UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 24, 1998
GALEY & LORD, INC.
Exact name of registrant as specified in its charter
DELAWARE 56-1593207
State or other jurisdiction of IRS Employer Identification No.
incorporation or organization
980 Avenue of the Americas, New York, New York 10018
Address of principal executive offices Zip Code
212/465-3000
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since
last report.
ITEM 5. OTHER EVENTS.
On January 29, 1998, Galey & Lord, Inc. (the "Company", "Galey & Lord" or
"Galey") entered into a Master Separation Agreement with Polymer Group Inc.
("Polymer"), DT Acquisition, Inc. ("DTA"), a subsidiary of Polymer, Dominion
Textile Inc. ("Dominion") and certain other parties thereto, pursuant to which
the Company acquired the apparel fabrics business (the "Acquired Business") of
Dominion from DTA (the "Acquisition").
Incorporated by reference herein and attached as an exhibit hereto is the press
release of the Company dated February 24, 1998 announcing that the Company had
closed its private offering of $300 million of Senior Subordinated Notes due in
2008 with a coupon rate of 9.125% (the "Notes").
Net proceeds from the offering will be used to repay $275 million principal
amount of borrowings under a senior subordinated bridge financing facility (the
"Bridge Financing Facility") incurred to acquire the apparel fabrics businesses
of Dominion and for general corporate purposes.
The offering and sale of the Senior Subordinated Notes has not been registered
under the Securities Act of 1933, as amended, and the Senior Subordinated Notes
may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following are historical financial statements of the Acquired Business and
the pro forma combined financial statements of the Company and the Acquired
Business.
Financial Statements of the Acquired Business
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS OF THE APPAREL FABRICS
BUSINESS OF DOMINION TEXTILE INC.:
Unaudited Condensed Combined Statements of Income and Deficit for
the Three-Month and Six-Month Periods Ended December 31, 1996
and 1997 3
Unaudited Condensed Combined Balance Sheets as of June 30, 1997
and December 31, 1997 4
Unaudited Condensed Combined Statements of Cash Flows for the
Three-Month and Six-Month Periods Ended December 31, 1996
and 1997 5
Notes to Unaudited Condensed Combined Financial Statements 6 - 10
Pro Forma Combined Financial Statements of the Company
Unaudited Pro Forma Combined Balance Sheet as of
December 27, 1997 12
Notes to Unaudited Pro Forma Combined Balance Sheet 13 -14
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended September 27, 1997 15
Unaudited Pro Forma Combined Statement of Operations for the
Three Months Ended December 27, 1997 16
Notes to Unaudited Pro Forma Combined Statement of Operations 17 - 19
2
APPAREL FABRICS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME AND DEFICIT
FOR THE THREE-MONTH AND THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
Three-month periods Six-month periods
1996 1997 1996 1997
Sales......................................... $152,353,791 $134,195,565 $304,874,995 $286,364,569
Cost of goods sold............................ 136,214,962 118,358,594 273,626,477 250,731,480
----------- ----------- ----------- -----------
Gross profit.................................. 16,138,829 15,836,971 31,248,518 35,633,089
-------------- -------------- --------------- --------------
Selling expenses.............................. 5,310,798 4,533,586 10,290,758 8,858,607
Administrative expenses....................... 7,935,518 6,163,811 15,796,796 13,414,229
Goodwill amortization......................... 528,339 517,175 1,026,332 1,014,211
-------------- ------------- --------------- --------------
13,774,655 11,214,572 27,113,886 23,287,047
-------------- -------------- --------------- --------------
Operating income.............................. 2,364,174 4,622,399 4,134,632 12,346,042
Interest expense, net......................... (4,339,389) (4,268,838) (9,121,657) (8,692,628)
Share in net income of associated
companies................................... 2,003,359 796,513 3,983,112 2,035,811
Other income (expense), net................... (685,357) 685,671 (1,158,347) 742,517
Costs related to the change of control
(Note 1).................................... -- (16,469,871) -- (16,469,871)
-------------- ----------- -------------- -----------
Loss before recovery of income taxes.......... (657,213) (14,634,126) (2,162,260) (10,038,129)
Recovery of income taxes...................... 2,035,332 2,539,587 3,170,492 2,717,211
-------------- -------------- -------------- --------------
Net income (loss)............................. 1,378,119 (12,094,539) 1,008,232 (7,320,918)
Deficit, at beginning......................... (116,296,849) (125,259,658) (115,926,962) (130,033,279)
------------ ------------ ------------ ------------
Deficit, at end............................... (114,918,730) (137,354,197) (114,918,730) (137,354,197)
============ ============ ============ ============
See notes to the unaudited condensed combined financial statements.
3
APPAREL FABRICS BUSINESS
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
June 30, December 31,
1997 1997
Assets
Current assets
Cash and cash equivalents..................................................... $36,797,072 $16,655,525
Receivables
Trade, net of allowance for doubtful accounts of $1,361,534
($2,214,213 as of June 30, 1997)........................................... 118,459,831 96,149,682
Other......................................................................... 17,987,082 13,451,431
Inventories................................................................... 84,972,495 83,317,621
Other current assets.......................................................... 11,392,840 9,009,039
-------------- --------------
269,609,320 218,583,298
Investments and other advances................................................... 6,576,251 7,317,448
Property, plant and equipment, net............................................... 244,025,312 229,884,523
Intangible assets, net........................................................... 62,213,219 61,076,663
Other assets..................................................................... 8,688,738 13,116,581
-------------- --------------
Total assets..................................................................... 591,112,840 529,978,513
=========== ===========
Liabilities and stockholders' equity
Current liabilities
Short-term borrowings......................................................... -- 789,275
Accounts payable.............................................................. 32,999,742 25,305,670
Payroll, related taxes and other employee related liabilities................. 15,951,978 10,302,273
Other accrued liabilites...................................................... 37,578,824 26,406,498
Interest payable.............................................................. 5,656,732 5,782,054
Income taxes payable.......................................................... 4,320,246 6,723,110
Long-term debt due within one year............................................ 1,535,908 191,108,417
-------------- -----------
98,043,430 266,417,297
Long-term debt................................................................... 197,971,915 144,231
Deferred income taxes............................................................ 30,291,948 28,656,976
Other non-current liabilities.................................................... 43,293,000 38,567,062
-------------- --------------
Total liabilities................................................................ 369,600,293 333,785,565
----------- -----------
Stockholders' equity
Additional paid-in capital.................................................... 370,598,557 355,285,490
Deficit....................................................................... (130,033,279) (137,354,197)
Cumulative translation adjustment............................................. (19,052,731) (21,738,345)
-------------- --------------
Total stockholders' equity....................................................... 221,512,547 196,192,948
----------- -----------
Total liabilities and stockholders' equity....................................... 591,112,840 529,978,513
=========== ===========
See notes to the unaudited condensed combined financial statements.
4
APPAREL FABRICS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
For the Three-Month and Six-Month Periods ended December 31, 1996 and 1997
Three-month periods Six-month periods
1996 1997 1996 1997
OPERATING ACTIVITIES
Net income (loss).................................. $ 1,378,119 $(12,094,539) $ 1,008,232 $ (7,320,918)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities.
Depreciation and amortization................. 8,776,267 8,378,941 17,732,103 16,709,296
Deferred income taxes......................... 968,293 (666,497) (2,748,132) (1,634,790)
Loss (gain) on disposal of property plant and
equipment................................... (190,984) 457,751 (319,177) 167,363
Share in net income of associated companies... (2,003,359) (796,513) (3,983,112) (2,035,811)
Other non-cash items.......................... (2,787,897) -- (2,787,897) --
Changes in assets and liabilities
Receivables, net................................ 6,103,685 17,911,977 17,811,073 27,027,251
Inventories..................................... 6,061,116 (1,911,081) (1,565,963) 1,374,936
Other current assets............................ 3,215,512 2,220,738 7,791,346 2,724,557
Other assets.................................... (336,776) (4,559,354) 29,919 (4,348,216)
Current liabilities............................. (20,740,831) (23,870,136) (22,876,380) (22,169,366)
Other liabilities............................... (199,907) (4,053,475) 503,554 (4,182,787)
Other, net...................................... 44,807 (4,589,847) 4,674,064 (2,968,162)
--------------- ---------- --------- ----------
Net cash provided by (used in) operating activities 288,045 (23,572,035) 15,269,630 3,343,353
--------------- --------------- --------------- ---------------
INVESTING ACTIVITIES
Capital expenditures............................... (2,691,268) (2,897,947) (7,005,000) (6,379,161)
Proceeds from sale of property, plant and equipment 1,788,267 3,452,041 2,542,367 3,851,385
Investment in associated companies and other....... (4,834,158) 771,160 (5,199,258) 2,010,003
Other, net......................................... (208,119) 1,619,415 (686,933) 394,152
--------------- --------------- --------------- ---------------
Net cash used in (provided by) investing activities (5,945,278) 2,944,669 (10,348,824) (123,621)
--------------- --------------- --------------- ---------------
FINANCING ACTIVITIES
Repayment of short-term borrowings................. (1,100,434) -- (1,100,434) --
Repayment of long-term debt........................ (407,256) (2,901,296) (45,888,632) (8,284,412)
Issue of short-term borrowings..................... -- 226,466 1,162,401 789,275
Issue of long-term debt............................ -- 29,237 773,143 29,237
Changes in additional paid-in capital.............. (651,687) (6,942,826) 45,739,654 (15,313,067)
--------------- --------------- --------------- ---------------
Net cash (used in) provided by financing activities (2,159,377) (9,588,419) 686,132 (22,778,967)
--------------- --------------- --------------- ---------------
Effect of changes in exchange rates on cash and cash
equivalents..................................... (170,712) (268,005) (331,536) (582,312)
--------------- --------------- ---------------- ---------------
Net increase (decrease) in cash and cash equivalents (7,987,322) (30,483,790) 5,275,402 (20,141,547)
Cash and cash equivalents, at beginning............ 30,959,123 47,139,315 17,696,400 36,797,072
--------------- --------------- --------------- ---------------
Cash and cash equivalents, at end.................. 22,971,801 16,655,525 22,971,802 16,655,525
=============== =============== =============== ===============
Supplemental disclosure of cash flow information
Net cash paid during the period for:
Interest..................................... 8,386,132 8,936,049 9,268,866 9,325,864
--------------- --------------- --------------- ---------------
Income taxes................................. 1,296,300 2,018,107 2,834,697 2,062,095
--------------- --------------- --------------- ---------------
See notes to the unaudited condensed combined financial statements.
5
APPAREL FABRICS BUSINESS
BASIS OF PRESENTATION
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
GENERAL
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to the stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Apparel Fabrics Business of
Dominion Textile Inc. (the "Business") include the operations of Swift Denim,
Inc., Klopman International S.p.A. and Swift Textiles Europe Limited which were
operated as subsidiaries or associated companies of Dominion Textile Inc. On
December 19, 1997, pursuant to a takeover offer, DT Acquisition Inc., an
affiliate of Polymer Group, Inc. ("PGI") acquired all shares tendered which
approximated 98% of the outstanding common stock of the Corporation. In
connection with the change of control, PGI entered into a preliminary agreement
with Galey & Lord, Inc., to sell it certain operations. In contemplation of the
change in control and the subsequent sale of certain operations, the operations
and the net assets of the Corporation have been essentially divided into two
groups: the Apparel Fabrics Business and the Nonwovens Business.
The combined financial statements have been prepared using the
Corporation's historical basis in the assets and liabilities and historical
results of operations related to the Business. Changes in additional paid-in
capital represent the Corporation's contribution of its net operating investment
plus net cash transfers to or from the Corporation. The combined financial
statements reflect the results of operations, financial position and cash flows
of the Business as if it had operated as a separate entity for all periods
presented and may not be indicative of actual results of operations and
financial position of the Business under different ownership.
ALLOCATIONS
The basis of allocation selected herein is not necessarily indicative of
the application of the provisions contained in the separation agreement entered
into by PGI and Galey & Lord, Inc. and dated January 29, 1998.
The combined financial statements include allocations of certain
corporate headquarters' assets, liabilities (excluding deferred income taxes),
and net expenses. All significant intergroup transactions and balances have been
eliminated.
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business' average
net operating investment to the aggregate net operating investment of the two
groups. Interest expense shown in the combined financial statements reflects the
interest expense associated with the aggregate borrowings for each period
presented principally based on a blend of the Corporation's long-term weighted
average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to the
aggregate sales of the Corporation. The costs of the services charged to the
Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone entity.
Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory tax rate.
Management believes that the basis of allocation is reasonable.
6
APPAREL FABRICS BUSINESS
BASIS OF PRESENTATION (CONTINUED)
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
Three-month periods Six-month periods
ended December 31 ended December 31
----------------- -----------------
1996 1997 1996 1997
---- ---- ---- ----
Net impact on gross profit................ $(1,377,374) $(470,109) $(531,285) $(1,591,959)
General corporate overhead, net........... (2,818,459) (2,012,564) (5,463,328) (4,834,297)
Costs related to the change of
control.................................. -- (14,510,565) -- (14,510,565)
Recovery of income taxes.................. 1,627,983 2,432,684 2,325,910 3,962,794
--------- --------- --------- ---------
(2,567,850) (14,560,554) (3,668,703) (16,974,027)
========== =========== ========== ===========
June 30, December 31,
1997 1997
Net assets excluding long-term debt............................................... $ 14,539,529 $ (5,631,557)
Long-term debt, inclusive of the portion due within one year...................... 197,049,432 189,557,867
Cumulative translation adjustment................................................. (4,252,709) (2,237,144)
7
APPAREL FABRICS BUSINESS
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
1. COSTS RELATED TO THE CHANGE OF CONTROL
In fiscal 1997, as part of its strategy to provide added-value to its
stockholders, Dominion Textile Inc. together with its financial advisers,
considered different growth opportunities for its core businesses. The takeover
offer discussed in the basis of presentation was among those opportunities. This
offer was recommended by the Board of Directors for acceptance on November 17,
1997.
The change of control triggered among other things, the accelerated
funding of certain benefit plans for executives and the payments under benefits
programs. As a result, Dominion Textile Inc. recorded a $26.1 million charge
which includes professional fees amounting to $11.2 million. The Business' share
of this charge is $16.5 million.
2. SUBSEQUENT EVENTS
Pursuant to a Master Separation Agreement dated January 29, 1998, Galey
& Lord, Inc. acquired from DT Acquisition Inc. the Apparel Fabrics Business and
certain other assets and assumed certain related liabilities.
Also on January 29, 1998, Dominion Textile (USA) Inc. redeemed all of
its outstanding $275.0 million senior notes at a price of $310.4 million,
including accrued interest. Consequently, they were reclassified within current
liabilities.
3. SUPPLEMENTAL CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
In connection with the note offering, each of the Apparel Fabrics
Business' operating subsidiaries located in the United States ("the Guarantor
Subsidiaries") will fully and unconditionally guarantee Galey & Lord, Inc.'s
("Galey") performance under the Notes on a joint and several basis. The
Guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of
Galey. The remaining subsidiaries are direct or indirect foreign subsidiaries of
Galey. The following condensed combined financial data provides information
regarding the financial position, results of operations and cash flows of the
Guarantor Subsidiaries prior to their acquisition by Galey.
(IN THOUSANDS OF DOLLARS
Three-month period ended December 31, 1996 Three-month period ended December 31, 1997
------------------------------------------------- ----------------------------------------------
NON- ELIMINATION APPAREL NON- ELIMINATION APPAREL
GUARANTOR GUARANTOR AND FABRICS GUARANTOR GUARANTOR AND FABRICS
SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED
Sales................. $94,020 $62,275 $(3,941) $152,354 $ 78,092 $ 58,817 $ (2,713) $134,196
Gross Profit.......... 9,282 8,234 (1,377) 16,139 8,542 7,765 (470) 15,837
--------- --------- -------- ---------- ---------- ----------- ---------- ----------
Operating income (loss) 3,222 3,277 (4,135) 2,364 3,551 3,785 (2,714) 4,622
Interest expense, income
taxes and other, net 4,730 (2,177) (1,567) 986 4,213 656 11,848 16,717
--------- --------- -------- ---------- ---------- ----------- --------- ----------
Net income (loss)..... (1,508) 5,454 (2,568) 1,378 (662) 3,129 (14,562) (12,095)
========= ========== ======== ========== ========== =========== ========= ==========
(IN THOUSANDS OF DOLLARS)
Six-month period ended December 31, 1996 Six-month period ended December 31, 1997
------------------------------------------------ ---------------------------------------------
NON- APPAREL NON- APPAREL
GUARANTOR GUARANTOR FABRICS GUARANTOR GUARANTOR FABRICS
SUBSIDIARIES SUBSIDIARIES ELIMINATION COMBINED SUBSIDIARIES SUBSIDIARIES ELIMINATION COMBINED
Sales................. $197,422 $115,905 $(8,452) $304,875 $180,073 $112,485 $ (6,193) $286,365
Gross Profit.......... 17,756 14,025 (532) 31,249 22,216 22,216 (1,592) 35,633
---------- ---------- --------- ---------- ---------- ---------- --------- ----------
Operating income (loss) 5,396 4,655 (5,916) 4,135 11,679 11,679 (6,335) 12,346
Interest expense, income
taxes and other, net 8,714 (3,328) (2,259) 3,127 6,392 1,883 11,392 19,667
--------- ----------- --------- ----------- ---------- ---------- --------- ----------
Net income (loss)..... (3,318) 7,983 (3,657) 1,008 5,287 5,119 (17,727) (7,321)
========= =========== ========= =========== ========== ========== ========= ===========
8
APPAREL FABRICS BUSINESS
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
3. SUPPLEMENTAL CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION--CONTINUED
(IN THOUSANDS OF DOLLARS)
June 30, 1997 December 31, 1997
------------------------------------------------ --------------------------------------------------
NON- ELIMINATION APPAREL NON- ELIMINATION APPAREL
GUARANTOR GUARANTOR AND FABRICS GUARANTOR GUARANTOR AND FABRICS
SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED
Assets
Current assets........ $118,997 $107,602 $43,010 $269,609 $ 97,914 $ 96,839 $ 23,830 $218,583
Property, plant and
equipment, net...... 157,233 84,813 1,979 244,025 150,748 78,937 200 229,885
Investments and other
advances............ -- 6,576 -- 6,576 -- 7,317 -- 7,317
Intangible assets, net 59,639 897 1,677 62,213 58,660 884 1,533 61,077
Other assets.......... 2,493 398 5,798 8,689 7,344 1,701 4,072 13,117
Total assets........ 338,362 200,286 52,464 591,112 314,666 185,678 29,635 529,979
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities... 29,443 48,184 20,416 98,043 149,978 95,237 21,203 266,418
Long-term debt........ 165,564 32,408 -- 197,972 144 -- -- 144
Other non-current
liabilities......... 42,722 13,536 17,327 73,585 40,855 13,408 12,961 67,224
------ ------ ------ ------ ------ -------- ------ -------
Total liabilities... 237,729 94,128 37,743 369,600 190,977 108,645 34,164 333,786
------- ------ ------ ------- ------- ------- ------ -------
Stockholders' equity.. 100,633 106,158 14,721 221,512 123,689 77,033 (4,529) 196,193
------- ------- ------ ------- ------- -------- -------- -------
Total liabilities and
stockholders' equity 338,362 200,286 52,464 591,112 314,666 185,678 29,635 529,979
======= ======= ====== ======= ======= ======= ====== =======
(IN THOUSANDS OF DOLLARS)
Three-month period ended December 31, 1996 Three-month period ended December 31, 1997
------------------------------------------------ ----------------------------------------------
NON- ELIMINATION APPAREL NON- ELIMINATION APPAREL
GUARANTOR GUARANTOR AND FABRICS GUARANTOR GUARANTOR AND FABRICS
SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED
Cash flows
Net cash provided by
(used in) operating
activities.......... $ 3,344 $ (2,865) $ (191) $ 288 $ 16,800 $(17,087 $(23,285) $(23,572)
Net cash provided by
(used in) investing
activities.......... (1,088) (5,031) 174 (5,945) (3,644) 5,461 1,128 2,945
Net cash provided by
(used in) financing
activities.......... (2,246) 1,395 (1,479) (2,330) (12,160) 9,958 (7,655) (9,857)
-------- ------- ------- -------- -------- ------- --------- -------
Net change in cash and
cash equivalents.... 10 (6,501) (1,496) (7,987) 996 (1,668) (29,812) (30,484)
Cash and cash
equivalents, at
beginning........... 29 8,405 22,525 30,959 (1,004) 5,467 42,677 47,140
--------- -------- ------ ------- --------- ------- ------- --------
Cash and cash
equivalents, at end. 39 1,904 21,029 22,972 (8) 3,799 12,865 16,656
========= ======== ====== ======= ========== ======= ======= ========
9
APPAREL FABRICS BUSINESS
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997
3. SUPPLEMENTAL CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION--CONTINUED
(IN THOUSANDS OF DOLLARS)
Six-month period ended December 31, 1996 Six-month period ended December 31, 1997
------------------------------------------------ ---------------------------------------------
NON- ELIMINATION APPAREL NON- ELIMINATION APPAREL
GUARANTOR GUARANTOR AND FABRICS GUARANTOR GUARANTOR AND FABRICS
SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED SUBSIDIARIES SUBSIDIARIES ALLOCATIONS COMBINED
Cash flows
Net cash provided by
(used in) operating
activities.......... $ 220 $ 5,828 $ 9,222 $ 15,270 $ 22,770 $(12,144) $ (7,283) $ 3,343
Net cash provided by
(used in) investing
activities.......... (4,435) (7,400) 1,486 (10,349) (3,553) 264 3,165 (124)
Net cash provided by
(used in) financing
activities.......... 4,233 (2,003) (1,875) 355 (19,244) 8,920 (13,038) (23,361)
-------- ------- ------- --------- -------- ------- ------- ----------
Net change in cash and
cash equivalents.... 18 (3,575) 8,833 5,276 (27) (2,960) (17,156) (20,143)
Cash and cash
equivalents, at
beginning........... 21 5,479 12,196 17,696 19 6,759 30,021 36,799
-------- -------- ------- -------- -------- -------- ------ --------
Cash and cash
equivalents, at end. 39 1,904 21,029 22,972 (8) 3,799 12,865 16,656
======== ======== ======= ========= ========= ======== ======= =========
10
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE COMPANY
The following unaudited pro forma combined financial statements of the
Company give effect to the Acquisition and the financing thereof as if they had
occurred at December 27, 1997 in the case of the Unaudited Pro Forma Combined
Balance Sheet and at the beginning of each of the periods presented in the case
of the Unaudited Pro Forma Combined Statement of Operations. Such financial
statements have been derived from Galey & Lord's audited financial statements
for its fiscal year ended September 27, 1997 and its unaudited financial
statements for the three months ended December 28, 1996 and December 27, 1997
and from the Acquired Business' combined audited financial statements for its
fiscal year ended June 30, 1997 and its unaudited financial statements for the
three months ended September 30, 1996 and September 30, 1997 and the three and
six months ended December 31, 1996 and December 31, 1997.
The Acquisition was accounted for using the purchase method of accounting.
The total cost of the Acquisition has been preliminarily allocated to the assets
acquired and liabilities assumed based upon their respective fair values as
determined through preliminary appraisals and internal estimates that the
Company believes are reasonable. The actual allocation of purchase cost,
however, and the resulting effect on income may differ from the pro forma
amounts included herein.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only, does not purport to be indicative of
the Company's financial position or results of operations as of the date hereof,
or as of or for any other future date, and is not necessarily indicative of what
the Company's actual financial position or results of operations would have been
had the foregoing transactions occurred on December 27, 1997, September 28,
1997, December 29, 1996 or September 29, 1996, nor does it give effect to (i)
any transactions other than the foregoing transactions and those described in
the accompanying notes to unaudited pro forma combined financial information of
the Company or (ii) Galey & Lord's or the Acquired Business' results of
operations since December 27, 1997 and December 31, 1997, respectively.
11
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 27, 1997
(in thousands)
Historical Pro Forma
Galey & Lord Acquired Business
(December 27, 1997) (December 31, 1997) Adjustments Combined
ASSETS
Current assets:
Cash....................................... $ 6,198 $16,655 $(3,238) (1) $ 19,615
Accounts receivable........................ 87,043 109,601 (1,259) (1) 201,885
6,500 (2a)
Inventories................................ 95,934 83,318 (3,030) (2b) 176,222
Income taxes receivable.................... 2,516 -- -- 2,516
Prepaid expenses and other current
assets................................... 2,973 9,009 (3,446) (2c) 11,589
4,138 (2h)
(1,085) (1)
------------ ------------- --------
Total current assets..................... 194,664 218,583 (1,420) 411,827
Property, plant and equipment, net......... 133,779 229,885 61,316 (2d) 424,980
Note receivable............................ 141,000 -- (141,000) (3a) --
Goodwill, net.............................. 37,567 61,077 (61,077) (2e) 145,658
108,091 (2)
Other assets, net.......................... 6,661 20,434 (858) (1) 48,559
9,639 (3b)
12,683 (2f)
Total assets............................. $ 513,671 $ 529,979 $(12,626) $1,031,024
============ ============= ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings......................$ -- $789 $ -- $ 789
Accounts payable........................... 21,440 25,306 -- 46,746
Accrued expenses........................... 8,524 42,491 (3,807) (1) 72,324
25,116 (2g)
Income taxes payable....................... -- 6,723 (3,014) (1) 3,709
Current portion of long-term debt.......... 1,431 191,108 (189,557) (1) 5,632
2,650 (4)
Total current liabilities................ 31,395 266,417 (168,612) 129,200
Long-term debt............................. 360,004 144 330,513 (4) 690,661
Deferred income taxes...................... 18,486 28,658 24,790 (2h) 71,934
Other non-current liabilities.............. -- 38,567 (3,124) (1) 35,443
------------ ------------- --------- -----------
Total liabilities........................ 409,885 333,786 183,567 927,238
------------ ------------- --------- -----------
Stockholders' equity:
Common stock............................... 121 -- -- 121
Additional paid-in capital................. 35,980 355,285 (355,285) (5) 35,980
Retained earnings.......................... 69,932 (137,354) 137,354 (5) 69,932
Treasury stock............................. (2,247) -- -- (2,247)
Currency translation adjustment............ -- (21,738) 21,738 (5) --
------------ ------------- ---------- -----------
Total stockholders' equity............... 103,786 196,193 (196,193) 103,786
------------ ------------- ---------- -----------
Total liabilities and stockholders'
equity.................................. $ 513,671 $ 529,979 $(12,626) $1,031,024
============ ============= ======== ==========
12
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) Certain assets and liabilities primarily related to the operations of the
corporate function of Dominion Textile Inc. were historically allocated to
the Acquired Business on a different basis than allocated pursuant to the
agreement by which the Acquisition was effected. The following adjusts
these allocations to that specified in the above described agreement.
Historical net assets of the Acquired Business................... $196,193
Adjustments to the net assets of the Acquired Business
Cash.......................................................... (3,238)
Accounts receivable........................................... (1,259)
Other current assets.......................................... (1,085)
Other assets, net............................................. (858)
Accrued expenses.............................................. 3,807
Income taxes payable.......................................... 3,014
Other non-current liabilities................................. 3,124
-----
Net adjustments.................................................. 3,505
Long-term debt not assumed....................................... 189,557
----------
Book value of net assets acquired................................ $389,255
========
(2) The Purchase Price has been preliminarily allocated as follows:
Purchase Price.................................................... $464,524
Less net book value of assets acquired............................ 389,255
----------
Excess of cost over net book value of assets acquired............. $ 75,269
Adjustments to record assets and liabilities acquired at estimated
fair value:
Accounts receivable............................................ 6,500 (a)
Inventory...................................................... (3,030) (b)
Deferred costs recorded in other current assets................ (3,446) (c)
Property, plant and equipment.................................. 61,316 (d)
Intangibles.................................................... (61,077) (e)
Investments and advances....................................... 12,683 (f)
Accrued liabilities............................................ (25,116) (g)
Deferred taxes................................................. (20,652) (h)
--------
32,822
Excess of cost over fair value of net assets acquired (goodwill).. $108,091
========
(a) Represents a receivable from the seller of the Acquired Business for
certain shared tax benefits.
(b) Reflects the write-down of raw materials inventory to fair value.
(c) Reflects the adjustment to write off the unamortized balance of debt
issuance costs of the Acquired Business.
(d) Reflects a preliminary adjustment to record the Acquired Business'
fixed assets at fair value. The preliminary adjustment is based upon
preliminary appraisals and internal estimates and is allocated as
follows:
Land............................................... $14,720
Buildings.......................................... 26,445
Machinery and Equipment............................ 20,151
--------
$61,316
(e) Reflects the write-off of the goodwill of the Acquired Business.
(f) Reflects the adjustment to record the joint venture investment at fair
value.
13
(g) Reflects the assumption of the following liabilities:
Severance and other employee benefits................................ $ 7,582
Acquisition related tax liabilities.................................. 2,800
Liability for unfavorable cotton commitments......................... 7,647
Future lease costs associated with facilities of the Acquired
Business that will no longer be used.............................. 3,318
Professional fees.................................................... 700
Other................................................................ 3,069
--------
$25,116
(h) To record the deferred tax liability related to the temporary difference
between the financial statement carrying amount as adjusted and the tax
basis of the assets of the Acquired Business at an assumed income tax
rate of 38.8%. Of this amount, $4,138 was recorded as a current deferred
tax asset and $24,790 was recorded as a long-term deferred tax
liability.
(3) Reflects the adjustments to record the following:
Additional borrowings under the Senior Credit Facility............. $178,781
Gross proceeds from the issuance and sale of the Notes............. 300,000
Total cash paid for the Acquired Business.......................... 464,524
Less: Amounts paid during the December quarter..................... (141,000) (a)
--------
Cash paid at closing............................................... (323,524)
Repayment of the Bridge Financing Facility......................... (145,618)
Financing costs.................................................... (9,639) (b)
--------
Net cash adjustment................................................ --
=============
(a) On December 19, 1997, Galey & Lord paid $141,000 to DT Acquisition,
Inc. ("DTA"), an affiliate of Polymer Group, Inc, for funds to
effect DTA's initial acquisition of Dominion. In return, Galey &
Lord received a note from DTA that was to be canceled at the time
the Acquisition was consummated.
(b) Total financing costs incurred were $16,300 of which $6,661 were
paid in the December 1997 quarter.
(4) Reflects the adjustment to long-term debt for total debt outstanding
immediately after the Acquisition.
Additional borrowings under the Senior Credit Facility.............. $ 178,781
Gross proceeds from the issuance and sale of the Notes.............. 300,000
Less repayment of the Bridge Financing Facility..................... (145,618)
----------
Total adjustment to debt............................................ 333,163
Adjustment to current portion of long-term debt..................... (2,650)
Adjustment to long-term debt........................................ $(330,513)
---------
--
=========
(5) Reflects the adjustment to eliminate the Acquired Business' net equity.
14
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended September 27, 1997
(in thousands)
Historical Pro Forma
Galey & Lord Acquired Business
(Year Ended (Year Ended
September 27, 1997) September 30, 1997) Adjustments Combined
Statement of Operations Data:
Net sales................................. $493,362 $610,221 $ -- $1,103,583
Cost of sales............................. 439,207 547,631 (5,195) (1) 981,643
Restructuring charges..................... -- 17,816 -- 17,816
---------- ---------- -------- -----------
Gross profit............................. 54,155 44,774 5,195 104,124
Selling, general and administrative
expenses................................. 18,123 51,046 (12,661) (2) 56,508
Amortization of goodwill.................. 1,679 1,987 715 (1) 4,381
---------- ---------- -------- -----------
Operating income (loss).................. 34,353 (8,259) 17,141 43,235
Other (income) expense:
Interest expense, net.................... 12,326 17,055 29,434 (3) 58,815
Other expense (income), net.............. -- (456) -- (456)
Share in net income of associated
companies.............................. -- (6,669) 631 (4) (6,038)
---------- ---------- -------- -------------
Income (loss) before income taxes......... 22,027 (18,189) (12,924) (9,086)
Income tax expense (benefit).............. 8,350 (9,227) (4,492) (6) (5,369)
---------- ---------- -------- -------------
Net income (loss)......................... $ 13,677 $ (8,962) $ (8,432) $ (3,717)
========= ========= ======== =============
Other Operating Data:
Depreciation and amortization............. $15,183 $34,845 $ (3,849) $46,179
Capital expenditures...................... 36,626 16,331 -- 52,957
EBITDA (7)(8)............................. 50,086 54,321 12,661 117,068
Cash interest expense..................... 12,027 15,695 28,395 56,117
Ratio of EBITDA to cash interest
expense (9).............................. 4.16x 3.46x 2.09x
Ratio of earnings to fixed charges
(10).................................... 2.56x -- --
15
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Three Months Ended December 27, 1997
(in thousands)
Historical Pro Forma
Galey & Lord Acquired Business
(Three Months Ended (Three Months Ended
December 27, 1997) December 31, 1997) Adjustments Combined
Statement of Operations Data:
Net sales.................................. $127,147 $134,196 $ -- $261,343
Cost of sales.............................. 117,351 118,359 (862) (1) 234,848
--------- --------- -------- --------
Gross profit............................. 9,796 15,837 862 26,495
Selling, general and administrative
expenses................................. 3,387 10,698 (2,859) (2) 11,226
Amortization of goodwill................... 421 517 158 (1) 1,096
--------- --------- -------- --------
Operating income......................... 5,988 4,622 3,563 14,173
Other (income) expense:
Interest expense, net.................... 3,879 4,269 7,443 (3) 15,591
Other expense (income), net.............. 2,745 (685) -- 2,060
Share in net income of associated
companies............................... -- (797) 159 (4) (638)
Costs related to the change of
control................................. -- 16,470 (14,511) (5) 1,959
--------- --------- -------- --------
Income (loss) before income taxes.......... (636) (14,635) 10,472 (4,799)
Income tax expense (benefit)............... (526) (2,540) 59 (6) (3,007)
--------- --------- -------- ---------
Net income (loss).......................... $ (110) $(12,095) $10,413 $(1,792)
======== ======== ======= =======
Other Operating Data:
Depreciation and amortization.............. $ 4,119 $ 8,379 $ (545) $11,953
Capital expenditures....................... 8,086 2,898 -- 10,984
EBITDA (7)(8).............................. 10,204 13,798 2,859 26,861
Cash interest expense...................... 3,827 3,929 6,961 14,717
Ratio of EBITDA to cash interest
expense (9).............................. 2.67x 3.51x 1.83x
Ratio of earnings to fixed charges
(10).................................... -- -- --
16
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) Reflects incremental depreciation and amortization expense as a result of
the preliminary adjustment to fair value of the Acquired Business'
property, plant and equipment and the excess of cost over fair market value
of the net assets acquired as follows:
Estimated Year Ended Three Months Ended
Useful Life September 27, 1997 December 27, 1997
----------- ------------------ -----------------
Depreciation adjustment on
Acquired Business' property,
plant and equipment............................ 9.8 years $(5,195) $(862)
Amortization of excess of cost
over fair value of net assets
acquired....................................... 40 years $ 715 $158
(2) Reflects the elimination of the following:
Year Ended Three Months Ended
September 27, 1997 December 27, 1997
------------------ -----------------
Duplicative corporate overhead expenses (a)....... $10,196 $2,243
Duplicative Swift overhead expenses (b)........... 3,365 841
Additional Galey & Lord overhead
expenses (c).................................... (900) (225)
-------- -------
$12,661 $2,859
======= ======
(a)Represents the elimination of the Dominion corporate historical
overhead expenses allocated to the Acquired Business.
(b)Reflects the elimination of certain overhead functions performed by
Swift that will be performed by the corporate function at the Company.
(c)Reflects additional corporate overhead expenses expected to be
incurred by the Company as a result of the Acquisition.
(3) Reflects an adjustment to record additional interest expense and
amortization of debt issuance costs incurred in connection with the
additional debt. Interest expense is calculated based on an average interest
rate of 9.1%. For each .125% change in the assumed effective interest rate,
interest expense would change by $420 for the year ended September 27, 1997
and $113 for the three months ended December 31, 1997.
(4) To reflect the amortization of the excess of the fair value of the
investment in associated companies over the portion of the historical net
equity attributable to Galey & Lord at the time of the Acquisition. Such
excess is being amortized over 20 years.
(5) During the December 1997 quarter, Dominion incurred certain severance and
other costs specifically related to its acquisition by DTA. This entry
reflects the elimination of those costs that were not identifiable with the
businesses being acquired by Galey & Lord.
(6) Reflects the income tax expense (benefit) related to the effects of the pro
forma adjustments based upon an assumed composite income tax rate of 38.8%.
(7) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of operating
results or to cash flows as a measure of liquidity in accordance with
generally accepted accounting principles.
17
Pro forma EBITDA for the year ended September 27, 1997 is calculated as
follows:
Pro Forma
Acquired
Galey & Lord Business Adjustments Combined
Income (loss) before income taxes............... $22,027 $(18,189) $(12,924) $ (9,086)
Interest expense, net........................... 12,326 17,055 29,434 58,815
Other (income) expense.......................... -- (456) -- (456)
Depreciation and amortization................... 15,183 34,845 (3,849) 46,179
Noncash compensation expense.................... 550 -- -- 550
Provision for restructuring*.................... -- 21,066 -- 21,066
-------- --------- ---------- ----------
EBITDA.......................................... $50,086 $ 54,321 $ 12,661 $117,068
======= ======== ========= ========
Pro forma EBITDA for the three months ended December 27, 1997 is calculated
as follows:
Pro Forma
Acquired
Galey & Lord Business Adjustments Combined
Income (loss) before income taxes.................. $ (636) $(14,635) $ 10,472 $ (4,799)
Interest expense, net.............................. 3,879 4,269 7,443 15,591
Other (income) expense............................. 2,745 (685) -- 2,060
Depreciation and amortization...................... 4,119 8,379 (545) 11,953
Noncash compensation expense....................... 97 -- -- 97
Costs related to the change of control............. -- 16,470 (14,511) 1,959
------- --------- -------- --------
EBITDA............................................. $10,204 $ 13,798 $ 2,859 $26,861
======= ======== ======== =======
* Includes $3,250 recorded as part of cost of sales.
(8) Pro forma EBITDA, as presented, includes the effect of the pro forma
adjustments and does not reflect certain additional adjustments which the
Company believes are relevant to evaluating its future operating performance
of the Company. The following additional adjustments, which eliminate the
impact of certain nonrecurring charges and reflect the estimated impact of
the Company's business and operating strategy, are based on estimates and
assumptions made and believed to be reasonable by the Company and are
inherently uncertain and subject to change. There can be no assurance that
the estimated impact of the Company's business and operating strategy will
be realized or that there will not be delays in achieving the estimated
improvements or enhancements described below. The following calculation
should not be viewed as indicative of actual or future results. The
following table reflects the effects of these items:
Year Ended Three Months Ended
September 27, 1997 December 27, 1997
------------------ -----------------
Pro forma EBITDA................................... $117,068 $26,861
Additional adjustments:
Tralee savings(a).................................. 6,500 1,625
Swift savings(b)................................... 5,521 --
Other personnel reductions(c)...................... 1,273 318
Exclude Home Fashion Fabrics bad debt(d)........... 2,988 --
Society Hill improvements(e)....................... 4,063 1,808
--------- --------
Total additional adjustments.................... 20,345 3,751
--------- --------
Adjusted Pro Forma EBITDA.......................... $137,413 $30,612
======== =======
(a) In October 1997, the Acquired Business' plant located in Tralee, Ireland
was closed. This adjustment gives effect to the lower cost of materials
that the Company anticipates will be realized from the purchase of
materials from third party suppliers rather than having materials
produced at the Tralee, Ireland plant.
18
(b) This adjustment gives effect to cost reductions at Swift which the
Company believes can be realized from reductions in personnel beyond
those taken into account in calculating pro forma EBITDA and from
savings realized from purchasing materials at lower costs. As of the
date hereof, these additional savings are being realized.
(c) This adjustment gives effect to cost reductions that the Company
believes can be derived from further Company wide reductions in
personnel which have not yet been specifically identified.
(d) This adjustment reflects the write-off of a bad debt taken due to the
bankruptcy of a Home Fashion Fabrics customer. The Company believes that
this write-off was unusual based on historic trends.
(e) This adjustment gives effect to the improvements in operating
efficiencies at the Company's Society Hill, South Carolina plant, which
the Company believes will be realized as a result of the addition of a
new continuous dye-range at this plant in January 1998.
(9) Cash interest expense is calculated as total interest expense less
amortization of debt issuance costs.
(10) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or capitalized,
and that portion of rental expense estimated to be attributable to
interest. For the Acquired Business for the year ended September 30, 1997
and on a pro forma basis for the Company for the fiscal year ended
September 27, 1997, earnings were insufficient to cover fixed charges by
$18,189 and $9,086, respectively. For the Company, for the Acquired
Business and on a pro forma basis for the Company for the December 1997
quarter, earnings were insufficient to cover fixed charges by $636, $14,635
and $4,799, respectively.
19
FORWARD-LOOKING STATEMENTS
This Form 8-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 material and other costs,
weather-related delays, general economic conditions and other risks and
uncertainties that may be detailed herein.
Exhibits
1 Press Release of Galey & Lord, Inc., dated February 24, 1998.
2 Indebenture, dated as of February 24, 1998 among Galey & Lord, Inc.,
Galey & Lord Industries, Inc., G&L Service Company, North America,
Inc., Swift Textiles, Inc. and Swift Denim Services, Inc., and Suntrust
Bank, Atlanta.
3 Note Purchase Agreement, dated February 19, 1998 among Galey & Lord,
Inc., Galey & Lord Industries, Inc., G&L Service Company, North
America, Inc., Swift Textiles, Inc. and Swift Denim Services, Inc., and
First Union Capital Markets, a division of Wheat First Securities, Inc.
4 Form of Initial Global Note
5 Form of Initial Certificated Note
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Galey & Lord, Inc.
---------------------
(Registrant)
/s/ Michael R. Harmon
Michael R. Harmon
Executive Vice-President,
Chief Financial Officer
(Principal Financial and
Accounting Officer),
Treasurer and Secretary
March 10, 1998
Date
21