UNITED STATES
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 EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6666
SALANT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3402444
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 221-7500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan
confirmed by a court. Yes X No
As of August 9, 1996, there were outstanding 14,761,690 shares of the Common
Stock of the registrant.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 29, July 1, June 29,
July 1,
1996 1995 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 97,010 $ 122,061 $ 196,204 $ 225,862
Cost of goods sold 78,980 97,540 155,593 178,874
-------------------------- --------------------------
Gross profit 18,030 24,521 40,611 46,988
Selling, general and
administrative expenses (22,438) (20,334) (44,399) (41,060)
Royalty income 1,399 1,311 2,527 3,066
Goodwill amortization (644) (649) (1,293) (1,290)
Restructuring costs (Note 3) (11,417) -- (11,578) --
Other income 48 220 66 277
--------- --------- --------- ---------
Income/(loss) from operations
before interest and income taxes (15,022) 5,069 (14,066) 7,981
Interest expense, net 3,898 4,655 7,745 9,225
-------------------------------------------------------------
Income/(loss) from operations
before income taxes (18,920) 414 (21,811) (1,244)
Income taxes (58) 22 (36) 63
--------- ---------------------------------- ----------------
Net income/(loss) $ (18,862) $ 392 $ (21,775) $ (1,307)
========= ================ ========= ================
Net income/(loss) per share $ (1.25) $ 0.03 $ (1.45) $ (0.09)
========= =========================== =========
Weighted average common stock and
common stock equivalents outstanding 15,085 15,095 15,063 15,008
=============================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 29, December 30,
July 1,
1996 1995 1995
(Unaudited) (*) (Unaudited)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,325 $ 1,400 $ 1,726
Accounts receivable, net 40,037 35,290 44,358
Inventories (Note 2) 121,470 119,120 153,598
Prepaid expenses and
other current assets 4,517 5,016 6,142
-----------------------------------------------------------------------------------------------------
Total current assets 167,349 160,826 205,824
Property, plant and equipment, net 25,370 24,526 28,821
Other assets 64,601 70,368 70,425
---------------------------------------------------------------------------------------------------------------
Total assets $ 257,320 $ 255,720 $ 305,070
=====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 31,473 $ 14,422 $ 61,762
Accounts payable 33,127 26,755 30,790
Accrued liabilities 18,125 20,397 18,543
Net liabilities of discontinued
operations 133 311 227
Reserve for business restructuring (Note 3) 4,617 1,569 --
-------------------------------------------------------------------------------
Total current liabilities 87,475 63,454 111,322
Long term debt 109,545 110,040 109,908
Deferred liabilities 11,130 11,373 13,398
Shareholders' equity
Common stock 15,329 15,275 15,242
Additional paid-in capital 107,121 107,071 107,017
Deficit (69,599) (47,824) (49,633)
Excess of additional pension
liability over unrecognized
prior service cost (2,185) (2,185) (773)
Accumulated foreign currency
translation adjustment 118 130 203
Less - treasury stock, at cost (1,614) (1,614) (1,614)
---------- -------------------- ----------
Total shareholders' equity 49,170 70,853 70,442
-------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 257,320 $ 255,720 $ 305,070
======================================================================================================
</TABLE>
(*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Six Months Ended
June 29, July 1,
1996 1995
-----------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Loss from operations $ (21,775) $ (1,307)
Adjustments to reconcile loss from operations to net cash used in
operating activities:
Depreciation 2,085 2,591
Amortization of intangibles 1,293 1,290
Write-down of fixed assets 231 --
Write-off of other assets 6,251 --
Loss on disposal of fixed assets 17 --
Changes in operating assets and liabilities:
Accounts receivable (4,747) (7,775)
Inventories (2,350) (28,999)
Prepaid expenses and other current assets 418 (878)
Other assets (1,502) (370)
Accounts payable 6,372 2,197
Accrued liabilities and reserve for
business restructuring 776 (222)
Deferred liabilities (238) (81)
-------------------------------------------------------------------- ---------------------
Net cash used in operating activities (13,169) (33,554)
------------------------------------------------------ ---------------------
Cash Flows from Investing Activities:
Capital expenditures (3,222) (4,055)
Acquisition (694) --
Proceeds from sale of assets 45 103
--------------------------------
Net cash used in investing activities (3,871) (3,952)
---------- ---------------------
Cash Flows from Financing Activities:
Net short-term borrowings 17,051 37,856
Exercise of stock options 104 --
Other, net (12) --
---------- ---------------------
Net cash provided by financing activities 17,143 37,856
---------- ----------
Net cash provided by continuing operations 103 350
Cash used in discontinued operations (178) (589)
---------- ----------
Net decrease in cash and cash equivalents (75) (239)
Cash and cash equivalents - beginning of year 1,400 1,965
--------------------------------
Cash and cash equivalents - end of quarter $ 1,325 $ 1,726
================================
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ 7,975 $ 9,831
================================
Income taxes $ 69 $ 59
================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands of Dollars, Except Share Data)
(Unaudited)
Note 1. Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Salant Corporation ("Salant") and subsidiaries (collectively,
the "Company").
The Company's principal business is the designing, manufacturing, importing and
marketing of apparel. The Company sells its products to retailers, including
department and specialty stores, national chains, major discounters and mass
volume retailers, throughout the United States.
The results of operations for the three and six months ended June 29, 1996 and
July 1, 1995 are not necessarily indicative of a full year's operations. In the
opinion of management, the accompanying financial statements include all
adjustments of a normal recurring nature which are necessary to present fairly
such financial statements. Significant intercompany balances and transactions
are eliminated in consolidation.
Certain reclassifications were made to the 1995 unaudited Condensed Consolidated
Statement of Operations to conform with the 1996 presentation.
Income/(loss) per share is based on the weighted average number of common shares
(including, as of June 29, 1996 and July 1, 1995, 344,730 and 761,840 shares,
respectively, anticipated to be issued pursuant to the Company's plan of
reorganization) and common stock equivalents outstanding, if applicable. Loss
per share does not include common stock equivalents, inasmuch as their effect
would have been anti-dilutive.
Note 2. Inventories
<TABLE>
<CAPTION>
June 29, December 30, July 1,
1996 1995 1995
<S> <C> <C> <C>
Finished goods $ 80,612 $ 72,850 $ 88,792
Work-in-Process 16,594 15,829 35,305
Raw materials and supplies 24,264 30,441 29,501
----------- --------------------------------------
$ 121,470 $ 119,120 $ 153,598
=================================== =========
</TABLE>
Note 3. Restructuring Costs
In the second quarter of 1996, the Company recorded a provision for
restructuring of $11,417 consisting of (i) $5,691 in connection with the
decision to put its' JJ. Farmer sportswear product line up for sale, which
charge is primarily related to the write-off of goodwill and write-down of other
assets, (ii) $2,858 related to the write-off of certain assets related to the
licensing of the Gant dress shirt and accessories product lines, and the accrual
of a portion of the Gant future minimum royalties, which are not expected to be
covered by future sales, (iii) $1,842 primarily related to employee costs in
connection with the planned closing in 1996 of a manufacturing and distribution
facility in Thomson, Georgia, which was announced in March 1996, (iv) $547
primarily related to employee costs in connection with the closing in 1996 of a
manufacturing facility in Americus, Georgia and (v) $479 related primarily to
severance costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion and analysis of the consolidated results of operations
and financial condition should be read in conjunction with the accompanying
unaudited Condensed Consolidated Financial Statements and related Notes to
provide additional information concerning the operations and financial condition
of Salant Corporation ("Salant") and its subsidiary companies (collectively, the
"Company").
Results of Operations
The following discussion compares the operating results of the Company for the
three and six months ended June 29, 1996 with the operating results for the
three and six months ended July 1, 1995.
The following table sets forth certain financial data for the
three and six months ended June 29, 1996 and July
1, 1995.
<TABLE>
<CAPTION>
(dollars in millions)
Three months ended Six months ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
- ------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 97.0 $122.1 $196.2 $225.9
Gross profit $ 18.0 $ 24.5 $ 40.6 $ 47.0
Gross margin 18.6% 20.1% 20.7% 20.8%
Income/(loss) from operations
before interest and income taxes ($15.0) $ 5.1 ($14.1) $ 8.0
</TABLE>
Second Quarter 1996 Compared to Second Quarter 1995
Net sales for the second quarter of 1996 amounted to $97.0 million,
a 20.5% decrease from net sales of $122.1
- ---------
million in the second quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
(dollars in millions)
Net sales and percentage of total Percentage
for the three months ended Increase/
June 29, 1996 July 1, 1995 (Decrease)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Men's Apparel $ 82.7 85.3% $105.7 86.5% (21.7%)
Children's Sleepwear and Underwear 4.4 4.5% 5.0 4.1% (12.6%)
Other Businesses (a) 9.9 10.2% 11.4 9.4% (13.1%)
---------------------- ----------------------
Total $ 97.0 100% $122.1 100% (20.5%)
==================== =====================
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the retail outlet stores division ( the "Stores division").
Sales of Men's Apparel decreased $22.9 million, or 21.7%. This decrease was
primarily attributable to: (a) a decrease in the Company's dress shirt sales of
$8.2 million, or 24.5%, primarily due to lower sales of the John Henry dress
shirt line to traditional department stores and the discontinuation of several
dress shirt lines, including Liberty of London, Nino Cerruti and Ron Chereskin,
as disclosed in the 1995 Annual Report on Form 10-K; (b) a decrease in sales of
men's sportswear of $11.9 million, or 42.0% resulting from lower sales of Perry
Ellis sportswear to off-price retailers and a planned decrease in sales of lower
margin Manhattan label sportswear; and (c) a decrease in sales of men's slacks
of $3.0 million, or 18.8%, resulting from the planned reduction in sales of the
Thomson pant business during 1996, as disclosed in the 1995 Annual Report on
Form 10-K. These decreases were offset by an increase in the sales of men's
jeans of $1.6 million, or 9.5%, resulting from the growing acceptance by
consumers of Canyon River Blues, an exclusive brand program for Sears, Roebuck &
Co. ("Sears"), which was introduced in the latter part of the first quarter of
1995.
Sales of Children's Sleepwear and Underwear decreased $0.6 million, or 12.6%.
This decrease related to lower sales of licensed character products during the
second quarter, partially as a result of higher shipments made in the first
quarter of 1996 as compared to the first quarter of 1995.
Sales of Other Businesses decreased $1.5 million, or 13.1%. This decrease
related to a decrease in sales by (i) the Made in the Shade division due to
extremely tight pricing by retailers which led the division to decline a number
of programs which lacked acceptable margins and (ii) the Stores division related
primarily to a decrease in sales through the Manhattan brand store format (an
older and larger type of retail outlet store).
Gross profit as a percentage of net sales decreased to 18.6% ($18.0 million) in
the second quarter of 1996 from 20.1% of net sales ($24.5 million) in the
comparable 1995 quarter.
<PAGE>
<TABLE>
<CAPTION>
(dollars in millions)
Gross profit and gross margin
for the three months ended
June 29, 1996 July 1, 1995
- ---------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Men's Apparel $ 14.1 17.1% $ 19.0 18.0%
Children's Sleepwear and Underwear 0.6 14.2% 1.7 33.4%
Other Businesses (a) 3.3 33.0% 3.8 33.4%
-------- --------
Total $ 18.0 18.6% $ 24.5 20.1%
=============== =============
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the Stores division.
The decrease in gross margin occurred principally in (a) men's apparel, as a
result of lower margins on sportswear resulting from increased markdowns needed
(i) to sell the remaining inventory of the JJ. Farmer product line, which
business has been put up for sale, (ii) to reflect the change in distribution of
the John Henry dress shirt and accessories product lines, as discussed above,
and (iii) for the Manhattan sportswear product line, which has been
significantly scaled down, and (b) children's sleepwear and underwear, as a
result of a decrease in licensed character sales, which traditionally earn a
higher gross margin, and an increase in the percentage of off-price sales, which
carry a lower gross margin.
Gross margins for the quarter were negatively affected by $3.3 million (3.4% of
net sales) of charges, primarily related to inventory markdowns, as discussed
above. Of this amount, $3.0 million (3.6% of net sales) related to Men's Apparel
and the balance to the Other Businesses.
Selling, general and administrative expenses as a percentage of net sales
increased to 23.1% ($22.4 million), as compared to the second quarter of 1995,
when such expenses amounted to 16.7% of net sales ($20.3 million). The increase
in such expenses as a percentage of net sales was primarily attributable to the
installation of store fixtures for Perry Ellis Sportswear and Canyon River Blues
shops within department stores and Sears, respectively. These expenditures
commenced in the second half of 1995. The non-cash portion of the increased
expenses relating to store fixtures accounted for approximately 29% of the total
increase in S,G&A expense.
S,G&A expenses for the quarter included certain charges of $1.1 million, which
primarily related to the restructuring of the Men's Apparel businesses.
In the second quarter of 1996, the Company recorded a provision for
restructuring of $11.4 million consisting of (i) $5.7 million in connection with
the decision to put its' JJ. Farmer sportswear product line up for sale, which
charge is primarily related to the write-off of goodwill and the write-down of
other assets, (ii) $2.9 million related to the write-off of certain assets in
connection with the licensing of the Gant dress shirt and accessories product
lines, and the accrual of a portion of the Gant future minimum royalties, which
are not expected to be covered by future sales, (iii) $1.8 million primarily
related to employee costs in connection with the closing in 1996 of a
manufacturing and distribution facility in Thomson, Georgia, which was announced
in March 1996, (iv) $0.5 million primarily related to employee costs in
connection with the closing in 1996 of a manufacturing facility in Americus,
Georgia and (v) $0.5 related primarily to severance costs.
The restructuring of the menswear business is designed to focus resources on
those brands and products that offer the Company the opportunity for superior
margins because they either (i) have significant consumer recognition, such as
Perry Ellis, Manhattan and Joe Boxer products or (ii) require Salant's
merchandising and marketing expertise, which provides significant added value to
the Company's retail customer, as in the case of the Canyon River Blues program.
Salant will expend its energies on a selected number of key brands and programs
which offer it the opportunity to maximize its corporate marketing and
merchandising strengths in order to improve profitability.
For the second quarter of 1996, the loss from operations before interest and
income taxes was $15.0 million, or (15.5%) of net sales, as compared to income
from operations before interest and income taxes of $5.1 million, or 4.2% of net
sales, in the 1995 second quarter. The loss from operations (both in dollars and
as a percentage of net sales) resulted from lower net sales, a decrease in gross
margin, the increase in S,G&A expenses, and the provision for restructuring, all
as discussed above.
<TABLE>
<CAPTION>
(dollars in millions)
Income/(loss) from operations before interest
and income taxes, and percentage of
net sales for the three months ended
June 29, 1996 July 1, 1995
- ---------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
Men's Apparel $ (12.5) (15.2%) $ 4.8 4.6%
Children's Sleepwear and Underwear (0.6) (13.7%) 0.5 9.2%
Other Businesses (a) (0.6) (6.2%) (0.2) (1.6%)
---------- ------- ------
(13.7) (14.2%) 5.1 4.2%
Corporate expenses (2.4) (1.3)
Licensing division income 1.1 1.3
---------- -------
Income/(loss) from operations before
interest and income taxes $ (15.0) (15.5%) $ 5.1 4.2%
======== =============
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the Stores division.
Net interest expense for the second quarter of 1996 amounted to $3.9 million as
compared to $4.7 million in the prior year's second quarter. Lower borrowings
accounted for most of the decreased interest expense.
As a result of the above, the net loss for the 1996 second quarter was $18.9
million, or ($1.25) per share, compared with net income of $0.4 million, or
$0.03 per share, for the second quarter of 1995.
Earnings/(loss) before interest, taxes, depreciation, amortization and
restructuring charges was ($1.2) million in the second quarter of 1996, compared
to $7.0 million in the second quarter of 1995, a decrease of $8.2 million, or
117%. The Company believes this information is helpful in understanding cash
flow from operations that is available for debt service, taxes and capital
expenditures. This measure is not contained in Generally Accepted Accounting
Principles and is not a substitute for operating income, net income or net cash
flows from operating activities.
Year to Date 1996 Compared to Year to Date 1995
Net sales for the six months ended June 29, 1996 amounted
to $196.2 million, a 13.1% decrease from net sales of
- ---------
$225.9 million in the six months ended July 1, 1995.
<TABLE>
<CAPTION>
(dollars in millions)
Net sales and percentage of total Percentage
for the six months ended Increase/
June 29, 1996 July 1, 1995 (Decrease)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Men's Apparel $169.8 86.6% $199.4 88.3% (14.8%)
Children's Sleepwear and Underwear 8.6 4.4% 8.4 3.7% 3.1%
Other Businesses (a) 17.8 9.0% 18.1 8.0% (2.2%)
---------------------- ----------------------
Total $196.2 100% $225.9 100% (13.1%)
==================== =====================
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the Stores division.
Sales of Men's Apparel decreased $29.6 million, or 14.8%. This decrease was
primarily attributable to: (a) a decrease in sales of men's sportswear of $14.1
million, or 25.4% resulting from lower sales of Perry Ellis sportswear to
off-price retailers and a planned decrease in sales of lower margin Manhattan
label sportswear; (b) a decrease in the Company's dress shirt sales of $11.3
million, or 17.5%, primarily due to lower sales of the John Henry dress line to
traditional department stores and the discontinuation of several dress shirt
lines, including Liberty of London, Nino Cerruti and Ron Chereskin, as disclosed
in the 1995 Annual Report on Form 10-K; and (c) a decrease in sales of men's
slacks of $7.1 million, or 22.4%, resulting from the planned reduction in sales
of the Thomson pant business during 1996, as also disclosed in the 1995 Annual
Report on Form 10-K . These decreases were offset by an increase in the sales of
men's jeans of $4.3 million, or 17.1%, resulting from a complete six months of
sales of Canyon River Blues, an exclusive brand program for Sears, which was
introduced in the latter part of the first quarter of 1995.
Gross profit as a percentage of net sales decreased to 20.7% ($40.6 million) in
the six months ended June 29, 1996 from 20.8% of net sales ($47.0 million) for
the six months ended July 1, 1995.
<PAGE>
<TABLE>
<CAPTION>
(dollars in millions)
Gross profit and gross margin
for the six months ended
June 29, 1996 July 1, 1995
- ---------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Men's Apparel $ 33.2 19.6% $ 38.3 19.2%
Children's Sleepwear and Underwear 1.5 17.6% 2.3 27.7%
Other Businesses (a) 5.9 33.0% 6.4 35.4%
-------- --------
Total $ 40.6 20.7% $ 47.0 20.8%
=============== =============
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the Stores division.
The decrease in gross margin occurred principally in children's sleepwear and
underwear as a result of a higher percentage of off-price sales, which carry a
lower gross margin.
Gross margins for the first half were negatively affected by $3.3 million (1.7%
of net sales) of charges, primarily related to markdowns, as previously
discussed. Of this amount, $3.0 million (1.8% of net sales) related to Men's
Apparel, the balance to the Other Businesses.
Selling, general and administrative expenses as a percentage of net sales
increased to 22.6% ($44.4 million), as compared to the first half of 1995, when
such expenses amounted to 18.2% of net sales ($41.1 million). The increase in
such expenses as a percentage of net sales was primarily attributable to the
installation of store fixtures for Perry Ellis Sportswear and Canyon River Blues
shops in department stores and Sears, respectively. These expenditures commenced
in the second half of 1995. The non-cash portion of the increased expenses
relating to store fixtures accounted for approximately 26% of the total increase
in S,G&A expense.
S,G&A expenses for the first half included certain charges of $1.1 million,
which primarily related to the restructuring of the Men's Apparel businesses.
Royalty income for the six months ended June 29, 1996 was $2.5 million, compared
to $3.1 million in the first half of 1995. This decrease resulted primarily from
(i) lower sales by licensees in the fourth quarter of the prior year, which
resulted in a decrease in royalties received by the Company in the first half of
the current year, and (ii) the expiration of certain license agreements prior to
the first half of 1996.
In the first half of 1996, the Company recorded a provision for restructuring of
$11.6 million consisting of (i) $5.7 million in connection with the decision to
put its' JJ. Farmer sportswear product line up for sale, which charge is
primarily related to the write-off of goodwill and the write-down of other
assets, (ii) $2.9 million related to the write-off of certain assets related to
the licensing of the Gant dress shirt and accessories product lines, and the
accrual of a portion of the Gant future minimum royalties, which are not
expected to be covered by future sales, (iii) $1.8 million primarily related to
employee costs in connection with the closing in 1996 of a manufacturing and
distribution facility in Thomson, Georgia, which was announced in March 1996,
(iv) $0.5 million primarily related to employee costs in connection with the
closing in 1996 of a manufacturing facility in Americus, Georgia and (v) $0.7
million related primarily to severance costs.
For the six months ended June 29, 1996, the loss from operations before interest
and income taxes was $14.1 million, or (7.2%) of net sales, as compared to
income from operations before interest and income taxes of $8.0 million, or 3.5%
of net sales, in the 1995 first half. Income from operations as a percentage of
net sales was lower in 1996 primarily as a result of the net sales decrease, the
increase in S,G&A expenses and the provision for restructuring discussed above.
<TABLE>
<CAPTION>
(dollars in millions)
Income/(loss) from operations before interest
and income taxes, and percentage of
net sales for the six months ended
June 29, 1996 July 1, 1995
- ---------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Men's Apparel $ (8.2) (4.8%) $ 9.7 4.8%
Children's Sleepwear and Underwear (1.0) (12.2%) (0.2) (1.9%)
Other Businesses (a) (2.2) (12.3%) (1.5) (8.0%)
--------- ------- ------
(11.4) (5.8%) 8.0 3.5%
Corporate expenses (4.6) (2.7)
Licensing division income 1.9 2.7
--------- -------
Income/(loss) from operations before
interest and income taxes $ (14.1) (7.2%) $ 8.0 3.5%
======= =============
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the Stores division.
Net interest expense for the six months ended June 29, 1996 amounted to $7.7
million as compared to $9.2 million in the prior year's first half. Lower
borrowings accounted for most of the decreased interest expense.
As a result of the above, the net loss for the 1996 first half was $21.8
million, or ($1.45) per share, compared with a net loss of $1.3 million, or
($0.09) per share, for the first half of 1995.
Earnings before interest, taxes, depreciation, amortization and restructuring
charges was $1.9 million in the six months ended June 29, 1996, compared to
$11.9 million in the first half of 1995, a decrease of $10.0 million, or 84%.
The Company believes this information is helpful in understanding cash flow from
operations that is available for debt service, taxes and capital expenditures.
This measure is not contained in Generally Accepted Accounting Principles and is
not a substitute for operating income, net income or net cash flows from
operating activities.
<PAGE>
Liquidity and Capital Resources
The Company is a party to a revolving credit, factoring and security agreement,
as amended, (the "Credit Agreement") with The CIT Group/Commercial Services,
Inc. ("CIT") to provide seasonal working capital financing in the form of direct
borrowings and letters of credit, up to an aggregate of $135 million, subject to
an asset based borrowing formula (the "Maximum Credit"). Effective June 1, 1996,
the Company and CIT executed the Eighth Amendment to the Credit Agreement. The
Eighth Amendment replaced the notification factoring arrangement with a
non-notification factoring arrangement covering a smaller percentage of the
Company's sales at a substantially reduced factoring charge. On August 16, 1996,
the Company and CIT executed the Ninth Amendment to the Credit Agreement. The
Ninth Amendment modified certain financial covenants relating to working
capital, stockholders' equity and maximum loss and waived a default resulting
from the Company's non-compliance with these covenants as of June 29, 1996.
Interest on direct borrowings is charged monthly at an annual rate of one
percent in excess of the base rate of the Chase Manhattan Corporation (the
"Prime Rate", which was 8.25% at June 29, 1996). As collateral for borrowings
under the Credit Agreement, Salant has granted to CIT a security interest in
substantially all of the assets of the Company. As of June 29, 1996, direct
borrowings and letters of credit outstanding under the Credit Agreement were
$31.5 million and $34.4 million, respectively, and the Company had unused
availability of $21.1 million. As of July 1, 1995, direct borrowings and letters
of credit outstanding under the Credit Agreement were $61.8 million and $29.1
million, respectively, and the Company had unused availability of $5.6 million.
The average interest rate on borrowings for the six months ended June 29, 1996
and July 1, 1995 was 9.4% and 9.8%, respectively.
The Credit Agreement and the indenture governing the 10 1/2% Senior Secured
Notes due December 31, 1998 contain numerous financial and operating covenants,
including restrictions on incurring indebtedness and liens, making investments
in or purchasing the stock, or all or a substantial part of the assets of
another person, selling property, making capital expenditures, and paying cash
dividends. In addition, under the Credit Agreement, the Company is required (i)
during the year, to maintain minimum levels of working capital and stockholders'
equity and to satisfy a maximum cumulative net loss test and (ii) at year end,
to satisfy a ratio of total liabilities to stockholders' equity and a fixed
charge coverage ratio. At June 29, 1996, the Company was in compliance with all
financial covenants as indicated below:
<TABLE>
<CAPTION>
Covenant June 29, 1996
Credit Agreement Covenants Level (a) Actual Level
<S> <C> <C>
Working Capital $ 75.0 million $ 79.9 million
Stockholders' Equity $ 45.0 million $ 49.2 million
Maximum Loss $(15.0) million $ (7.0) million
</TABLE>
(a) The covenant levels reflect all modifications in the Credit Agreement made
pursuant to the Ninth Amendment.
The Company is also required to reduce its indebtedness (excluding outstanding
letters of credit) to $20 million or less for fifteen consecutive days during
each twelve month period commencing February 1, 1994. The Company has complied
with this covenant for all periods through January 31, 1997.
The Company's cash used in operating activities was $13.2 million. This
represented a $20.4 million (61%) improvement over the first half of 1995 and
was primarily a result of inventory management improvements. Inventory increased
by only $2.4 million in the first half of 1996; during the same period in 1995,
inventory increased $29.0 million.
The restructuring provision of $11.6 million in the first half 1996 has required
cash payments amounting to $1.2 million to date and will require approximately
$5.3 million of additional cash over a period of time extending beyond 1996. In
addition, the restructuring charge included a non- cash charge relating
primarily to the write-off of goodwill in the amount of $6.4 million.
Cash used for investing activities in the first half of 1996
was $3.9 million, primarily related to capital expenditures.
Cash provided by financing activities in the first half of 1996 was $17.1
million, which represented short-term borrowings under the Credit Agreement.
This represents a 55% reduction from the $37.9 million of short-term borrowings
required in the first half of 1995.
Capital expenditures in the first six months of 1996 were $3.2 million, as
compared to $4.1 million in the first six months of 1995. These expenditures
were funded primarily from short term borrowings. Capital expenditures for the
full year of 1996 are anticipated to be approximately $9.0 million.
Salant's principal sources of liquidity, both on a short-term and a long-term
basis, are provided by operations and borrowings under the Credit Agreement.
Based upon its analysis of its consolidated financial position, its cash flow
during the past twelve months, and its cash flow anticipated from future
operations, Salant believes that its future cash flows together with funds
available under the Credit Agreement will be adequate to meet the financing
requirements it anticipates during the next twelve months. There can be no
assurance, however, that future developments and general economic trends will
not adversely affect the Company's operations and, hence, its anticipated cash
flow.
Factors that May Affect Future Results and Financial Condition.
The Company's future operating results and financial condition are dependent on
the Company's ability to successfully design, manufacture, import and market
apparel. Inherent in this process are many factors that the Company must
successfully manage in order to achieve favorable operating results and
financial condition including, without limitation, the following:
Competition. The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers (such as
the Company) and a large number of specialty manufacturers. The Company faces
substantial competition in its markets from manufacturers in both categories.
Many of the Company's competitors have greater financial resources than the
Company.
Apparel Industry Cycles and other Economic Factors. The apparel industry
historically has been subject to substantial cyclical variation, with consumer
spending on apparel tending to decline during recessionary periods. A decline in
the general economy or uncertainties regarding future economic prospects may
affect consumer spending habits, which, in turn, could have a material adverse
effect on the Company's results of operations and financial condition.
Retail Environment. Various retailers, including some of the Company's
customers, have experienced declines in revenue and profits in recent periods
and some have been forced to file for bankruptcy protection. To the extent that
these financial difficulties continue, there can be no assurance that the
Company's financial condition and results of operations would not be adversely
affected.
Seasonality of Business and Fashion Risk. The Company's principal products are
organized into seasonal lines for resale at the retail level during the Spring,
Fall and Christmas Seasons. Typically, the Company's products are designed as
much as one year in advance and manufactured approximately one season in advance
of the related retail selling season. Accordingly, the success of the Company's
products is often dependent on the ability of the Company to successfully
anticipate the needs of the Company's retail customers and the tastes of the
ultimate consumer up to a year prior to the relevant selling season.
Substantial Level of Indebtedness. The Company had indebtedness of $141.0
million as of June 29, 1996. This level of indebtedness could adversely affect
the Company's operations because a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest and would,
therefore, not be available for other purposes. Further, this level of
indebtedness might inhibit the Company's ability to obtain financing in the
future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes.
Foreign Operations. The Company's foreign sourcing operations are subject to
various risks of doing business abroad, including currency fluctuations
(although the predominant currency used is the U.S. dollar), quotas and, in
certain parts of the world, political instability. Any substantial disruption of
its relationship with its foreign suppliers could adversely affect the Company's
operations. Some of the Company's imported merchandise is subject to United
States Customs duties. In addition, bilateral agreements between the major
exporting countries and the United States impose quotas which limit the amount
of certain categories of merchandise that may be imported into the United
States. Any material increase in duty levels, material decrease in quota levels
or material decrease in available quota allocation could adversely affect the
Company's operations.
Dependence on Contract Manufacturing. In 1995, the Company produced 64% of all
of its products (in units) through arrangements with independent contract
manufacturers. The use of such contractors and the resulting lack of direct
control could subject the Company to difficulty in obtaining timely delivery of
products of acceptable quality. In addition, as is customary in the industry,
the Company does not have any long-term contracts with its raw material
suppliers or product manufacturers. While the Company is not dependent on one
particular product manufacturer or raw material supplier, the loss of several
such product manufacturers and/or raw material suppliers in a given season could
have a material adverse effect on the Company's performance.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial performance
should not be considered to be a reliable indicator of future performance, and
investors are cautioned not to use historical trends to anticipate results or
trends in the future. In addition, the Company's participation in the highly
competitive apparel industry often results in significant volatility of the
Company's common stock price.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the second quarter of 1996, the Company did not file any reports on Form
8-K.
Exhibits
Number Description
10.37 Eighth Amendment to Credit Agreement, dated as of
June 1, 1996, to the Revolving Credit, Factoring and
Security Agreement, dated as of September 20, 1993,
as amended, between Salant Corporation and
The CIT Group/Commerical Services, Inc.
10.38 Ninth Amendment to Credit Agreement, dated as of
August 16, 1996, to the Revolving Credit,
Factoring and Security Agreement, dated as of
September 20, 1993, as amended, between
Salant Corporation and
The CIT Group/Commerical Services, Inc.
27 Financial Data Schedule
<PAGE>
SIGNATURE
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.
SALANT CORPORATION
Date: August 19, 1996 /s/ Richard P. Randall
--------------------------------------------------------------------------
Richard P. Randall
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EIGHTH AMENDMENT TO CREDIT AGREEMENT
EIGHTH AMENDMENT TO CREDIT AGREEMENT, dated as of June 1, 1996
(this "Amendment"), to the Revolving Credit, Factoring and Security Agreement,
dated as of September 20, 1993, as amended by letter agreement Re: Amendment to
Credit Agreement with respect to the Mississippi Property, dated June 14, 1994
(the "First Amendment") and by letter agreement Re: Amendment to Credit
Agreement with respect to Additional Guarantors, dated August 24, 1994 (the
"Second Amendment"), and by the Third Amendment to Credit Agreement, dated as of
February 28, 1995 (the "Third Amendment"), and by the Fourth Amendment to Credit
Agreement, dated as of March 1, 1995 (the "Fourth Amendment"), and by the Fifth
Amendment to Credit Agreement, dated as of June 28, 1995 (the "Fifth Amendment")
and by the Sixth Amendment to Credit Agreement, dated as of August 15, 1995 (the
"Sixth Amendment") and by the Seventh Amendment to Credit Agreement, dated as of
March 27, 1996 (the "Seventh Amendment") (as so amended, and as further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
between THE CIT GROUP/COMMERCIAL SERVICES, INC. ("Lender") and SALANT
CORPORATION ("Borrower").
W I T N E S S E T H
WHEREAS, Lender and Borrower are parties to the Credit Agreement;
WHEREAS, Borrower has requested Lender to amend the Credit
Agreement (i) to finance rather than factor, as is now the case, Borrower's
uunts arising from sales through its Perry Ellis division, and (ii) to factor
on a non-notification basis rather than on a notification basis, as is now the
case, Borrower's Accounts arising from sales through its Fashion Shirt Group
division and its Salant Accessories division; and
WHEREAS, Lender is willing to make such amendments to the
Credit Agreement upon the terms and subject to the conditions set forth in this
Amendment;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree, effective as of the Effective Date, as defined below, as
follows:
1. Defined Terms. Initially capitalized terms used
and not otherwise defined herein
shall have their respective
meanings as defined in the Credit Agreement.
2. Amendment of Section 1.35. Section 1.35 of the
Credit Agreement is amended in its
entirety to read as follows:
"1.35 'Factored Accounts' shall mean all Notification
Accounts and all
Non-Notification Accounts.
3. Addition of Sections 1.62A and 1.62B.
Section 1.62A and Section 1.62B are added to
the Credit Agreement as follows:
"1.62A 'Non-Notification Accounts' shall mean Accounts of
Borrower arising from sales through its Fashion Shirt Group division
and Salant Accessories division."
"1.62B 'Notification Accounts' shall mean Accounts of Borrower
arising from sales through its Made in the Shade/West Dallas division."
4. Amendment of Section 3.6(c). The first sentence of
Section 3.6(c) of the Credit
Agreement is amended in its entirety to read
as follows:
"(c) Each invoice of Borrower evidencing a Notification
Account shall bear a notice that such Account has been assigned to, is
owned by, and is payable to Lender in United States Dollars; no invoice
of Borrower evidencing a Non-Notification Account shall be required to
bear such a notice."
5. Amendment of Section 3.6(d). Section 3.6(d) of the
Credit Agreement is amended in its
entirety to read as follows:
"(d) Lender shall purchase the Factored Accounts at the gross
amount of the respective invoices therefor, less any trade and cash
discounts (based on the longest or shortest terms allowable to
Borrower's customers, as Lender elects), and less credits and
allowances ("Net Sales"). Net Sales factored with Lender each month
shall be posted to Borrower's account (i) in respect of Notification
Accounts, as of the date Lender receives confirmatory assignment
schedules thereof, and (ii) in respect of Non-Notification Accounts,
when and as Lender receives from Borrower accountings of Borrower's
sales in respect of Non-Notification Accounts as hereinafter provided
for in this Section 3.6(d). Until otherwise requested by Lender,
Borrower agrees to furnish to Lender the following information and
reports with respect to Non-Notification Accounts. Borrower shall
provide Lender with a confirmatory assignment schedule of assigned
Non-Notification Accounts on a daily basis in respect of the preceding
day's sales, which confirmatory assignment schedule shall be in the
form attached as Exhibit N. Within five (5) business days after the end
of each month, Borrower shall render to Lender an accounting of all of
Borrower's sales in respect of Non-Notification Accounts for such
month, showing gross sales and Net Sales and an aged accounts
receivable trial balance as of the close of such month, including the
names and addresses of all Account Debtors obligated on such
Non-Notification Accounts. All checks and other amounts received by
Lender in respect of Notification Accounts in the form of remittances
which are not immediately available will be credited to Borrower's
account three (3) business days after such remittances have been
received. All amounts received by Lender in respect of Non-Notification
Accounts shall be credited to Borrower's account as provided for in
Section 9.1(b) hereof. Borrower agrees to submit to Lender written
requests for adjustment of past due Non-Notification Accounts at
Lender's Credit Risk asking Lender to mature invoices evidencing such
Accounts no later than ninety (90) days after the longest maturity date
of such invoices. The Net Sales amount of (x) any Non-Notification
Account with respect to which Borrower has duly made such a written
request, and (y) any Notification Account, shipped, in each case, at
Lender's Credit Risk, which remains unpaid due solely to Credit Risk,
will be credited to Borrower's account:
(i) as of the date of the Factored Account's longest maturity,
if such customer: makes an assignment for the benefit of
creditors; files or has filed against it a petition under any
bankruptcy or insolvency act; calls a meeting of its
creditors; institutes any proceeding to compromise or adjust
its debts; or if any proceeding is instituted by or against
such customer for relief under any state or federal bankruptcy
or insolvency law; or if a receiver or trustee is appointed
for the customer; or
(ii) if requested by Borrower and if agreed to by Lender in
the exercise of its discretion, as of the 90th day following
the Factored Account's maturity date, if such Factored Account
remains unpaid as of said date without the happening of any of
the events specified in clause (i) hereinabove.
As to all such Non-Notification Accounts which Lender is maturing, Borrower
shall, together with its request that such Accounts be matured, furnish Lender
with true copies of the invoices therefor, the original proofs of delivery, a
written report of the efforts made by Borrower to effect collection thereof, and
confirmation of Borrower's prior notification to Lender pursuant to Section
3.6(e) hereof of a collectability problem. Should it subsequently be determined
that any such Factored Account credited to Borrower's account pursuant to this
Section 3.6(d) remained unpaid due to any reason other than Credit Risk, Lender
shall have the right to reverse the credit, and debit Borrower's account
accordingly."
6. Amendment of Section 3.6(h). Section 3.6(h) of
the Credit Agreement is amended in its entirety to read as follows:
"(h) For providing factoring services hereunder, Borrower
shall pay to Lender a factoring commission on the Factored Accounts
created in each calendar month during the term of this Agreement in the
amount of (i) with respect to Notification Accounts sixty hundredths of
one percent (.60%) of the gross face amount of such Notification
Accounts, less trade and cash discounts thereon, and (ii) with respect
to Non-Notification Accounts, twenty hundredths of one percent (.20%)
of the gross face amount of such Non-Notification Accounts, less trade
and cash discounts thereon. Factoring commissions with respect to any
calendar month shall be due and payable by Borrower and shall be
charged to Borrower's account on each day that sales are assigned to
Lender."
7. Amendment of Section 3.6(i). Section 3.6(i) of
the Credit Agreement is amended in its entirety to read as follows:
"(i) Borrower shall sell and assign to Lender in each calendar
year Non-Notification Accounts in an aggregate gross face amount of not
less than $100,000,000, pro rated, however, in respect of the 1996
calendar year for the period June 1, 1996 through and including
December 31, 1996. If in any calendar year the aggregate gross face
amount of Non-Notification Accounts actually sold and assigned to
Lender is less than $100,000,000, then an amount equal to ten
hundredths of one percent (.10%) of the amount of such deficiency shall
be charged to Borrower's account after the end of such calendar year.
In the event this Agreement is terminated by Borrower or Lender
pursuant to Section 10.1(b) hereof before the end of any calendar year,
then, and in such event, Borrower's obligation to Lender under this
Section 3.6(i) shall be pro-rated based upon the period of time which
has elapsed from the beginning of such calendar year to the effective
date of termination of this Agreement."
8. Amendment of Section 3.6(k). Section 3.6(k) of the
Credit Agreement is hereby amended
---------------------------
in its entirety to read as follows:
"(k) If pursuant to Section 10.1(b) hereof, Borrower
terminates this Agreement on March 31, 1997, then Borrower shall
continue to factor the Non-Notification Accounts with Lender through
September 30, 1998 on the same terms as are contained in this
Agreement."
9. Addition of Section 3.6(l). Section 3.6(l) is
added to the Credit Agreement as follows:
"(l) Notwithstanding anything to the contrary contained in
this Agreement, Borrower shall incur in each calendar year the first
$100,000 of credit losses (as hereinafter defined) in respect of
Non-Notification Accounts for which Lender has the Credit Risk. As used
herein, "credit losses" in each calendar year means the aggregate
amount of Non-Notification Accounts for which Lender has the Credit
Risk which are unpaid in each calendar year due to Credit Risk."
10. Amendment of Section 9.1(a). Section 9.1(a) of the
Credit Agreement is hereby amended
---------------------------
in its entirety to read as follows:
"(a) All invoices relating to Non-Notification Accounts and
Non-Factored Accounts shall indicate that remittances with respect
thereto are to be made to: SALANT CORPORATION, P.O. BOX 4076, CHURCH
STREET STATION, NEW YORK, NEW YORK 10261-4076, a lock box opened by
Lender pursuant to a Lock Box Deposit Service Agreement dated June 25,
1990 with Manufacturers Hanover Trust Company, immediate
predecessor-in-interest to Chemical Bank, (the "Lock Box Agreement").
All such remittances shall be deposited in Lender's account with
Chemical Bank pursuant to the Lock Box Agreement (the "CIT Account")."
11. Amendment of Section 9.1(b). The first three
sentences of Section 9.1(b) of the
Credit Agreement are amended in their entirety to read as follows:
"(b) Any checks or other forms of remittance which may be
received directly by Borrower in respect of the Non-Notification
Accounts, the Non-Factored Accounts and other Collateral shall not be
commingled with Borrower's property, but shall be segregated, held by
Borrower in trust for Lender as Lender's exclusive property and
immediately deposited by Borrower, in the identical form received, with
proper endorsements, into such account or accounts as Lender may
designate from time to time. All amounts received by Lender in respect
of Non-Notification Accounts, Non-Factored Accounts or other Collateral
in immediately available funds will be credited to any account or
accounts maintained by Lender pursuant to this Agreement after adding
one (1) business day. All amounts received by Lender in respect of
Non-Notification Accounts, Non-Factored Accounts or other Collateral in
remittances which are not immediately available, will be credited to
any account or accounts maintained by Lender pursuant to this Agreement
one (1) business day after such remittances have been collected."
12. Amendment of clauses (d) and (e) of Section 9.5.
Clauses (d) and (e) of Section 9.5
of the Credit Agreement are amended in their entirety to read as
follows:
"...(d) with respect to Non-Notification Accounts and
Non-Factored Accounts, on or after the occurrence of an Event of
Default, or an event which with notice, passage of time or both would
constitute an Event of Default, to notify Account Debtors to make
payment directly to Lender; (e) (i) with respect to Non-Notification
Accounts, at any time after the earlier of (A) sixty (60) days after
the respective due dates thereof and (B) the occurrence of an Event of
Default or an event which with notice of passage of time or both would
constitute an Event of Default, and (ii) with respect to Non-Factored
Accounts, on or after the occurrence of an Event of Default, or an
event which with notice, passage of time or both would constitute an
Event of Default, to take or bring, in the name of Lender or Borrower,
all steps, actions, suits or proceedings deemed by Lender necessary or
desirable to effect collection of the Non-Notification Accounts, the
Non-Factored Accounts or the other Collateral, as the case may be;..."
13. Additional Exhibit. The attached "Salant Accounts
Receivable Schedule" is hereby
added to the Credit Agreement as "Exhibit N" thereto
14. Representations and Warranties. Borrower hereby represents
and warrants to Lender that the representations and warranties set forth in
Section 6 of the Credit Agreement are true on and as of the date hereof as if
made on and as of the date hereof after giving effect to this Amendment, except
to the extent any such representation or warranty expressly relates to a prior
date, and breach of any of the representations and warranties made in this
paragraph 13 shall constitute an Event of Default under Section 8.1(b) or 8.1(c)
of the Credit Agreement, as applicable. Borrower further represents and warrants
that, after giving effect to this Amendment, no Event of Default or event which,
with the lapse of time or the giving of notice or both, would become an Event of
Default has occurred and is continuing.
15. Effectiveness. This Amendment shall become
effective on the date (the "Effective
Date") Lender shall have received each of the following:
a. The written consent of all
Participants to the execution and delivery of this Amendment by Lender.
b. Counterparts of this Amendment,
duly executed and delivered by Borrower and Lender.
c. A duly executed copy of the Consent
of Guarantors substantially in the form of Exhibit A hereto.
16. Continuing Effect of Credit Agreement. This Amendment
shall not constitute a waiver or amendment of any provision of the Credit
Agreement not expressly referred to herein and shall not be construed as a
consent to any further or future action on the part of Borrower that would
require consent of Lender. Except as expressly amended, the provisions of the
Credit Agreement are and shall remain in full force and effect.
17. Counterparts. This Amendment may be executed in
counterparts, and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
18. Governing Law. This Amendment shall be governed by,
and construed and interpreted in accordance with, the laws of the state of
New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
THE CIT GROUP/COMMERCIAL
SERVICES, INC.
By:
Title:
SALANT CORPORATION
By:
Title:
<PAGE>
EXHIBIT A
CONSENT OF GUARANTORS
Each of the undersigned, CLANTEXPORT, INC., DENTON MILLS,
INC., FROST BROS. ENTERPRISES, INC., SLT SOURCING, INC., each a Guarantor under
its respective Guarantee, each dated as of September 20, 1993, and SALANT CANADA
INC. and J.J. FARMER CLOTHING INC., each a guarantor under its respective
Guaranty (Unlimited Liability), each dated as of September 20, 1994
(individually, in the case of each of the foregoing Guarantors, its
"Guarantee"), made in favor of the CIT Group/Commercial Services, Inc.
("Lender"), pursuant to the Credit Agreement as defined in the Eighth Amendment
to Credit Agreement, dated as of June 1, 1996 between Lender and Salant
Corporation (the "Amendment"), to which this Consent is attached, hereby
consents to the Amendment and the matters contemplated thereby, and hereby
confirms and agrees that its Guarantee is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects except
that, on and after the effective date of the Amendment, each reference in its
Guarantee to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement as amended by the Amendment.
IN WITNESS WHEREOF, each of the undersigned has caused this
Consent of Guarantors to be duly executed and delivered by its authorized
officer as of the 1st day of June, 1996.
CLANTEXPORT, INC. FROST BROS. ENTERPRISES, INC.
By: By:
Title: Title:
DENTON MILLS, INC. SLT SOURCING, INC.
By: By:
Title: Title:
VERA LICENSING, INC. SALANT CANADA INC.
By: By:
Title: Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
J.J. FARMER CLOTHING, INC.
By:
Title:
<PAGE>
NINTH AMENDMENT TO CREDIT AGREEMENT
NINTH AMENDMENT TO CREDIT AGREEMENT, dated as of August 16,
1996 (this "Amendment"), to the Revolving Credit, Factoring and Security
Agreement, dated as of September 20, 1993, as amended by letter agreement Re:
Amendment to Credit Agreement with respect to the Mississippi Property, dated
June 14, 1994 (the "First Amendment") and by letter agreement Re: Amendment to
Credit Agreement with respect to Additional Guarantors, dated August 24, 1994
(the "Second Amendment"), and by the Third Amendment to Credit Agreement, dated
as of February 28, 1995 (the "Third Amendment"), and by the Fourth Amendment to
Credit Agreement, dated as of March 1, 1995 (the "Fourth Amendment"), and by the
Fifth Amendment to Credit Agreement, dated as of June 28, 1995 (the "Fifth
Amendment") and by the Sixth Amendment to Credit Agreement, dated as of August
15, 1995 (the "Sixth Amendment") and by the Seventh Amendment to Credit
Agreement, dated as of March 27, 1996 (the "Seventh Amendment") and by the
Eighth Amendment to Credit Agreement, dated as of June 1, 1996 (the "Eighth
Amendment") (as so amended, and as further amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), between THE CIT
GROUP/COMMERCIAL SERVICES, INC. ("Lender") and SALANT CORPORATION ("Borrower").
W I T N E S S E T H :
WHEREAS, Lender and Borrower are parties to the Credit
Agreement;
WHEREAS, on or about the date hereof, Borrower has requested
that Lender (a) waive certain existing Events of Default under the Credit
Agreement and (b) amend the Credit Agreement to amend certain financial
covenants set forth therein; and
WHEREAS, Lender is willing to waive such existing Events of
Default and to make such amendments to the Credit Agreement upon the terms and
subject to the conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree, effective as of the Effective Date, as defined below, as
follows:
1. Defined Terms. Initially capitalized terms used
and not otherwise defined herein
shall have their respective meanings as defined in the Credit Agreement.
2. Waiver of Events of Default: Borrower has defaulted under
Sections 7.18, 7.19 and 7.22 of the Credit Agreement, as a result of its breach
of the financial covenants set forth therein (collectively, the "Subject
Covenants"). As a result of the foregoing, Events of Default (collectively, the
"Subject Defaults") have occurred under Section 8.1(d) of the Credit Agreement
and are continuing. In response to Borrower's request on or about the date
hereof for a waiver of the Subject Defaults, Lender hereby waives the Subject
Defaults, provided, however, that nothing contained herein shall be construed to
limit, impair, or otherwise affect any rights of Lender in respect of any future
non-compliance with the Subject Covenants or with any other covenant, term or
provision of the Credit Agreement or any of the other Financing Agreements.
3. Amendment of Section 7.18. Section 7.18 of the
Credit Agreement is amended in its entirety to read as follows:
"7.18 Working Capital
Borrower shall not at the end of any fiscal month
permit its consolidated working
capital to be less than $80,000,000 during the period from the Consummation Date
through the day before the last day of its 1993 fiscal year, $85,000,000 during
the period from the last day of its 1993 fiscal year through June 28, 1996,
$75,000,000 during the period from June 29, 1996 through the day before the last
day of its 1996 fiscal year and $80,000,000 thereafter."
4. Amendment of Section 7.19. Section 7.19 of the
Credit Agreement is amended in its entirety to read as follows:
"7.19 Stockholders' Equity
Borrower shall not permit its consolidated
stockholders' equity to be less than
$55,000,000 at any time during the period from the Consummation Date through the
day before the last day of its 1993 fiscal year, $60,000,000 at any time during
the period from the last day of its 1993 fiscal year through June 28, 1996,
$45,000,000 during the period from June 29, 1996 through the day before the last
day of its 1996 fiscal year, and $52,000,000 thereafter."
5. Amendment of Section 7.22. Section 7.22 of the
Credit Agreement is amended in its entirety to read as follows:
"7.22 Maximum Loss
Borrower shall not incur, in any four consecutive
fiscal quarters, commencing after the date of this Agreement, on a
cumulative basis, a net loss of $10,000,000 or more, or in any period
of eight consecutive fiscal quarters, commencing after the date of this
Agreement on a cumulative basis, a net loss of $15,000,000 or more.
Notwithstanding anything to the contrary contained herein, (a)
write-offs for goodwill, restructuring expense or other unusual or
non-recurring expense arising during the first two fiscal quarters of
Borrower's 1996 fiscal year (ending June 29, 1996) in connection with
or pursuant to a restructuring and which Borrower would otherwise be
required to include in the determination of Borrower's net loss under
this Section 7.22, shall, in an aggregate amount not to exceed
$13,000,000, be excluded from such determination of such net loss of
Borrower, and (b) any write-off for goodwill in Borrower's 1994 fiscal
year shall not be included for purposes of calculating net loss under
this Section 7.22."
6. Representations and Warranties. Borrower hereby represents
and warrants to Lender that the representations and warranties set forth in
Section 6 of the Credit Agreement are true on and as of the date hereof as if
made on and as of the date hereof after giving effect to this Amendment, except
to the extent any such representation or warranty expressly relates to a prior
date, and breach of any of the representations and warranties made in this
paragraph 6 shall constitute an Event of Default under Section 8.1(b) or 8.1(c)
of the Credit Agreement, as applicable. Borrower further represents and warrants
that, after giving effect to this Amendment, no Event of Default or event which,
with the lapse of time or the giving of notice or both, would become an Event of
Default has occurred and is continuing.
7. Effectiveness. This Amendment shall become
effective on the date (the "Effective
Date") Lender shall have received each of the following:
a. The written
consent of all Participants to the
execution and delivery of this Amendment
by Lender.
b. Counterparts of
this Amendment, duly executed and
delivered by Borrower and Lender.
c. A duly executed
copy of the Consent of Guarantors
substantially in the form of Exhibit A
hereto.
8. Miscellaneous.
a. Continuing Effect of Credit Agreement.
This Amendment shall not constitute a
waiver or amendment of any provision of the Credit Agreement not expressly
referred to herein and shall not be construed as a consent to any further or
future action on the part of Borrower that would require consent of Lender.
Except as expressly amended in this Amendment, the provisions of the Credit
Agreement are and shall remain in full force and effect.
b. Counterparts. This Amendment may be
executed in counterparts, and all of such
counterparts taken together shall be deemed to constitute one and
the same instrument.
c. Governing Law. This Amendment shall be
governed by, and construed and
interpreted in accordance with, the laws of the state of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
THE CIT GROUP/COMMERCIAL
SERVICES, INC.
By:
Title:
SALANT CORPORATION
By:
Title:
<PAGE>
S41\CIT\SALANT\9AMCRAGT.813:cc
EXHIBIT A
CONSENT OF GUARANTORS
Each of the undersigned, CLANTEXPORT, INC., DENTON MILLS,
INC., FROST BROS. ENTERPRISES, INC., SLT SOURCING, INC., each a Guarantor under
its respective Guarantee, each dated as of September 20, 1993, and SALANT CANADA
INC. and J.J. FARMER CLOTHING INC., each a guarantor under its respective
Guaranty (Unlimited Liability), each dated as of September 20, 1994
(individually, in the case of each of the foregoing Guarantors, its
"Guarantee"), made in favor of the CIT Group/Commercial Services, Inc.
("Lender"), pursuant to the Credit Agreement as defined in the Ninth Amendment
to Credit Agreement, dated as of August __, 1996 between Lender and Salant
Corporation (the "Amendment"), to which this Consent is attached, hereby
consents to the Amendment and the matters contemplated thereby, and hereby
confirms and agrees that its Guarantee is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects except
that, on and after the effective date of the Amendment, each reference in its
Guarantee to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement as amended by the Amendment.
IN WITNESS WHEREOF, each of the undersigned has caused this
Consent of Guarantors to be duly executed and delivered by its authorized
officer this __ day of August, 1996.
CLANTEXPORT, INC. FROST BROS. ENTERPRISES, INC.
By: By:
Title: Title:
DENTON MILLS, INC. SLT SOURCING, INC.
By: By:
Title: Title:
VERA LICENSING, INC. SALANT CANADA INC.
By: By:
Title: Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
S41\CIT\SALANT\9AMCRAGT.813:cc
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
J.J. FARMER CLOTHING, INC.
By:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,325
<SECURITIES> 0
<RECEIVABLES> 50,729
<ALLOWANCES> 10,692
<INVENTORY> 121,470
<CURRENT-ASSETS> 4,517
<PP&E> 64,136
<DEPRECIATION> 38,766
<TOTAL-ASSETS> 257,320
<CURRENT-LIABILITIES> 87,475
<BONDS> 109,545
0
0
<COMMON> 15,329
<OTHER-SE> 33,841
<TOTAL-LIABILITY-AND-EQUITY> 257,320
<SALES> 196,204
<TOTAL-REVENUES> 198,731
<CGS> 155,593
<TOTAL-COSTS> 201,285
<OTHER-EXPENSES> (66)
<LOSS-PROVISION> 11,578
<INTEREST-EXPENSE> 7,745
<INCOME-PRETAX> (21,811)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (21,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,775)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
