below:
Number of Weighted
Shares Average
Exercise
Price
Outstanding, beginning of year......................... 715,310 $ 8.80
Granted................................................ 14,500 10.10
Exercised.............................................. (10,100) .93
Forfeited or Canceled.................................. (37,500) 15.00
------- -------
Outstanding, end of year............................... 682,210 $ 8.61
=======
Options exercisable at year-end........................ 559,860
=======
Weighted average fair value of options granted during
the year calculated using Black-Scholes model...... $4.76
The following table summarizes information about fixed stock options
outstanding at September 28, 1996:
Options Outstanding Options Exercisable
Number Weighted Avg. Number
Range of Outstanding Remaining Weighted Avg. Exercisable Weighted Avg.
Exercise Prices at 9/28/96 Contractual Life Exercise Price at 9/28/96 Exercise Price
--------------- ---------- ---------------- -------------- ---------- --------------
$0.43 43,400 2.5 Yrs. $0.43 43,400 $ 0.43
0.93 95,200 3.6 0.93 95,200 0.93
1.75 66,700 3.8 1.75 66,700 1.75
9.38 to 14.00 372,660 6.5 10.78 298,760 10.65
14.25 to 20.75 104,250 4.0 15.66 55,800 15.62
-------------- ------- --- ----- --------- ------
$0.43 to 20.75 682,210 5.4 8.61 559,860 $ 7.64
35
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE J - STOCKHOLDERS' EQUITY (CONTINUED)
TARGET STOCK PRICE PERFORMANCE OPTIONS
The exercise price of each target stock price performance option granted
is equal to the market price of the Company's common stock on the date of grant
and vests as the Company's common stock price achieves certain pre-established
targets which were set on the date of grant. The options vest in 20% increments
as the common stock price reaches each of five target prices, $15.00, $17.50,
$20.00, $22.50 and $25.00. All options which have not vested within five years
of the date of grant will expire. All options which have vested expire ten years
from the date of grant.
The fair value of each option granted was estimated on the date of grant
using a modified Black-Scholes option-pricing model which, in addition to the
required inputs, takes into consideration the target stock price (or barrier)
which must be attained. The following assumptions were incorporated into the
model for options granted in 1996: weighted average risk-free interest rate of
6.57%; expected dividend yield of 0%; expected lives ranging from 2 to 5.5
years; and volatility of 34%.
A summary of the status of the Company's target stock price performance
options as of September 28, 1996 and changes during the year is presented below:
Number of Weighted Average
Shares Exercise Price
Outstanding, beginning of year....................................... - -
Granted.............................................................. 475,000 $10.38
Exercised............................................................ - -
Forfeited or Canceled................................................ - -
------- -----
Outstanding, end of year............................................. 475,000 $10.38
=======
Options exercisable at year-end...................................... 0
=======
Weighted average fair value of options granted during
the year calculated using modified Black-Scholes model........... $3.05
As of September 28, 1996, the 475,000 target stock price performance
options outstanding under the Plan have a remaining contractual life of 9.8
years assuming all options vest within 4.8 years.
1995 AND 1994 FIXED STOCK OPTIONS
The following tables summarizes information about fixed stock options for
1995 and 1994:
1995 1994
----------------------------- ------------------
Number of Price Per Number of Price Per
Shares Share Shares Share
Outstanding, beginning of year..... 617,760 $ .43-20.75 760,520 $ .43-14.00
Granted............................ 129,750 14.25-19.25 134,500 11.50-20.75
Exercised.......................... (32,200) .43-11.50 (277,260) .43-10.00
Forfeited or Canceled.............. - - - -
-------- --------
Outstanding, end of year........... 715,310 .43-20.75 617,760 .43-20.75
======== ========
Exercisable, end of year........... 454,760 .43-20.75 372,260 .43-13.75
======== ========
36
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE K - MAJOR CUSTOMER
Apparel fabrics had sales to Levi Strauss and related companies which
comprised 17.4%, 16.6% and 15.8% of the Company's total sales for 1996, 1995 and
1994, respectively.
NOTE L - CONCENTRATION OF CREDIT RISK
The Company manufactures and sells textile products to companies located
worldwide which are predominantly in the apparel and home fabrics industries.
The Company performs periodic credit evaluations of its customers' financial
condition and, although the Company does not generally require collateral, it
does require cash payments in advance when the assessment of credit risk
associated with a customer is substantially higher than normal. At September 28,
1996 and September 30, 1995, all trade accounts receivable are from customers in
the apparel and home furnishings industry. Receivables generally are due within
60 days, and credit losses have consistently been within management's
expectations and are provided for in the financial statements.
NOTE M - SEGMENT INFORMATION
The Company's operations are classified into two business segments,
apparel fabrics and home fabrics. The apparel fabrics segment sells to clothing
manufacturers worldwide and consists of four areas: woven fabrics, printed
fabrics, synthetic fabrics and G&L Service Company. The home fabrics segment
produces fabrics for the domestic home furnishing trade through the Home Fashion
Fabrics Division.
Information about the Company's operations in its different industry
segments for the past three years is as follows (in thousands) (see Note A).
1996 1995 1994
---- ---- ----
Net Sales
Apparel fabrics $ 364,157 443,544 $424,254
Home fabrics 47,298 58,676 26,876
------ ------ --------
Consolidated $ 411,455 $502,220 $451,130
========== ======== ========
Operating Income
Apparel fabrics $ 29,924 29,201 $ 35,704
Home fabrics (1,285) 4,709 3,261
Business closing charge - (12,065) -
------ ------- --------
Consolidated 28,639 21,845 38,965
Interest expense 11,579 13,103 8,276
Write-off of merger costs 1,600 - -
------ ------- --------
Income before income taxes $ 15,460 $ 8,742 $ 30,689
========== ======== =========
Identifiable Assets
Apparel fabrics $ 225,247 $219,208 $217,952
Home fabrics 75,148 77,863 73,490
Corporate (including cash and
income tax assets) 4,481 7,968 7,573
---------- -------- --------
Consolidated $ 304,876 $305,039 $299,015
========== ======== ========
Depreciation and Amortization
Apparel fabrics $ 8,666 $ 8,633 $ 7,900
Home fabrics 3,193 2,832 1,112
---------- -------- --------
Consolidated $ 11,859 $ 11,465 $ 9,012
========== ======== ========
Capital Expenditures
Apparel fabrics $ 11,259 $ 9,686 $ 22,138
Home fabrics 2,265 5,109 223
---------- -------- ---------
Consolidated $ 13,524 14,795 $ 22,361
========== ======== =========
37
GALEY & LORD, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995 and October 1, 1994
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited consolidated results of operations are presented
below (in thousands except per share data):
Fiscal 1996 Quarters
December March June September
Net sales................................ $ 85,134 $ 100,394 $ 115,437 $ 110,490
Cost of sales............................ 78,663 89,560 102,042 97,727
---------- ---------- ---------- ---------
Gross profit............................. 6,471 10,834 13,395 12,763
Income tax expense (benefit)............. (475) 1,587 2,588 2,282
Net income (loss)........................ $ (753) $ 2,612 $ 4,051 $ 3,568
========== ========== ========== =========
Per share data - primary:
Average common shares outstanding........ 12,010 11,928 11,889 11,858
Net income (loss) - primary.............. $ .(06) $ .22 $ .34 $ .30
=========== ========== ========== ========
Per share data - fully diluted:
Average common shares outstanding........ 12,010 11,947 11,889 11,913
Net income (loss) - fully diluted........ $ .(06) $ .22 $ .34 $ .30
=========== ========== ========== ========
Fiscal 1995 Quarters
December March June September
Net sales..................................................... $ 127,243 $ 133,339 $ 127,205 $ 114,433
Cost of sales................................................. 111,948 118,580 116,158 104,628
---------- ---------- ---------- ----------
Gross profit.................................................. 15,295 14,759 11,047 9,805
Income tax expense (benefit).................................. 2,931 2,563 1,282 (3,386)
Income (loss) before extraordinary loss....................... 4,776 4,064 2,006 (5,494)
Extraordinary loss from debt refinancing...................... - - (1,342) -
---------- ---------- ---------- ----------
Net income (loss)............................................. $ 4,776 $ 4,064 $ 664 $ (5,494)
========== ========== ========== ----------
Per share data - primary:
Average common shares outstanding............................. 12,078 12,027 12,001 12,036
Income (loss) before extraordinary loss....................... $ .40 $ .34 $ .17 $ (.46)
Net income (loss) - primary................................... $ .40 $ .34 $ .06 $ (.46)
========== ========== ========== =========
Per share data - fully diluted:
Average common shares outstanding............................. 12,078 12,027 12,034 12,036
Income (loss) before extraordinary loss....................... $ .40 $ .34 $ .17 $ (.46)
Net income (loss) - fully diluted............................. $ .40 $ .34 $ .06 $ (.46)
========== ========== ========== =========
All quarters presented are 13-week periods.
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
from the portion of the Company's definitive Proxy Statement to be filed with
the Securities and Exchange Commission on or prior to 120 days following the end
of the Company's fiscal year under the headings "Proposal 1 - Election of
Directors," "Executive Officers" and "Security Ownership."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
from the portion of the Company's definitive Proxy Statement to be filed with
the Securities and Exchange Commission on or prior to 120 days following the end
of the Company's fiscal year under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
from the portion of the Company's definitive Proxy Statement to be filed with
the Securities and Exchange Commission on or prior to 120 days following the end
of the Company's fiscal year under the heading "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from the portion of the Company's definitive Proxy Statement to be filed with
the Securities and Exchange Commission on or prior to 120 days following the end
of the Company's fiscal year under the heading "Related Transactions."
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Galey & Lord, Inc. are included under
Item 8. of this report:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 28, 1996 and September
30, 1995.
Consolidated Statements of Operations for the fiscal years ended
September 28, 1996, September 30, 1995 and October 1, 1994.
Consolidated Statements of Cash Flows for the fiscal years ended
September 28, 1996, September 30, 1995 and October 1, 1994.
Consolidated Statements of Stockholders' Equity for the fiscal
years ended September 28, 1996, September 30, 1995 and October 1,
1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
The following schedules are filed as a part of this Item 14:
Schedule I - Condensed Financial Information of the Registrant.
Schedule II - Valuation and Qualifying Accounts.
All other schedules have been omitted because they are not applicable
or are not required or because the required information is included in
the consolidated financial statements or notes thereto.
3. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as a
part of this Report.
(b) 1. Reports on Form 8-K Filed During the Last Quarter.
None.
41
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
3.1 - Form of Restated Certificate of Incorporation of the Company.(1)
3.2 - Form of Amended and Restated Bylaws of the Company.(1)
4.1 - Form of Common Stock Certificate.(1)
10.1 - Form of Registration Rights Agreement, by and among the Company, Arthur C. Wiener,
Burlington and Citicorp Venture Capital, Ltd. ("CVC").(1)
10.2 - Amended and Restated 1989 Stock Option Plan of the Company. (1)*
10.3 - Agreement, dated February 11, 1991, between Burlington and Industries.(1)
10.4 - Service Agreement, dated as of March 2, 1991, between Burlington and Industries.(1)
10.5 - Form of Voting Agreement, by and among the Company, Arthur C. Wiener and CVC.(1)
10.6 - The Retirement Plan of Galey & Lord, Inc.(1)*
10.7 - The Retirement Plan of Galey & Lord Industries, Inc. as Amended and Restated Effective
April 1, 1992.(2)*
10.8 - The Savings and Profit Sharing Plan of Galey & Lord Industries, Inc. as Amended and
Restated April 1, 1992.(2)*
10.9 - Form of Purchase Agreement dated as of March 29, 1994 between Burlington and Industries.(3)
10.10 - Assumption Agreement dated as of April 29, 1994 between Burlington and Industries.(3)
10.11 - Amendment to Amended and Restated 1989 Stock Option Plan of the Company dated August 25,
1994.(4)*
10.12 - Second Amendment to The Savings and Profit Sharing Plan of Galey & Lord Industries, Inc.
dated April 27, 1994.(5)*
10.13 - Loan Agreement dated as of May 1, 1994 between South Carolina Jobs - Economic Development
Authority and Industries.(5)
10.14 - Reimbursement and Security Agreement dated as of May 1, 1994 between Industries and
Wachovia.(5)
10.15 - Guaranty Agreement dated as of May 1, 1994 from the Company to Wachovia.(5)
10.16 - The Supplemental Executive Retirement Plan of Galey & Lord Industries, Inc.(5)*
42
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
10.17 - The Deferred Compensation Plan of Galey & Lord Industries, Inc.(5)*
10.18 - First Amendment to The Retirement Plan of Galey & Lord Industries, Inc. dated April 27,
1994.(6)*
10.19 - Second Amendment to The Retirement Plan of Galey & Lord Industries, Inc. dated April 25,
1995.(7)*
10.20 - Fourth Amendment to The Savings and Profit Sharing Plan of Galey & Lord Industries, Inc.
dated April 25, 1995.(7)*
10.21 - Credit Agreement dated as of April 28, 1995 among Industries, the Company and First Union
National Bank of North Carolina, as agent and lender, and the other lenders' party
thereto.(7)
10.22 - Security and Pledge Agreement dated as of April 28, 1995,
among Industries, the Company and First Union National Bank of
North Carolina, as Collateral Agent.(7)
10.23 - Letter of Intent dated September 22, 1995 between the Company and Triarc Companies, Inc. (8)
10.24 - First Amendment to Credit Agreement dated October 19, 1995 between Industries, the Company
and First Union National Bank of North Carolina, as agent and lender. (9)
10.25 - Fifth Amendment to The Savings and Profit Sharing Plan of Galey & Lord Industries, Inc.
dated August 29, 1995.(10)*
10.26 - Asset Purchase Agreement, dated as of May 20, 1996, among the Company, Industries, Farah
Incorporated, Farah U.S.A., Inc. and Dimmit (excluding Schedules and Exhibits).(11)
10.27 - Amended and Restated Credit Agreement dated as of June 4, 1996 between Industries, the
Company and certain subsidiaries and First Union National Bank of North Carolina, as agent
and lender and the other lender's party thereto.(12)
10.28 - Third Amendment to The Retirement Plan of Galey & Lord Industries, Inc. dated June 7, 1996.*
10.29 - Sixth Amendment to The Savings and Profit Sharing Plan of Galey & Lord Industries, Inc.
dated June 7, 1996.*
10.30 - Seventh Amendment to The Savings and Profit Sharing Plan of Galey & Lord Industries, Inc.
dated September 30, 1996.*
11 - Statement Regarding Computation of Per Share Earnings.
21 - Subsidiaries of the Company.
43
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO
23 - Consent of Ernst & Young LLP.
27 - Financial Data Schedule
(1) Filed as an Exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-45895) which was declared effective by
the Securities and Exchange Commission on April 30, 1992 and
incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended October 2, 1993 and incorporated
herein by reference.
(3) Filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the period ended April 2, 1994 and incorporated herein
by reference.
(4) Filed as an Exhibit to the Company's Registration Statement on
Form S-8 (File No. 33-52248) dated August 25, 1994
and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended October 1, 1994 and incorporated
herein by reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the period ended December 31, 1994 and incorporated
herein by reference.
(7) Filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the period ended April 1, 1995 and incorporated herein
by reference.
(8) Filed as an Exhibit to the Company's Form 8K dated September
22, 1995 and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 and incorporated
herein by reference.
(10) Filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the period ended March 30, 1996 and incorporated
herein by reference.
(11) Filed as an Exhibit to the Company's Form 8K dated May 20, 1996
and incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Quarterly Report on Form
10-Q for the period ended June 29, 1996 and incorporated herein
by reference.
* Management contract or compensatory plan or arrangement
identified pursuant to item 14(a)3 of this report.
44
Schedule I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
GALEY & LORD, INC.
The Company conducts all of its operating activities through its
wholly-owned domestic subsidiaries, Galey & Lord Industries, Inc. and G&L
Service Company, North America, Inc., and wholly-owned foreign subsidiary,
Dimmit Industries, S.A. de C.V.
Other than the parent's investment in its subsidiaries, it maintains a de
minimis cash balance and has minor operating accruals.
45
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GALEY & LORD, INC.
(IN THOUSANDS)
- ----------------------------------------------------- ------------- --------------- -------------- ---------------- --------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------------- ------------- --------------- -------------- ---------------- --------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS- END OF
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DESCRIBE(1) PERIOD
- ----------------------------------------------------- ------------- --------------- -------------- ---------------- --------------
YEAR ENDED SEPTEMBER 28, 1996
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts,
discounts, returns and allowances........... $ 1,492 $ 172 $ - $ 230 $1,434
------- ------ ----- ------- ------
Totals................................... $ 1,492 $ 172 $ - $ 230 $1,434
======= ====== ===== ======= ======
YEAR ENDED SEPTEMBER 30, 1995
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts,
discounts, returns and allowances........... $ 1,456 $ 538 $ - $ 502 $1,492
------- ------ ----- ------- ------
Totals................................... $ 1,456 $ 538 $ - $ 502 $1,492
======= ====== ===== ======= ======
YEAR ENDED OCTOBER 1, 1994
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts,
discounts, returns and allowances........... $ 1,262 $ 569 $ - $ 375 $1,456
------- ------ ----- ------- ------
Totals................................... $1,262 $ 569 $ - $ 375 $1,456
======= ====== ===== ======= ======
(1)Uncollectible accounts written off.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
December 23, 1996
- -----------------------
Date /s/ Arthur C. Wiener
Arthur C. Wiener
Chairman of the Board
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ Arthur C. Wiener December 23, 1996 /s/ Michael R. Harmon December 23, 1996
- ------------------------------------------------ -------------------------------------------------------
Arthur C. Wiener Date Michael R. Harmon Date
Chairman of the Board Executive Vice President,
and President (Principal Executive Officer) Chief Financial Officer (Principal
Financial and Accounting Officer),
Treasurer and Secretary
/s/ Lee Abraham December 23, 1996 /s/ William M.R. Mapel December 23, 1996
- ------------------------------------------------ -------------------------------------------------------
Lee Abraham Date William M.R. Mapel Date
Director Director
/s/ Paul G. Gillease December 23, 1996 /s/ Stephen C. Sherrill December 23, 1996
- ------------------------------------------------ -------------------------------------------------------
Paul G. Gillease Date Stephen C. Sherrill Date
Director Director
/s/ William deR. Holt December 23, 1996 /s/ David F. Thomas December 23, 1996
- ------------------------------------------------ -------------------------------------------------------
William deR. Holt Date David F. Thomas Date
Director Director
/s/ Howard S. Jacobs December 23, 1996
- ------------------------------------------------
Howard S. Jacobs Date
Director
47