Gildan Activewear Inc. plans to close its two remaining textile facilities in Montreal, Canada, as well as its cutting facility in Bombay, N.Y., in the fourth quarter of the current fiscal year. Two sewing facilities in Mexico, which are supplied with fabric from Gildan's Canadian textile operations, will be closed immediately. Subsequent to the above closures, all of Gildan's vertically-integrated manufacturing for T-shirts, fleece, sport shirts and underwear will be consolidated into the Company's manufacturing hubs in Central America and the Caribbean Basin, where the Company is investing in major capacity expansion projects.
Concurrent with the restructuring of the Canadian textile operations, Gildan will relocate its corporate office, which is currently located in the same building as its Montreal knitting facility, into leased premises in the Montreal area.
Approximately 465 employees in Canada and the U.S. and 1,365 employees in Mexico will be affected by the manufacturing restructuring. The Company will make every effort to alleviate the impact of the closures on all of its employees in all of the communities affected. In addition, the Company will work closely with the Fair Labor Association and both North American and Mexican NGO's to ensure that best practices are followed in managing the closure of its Mexican sewing operations. Gildan recognizes that the employees in the operations which are being closed have contributed significantly to the Company's growth and success in recent years, and regrets that the relocation of its production capacity to its offshore manufacturing hubs is unavoidable in order to be globally cost-competitive in the intensely competitive North American apparel industry.
As a result of the completion of its textile manufacturing consolidation and the relocation of the corporate office, Gildan will incur a restructuring charge of approximately U.S. $21.5 million or U.S. $0.35 per share in fiscal 2007. Under the Company's legal entity structure, there are essentially no tax recoveries with respect to this charge. The restructuring charge comprises U.S. $0.29 per share for severance and other cash costs, and U.S. $0.06 per share for the non-cash impact of asset write-downs related to the Montreal knitting and corporate office premises and the Mexican sewing plants. The Company expects to generate close to U.S. $15 million in cash proceeds from the disposal of buildings and surplus equipment.
After reflecting the restructuring charge of U.S. $0.35 per share, as well as the U.S. $0.06 per share of accelerated depreciation previously included in the Company's fiscal 2007 earnings guidance, the Company expects diluted EPS of approximately U.S. $2.20 for fiscal 2007. The Company continues to be comfortable with its most recent sales and earnings guidance, which calls for adjusted diluted EPS before restructuring and other charges for fiscal 2007 of approximately U.S. $2.61, on approximately U.S. $975 million of sales revenues.
As a result of the consolidation of its manufacturing operations and the continuing ramp-up of its new offshore textile facilities, the Company expects to realize further annual savings in activewear manufacturing costs and related freight and duties of approximately U.S. $45 million, starting in fiscal 2008. The Company intends to partially utilize these manufacturing efficiencies, as well as projected efficiencies from ramping up its new sock manufacturing facility in Honduras, to continue to support its strategy to penetrate the mass-market retail channel, as well as to build on its leadership position in the wholesale screenprint channel.
