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 July 4, 1998.
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 11, 1998, there were outstanding 14,964,608 shares of the Common
Stock of the registrant.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Income
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 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<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
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 74,456 $ 81,391 $159,343 $169,601
Cost of goods sold 57,948 64,824 125,926 133,246
-------- -------- -------- --------
Gross profit 16,508 16,567 33,417 36,355
Selling, general and
administrative expenses (17,218) (20,806) (34,333) (41,360)
Royalty income 1,555 1,428 2,676 2,535
Goodwill amortization (470) (470) (940) (940)
Reversal of provision
for restructuring (Note 6) -- 410 160 1,164
Other income 110 71 171 188
-------- -------- -------- --------
Income/(loss) from continuing operations
before interest, income taxes and
extraordinary gain 485 (2,800) 1,151 (2,058)
Interest expense, net 4,082 3,941 8,042 7,378
-------- -------- -------- --------
Loss from continuing operations before
income taxes and extraordinary gain (3,597) (6,741) (6,891) (9,436)
Income taxes/(benefit) (29) 62 (26) 104
-------- -------- -------- --------
Loss from continuing operations before
extraordinary gain (3,568) (6,803) (6,865) (9,540)
Discontinued operations (Note 7):
Loss from discontinued operations -- (7,361) -- (8,136)
Estimated loss on disposal -- (580) -- (580)
Extraordinary gain (Note 8) -- 600 -- 600
-------- -------- -------- --------
Net loss $ (3,568) $(14,144) $ (6,865) $(17,656)
======== ======== ======== ========
Basic and diluted income/(loss) per share:
From continuing operations $ (0.24) $ (0.45) $ (0.45) $ (0.63)
From discontinued operations -- (0.53) -- (0.58)
From extraordinary gain -- 0.04 -- 0.04
-------- -------- -------- ---------
Basic and diluted loss per share $ (0.24) $ (0.94) $ (0.45) $ (1.17)
======== ======== ======== =========
Weighted average common stock outstanding 15,170 15,118 15,170 15,108
======== ======== ======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Net loss $ (3,568) $(14,144) $ (6,865) $(17,656)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 27 (1) 30 10
-------- -------- -------- --------
Comprehensive income $ (3,541) $(14,145) $ (6,835) $(17,646)
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
8
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
July 4, January 3, June 28,
1998 1998 1997
(Unaudited) (*) (Unaudited)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,160 $ 2,215 $ 1,336
Accounts receivable, net 41,195 45,828 40,391
Inventories (Note 3) 107,143 96,638 123,272
Prepaid expenses and other
current assets (Note 4) 9,310 4,218 3,930
---------- ---------- ----------
Total current assets 158,808 148,899 168,929
Property, plant and equipment, net 27,561 26,439 28,711
Other assets 55,920 58,039 58,995
---------- ---------- ----------
Total assets $ 242,289 $ 233,377 $ 256,635
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 52,176 $ 33,800 $ 53,432
Accounts payable 23,604 27,746 28,453
Accrued liabilities 19,953 16,503 16,961
Current portion of long term debt 104,879 104,879 --
Reserve for business restructuring (Note 6) 869 2,764 1,344
---------- ---------- ----------
Total current liabilities 201,481 185,692 100,190
Long term debt -- -- 104,879
Deferred liabilities 5,340 5,382 8,453
Shareholders' equity:
Common stock 15,405 15,405 15,394
Additional paid-in capital 107,249 107,249 107,232
Deficit (82,100) (75,235) (74,803)
Accumulated other comprehensive income (Note 5) (3,472) (3,502) (3,096)
Less - treasury stock, at cost (1,614) (1,614) (1,614)
---------- ---------- ----------
Total shareholders' equity 35,468 42,303 43,113
---------- ---------- ----------
Total liabilities and shareholders' equity $ 242,289 $ 233,377 $ 256,635
========== ========== ==========
</TABLE>
(*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Six Months Ended
July 4, June 28,
1998 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Loss from continuing operations $ (6,865) $ (9,540)
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation 2,310 2,225
Amortization of intangibles 2,476 2,134
Change in operating assets and liabilities:
Accounts receivable 4,633 (258)
Inventories (10,505) (24,775)
Prepaid expenses and other current assets (5,092) (61)
Other assets 34 --
Accounts payable (4,142) 891
Accrued liabilities and reserve for
business restructuring 1,621 (2,913)
Deferred liabilities (42) (1,162)
-------- --------
Net cash used in continuing operating activities (15,572) (33,459)
Cash used in discontinued operations (66) (1,420)
-------- --------
Net cash used in operations (15,638) (34,879)
--------- --------
Cash Flows from Investing Activities:
Capital expenditures (3,432) (5,807)
Store fixture expenditures (391) (2,037)
-------- --------
Net cash used in investing activities (3,823) (7,844)
-------- --------
Cash Flows from Financing Activities:
Net short-term borrowings 18,376 45,755
Retirement of long-term debt -- (3,372)
Exercise of stock options -- 168
Other, net 30 10
-------- --------
Net cash provided by financing activities 18,406 42,561
-------- --------
Net decrease in cash and cash equivalents (1,055) (162)
Cash and cash equivalents - beginning of year 2,215 1,498
-------- --------
Cash and cash equivalents - end of quarter $ 1,160 $ 1,336
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 2,522 $ 7,125
======== ========
Income taxes $ 144 $ 101
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands of Dollars, Except Share Data)
(Unaudited)
Note 1. Financial Restructuring
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
At July 4, 1998 and January 3, 1998, the 10 1/2% Senior Secured Notes due
December 31, 1998 (the "Senior Secured Notes") in the amount of $104,879 have
been classified as a current liability. At July 4, 1998, the Company's current
liabilities exceeded its current assets by $42,673. This factor may indicate
that the Company will be unable to continue as a going concern for a reasonable
period of time.
On March 3, 1998, the Company announced that it had reached an agreement in
principle (the "Restructuring Agreement") with its major note and equity holders
to convert its existing indebtedness under the Senior Secured Notes into common
equity (the "Debt Restructuring"), as further described in the 1997 Annual
Report on Form 10-K and the Registration Statement on Form S-4, filed on April
22, 1998, as amended. Consummation of the Debt Restructuring is subject to
various conditions, and there can be no assurance that the Debt Restructuring
will be consummated. If the Company is not able to consummate the Debt
Restructuring, it will be unable to continue its normal operations without
obtaining additional financing or pursuing alternative restructuring strategies.
In contemplation of the Debt Restructuring, the Company elected not to pay the
interest payment of approximately $5,500 that was due and payable under the
Senior Secured Notes on March 2, 1998, subject to a 30 day grace period. As of
July 4, 1998, interest accrued on the Senior Secured Notes was $9,318. Because
the Company elected not to pay the interest due on the Senior Secured Notes by
the expiration of the applicable grace period, an event of default has occurred
with respect to the Senior Secured Notes, entitling the holders to accelerate
the maturity thereof. On April 8, 1998, the Trustee under the indenture
governing the Senior Secured Notes (the "Indenture") issued a Notice of Default
stating that as a result of the Company's failure to make the interest payment
due on the Senior Secured Notes, an event of default under the Indenture had
occurred on April 1, 1998. If holders of at least 25% in aggregate principal
face amount of the Senior Secured Notes accelerate all outstanding indebtedness
under the Senior Secured Notes pursuant to the terms of the Indenture, such
acceleration could result in the Company becoming subject to a proceeding under
the Federal bankruptcy laws.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Note 2. 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 and Canada.
The results of operations for the three and six months ended July 4, 1998 and
June 28, 1997 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
have been eliminated in consolidation. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's annual report to shareholders for the year ended January 3, 1998.
Loss per share is based on the weighted average number of common shares
(including, as of July 4, 1998 and June 28, 1997, 205,854 and 323,544 shares,
respectively, anticipated to be issued pursuant to the Company's 1993 bankruptcy
plan of reorganization). Loss per share does not include common stock
equivalents, including, for the three and six months ended July 4, 1998,
1,284,667 stock options, and for the three and six months ended June 28, 1997,
1,660,860 and 1,644,860 stock options, respectively, inasmuch as their effect
would have been anti-dilutive.
<TABLE>
<CAPTION>
Note 3. Inventories
July 4, January 3, June 28,
1998 1998 1997
<S> <C> <C> <C>
Finished goods $ 63,997 $ 52,010 $ 76,150
Work-in-Process 21,034 21,405 22,666
Raw materials and supplies 22,112 23,223 24,456
---------- ---------- ----------
$107,143 $ 96,638 $123,272
======== ======== ========
</TABLE>
Note 4. Prepaid Expenses and Other Current Assets
As of July 4, 1998, prepaid expenses and other current assets included $4,542 of
capitalized costs related to the Debt Restructuring.
Note 5. Accumulated Other Comprehensive Income
<TABLE>
<CAPTION>
Foreign Currency Minimum Pension Accumulated Other
Translation Liability Comprehensive Income
Adjustments Adjustment
1998
<S> <C> <C> <C>
Beginning of year balance $ 6 $(3,508) $(3,502)
Six months ended July 4, 1998 change 30 --
30
End of quarter balance $36 $(3,508) $(3,472)
=== ======== ========
1997
Beginning of year balance $76 $(3,182) $(3,106)
Six months ended June 28, 1997 change 10 -- 10
- -- ----------- -- ---------- --
End of quarter balance $86 $(3,182) $(3,096)
=== ======== ========
</TABLE>
Note 6. Division Restructuring Costs
In the first half of 1997, the Company reversed previously recorded
restructuring provisions of $1,164, including $410 in the second quarter,
primarily resulting from the settlement of liabilities for less than the
carrying amount.
As of July 4, 1998, $869 remained in the restructuring reserve, primarily
related to guaranteed minimum royalty payments for discontinued product lines.
Note 7. Discontinued Operations
In June 1997, the Company discontinued the operations of the Made in the Shade
division, which produced and marketed women's junior sportswear. The loss from
operations of the division for the three and six months ended June 28, 1997 was
$7,361 and $8,136, respectively, which included a second quarter charge of
$4,459 for the write-off of goodwill. Net sales of the division were $977 and
$2,199 for the three and six months ended June 28, 1997, respectively.
Additionally, in 1997, the Company recorded a second quarter charge of $580 to
accrue for expected operating losses during the phase-out period through
September 1997. No income tax benefits have been allocated to the division's
1997 losses.
In 1997, the net liabilities of the discontinued operations have been included
in accrued liabilities.
Note 8. Extraordinary Gain
In the second quarter of 1997, the Company recorded an extraordinary gain of
$600 related to the reversal of excess liabilities previously provided for the
anticipated settlement of claims arising from the prior chapter 11 proceeding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Second Quarter of 1998 Compared with Second Quarter of 1997
Net Sales
The following table sets forth the net sales of each of the Company's principal
business segments for the three months ended July 4, 1998 and June 28, 1997 and
the percentage contribution of each of those segments to total net sales:
Percentage
<TABLE>
Three Months Ended Increase/
<CAPTION>
July 4, 1998 June 28, 1997 (Decrease)
------------------ ------------------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Men's Apparel $69.4 93% $75.9 93% (9%)
Children's Sleepwear and Underwear 5.1 7% 5.5 7% (7%)
------ ------ ------ -----
Total $74.5 100% $81.4 100% (9%)
===== ==== ===== ====
</TABLE>
Sales of men's apparel decreased by $6.5 million, or 9%, in the second quarter
of 1998, as compared to the second quarter of 1997. This decrease primarily
resulted from (a) a $2.4 million decrease in dress shirts, primarily due to a
reduction of off-price sales for Perry Ellis dress shirts and reduced sales of
Gant dress shirts, (b) a $2.2 million decrease related to the closure of all
non-Perry Ellis retail stores in the fourth quarter of 1997 and (c) a $2.0
million decrease in sales of men's slacks due to initial shipments of the Canyon
River Khakis program in the second quarter of 1997 and the discontinuance of
sales under the Thomson brand in 1998.
Sales of children's sleepwear and underwear decreased by $0.4 million, or 7%, in
the second quarter of 1998, as compared to the second quarter of 1997. This
decrease was primarily a result of lower sales of licensed character sleepwear,
partially offset by higher off-price sales related to the disposal of the Joe
Boxer sportswear line. As previously announced, the Company determined not to
continue with its Joe Boxer sportswear line for Fall 1998. This line accounted
for net sales of $0.8 million in the second quarter of 1998 and $0.3 million in
the second quarter of 1997. The Company will continue with its Joe Boxer
sleepwear and underwear product lines.
Gross Profit
The following table sets forth the gross profit and gross profit margin (gross
profit as a percentage of net sales) for each of the Company's business segments
for the three months ended July 4, 1998 and June 28, 1997:
<TABLE>
<CAPTION>
Three Months Ended
July 4, 1998 June 28, 1997
-------------- --------------
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel $16.9 24.3% $16.0 21.1%
Children's Sleepwear and Underwear (0.4) (7.0%) 0.6 10.3%
------ ------
Total $16.5 22.2% $16.6 20.4%
===== =====
</TABLE>
The increase in gross profit and gross profit margin in the men's apparel
segment was primarily attributable to the change in sales mix, reflecting
decreased off-price sales in the second quarter of 1998, and the continuing
elimination of unprofitable programs.
The decline in gross profit and gross profit margin in children's sleepwear and
underwear was primarily attributable to the higher off-price sales discussed
above and increased inventory markdowns related to the discontinuance of the Joe
Boxer sportswear line.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and administrative
("SG&A") expenses for the second quarter of 1998 decreased to $17.2 million
(23.1% of net sales) from $20.8 million (25.6% of net sales) for the second
quarter of 1997. The decrease primarily resulted from (a) a $2.0 million
decrease related to the closure of all non-Perry Ellis retail stores in the
fourth quarter of 1997 and (b) a continuing focus by the Company on cost saving
opportunities.
Reversal of Provision for Restructuring
In the second quarter of 1997, the Company reversed a previously recorded
restructuring provision by $0.4 million, as these amounts were no longer needed.
This provision was for estimated liabilities related to the previously disclosed
closure of a manufacturing facility.
The cash portion of the remaining reserve for restructuring of $0.9 million is
expected to be expended in the last half of 1998.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) from operations before interest and
income taxes for each of the Company's business segments, expressed both in
dollars and as a percentage of net sales, for the three months ended July 4,
1998 and June 28, 1997
<TABLE>
<CAPTION>
Three Months Ended
July 4, 1998 June 28, 1997
-------------- ---------------
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel (a) $4.0 5.9% ($0.1) (0.1%)
Children's Sleepwear and Underwear (2.1) (41.8%) (1.2) (22.8%)
---- ----
1.9 2.6% (1.3) (1.6%)
Corporate expenses (2.7) (2.6)
Licensing division income 1.3 1.1
---- ----
Income/(loss) from operations before
interest and income taxes $0.5 0.7% ($2.8) (3.4%)
==== ====
</TABLE>
(a) Includes the reversal of restructuring charges of $0.4 million in the second
quarter of 1997.
Interest Expense, Net
Net interest expense was $4.1 million for the second quarter of 1998, compared
with $3.9 million for the second quarter of 1997. The increase in interest
expense resulted from higher average borrowings during the second quarter of
1998, primarily due to the loss from operations over the past year.
Discontinued Operations
In the second quarter of 1997, the Company recognized a charge of $7.9 million,
or $(0.53) per share, related to the discontinuance of the Made in the Shade
division. This charge included a write-off of goodwill of $4.5 million and an
accrual of $580 thousand for estimated operating losses during the phase-out
period. Net sales of the division for the three months ended June 28, 1997 were
$0.9 million.
Extraordinary Gain
In the second quarter of 1997, the Company recorded an extraordinary gain of
$0.6 million related to the reversal of excess liabilities previously provided
for the anticipated settlement of claims arising from the Company's prior
chapter 11 cases.
Net Loss
In the second quarter of 1998, the Company reported a net loss of $3.6 million,
or ($0.24) per share, as compared with a net loss of $14.1 million, or ($0.94)
per share, in the second quarter of 1997.
Earnings/(Loss) Before Interest, Taxes, Depreciation, Amortization,
Restructuring Charges, Discontinued
Operations and Extraordinary Gain
Earnings/(loss) before interest, taxes, depreciation, amortization,
restructuring charges, discontinued operations and extraordinary gain was $2.9
million (3.9% of net sales) in the second quarter of 1998, compared to ($1.0)
million ((1.2%) of net sales) in the second quarter of 1997, an increase of $3.9
million. The Company believes this information is helpful in understanding cash
flow from operations that is available for debt service 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 1998 Compared with Year to Date 1997
Net Sales
The following table sets forth the net sales of each of the Company's principal
business segments for the six months ended July 4, 1998 and June 28, 1997 and
the percentage contribution of each of those segments to total net sales:
<TABLE>
Percentage
<CAPTION>
Six Months Ended Increase/
July 4, 1998 June 28, 1997 (Decrease)
------------------ ------------------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Men's Apparel $146.3 92% $159.7 94% (8%)
Children's Sleepwear and Underwear 13.0 8% 9.9 6% 32%
------- ----- -------- -----
Total $159.3 100% $169.6 100% (6%)
====== ==== ====== ====
</TABLE>
Sales of men's apparel decreased by $13.4 million, or 8%, in the first half of
1998, as compared to the first half of 1997. This decrease primarily resulted
from (i) a $4.6 million reduction in dress shirt sales, of which $3.4 million
was related to lower Perry Ellis off-price sales and $1.2 million related to
reduced Gant sales, (ii) a $4.3 million reduction related to the closure of all
non-Perry Ellis retail stores in the fourth quarter of 1997, (iii) a $2.3
million reduction for Canyon River Blues jeans, resulting from higher initial
shipments for new loose fit and wide leg programs, which began in the first half
of 1997, and (iv) a $2.0 million reduction for sales under the discontinued
Thomson brand in 1998.
Sales of children's sleepwear and underwear increased by $3.1 million, or 32%,
in the first half of 1998, as compared to the first half of 1997. This increase
was primarily a result of (i) increased sales of Joe Boxer sportswear in 1998
and (ii) an increase in the sale of prior season goods carried over from last
year. As previously announced, the Company determined not to continue with its
Joe Boxer sportswear line for Fall 1998. This line accounted for net sales of
$2.3 million in the first half of 1998, as compared to $0.3 million in the first
half of 1997. The Company will continue with its Joe Boxer sleepwear and
underwear product lines.
Gross Profit
The following table sets forth the gross profit and gross profit margin (gross
profit as a percentage of net sales) for each of the Company's business segments
for the six months ended July 4, 1998 and June 28, 1997:
<TABLE>
<CAPTION>
Six Months Ended
July 4, 1998 June 28, 1997
-------------- --------------
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel $33.2 22.7% $35.0 21.9%
Children's Sleepwear and Underwear 0.2 1.2% 1.4 13.8%
---- ----
Total $33.4 21.0% $36.4 21.4%
===== =====
</TABLE>
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above. The increase in
gross profit margin was primarily due to the elimination of unprofitable
programs as discussed above.
The decline in gross profit margin in children's sleepwear and underwear was
primarily attributable to (i) the underabsorption of manufacturing costs in the
first half of 1998 related to the planned shift of production closer to the
order taking process and (ii) the discontinuance and sell-off of the Joe Boxer
sportswear line at significantly reduced margins.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and administrative
("SG&A") expenses for the first half of 1998 decreased to $34.3 million (21.5%
of net sales) from $41.4 million (24.4% of net sales) for the first half of
1997. The decrease primarily resulted from (a) a $4.0 million decrease related
to the closure of all non-Perry Ellis retail stores in the fourth quarter of
1997 and (b) a continuing focus by the Company on cost saving opportunities.
Reversal of Provision for Restructuring
In the first half of 1997, the Company reversed previously recorded
restructuring provisions of $1.2 million, primarily resulting from the
settlement of liabilities for less than the carrying amount.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) from operations before interest and
income taxes for each of the Company's business segments, expressed both in
dollars and as a percentage of net sales, for the six months ended July 4, 1998
and June 28, 1997:
<TABLE>
<CAPTION>
Six Months Ended
July 4, 1998 June 28, 1997
-------------- ---------------
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel (a) $7.8 5.4% $3.0 1.9%
Children's Sleepwear and Underwear (3.6) (27.8%) (2.3) (22.7%)
---- ----
4.2 2.7% 0.7 0.4%
Corporate expenses (5.2) (4.7)
Licensing division income 2.2 1.9
---- ----
Income/(loss) from operations before
interest and income taxes $1.2 0.7% ($2.1) (1.2%)
==== ====
</TABLE>
(a) Includes the reversal of restructuring charges of $1.2 million in 1997.
Interest Expense, Net
Net interest expense was $8.0 million for the first half of 1998, compared with
$7.8 million for the first half of 1997. The increase in interest expense
resulted from higher average borrowings during the first half of 1998, primarily
due to the loss from operations over the past year.
Discontinued Operations
In the first half of 1997, the Company recognized a charge of $8.7 million, or
$(0.58) per share, related to the discontinuance of the Made in the Shade
division. This charge included a write-off of goodwill of $4.5 million and an
accrual of $580 thousand for estimated operating losses during the phase-out
period. Net sales of the division for the six months ended June 28, 1997 were
$2.2 million.
Extraordinary Gain
In the first half of 1997, the Company recorded an extraordinary gain of $0.6
million related to the reversal of excess liabilities previously provided for
the anticipated settlement of claims arising from the Company's prior chapter 11
cases.
Net Loss
In the first half of 1998, the Company reported a net loss of $6.9 million, or
($0.45) per share, as compared with a net loss of $17.7 million, or $1.17 per
share, in the first half of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization,
Restructuring Charges, Discontinued Operations and
Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, discontinued operations and extraordinary gain was $5.8 million (3.6%
of net sales) in the first half of 1998, compared to $1.2 million (0.7% of net
sales) in the first half of 1997, an increase of $4.6 million. The Company
believes this information is helpful in understanding cash flow from operations
that is available for debt service 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.
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"). The Credit Agreement provides the Company with working capital
financing in the form of direct borrowings and letters of credit, up to an
aggregate of $120 million (the "Maximum Credit"), subject to an asset-based
borrowing formula. As collateral for borrowings under the Credit Agreement, the
Company has granted to CIT a security interest in substantially all of the
assets of the Company.
On March 3, 1998, the Company announced that it had reached an agreement in
principle (the "Restructuring Agreement") with its major note and equity holders
to restructure its existing indebtedness (the "Debt Restructuring") under its 10
1/2% Senior Secured Notes, due December 31, 1998 (the "Senior Secured Notes").
Under the Restructuring Agreement, the Company will convert the entire $104.9
million outstanding aggregate principal amount of, and all accrued and unpaid
interest on, its Senior Secured Notes into Salant Common Stock. The
Restructuring Agreement was entered into by the Company and Magten Asset
Management Corp. ("Magten"), the beneficial owner of, or the representative of
the beneficial owners of, approximately 67% of the aggregate principal amount of
the Senior Secured Notes. Apollo Apparel Partners, L.P., the beneficial owner of
approximately 39.6% of Salant Common Stock, is also a party to the Restructuring
Agreement and has agreed to vote all of its shares of common stock in favor of
the Debt Restructuring. The Restructuring Agreement provides that, among other
things, (i) the entire principal amount of the Senior Secured Notes, plus all
accrued and unpaid interest thereon, will be converted into 92.5% of the
Company's issued and outstanding common stock, and (ii) the Company's existing
stockholders will retain 7.5% of Salant Common Stock and will receive seven-year
warrants to purchase up to 10% of Salant Common Stock on a fully diluted basis.
Stockholder and noteholder approval will be required in order to consummate the
Debt Restructuring. The Restructuring Agreement also provides for a ten for one
reverse stock split, which will require the approval of the Company's
stockholders.
In contemplation of the Debt Restructuring, the Company elected not to pay the
interest payment of approximately $5.5 million that was due and payable under
the Senior Secured Notes on March 2, 1998, subject to a 30 day grace period. As
of July 4, 1998, interest accrued on the Senior Secured Notes was $9.3 million.
Because the Company elected not to pay the interest due on the Senior Secured
Notes by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Secured Notes, entitling the holders to
accelerate the maturity thereof. On April 8, 1998, the Trustee under the
indenture governing the Senior Secured Notes (the "Indenture") issued a Notice
of Default stating that, as a result of the Company's failure to make the
interest payment due on the Senior Secured Notes, an event of default under the
Indenture had occurred on April 1, 1998. If holders of at least 25% in aggregate
principal face amount of the Senior Secured Notes accelerate all outstanding
indebtedness under the Senior Secured Notes pursuant to the terms of the
Indenture, such acceleration could result in the Company becoming subject to a
proceeding under the Federal bankruptcy laws. In accordance with the terms of
the Restructuring Agreement, Magten has provided a written direction to the
Trustee under the Indenture to forbear during the term of the Restructuring
Agreement from taking any action in connection with the failure by the Company
to make the interest payment on the Senior Secured Notes that was due and
payable on March 2, 1998. Pursuant to an amendment to the Restructuring
Agreement, Magten has also agreed to provide a similar written forbearance
direction to the Trustee upon the failure by the Company to make the interest
payment on the Senior Secured Notes that is due and payable on August 31, 1998.
However, there is no assurance that the holders of 25% or more of the Senior
Secured Notes will not decide to accelerate the outstanding indebtedness under
the Senior Secured Notes prior to consummation of the Debt Restructuring.
Implementation of the Debt Restructuring will result in the elimination of $11.0
million of annual interest expense to the Company. There can be no assurances,
however, that the Debt Restructuring will be consummated. Failure to consummate
the Debt Restructuring could result in the acceleration of all of the
indebtedness under the Senior Secured Notes and/or the Credit Agreement.
On June 1, 1998, the Company and CIT executed the Thirteenth Amendment to the
Credit Agreement. The Thirteenth Amendment reduced the interest rate on direct
borrowings, increased borrowings allowed against eligible inventory, eliminated
factoring of accounts receivable and modified the covenant related to maximum
net loss. Under the Thirteenth Amendment, CIT also agreed to continue to forbear
until November 30, 1998, subject to certain conditions, from exercising any of
its rights or remedies under the Credit Agreement arising by virtue of the
Company's failure to pay interest on its Senior Secured Notes.
On June 1, 1998, the Company also received a commitment from CIT for a new $140
million secured credit facility to become effective upon completion of the Debt
Restructuring. The new credit facility will provide financing through December
31, 2001, and is comprised of a $125 million revolving credit facility and a $15
million term loan facility, and includes terms consistent with the Thirteenth
Amendment. The closing of the new credit facility with CIT is subject to the
satisfaction of a number of conditions.
Pursuant to the Credit Agreement, the interest rate charged on direct borrowings
is 0.25 percent in excess of the base rate of The Chase Manhattan Bank, N.A.
(the "Prime Rate", which was 8.5% at July 4, 1998) or 2.25% above the London
Late Eurodollar rate (the "Eurodollar Rate", which was 5.69% at July 4, 1998).
Prior to the Thirteenth Amendment to the Credit Agreement, the Company sold to
CIT, without recourse, certain eligible accounts receivable. The credit risk for
such accounts was thereby transferred to CIT. Pursuant to the Thirteenth
Amendment, new accounts receivable are no longer sold to CIT. The credit risk
for accounts receivable previously sold to CIT remains with CIT. The amounts due
from CIT have been offset against the Company's direct borrowings from CIT in
the accompanying balance sheets. The amounts that have been offset were $9.8
million at July 4, 1998 and $9.7 million at June 28, 1997.
On July 4, 1998, direct borrowings (including borrowings under the Eurodollar
option) and letters of credit outstanding under the Credit Agreement were $52.2
million and $22.1 million, respectively, and the Company had unused availability
of $10.1 million. On June 28, 1997, direct borrowings and letters of credit
outstanding under the Credit Agreement were $53.4 million and $25.3 million,
respectively, and the Company had unused availability of $13.8 million. During
the first half of 1998, the maximum aggregate amount of direct borrowings and
letters of credit outstanding under the Credit Agreement was $84.6 million at
which time the Company had unused availability of $7.0 million. During the first
half of 1997, the maximum aggregate amount of direct borrowings and letters of
credit outstanding under the Credit Agreement was $92.8 million at which time
the Company had unused availability of $10.3 million.
The instruments governing the Company's outstanding debt 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 and paying
cash dividends. In addition, under the Credit Agreement, the Company is required
to maintain a minimum level of unused availability. As of July 4, 1998, the
Company was in compliance with this covenant.
The indenture governing the Company's outstanding Senior Secured Notes requires
the Company to reduce its outstanding indebtedness (excluding outstanding
letters of credit) to $20 million or less for fifteen consecutive days during
each twelve month period commencing on the first day of February. This covenant
has been satisfied for the balance of the term of the Senior Secured Notes.
The Company's cash used in operating activities for the first half of 1998 was
$15.6 million, which primarily reflects a $10.5 million planned increase in
inventory and the loss from continuing operations of $6.9 million.
Cash used for investing activities in the first half of 1998 was $3.8 million,
which represented capital expenditures of $3.4 million and the installation of
store fixtures in department stores of $0.4 million. During 1998, the Company
plans to make capital expenditures of approximately $11.6 million and to spend
an additional $1.7 million for the installation of store fixtures in department
stores.
Cash provided by financing activities in the first half of 1998 was
$18.4 million, which represented short-term
borrowings under the Credit Agreement.
The Company's principal sources of liquidity, both on a short-term and a
long-term basis, are cash flow from 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 the cash flow anticipated from its
future operations, the Company 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, provided
that the Company consummates the Debt Restructuring and secures the new credit
facility. There can be no assurance, however, (i) that the Company will
consummate the Debt Restructuring and secure the new credit facility or (ii)
that future developments and general economic trends will not adversely affect
the Company's operations and, hence, its anticipated cash flow.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. The Company has not yet
quantified the impact of adopting SFAS No. 133 on their financial statements and
has not determined the timing of or method of adoption.
Factors that May Affect Future Results and Financial Condition.
This report contains or incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that
assumed facts or bases almost always vary from the actual results, and the
differences between assumed facts or bases and actual results can be material,
depending on the circumstances. Where, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, there can be no assurance that the statement of the expectation or
belief will result or be achieved or accomplished. The words "believe",
"expect", "estimate", "project", "seek", "anticipate" and similar expressions
may identify forward-looking statements. The Company's future operating results
and financial condition are dependent upon the Company's ability to successfully
design, manufacture, import and market apparel. Taking into account the
foregoing, the following are identified as important factors that could cause
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company:
Substantial Level of Indebtedness and the Ability to Restructure Debt. The
Company had current indebtedness of $157.1 million as of July 4, 1998. Of this
amount, $104.9 million represents the principal amount of the Senior Secured
Notes. The Company will not generate sufficient cash flow from operations to
repay this amount at maturity. Accordingly, the Company is directing its efforts
towards implementing the Debt Restructuring as described above. Given the
Company's past inconsistent operating performance, together with the reluctance
of investors to invest in apparel companies suffering from high debt-to-equity
ratios and the Company's inability to raise funds in the capital markets to
re-capitalize the Company, absent the Debt Restructuring, the Company does not
believe it will be able to refinance its indebtedness under the Senior Secured
Notes. Failure by the Company to consummate the Debt Restructuring as
contemplated could result in the acceleration of all of the indebtedness under
the Senior Secured Notes and/or the Credit Agreement, and, thus, would be likely
to have a material adverse effect on the Company.
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. The Company also competes for private label programs with the internal
sourcing organizations of many of its own customers.
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 Holiday 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.
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. The Company's operations in Asia, including those of its
licensees, are subject to certain political and economic risks including, but
not limited to, political instability, changing tax and trade regulations and
currency devaluations and controls. The Company's risks associated with the
Company's Asian operations may be higher in 1998 than has historically been the
case, due to the fact that financial markets in East and Southeast Asia have
recently experienced and continue to experience difficult conditions, including
a currency crisis. As a result of recent economic volatility, the currencies of
many countries in this region have lost value relative to the U.S. dollar.
Although the Company has experienced no material foreign currency transaction
losses since the beginning of this crisis, its operations in the region are
subject to an increased level of economic instability. The impact of these
events on the Company's business, and in particular its sources of supply and
royalty income cannot be determined at this time.
Dependence on Contract Manufacturing. In 1997, the Company produced 59% 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 fabric 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.
Year 2000 Compliance. The Company has completed an assessment of its information
systems ("IS"), including its computer software and hardware, and the impact
that the year 2000 will have on such systems and Salant's overall operations.
The Company's current software systems, without modification, will be adversely
affected by the inability of the systems to appropriately interpret date
information after 1999. As part of the process of (i) improving the Company's IS
to provide and enhance support to all operating areas and (ii) resolving year
2000 issues, the Company entered into a working agreement (the "EDS Agreement")
with Electronic Data Systems Corporation ("EDS"). The EDS Agreement constituted
the initial phase of a long-term project to outsource Salant's IS and to remedy
year 2000 issues. As part of this initial phase, the Company and EDS identified
the ability of one of the two major enterprise systems in the Company to be
modified to make such system Year 2000 compliant and to migrate the operations
of the Company to one enterprise system (the "System Conversion"). As a result
of its ability to implement the System Conversion and after reviewing the cost
of outsourcing the IS function to EDS, Salant has determined not to outsource
the IS functions to EDS. Instead, the Company will use internal resources for
the System Conversion and other consultants for the implementation of new
software. The Company anticipates that the System Conversion, as well as the
implementation of new software, will be completed by the first quarter of 1999.
The Company anticipates that the cost of the System Conversion and new software
will be approximately $10 million, to be incurred during 1998 and 1999. If the
Company fails to complete such conversion in a timely manner, such failure will
have a material adverse effect on the business, financial condition and results
of operations of the Company.
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 in the
Company's common stock price.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In contemplation of the Debt Restructuring, the Company elected not to pay the
interest payment of approximately $5.5 million that was due and payable under
the Senior Secured Notes on March 2, 1998, subject to a 30 day grace period.
Because the Company elected not to pay the interest due by the expiration of the
applicable grace period, an event of default has occurred, entitling the holders
to accelerate the maturity thereof. On April 8, 1998, the Trustee under the
Indenture issued a Notice of Default stating that as a result of the Company's
failure to make the interest payment, an event of default under the Indenture
had occurred on April 1, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the second quarter of 1998, the Company filed one Form 8-K dated June 5,
1998, reporting (i) an extension of an agreement in principle with its major
note and equity holders to restructure its existing long term debt, and (ii) an
agreement with its working capital lender to extend the financing under its
current credit agreement, along with a commitment for a new secured credit
facility, to become effective upon completion of the debt restructuring.
Exhibits
<TABLE>
<CAPTION>
Number Description
<C> <S>
10.44 Letter Agreement, dated July 8, 1998, amending the
Letter Agreement, dated March 2, 1998, as amended, by
and among Salant Corporation, Magten Asset Management
Corp., as agent on behalf of certain of its accounts,
and Apollo Apparel Partners, L.P.
27 Financial Data Schedule
</TABLE>
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 17, 1998 /s/ Philip A. Franzel
----------------- -----------------------
Philip A. Franzel
Executive Vice President
And Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 1,160
<SECURITIES> 0
<RECEIVABLES> 41,195
<ALLOWANCES> 0
<INVENTORY> 107,143
<CURRENT-ASSETS> 158,808
<PP&E> 27,561
<DEPRECIATION> 0
<TOTAL-ASSETS> 242,289
<CURRENT-LIABILITIES> 201,481
<BONDS> 0
0
0
<COMMON> 15,405
<OTHER-SE> 20,063
<TOTAL-LIABILITY-AND-EQUITY> 242,289
<SALES> 159,343
<TOTAL-REVENUES> 162,190
<CGS> 125,926
<TOTAL-COSTS> 161,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (160)
<INTEREST-EXPENSE> 8,042
<INCOME-PRETAX> (6,891)
<INCOME-TAX> (26)
<INCOME-CONTINUING> (6,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,865)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
(212) 221-7500
July 8, 1998
Magten Asset Management Corp.
35 East 21st Street
New York, New York 10010
Attention: Mr. Talton R. Embry
Apollo Apparel Partners, L.P.
c/o Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: Mr. Robert Katz
Mr. Edward Yorke
Re: Salant Corporation ("Salant")
Gentlemen:
Reference is made to that certain letter agreement, dated March 2,
1998, by and among Magten Asset Management Corp., as agent on behalf of certain
of its accounts ("Magten"), Apollo Apparel Partners, L. P. ("Apollo") and
Salant, as amended by that certain letter agreement, dated June 1, 1998 (the
"Letter Agreement"). Capitalized terms not otherwise defined herein shall have
their respective meanings set forth in the Letter Agreement.
Salant, Magten and Apollo hereby agree to amend the Letter Agreement as
follows:
1. Amendment of Section 4(b). Section 4(b) of the Letter Agreement is
hereby amended in its entirety to read as follows:
"b) the Exchange Offer shall not have commenced on or
before August 31, 1998; "
<PAGE>
Except as hereinabove amended, the Letter Agreement remains in full
force and effect in accordance with its terms.
Please indicate your agreement to the foregoing by executing a copy of
this letter where indicated below and returning it to us.
Very truly yours,
SALANT CORPORATION
By: _____________________
Name:
Title:
Accepted and Agreed as of
the date first written above
MAGTEN ASSET MANAGEMENT
CORP., as agent on behalf of certain
of its accounts
By: _______________________
Name:
Title:
APOLLO APPAREL PARTNERS, L.P.
By: AIF II, L.P., its General Partner
By: ________________________
Name:
Title:
