<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter Ended August 4, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-5400
FARAH INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-1061146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8889 Gateway West, El Paso, Texas 79925
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (915) 593-4444
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 and 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 .
As of September 6, 1995 there were outstanding 10,133,291 shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant.
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<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
QUARTER AND NINE MONTHS ENDED AUGUST 4, 1995 AND AUGUST 5, 1994
(Unaudited)
Quarter Ended Nine Months Ended
August 4, August 5, August 4, August 5,
1995 1994 1995 1994
(Thousands of dollars except per share data)
<S> <C> <C> <C> <C>
Net sales $ 60,865 61,169 167,596 178,609
Cost of sales 46,931 42,690 128,477 125,278
Gross profit 13,934 18,479 39,119 53,331
Selling, general and administrative expenses 18,124 14,553 50,176 42,570
Operating income (loss) (4,190) 3,926 (11,057) 10,761
Other income (expense):
Interest expense (1,294) (414) (3,106) (1,956)
Interest income 204 179 712 538
Foreign currency transaction gains 23 147 366 259
Other, net 267 24 309 103
(800) (64) (1,719) (1,056)
Income (loss) before provision (benefit)
for income taxes (4,990) 3,862 (12,776) 9,705
Provision (benefit) for income taxes 125 130 (2,574) 432
Net income (loss) (5,115) 3,732 (10,202) 9,273
Retained earnings:
Beginning 9,414 9,237 14,501 3,696
Ending $ 4,299 12,969 4,299 12,969
Net income (loss) per share $ (0.50) 0.37 (1.01) 1.03
Weighted average shares of common stock
(all periods) and common stock
equivalents (income periods only)
outstanding 10,131,027 10,191,141 10,117,441 9,032,579
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 4, 1995 AND NOVEMBER 4, 1994
(Unaudited)
August 4, November 4,
1995 1994
(Thousands of dollars)
<S> <C> <C>
Assets
Current assets:
Cash $ 2,983 2,372
Trade receivables, net 30,245 36,931
Inventories:
Raw materials 15,486 11,625
Work in process 19,688 16,949
Finished goods 50,594 46,628
85,768 75,202
Other current assets 14,804 9,414
Total current assets 133,800 123,919
Note receivable 5,680 5,910
Property, plant and equipment, net 32,809 22,872
Other non-current assets 5,570 5,350
$ 177,859 158,051
Liabilities and Shareholders' Equity Current liabilities:
Short-term debt $ 42,901 18,184
Current installments of long-term debt 1,759 874
Trade payables 22,261 22,306
Other current liabilities 13,541 15,171
Total current liabilities 80,462 56,535
Long-term debt, excluding current installments 12,130 5,170
Other non-current liabilities 3,177 3,103
Deferred gain on sale of building 5,758 7,282
Shareholders' equity:
Common stock, no par value, $.01 stated value,
authorized 20,000,000 shares; issued 10,169,566
in 1995 and 10,116,616 in 1994 46,026 46,018
Additional paid-in capital 29,336 28,497
Cumulative foreign currency translation adjustment (1,340) (1,066)
Minimum pension liability adjustment (1,880) (1,880)
Retained earnings 4,299 14,501
76,441 86,070
Less: Treasury stock, 36,275 shares in
1995 and 1994, at cost 109 109
Total shareholders' equity 76,332 85,961
$ 177,859 158,051
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 4, 1995 AND AUGUST 5, 1994
(Unaudited) August 4, August 5,
1995 1994
(Thousands of dollars)
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ (10,202) 9,273
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 2,770 2,861
Amortization of deferred gain on building sale (1,524) (1,524)
Deferred income taxes (2,805) (2,253)
Decrease (increase) in:
Trade receivables 6,686 (1,511)
Inventories (10,566) (18,743)
Other current assets (2,585) (1,815)
Increase (decrease) in:
Trade payables (45) (2,206)
Other (1,630) 3,896
Net cash used in operating activities (19,901) (12,022)
Cash flows used in investing activities:
Purchases of property, plant and equipment (9,688) (3,957)
Cash flows from (used in) financing activities:
Net change in revolving credit facility 24,554 (11,927)
Proceeds from issuance of debt 6,320 967
Repayment of long-term debt (1,187) (3,238)
Receipts from sale of common stock 848 29,635
Other (61) (241)
Net cash from financing activities 30,474 15,196
Foreign currency translation adjustment (274) 758
Net increase (decrease) in cash flow 611 (25)
Cash, beginning of year 2,372 2,007
Cash, end of period $ 2,983 1,982
Supplemental cash flow disclosures:
Interest paid $ 2,828 2,023
Income taxes paid 1,886 395
Assets acquired through direct financing loans or capital leases 2,875 2,120
Exchange of debentures - 1,673
</TABLE>
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The attached condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the disclosures made are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 1994 Annual Report on Form 10-K.
2. The foregoing financial information reflects all adjustments (which
consist only of normal recurring adjustments) which are, in the opinion of
management, necessary to present a fair statement of the financial position and
the results of operations and cash flows for the interim periods.
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Consolidated sales for the third quarter of fiscal 1995 were $60,865,000,
which were $304,000 or .5% less than the third quarter of fiscal 1994. For the
first nine months of fiscal 1995 sales decreased by $11,013,000 (6.2%). Sales
decreased at Farah U.S.A. by 6% in the third quarter and by 14% in the first
nine months, offset partially by increased sales at Farah International and
Value Slacks. Sales increased at Value Slacks by 13% and 5% for the third
quarter and first nine months, respectively, while sales at Farah International
increased by 28% and 36% in the same periods.
Farah U.S.A. sales for the third quarter of fiscal 1995 were $46,281,000
compared to $49,299,000 in the third quarter of 1994. For the first nine months
of fiscal 1995, sales were $123,702,000 compared to $143,578,000 in the same
period of 1994. Unit sales increased in the third quarter by 2% but were down 9%
for the nine month period, while the average unit sales price decreased by 8%
for the quarter and 5% for the first nine months. A comparison of Farah U.S.A.
sales by product line is as follows:
<TABLE>
% of Sales Dollars % Increase(Decrease)
Quarter Nine Months Quarter Nine Months
Price Price
Per Per
1995 1994 1995 1994 Units Unit Units Unit
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savane(R) 60% 66% 59% 60% -12% -2% -17% 2%
Farah(R) 12% 22% 16% 25% -36% -22% -38% -14%
John Henry(R)* 5% 6% 7% 8% -25% 2% -26% 4%
Private Label 23% 6% 18% 7% 231% 1% 122% -2%
<FN>
* John Henry is a registered trademark of Zodiac International Trading
Corporation.
</FN>
</TABLE>
Although unit sales were up at Farah U.S.A. in the third quarter of
1995 compared to 1994, the decrease in the average unit sales price resulted in
the overall reduction in sales at Farah U.S.A. for the three and nine month
periods. Competitive pressures in the retail market had an adverse effect,
particularly on the Company's Farah(R) label, resulting in excess inventory
levels and lower average unit selling prices. In addition, the start up of new
laundry, finishing and cutting facilities in the first half of the year
prevented the Company from delivering all of its orders, resulting in customer
cancellations, higher inventory levels and larger markdowns than normal.
Partially offsetting the reduction in branded sales were increases (231% and
122% for the quarter and nine months ended August 4, 1995) in unit sales of
private label product which carry a lower average unit sales price than branded
product.
Sales at Farah International were $9,905,000 in the third quarter of
1995 compared to $7,729,000 in the third quarter of 1994. For the first nine
months of fiscal 1995 sales were $31,722,000 compared to $23,406,000 in 1994.
Unit volume was up 17% in the third quarter and 26% in the first nine months.
The average unit sales price increased 9% and 8%, respectively, in the third
quarter and first nine months. Sales at Farah U.K. were up 37% in the third
quarter and 35% for the first nine months. Sales at Farah Australia and New
Zealand combined were also up by 19% for the quarter and 42% for the first nine
months. These increases resulted mainly from increased sales of Savane product
and higher private label sales. Also favorably impacting sales was the effect of
the weakening U.S. Dollar compared to the British Pound Sterling. The average
exchange rate of the British Pound Sterling was approximately 4% higher in the
third quarter of 1995 compared to the same period in 1994. This rate was 5%
higher for the first nine months of fiscal 1995 compared to 1994. The higher
exchange rate resulted in higher sales when translated into U.S. Dollars.
Sales at Value Slacks were $4,679,000 in the third quarter of 1995
compared to $4,141,000 in the third quarter of 1994. In the first nine months of
1995 sales were $12,172,000 compared to $11,625,000 in 1994. Same store sales
increased 5% in the third quarter and 6% in the first nine months of 1995
compared to the same period of 1994. The Company continues to close stores in
Puerto Rico while opening new stores in the U.S. During the third quarter of
1995, five new stores were opened in the U.S. and one in Puerto Rico was closed.
Consolidated gross profit decreased by $4,545,000 (24.6%) in the third
quarter of 1995 compared to the third quarter of 1994. In the first nine months,
gross profit decreased by $14,212,000 (26.6%) in 1995 compared to 1994.
At Farah U.S.A., gross profit as a percent of sales was 18% in both the
third quarter and first nine months of 1995 compared to 28% in the third quarter
of 1994 and 27% in the first nine months of 1994. Gross profit in the third
quarter and first nine months was negatively impacted by the higher percentage
of private label sales which carry a lower gross profit percent and increased
promotional sales, as discussed above. In addition to the effect on sales,
transitional problems related to the start up of the new production facilities
resulted in markdowns on excess inventory levels and additional manufacturing
costs. Partially offsetting the increased costs was the favorable effect of the
devaluation of the Mexican Peso.
At Farah International, gross profit as a percent of sales was down
from 35% in the third quarter of 1994 to 34% in the third quarter of 1995. In
the first nine months of fiscal 1995 gross profit as a percent of sales
decreased from 36% in 1994 to 34% in 1995. Higher promotional sales, combined
with a higher percentage of private label sales and manufacturing inefficiencies
in the Company's Irish factories, reduced the gross profit percent.
At Value Slacks, gross profit as a percent of sales was comparable in
the third quarter of 1995 to 1994 at 50% in both periods. For the first nine
months gross profit as a percent of sales increased from 48% in 1994 to 51% in
1995. The shift in sales to U.S. stores from Puerto Rican stores had a favorable
impact on margins for the nine month period as the gross profit percent is
generally higher at U.S. locations. Margins were also up as a result of
increased sales of certain higher margin casual and Savane product.
Selling, general and administrative expenses ("SG&A") as a percent of
sales increased from 23.8% in the third quarter and first nine months of 1994 to
29.8% and 29.9% in the third quarter and first nine months of fiscal 1995,
respectively. SG&A at Farah U.S.A. was 26% in the third quarter of 1995 compared
to 20% in the third quarter of 1994 and 27% for the first nine months of 1995
compared to 21% in 1994. Farah U.S.A. advertising was approximately $2,000,000
higher than in the third quarter of 1994 and as a percent of sales was 4.7%
higher than the third quarter of 1994. For the nine month period advertising was
approximately $3,000,000 higher and 3.5% higher as a percent of sales. In
addition, higher computer systems implementation costs, combined with the effect
of fixed costs that did not decrease in relation to the lower sales levels,
increased SG&A as a percent of sales. At Farah International, SG&A as a percent
of sales was higher in the third quarter of 1995 at 37% compared to 36% in 1994
and was comparable in the nine month period at 32% in both years. The higher
percentage in the third quarter resulted from higher professional fees. At Value
Slacks, SG&A as a percent of sales increased from 47% in the third quarter of
1994 to 49% in the third quarter of 1995. For the first nine months SG&A as a
percent of sales was also up from 48% to 51%. The increase in SG&A was
attributable to costs incurred to open new stores and severance pay and closing
costs incurred related to the closure of certain Puerto Rican stores.
Other expense, net, was $736,000 higher in the third quarter of 1995
compared to the third quarter of 1994, and was $663,000 higher for the first
nine months. Net interest expense was higher in 1995 due to higher borrowings on
the Company's revolving credit facility and lease line of credit. This increase
in expense was partially offset by an increase in royalty income in the third
quarter of 1995 from the Company's shirt licensee. For the first nine months
other net expense was also reduced by currency gains related to the
strengthening of the U.S. Dollar compared to the Mexican Peso.
Income taxes and benefits are provided by applying the statutory tax
rates to pre-tax income or loss. Accordingly, the Company recorded deferred tax
benefits of approximately $2,805,000 based on its pre-tax loss for the first six
months of 1995. However, the Company did not record the additional tax benefits
on its losses for the third quarter of 1995 based on criteria established in
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." In 1994 the effective tax rate was lower than statutory rates due to
the effect of recognition of net operating loss carryforwards.
Financial Condition
The Company's primary credit agreement ("Credit Agreement") was amended
August 1, 1995 and provides up to $50,000,000, of credit through July 1, 1997.
Farah U.S.A., Value Slacks and Farah U.K. are parties to the Credit Agreement.
Availability under the Credit Agreement is limited by formulas derived from
accounts receivable and inventory. As of August 4, 1995, usage under the
agreement was $43,069,000 and available credit was $5,012,000. The Credit
Agreement contains certain financial covenants. A profitability covenant
which was part of the Credit Agreement was eliminated in the August 1, 1995
amendment. As of August 4, 1995, the Company was in compliance with all
covenants.
In the first quarter of 1995, the Company entered into a $10,000,000
base line of credit to be used to finance the purchase of laundry, finishing,
sewing and cutting equipment in Mexico, Costa Rica and the United States. On
August 25 1995, the agreement for the line of credit was amended to reduce the
credit line to $7,808,000, as well as to revise certain financial covenants. As
of August 4, 1995, the line of credit was fully utilized and the Company was in
compliance with all financial covenants.
The Company used approximately $20,000,000 in operations for the first
nine months of 1995 principally to pay for increases in inventory levels and to
fund operating losses. The increase in inventories resulted from lower than
expected sales. Increases in accounts receivable collections and additional
borrowings were the primary means to fund the operating cash requirements. The
Company also incurred additional short term and long term borrowings to finance
its capital expenditures during the period.
Capital expenditures through August 4, 1995 approximated $12,563,000.
Expenditures were mainly for building improvements, sewing, laundry, cutting and
warehousing equipment, and computer systems. As of August 4, 1995, the Company
had commitments for future capital expenditures of approximately $944,000.
<PAGE>
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
<S> <C> <C>
(a) Exhibit 10.53 Amendment No. 15 dated August 1, 1995 to
Accounts Financing Agreement dated August 2,
1990 between Congress Financial Corporation
(Southwest)and Farah U.S.A., Inc.
Exhibit 10.54 First Amendment dated August 25, 1995 to
Lease Agreement between Farah U.S.A.,
Inc. and Bank of America National Trust &
Savings Association dated December 8, 1994.
Exhibit 10.55 First Amendment dated August 25, 1995 to
Guaranty between Farah U.S.A., Inc. and
Bank of America National Trust & Savings
Association dated December 8, 1994.
Exhibit 11 Statement regarding computation of net
income (loss) per share.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which
the report is filed.
</TABLE>
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 thereunto duly authorized.
FARAH INCORPORATED
Date: September 15, 1995
/s/ James C. Swaim
James C. Swaim
Executive Vice President
Principal Financial Officer
/s/ Russell G. Gibson
Russell G. Gibson
Principal Accounting Officer
<PAGE>
<TABLE>
<CAPTION>
FARAH INCORPORATED AND SUBSIDIARIES
FORM 10-Q INDEX TO EXHIBITS
August 4, 1995
Page
Description Number
<S> <C> <C>
Exhibit 10.53 Amendment No. 15 dated August 1, 1995 to Accounts 11
Financing Agreement dated August 2, 1990 between
Congress Financial Corporation (Southwest) and
Farah U.S.A., Inc.
Exhibit 10.54 First Amendment dated August 25, 1995 to Lease 15
Agreement between Farah U.S.A., Inc. and Bank
of America National Trust & Savings Association
dated December 8, 1994.
Exhibit 10.55 First Amendment dated August 25, 1995 to Guaranty 19
between Farah U.S.A., Inc. and Bank of America
National Trust & Savings Association dated
December 8, 1994.
Exhibit 11 Statement regarding computation of net income 23
(loss) per share.
Exhibit 27 Financial Data Schedule 24
</TABLE>
EXHIBIT 10.53
AMENDMENT NO. 15 TO FINANCING AGREEMENTS
FARAH U.S.A., INC.
8889 Gateway West
El Paso, Texas 79925
August 1, 1995
Congress Financial Corporation (Southwest)
1201 Main Street, Suite 1625
Dallas, Texas 75250
Gentlemen:
Congress Financial Corporation (Southwest) ("Lender"), Farah U.S.A., Inc.
("Farah USA"), Value Clothing Company, Inc. ("Value Clothing"), Farah
Manufacturing (U.K.) Limited ("Farah UK", and together with Farah USA and Value
Clothing, individually and collectively, "Borrowers") have entered into
financing arrangements pursuant to the Accounts Financing Agreement [Security
Agreement], dated as of August 2, 1990, between Lender and Farah USA and various
supplements thereto, as amended pursuant to Amendment No. 1 to Financing
Agreements, dated November 5, 1990, Amendment No. 2 to Financing Agreements,
dated February 11, 1991, Amendment No. 3 to Financing Agreements, dated January
29, 1992, Amendment No. 4 to Financing Agreements dated June 25, 1992, Amendment
No. 5 to Financing Agreements, dated August 31, 1992, Amendment No. 6 to
Financing Agreements, dated September 4, 1992, Amendment No. 7 to Financing
Agreements, dated September 16, 1992, Amendment No. 8 to Financing Agreements,
dated as of May 7, 1993, Amendment No. 9 to Financing Agreements, dated July 16,
1993, Amendment No. 10 to Financing Agreements, dated November 3, 1993,
Amendment No. 11 to Financing Agreements, dated as of February 9, 1994,
Amendment No. 12 to Financing Agreements, dated as of July 14, 1994, Amendment
No. 13 to Financing Agreements, dated as of March 7, 1995, Amendment No. 14 to
Financing Agreements, dated as of April 5, 1995, and as amended pursuant to the
letter agreement dated as of October 28, 1992 (collectively, as so amended and
as amended hereby, the "Accounts Agreement", and together with all supplements
thereto, including, but not limited to, the Covenant Supplement to Accounts
Financing Agreement [Security Agreement] dated as of August 2, 1990 (the
"Covenant Supplement"), the Trade Financing Agreement Supplement to Accounts
Financing Agreement [Security Agreement] dated as of August 2, 1990 (the "Trade
Financing Supplement"), and all other agreements, documents and instruments at
any time executed and/or delivered in connection with any of the foregoing or
related thereto, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, collectively, the
"Financing Agreements"), which Financing Agreements include, inter alia, the
guarantees of all obligations of Borrowers to Lender by each of Farah
Incorporated, Farah International, Inc., Value Slacks Inc., Farah Manufacturing
Company, Inc., Farah Manufacturing Company of New Mexico, Inc., FTX, Inc., Radco
Sportswear, Inc., Farah Manufacturing Services, Inc., Farah Clothing Company,
Inc., a Delaware corporation, and Corporacion Farah-Costa Rica S.A.
(individually and collectively "Guarantors"), and the General Security
Agreement, dated August 2, 1990, by Farah Incorporated in favor of Congress (the
"Farah Inc. Security Agreement"). Borrowers and Guarantors have requested
certain amendments to the Financing Agreements and Lender is willing to agree to
such amendments
<PAGE>
subject to the terms and conditions set forth herein. By this Agreement, Lender,
Borrowers and Guarantors desire and intend to set forth the terms of such
financing arrangements and evidence such amendments.
In consideration of the foregoing and the respective agreements and
covenants contained herein, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein shall have the meaning
assigned thereto in the other Financing Agreements, unless otherwise defined
herein.
2. Amendments to Definitions. (a) Maximum Credit. All references to the
term "Maximum Credit" in the Financing Agreements shall be deemed and each such
reference is hereby amended to mean, as of any time, the amount equal to
$50,000,000 as reduced, automatically and without further action by any party
hereto, by an amount equal to the aggregate amount of the loans outstanding as
of such time made by Lender to Farah UK pursuant to the terms of the Financing
Agreements.
(b) Renewal Date. All references to the term "Renewal Date" in the
Financing Agreements shall be deemed and each such reference is amended to mean:
"July 1, 1997".
3. Amendment to Covenant Regarding Pre-Tax Profits. Section 2 of the
Covenant Supplement to the Accounts Agreement is hereby amended by deleting
Section 2.14 thereof in its entirety.
4. Amendment to Early Termination Fee. Section 9.2 of the Accounts
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"9.2 If Lender terminates this Agreement or the other Financing Agreements upon
the occurrence of an Event of Default or, at the request of Borrowers prior to
the Renewal Date, or prior to any subsequent anniversary of the Renewal Date, in
view of the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Farah USA and Value Clothing hereby
agree to pay to Lender, upon the effective date of such termination, an early
termination fee in an amount equal to one percent (1%) of $50,000,000; provided,
however, that in the case of a termination which occurs after July 1, 1996
resulting from the sale of either all of the issued and outstanding shares of
capital stock of Farah, Inc., Farah USA and Value Slacks or all of the assets of
Farah, Inc., Farah USA and Value Slacks after July 1, 1996 at a time when there
has not occurred an Event of Default or an event or circumstance which, with the
passage of time or giving of notice or both, would constitute an Event of
Default, the amount of the termination fee payable in regards to such
termination shall be one-half of one percent (0.5%) of $50,000,000. Such early
termination fees shall be presumed to be the amount of damages sustained by said
early termination and Borrowers agree that its is reasonable under the
circumstances currently existing. The early termination fees provided for in
this Section 9.2 shall be deemed included in the Obligations."
<PAGE>
5. General Representations. Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrowers and Guarantors to Lender pursuant to the Financing Agreements,
each of Borrowers and Guarantors hereby represents, warrants and covenants with
and to Lender as follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof and shall be
incorporated into and made a part of the Financing Agreements):
(a) No Event of Default exists on the date of this Amendment; and
(b) This Amendment has been duly executed and delivered by Borrowers and
Guarantors and is in full force and effect as of the date hereof, and the
agreements and obligations of Borrowers and Guarantors contained herein
constitute legal, valid and binding obligations of Borrowers and Guarantors
enforceable against Borrowers and Guarantors in accordance with their respective
terms.
6. Conditions Precedent. The effectiveness of the other terms and
conditions contained herein against Lender shall be subject to the satisfaction
of each of the following:
(a) receipt by Lender of each of the following, in form and substance
satisfactory to Lender and its counsel:
(i) an original of this Amendment, duly authorized, executed and delivered
by Borrowers and Guarantors; and
(ii) such agreements from participants as may be required to effectuate the
terms and provisions of this Amendment; and
(b) all representations and warranties contained herein, in the Accounts
Agreement and in the other Financing Agreements shall be true and correct in all
respects, and
(c) no Event of Default shall have occurred and no event shall
have occurred or condition be existing which, with notice or passage of time or
both, would constitute an Event of Default.
7. General.
(a) The parties hereto acknowledge, confirm, and agree that the failure of
any of Borrowers or any of Guarantors, to comply with the covenants, conditions
and agreements contained herein or in any other agreement, document or
instrument by any of such parties at any time executed in connection herewith
shall constitute an Event of Default under the Financing Agreements.
(b) Except as modified pursuant hereto, no other changes to the Financing
Agreements are intended or implied and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent of conflict
between the terms of this Agreement and other Financing Agreements, the terms of
this Agreement shall control.
(c) The parties hereto shall execute and deliver such additional documents and
take such additional action as may be necessary or desirable to effectuate the
provisions and purposes of this Agreement.
<PAGE>
FARAH U.S.A., INC.
By: /s/ James C. Swaim
FARAH MANUFACTURING (U.K.) LIMITED
By: /s/ Helmut H. Meinel
Title: Director
VALUE CLOTHING COMPANY, INC.
By: /s/ James C. Swaim
ACKNOWLEDGED AND AGREED:
FARAH INCORPORATED
FARAH INTERNATIONAL, INC.
VALUE SLACKS, INC.
FARAH MANUFACTURING SERVICES, INC.
FARAH MANUFACTURING COMPANY, INC.
FARAH MANUFACTURING COMPANY
OF NEW MEXICO, INC.
RADCO SPORTSWEAR, INC.
CORPORACION FARAH-COSTA RICA S.A.
FARAH CLOTHING COMPANY, INC., a
Delaware corporation
By: /s/ James C. Swaim
FTX, INC.
By: /s/ Thomas H. Ludwick
Title: Treasurer
ACKNOWLEDGED AND AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Mark Galovic, Jr.
Title: Vice President
Exhibit 10.54
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO LEASE entered into as of August 25, 1995, between BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, with an office at Four
Embarcadero Center, San Francisco, California 94111 ("Lessor"), and FARAH
U.S.A., INC., a Texas corporation, with its principal office at 8889 Gateway
West, El Paso, Texas 79925 ("Lessee"), with reference to the following:
A. Lessor and Lessee have entered into a Lease Intended as Security dated
as of December 8, 1994 (the "Lease"; all terms not otherwise defined herein
being used with their meanings as defined therein); and
B. Lessor and Lessee now desire to amend the Lease as hereinafter set
forth:
C. Farah Incorporated, Value Slacks, Inc. and Farah International, Inc.
have executed that certain Guaranty dated as of December 8, 1994 ("the
Guaranty") guarantying Lessee's obligations under the Lease; and
D. Lessee has requested Lessor amend the Lease and Lessor is willing to
amend the Lease provided Guarantors consent to the amendment; and
E. Guarantors are willing to consent to the amendment set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
AMENDED SECTIONS
SECTION 1.4:
Subsection 1.4(c) is amended to include the following provision:
On or before September 29, 1995, a Letter Agreement executed by Congress
Financial Corporation (Southwest) which explicitly acknowledges that certain
sale/leaseback equipment funded by Lessor on or after December 8, 1994 shall
constitute "priority collateral" as that term is defined in that certain
Intercreditor Agreement between Lessor and Congress Financial Corporation
(Southwest).
Section 1.4 is amended to add a new Subsection 1.4(o) as follows:
"commodatum agreements, declarations or other appropriate documentation to
perfect Lessor's security interests executed by Lessee and each Maquiladora, in
form and substance satisfactory to Lessor, to be filed in such jurisdictions as
deemed appropriate by Lessor on the additional equipment located in Mexico and
Costa Rica.
New Section 1.5 is added as follows:
(a) "Lessee agrees to pay 50% of the cost of perfecting Bank of America's
security interests in the additional equipment set forth in Subsection 1.4(o) on
or before September 29, 1995."
<PAGE>
(b) "Lessor agrees to release its lien on certain proceeds in the approximate
amount of $560,000.00 resulting from the sale by Lessee of equipment
located at the Lourdes coat manufacturing facility in Costa Rica, in
consideration for the receipt by Bank of America of $50,056.97 of such
proceeds, together with accrued interest at the Implicit Interest Rate set
forth in Section G of the Appendix to Lease Intended as Security through
the sale closing date. The sum of $50,056.97 represents the value of
equipment funded by Bank of America located at the Lourdes coat
manufacturing facility. "
SECTION 8.1:
Subsection 8.1 (c) of the Lease is deleted in its entirety and
replaced with the following new Subsection 8.1 (c):
"Lessee, any Guarantor or Guarantors fail to observe, perform or be in
compliance with any covenants, agreements or warranties, whether such covenant,
agreement or warranty is in the Lease, any Guaranty or related documents, and
such failure continues for ten (10) days after written notice thereof;"
SECTION B:
Section B of the Appendix to Lease titled "Purchase Price" is amended to delete
"$10,000,000.00" in the third line of the first paragraph and replace it with
"$7,807,616.41 ".
SECTION C:
Section C of the Appendix to Lease titled "Term" is amended to provide that the
"Base Term" as to all units, as such term is defined in Section A of the
Appendix to Lease, shall commence on September 1, 1995. September 1, 1995 shall
be the "Base Date" for all units.
SECTION D:
Section D of the Appendix to Lease titled "Utilization Period" is amended to
state that the Utilization Period has expired.
SECTION 1
Section I of the Appendix to Lease titled "Early Termination" is amended to
allow Lessee the option to terminate this Lease as to all units for a period of
six months commencing on the "Base Date" as defined in amended Section C of the
Appendix to Lease by paying to Bank of America the Balance Due under the Lease.
Should Lessee exercise its option to early terminate during the six month period
commencing on the Base Date, the Lessee shall not be required to pay lessor
"Termination Charges" as defined in Subsection H 2. of the Appendix to Lease.
After the expiration of the six month period commencing on the Base Date, the
lessee termination rights shall be controlled by the original provisions of
Section I including, but not limited to, the obligation to pay applicable
"Termination Charges ".
APPLICABILITY OF UNAFFECTED TERMS OF LEASE
AND RELATED AGREEMENTS
Except as is herein specifically amended, all of the terms, covenants, and
provisions of the Lease and related agreements remain in full force and effect,
and where appropriate, are applicable to this FIRST AMENDMENT TO LEASE.
<PAGE>
GENERAL PROVISIONS
GOVERNING LAW:
This FIRST AMENDMENT TO LEASE shall be governed by and construed under
the laws of California. The parties submit to the jurisdiction of the
appropriate state or federal court in California as to any dispute arising out
of or related to either the FIRST AMENDMENT TO LEASE or the Lease.
SEVERABILITY:
Each provision of this FIRST AMENDMENT TO LEASE and the Lease shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. Nevertheless, should any provision be prohibited by or
invalid under any such law or regulation in any jurisdiction, such provision
shall be deemed modified to conform to the minimum requirements of such law or
regulation. If such provision cannot be modified to conform to the requirements
of the law or regulation, such provision shall be ineffective and invalid only
to the extent of the prohibition or invalidity without affecting the remaining
provisions of the FIRST AMENDMENT TO LEASE. Furthermore, the prohibition or
invalidity of a provision in one jurisdiction shall not affect the provision's
validity or effectiveness in any other jurisdiction.
COUNTERPARTS:
Two counterparts of this FIRST AMENDMENT TO LEASE have been executed by
the parties hereto. One counterpart has been prominently marked "Lessor's Copy".
One counterpart has been prominently marked "Lessee's Copy". Only the
counterpart marked "Lessor's Copy" shall evidence a monetary obligation of
Lessee.
INTERPRETATION:
This FIRST AMENDMENT TO LEASE is the result of negotiations between
Lessor and Lessee, and has either been reviewed by each party's counsel or such
party has knowingly and voluntarily chosen not to have its counsel review the
terms. Lessor and Lessee therefore agree that this FIRST AMENDMENT TO LEASE
shall not be construed against either merely because of the involvement of
either party's representatives or counsel in the negotiation, drafting or
revision of the terms contained herein.
HEADINGS:
The headings to the FIRST AMENDMENT TO LEASE are for convenience only.
The headings do not define, limit or describe the scope or intent of the
provisions.
FURTHER AMENDMENTS:
Any further amendments or modifications to either this FIRST
AMENDMENT TO LEASE, the Lease or any related agreements may only be accomplished
by a writing signed by Lessor and Lessee.
RIGHTS AND OBLIGATIONS:
The rights and obligations contained in this FIRST AMENDMENT TO LEASE inure to
the benefit of and bind Lessor, Lessee, their respective representatives,
officers, directors, affiliated entities, successors-in-interest and assigns.
Lessor and Lessee do not intend to confer any rights or impose any obligations
on persons not specifically mentioned in this FIRST AMENDMENT TO LEASE.
<PAGE>
ENTIRE AGREEMENT AS TO AMENDED TERMS:
The FIRST AMENDMENT TO LEASE contains the full and complete agreement
of Lessor and Lessee as to the subjects covered by it. The FIRST AMENDMENT TO
LEASE supersedes all prior discussions, understandings, agreements or proposals
regarding the subjects covered by it, regardless whether written or oral.
Neither Lessor nor Lessee have made any representation, promise, inducement or
statement of intention which is not contained in the FIRST AMENDMENT TO LEASE.
Neither Lessor nor Lessee shall be bound or liable for any alleged
misrepresentation, promise, inducement or statement of intention not contained
in the FIRST AMENDMENT TO LEASE, the Lease and related agreements.
ATTORNEY'S FEES AND COSTS:
The prevailing party in any proceeding to construe or enforce the
FIRST AMENDMENT TO LEASE shall recover its reasonable attorney's fees, costs and
expenses, including fees, costs and expenses of internal counsel.
IN WITNESS WHEREOF, the parties hereto have executed this FIRST
AMENDMENT TO LEASE as of the day and year written above.
FARAH U.S.A., INC. BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Richard C. Allender By: Bryan L. Yoakum
Title: Chief Executive Officer Title: Vice President
By: /s/ James C. Swaim
Title: Treasurer
CONSENTED TO BY:
FARAH INCORPORATED VALUE SLACKS, INC.
By: /s/ James C. Swaim By: /s/ James C. Swaim
Title: Treasurer Title: Treasurer
FARAH INTERNATIONAL, INC.
By: /s/ James C. Swaim
Title: Treasurer
Exhibit 10.55
FIRST AMENDMENT TO GUARANTY
FIRST AMENDMENT TO GUARANTY entered into as of August 25, 1995, between BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, with an office at Four
Embarcadero Center, San Francisco, California 94111 ("Lessor"), and FARAH
INCORPORATED, VALUE SLACKS, INC. and FARAH INTERNATIONAL, INC. (collectively
referred to as "Guarantors"), with their principal offices at 8889 Gateway West,
El Paso, Texas 79925, with reference to the following:
A. Lessor and FARAH U.S.A., INC. ("Lessee") have entered into a Lease
Intended as Security dated as of December 8, 1994 (the "Lease"); and
B. Farah Incorporated, Value Slacks, Inc. and Farah International, Inc.
have executed that certain Guaranty dated as of December 8, 1994 ("the
Guaranty") guarantying Lessee's obligations under the Lease; and
C. Lessor and Lessee have agreed to enter into a FIRST AMENDMENT TO LEASE
dated as of August 25, 1995, to which Guarantors consent; and
D. Insofar as any consent is required of Lessee to this FIRST AMENDMENT TO
GUARANTY, Lessee provides its consent; and
E. Lessor and Guarantors now desire to amend the Guaranty as hereinafter
set forth. NOW, THEREFORE, the parties hereto agree as follows:
MAXIMUM SENIOR DEBT TO CASH FLOW COVENANT:
Lessor agrees to waive application of the Senior Debt to Cash Flow
covenant contained in subparagraph (4) on page 3 of the Guaranty through the
Fourth Quarter of Fiscal 1996. Thereafter, Guarantor Farah Incorporated must be
in compliance with the covenant (maximum ratio of 5:1) starting with the first
Quarter end of fiscal 1997.
MINIMUM EARNINGS
BEFORE INTEREST AND TAXES (EBIT) COVENANT:
The Fixed Charge Covenant contained in subparagraph (5) on page 3 of
the Guaranty is deleted. Lessor and Guarantors agree to substitute an EBIT
Covenant applicable to Guarantor, Farah Incorporated, in the following amounts
during the specified periods:
- No EBIT requirement for the Third and Fourth Quarters of Fiscal 1995.
- $200,000.00 for the First Quarter of 1996.
- $1,100,000.00 for the Second Quarter of 1996.
- $1,900,000.00 for the Third Quarter of 1996.
- $2,000,000.00 for the Fourth Quarter of 1996.
Thereafter, Lessor and Guarantor Farah Incorporated agree to negotiate
the EBIT requirements for subsequent fiscal years after review by Lessor of
Farah Incorporated's most current financial projections.
<PAGE>
BALANCE SHEET CASH PLUS
LINE OF CREDIT AVAILABILITY:
Guarantor, Farah Incorporated, agrees to maintain, so long as this
Guaranty and the Lease remain in effect, $2,500,000.00 of available cash either
on its balance sheet or under its line of credit with Congress Financial and to
report compliance with this covenant on the quarterly covenant calculation
certificate provided to Lessor.
NO SECOND LIENS:
Congress Financial holds a first lien on the inventory of Guarantor
Farah Incorporated's consolidated subsidiaries. Guarantor, Farah Incorporated,
agrees on behalf of itself and its consolidated subsidiaries not to grant second
liens on the inventory of any of the consolidated subsidiaries. Nothing in this
paragraph shall prohibit Farah Incorporated or any of its consolidated
subsidiaries from granting a first lien on their respective inventories.
GENERAL PROVISIONS
GOVERNING LAW:
This FIRST AMENDMENT TO GUARANTY shall be governed by and construed
under the laws of California. The parties submit to the jurisdiction of the
appropriate state or federal court in California as to any dispute arising out
of or related to either the FIRST AMENDMENT TO GUARANTY or the Guaranty.
SEVERABILITY:
Each provision of this FIRST AMENDMENT TO GUARANTY and the Guaranty
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. Nevertheless, should any provision be
prohibited by or invalid under any such law or regulation in any jurisdiction,
such provision shall be deemed modified to conform to the minimum requirements
of such law or regulation. If such provision cannot be modified to conform to
the requirements of the law or regulation, such provision shall be ineffective
and invalid only to the extent of the prohibition or invalidity without
affecting the remaining provisions of the FIRST AMENDMENT TO GUARANTY.
Furthermore, the prohibition or invalidity of a provision in one jurisdiction
shall not affect the provision's validity or effectiveness in any other
jurisdiction.
INTERPRETATION:
This FIRST AMENDMENT TO GUARANTY is the result of negotiations between
Lessor and Guarantors, and has either been reviewed by each party's counsel or
such party has knowingly and voluntarily chosen not to have its counsel review
the terms. Lessor and Guarantors therefore agree that this FIRST AMENDMENT TO
GUARANTY shall not be construed against either merely because of the involvement
of either party's representatives or counsel in the negotiation, drafting or
revision of the terms contained herein.
HEADINGS:
The headings to the FIRST AMENDMENT TO GUARANTY are for convenience
only. The headings do not define, limit or describe the scope or intent of the
provisions.
<PAGE>
FURTHER AMENDMENTS:
Any further amendments or modifications to either this FIRST
AMENDMENT TO GUARANTY, the Guaranty or any related agreements may only be
accomplished by a writing signed by the party or parties to whom the amendment
applies.
RIGHTS AND OBLIGATIONS:
The rights and obligations contained in this FIRST AMENDMENT TO
GUARANTY inure to the benefit of and bind Lessor, Guarantors, their respective
representatives, officers, directors, affiliated entities,
successors-in-interest and assigns. Lessor and Guarantors do not intend to
confer any rights or impose any obligations on persons not specifically
mentioned in this FIRST AMENDMENT TO GUARANTY.
ENTIRE AGREEMENT AS TO AMENDED TERMS:
The FIRST AMENDMENT TO GUARANTY contains the full and complete
agreement of Lessor and Guarantors as to the subjects covered by it. The FIRST
AMENDMENT TO GUARANTY supersedes all prior discussions, understandings,
agreements or proposals regarding the subjects covered by it, regardless whether
written or oral. Neither Lessor nor Guarantors have made any representation,
promise, inducement or statement of intention which is not contained in the
FIRST AMENDMENT TO GUARANTY. Neither Lessor nor Guarantors shall be bound or
liable for any alleged misrepresentation, promise, inducement or statement of
intention not contained in the FIRST AMENDMENT TO GUARANTY, the Guaranty and
related agreements.
ATTORNEY'S FEES AND COSTS:
The prevailing party in any proceeding to construe or enforce the FIRST
AMENDMENT TO GUARANTY shall recover its reasonable attorney's fees, costs and
expenses, including fees, costs and expenses of internal counsel.
APPLICABILITY OF UNAFFECTED TERMS OF GUARANTY AND RELATED AGREEMENTS:
Except as is herein specifically amended, all of the terms, covenants, and
provisions of the Guaranty and related agreements remain in full force and
effect, and the provisions of the Guaranty, where appropriate, are applicable to
this FIRST AMENDMENT TO GUARANTY.
IN WITNESS WHEREOF, the parties hereto have executed this FIRST
AMENDMENT TO GUARANTY as of the day and year written above.
FARAH INCORPORATED BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/ Richard C. Allender By: Bryan L. Yoakum
Title: Chief Executive Officer Title: Vice President
By: /s/ James C. Swaim
Title: Treasurer
<PAGE>
CONSENTED TO BY:
FARAH INTERNATIONAL, INC. VALUE SLACKS, INC.
By: /s/ James C. Swaim By: /s/ James C. Swaim
Title: Treasurer Title: Treasurer
FARAH U.S.A., INC.
By: /s/ James C. Swaim
Title: Treasurer
Exhibit 11
FARAH INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income per share is based on weighted average shares of common stock and
common stock equivalents outstanding. Stock options are included as common stock
equivalents under the treasury stock method, where dilutive. Additional dilution
from the Company's convertible subordinated debentures, which are not common
stock equivalents, is not material. Net loss per share is based only on weighted
average shares of common stock outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-04-1994
<PERIOD-END> AUG-04-1995
<EXCHANGE-RATE> 1
<CASH> 2,983
<SECURITIES> 0
<RECEIVABLES> 30,245
<ALLOWANCES> 694
<INVENTORY> 85,768
<CURRENT-ASSETS> 133,800
<PP&E> 63,064
<DEPRECIATION> 30,255
<TOTAL-ASSETS> 177,859
<CURRENT-LIABILITIES> 80,462
<BONDS> 1,663
<COMMON> 46,026
0
0
<OTHER-SE> 30,306
<TOTAL-LIABILITY-AND-EQUITY> 177,859
<SALES> 167,596
<TOTAL-REVENUES> 167,596
<CGS> 128,477
<TOTAL-COSTS> 178,653
<OTHER-EXPENSES> 1,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,106
<INCOME-PRETAX> (12,776)
<INCOME-TAX> (2,574)
<INCOME-CONTINUING> (10,202)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,202)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
