SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
Commission File # 1-3185
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1426280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Palisade Avenue, Teaneck, N.J. 07666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 837-1700
Indicate by check mark whether the registrant (1) has filed all documents
and 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 [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether 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 February 10, 1994, there were 17,845,000 shares of Common Stock, Par
Value $1 per share, outstanding.
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UNITED MERCHANTS AND MANUFACTURERS, INC.
AND SUBSIDIARIES
FORM 10-Q
- I N D E X -
Page
Number
Part I Financial Information
Consolidated Statement of Operations.............................. 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 4
Consolidated Balance Sheet........................................ 6
Consolidated Statement of Cash Flows.............................. 7
Notes to Consolidated Financial Statements........................ 8
Part II Other Information
Items............................................................. 14
Signatures........................................................ 14
2
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PART I - FINANCIAL INFORMATION
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000 omitted)
-----------------------------------------
Three Months Ended Six Months Ended
December 31 December 31
------------------- -------------------
1993 1992 1993 1992
--------- --------- --------- ---------
Net sales........................ $43,877 $49,651 $90,110 $104,760
Cost of sales.................... 34,711 38,713 68,437 79,015
Selling, general and
administrative expenses......... 11,855 15,021 23,748 29,541
Loss on termination of certain
operations (Note B)............. 1,133 1,133
--------- --------- --------- ---------
Operating Loss ($2,689) ($5,216) ($2,075) ($4,929)
Interest expense................. (3,151) (3,065) (6,268) (6,137)
Other income .................... 864 235 1,239 278
Minority interest in net losses
of subsidiary................... 419 172 386 250
Provision for income taxes....... (25) (25) (50) (52)
--------- --------- --------- ---------
Loss before Change in
Accounting Principle ($4,582) ($7,899) ($6,768) ($10,590)
Cumulative effect of change in
accounting principle for post-
retirement benefits other than
pensions - no income tax effect
(Note C)........................ (15,303)
--------- --------- --------- ---------
Net Loss ($4,582) ($7,899) ($22,071) ($10,590)
Dividends applicable to preferred
stock (Note E).................. 1,125 1,125 2,250 2,250
--------- --------- --------- ---------
Net Loss Applicable
to Common Shares ($5,707) ($9,024) ($24,321) ($12,840)
========= ========= ========= =========
Average common shares outstanding 17,845 17,845 17,845 17,845
Loss per common share:
Before change in accounting
principle...................... ($0.32) ($0.51) ($0.51) ($0.72)
Change in accounting principle. (0.86)
--------- --------- --------- ---------
Net Loss per Common Share ($0.32) ($0.51) ($1.37) ($0.72)
========= ========= ========= =========
-------------------
The accompanying notes are an integral part of these financial statements.
3
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales of United Merchants and Manufacturers, Inc.
("UM&M" or the "Company") decreased by $5,774,000 and $14,650,000 in the
quarter and six months ended December 31, 1993, respectively, as compared
to last year's second fiscal quarter and first six months. These
decreases were primarily attributable to the sale or termination of
certain of the Company's operations during or subsequent to the end of
last year's second fiscal quarter. On a comparable basis, excluding the
sales of operations sold or terminated from the current and prior years'
sales, net sales for the quarter ended December 31, 1993 increased by
$866,000 as compared to the same quarter last year and net sales for this
year's six-month period decreased by $632,000 over the same period last
year. On a comparable basis, the Company's apparel textiles segment
reported increased sales in the current year's second quarter as compared
to the same quarter last year primarily as the result of increased unit
sales by the segment's yarn operation which more than offset decreased
selling prices. Increased sales of that operation for the first six
months of fiscal 1994, however, were more than offset by decreased sales
of the segment's greige fabrics operation during the first quarter of the
current fiscal year as compared to the same period last year, primarily
reflecting decreased demand for certain of its basic products, later
shipment dates for certain products as compared to last year and the
discontinuance of some products. Net sales of the greige fabrics
operation during this year's second quarter were approximately the same as
in last year's quarter. On a comparable basis, the Company's home
furnishings segment reported increased sales for the current year's
quarter and six months as compared to the same periods last year,
primarily reflecting certain new programs as well as sales to new
customers. The apparel segment, consisting of the Company's retail outlet
store operation, experienced decreased sales in the current year's quarter
and six months as compared to last year's comparable periods, as the
result of continued depressed consumer spending. Net sales of the
Company's accessories segment also decreased for the three and six months
ended December 31, 1993 as compared to the same periods last year as
reduced sales of the segment's designer merchandise and adjustments
related to new sales programs with certain customers more than offset
increased sales of the segment's private label and factory direct business.
For the quarter and six months ended December 31, 1993, the Company
reported operating losses of $2,689,000 and $2,075,000, respectively, as
compared to operating losses of $5,216,000 and $4,929,000, respectively,
for the same periods last year. Operating results for last year's quarter
and six-month period include a loss of $1,133,000 from the termination of
certain operations. The apparel textiles segment's greige fabrics
operation reported increased operating profits for the current year's
periods, despite decreased sales during this year's first quarter,
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primarily as the result of higher margins and improved manufacturing
performance. This improvement was offset to some extent by reduced
operating income of the segment's yarn operation during the current year's
periods which was negatively impacted by one-time charges associated with
customer claims resulting from quality problems with fiber and chemicals
purchased from suppliers. The operation is currently negotiating with
these suppliers in an attempt to recoup these losses. The apparel segment
reported operating losses in the current year's quarter and six-month
period as compared to operating profits in the same periods last year,
primarily as the result of the decrease in sales referred to above and
increased expenses associated with the opening of new stores. The
accessories segment also reported decreased operating results in the
current year periods, primarily as the result of the decrease in volume
referred to above, decreased gross profit margins resulting from decreased
sales of designer merchandise which carries a higher gross margin than
private label merchandise and increased product development costs to
support future markets. Results for the current year's quarter and
six-month period were also positively impacted by the disposition of the
home furnishings segment's cut and sew operation and the apparel segment's
swimwear operation during last year's second quarter.
Interest expense increased slightly in the current year's quarter and
six months over the same periods last year as the result of slightly
increased average borrowings under the Company's revolving loan agreements
with its factor.
The net results for the six months ended December 31, 1993 include an
non-recurring, non-cash charge of $15,303,000 representing the cumulative
effect of a change in accounting principle for postretirement benefits
other than pensions. See Note C of Notes to Consolidated Financial
Statements for further discussion of this change.
LIQUIDITY AND CAPITAL RESOURCES
During recent years and for the six months ended December 31, 1993,
the Company has incurred significant losses from operations and as of
December 31, 1993 has a stockholders' equity deficit. As of June 30,
1993, the Company's independent auditors' report stated that recurring
losses from operations, the stockholders' equity deficit and the
significant debt owed by the Company to its factor raise substantial doubt
as to the Company's ability to continue as a going concern. The Company's
financial statements have been prepared assuming that the Company will
continue as a going concern and do not include any adjustments that might
result from the outcome of this uncertainty.
During the first six months of fiscal 1994, the Company depended
primarily on internally generated funds to finance its operations and to
reduce its borrowings. The amounts which the Company borrows from its
factor fluctuate based on the Company's cash availability or
requirements. On November 18, 1993, the Company reached certain
agreements with its factor. Under the agreements, the Company agreed to
reduce its indebtedness to the factor to certain targeted amounts over
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periods of time ending on March 31, 1994 and June 30, 1994, respectively.
The factor has agreed that if the Company meets those targets and
satisfies certain other requirements, it will accept in full satisfaction
of the balance of the Company's indebtedness to it a long-term
subordinated note as detailed in the agreement. At December 31, 1993, the
Company's indebtedness to its factor aggregated approximately
$106,500,000. Although the Company will endeavor to meet the requirements
set out in the agreements, it can provide no assurance it will be able to
do so.
In August 1993, the Company granted an option to an unrelated company
to purchase substantially all of the assets and business, as a going
concern, of the Buffalo Mill operation of its apparel textiles segment.
The option was not exercised and expired in December 1993. In November
1993, the Company signed a letter of intent to sell substantially all of
the assets (excluding accounts receivable) and business, as a going
concern, of the Uniblend operation of its apparel textiles segment to a
group of investors which includes members of key management of Uniblend.
The value of this transaction, if consummated, is estimated to be
approximately $23,000,000 in cash to the Company, including the collection
of accounts receivable retained by the Company and the assumption by the
purchaser of certain liabilities of the operation. There can be no
assurance that the transaction will be consummated. See Note J of Notes
to Consolidated Financial Statements for additional information with
regard to the option and letter of intent discussed above.
The Company has not declared or paid any cash dividends on its 10%
Cumulative Preferred Stock in order to retain its available cash for use
in its operations.
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UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
Dec 31 June 30
1993 1993
ASSETS --------- ---------
Current Assets:
Cash.................................................. $995 $1,057
Receivables, net of allowances of $1,667,000 at
December 31, 1993 and $2,707,000 at June 30, 1993.... 16,051 26,186
Inventories (Note H).................................. 32,735 34,714
Prepaid expenses and other current assets............. 2,335 2,272
--------- ---------
Total Current Assets $52,116 $64,229
Property, Plant and Equipment.......................... $71,475 $70,492
Less accumulated depreciation and amortization........ 48,332 46,156
--------- ---------
$23,143 $24,336
Goodwill............................................... 21,743 22,103
Other Assets and Deferred Charges (Note H)............. 17,428 17,310
--------- ---------
$114,430 $127,978
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt (Note G)......... $1,028 $959
Loans payable to factor (Note F)...................... 106,526 110,904
Trade payables........................................ 5,910 6,542
Accrued expenses and sundry liabilities (Note H)...... 10,685 10,479
--------- ---------
Total Current Liabilities $124,149 $128,884
Long-Term Debt, net of current maturities (Note G)..... 21,545 21,702
Other Long-Term Liabilities (Note H)................... 18,584 4,783
Minority Interest...................................... 1,923 2,309
Stockholders' Equity (Deficit):
Preferred stock, par value $1 per share; 10,000,000
shares authorized; 450,000 shares outstanding........ $450 $450
Common stock, par value $1 per share: 40,000,000
shares authorized; 17,845,000 shares outstanding
(excluding 22,800 shares held in treasury)........... 17,845 17,845
Capital in excess of par value........................ 64,674 64,674
Retained earnings (deficit)........................... (129,793) (107,722)
Unrealized pension liability adjustment............... (947) (947)
Notes receivable arising from stock purchase agreement (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($51,771) ($29,700)
--------- ---------
$114,430 $127,978
========= =========
-------------------
The accompanying notes are an integral part of these financial statements.
7
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(000 omitted)
-------------------
Six Months Ended
December 31
-------------------
1993 1992
--------- ---------
Cash Flows from Operating Activities:
Net loss.............................................. ($22,071) ($10,590)
Adjustments to reconcile net loss to net cash
used for operating activities:
Change in accounting principle for post-retirement
benefits other than pensions....................... 15,303
Depreciation and amortization....................... 2,974 3,230
Minority interest................................... (386) 169
Amortization of bond discount....................... 380 328
Loss on termination of certain operations........... 2,262
Less cash on termination of certain operations..... (1,310)
Decrease (increase) in assets:
Receivables.......................................... 10,135 2,330
Inventories.......................................... 1,979 2,389
Prepaid expenses and other current items............. (63) (1,076)
Other assets......................................... (118) 1,458
Increase (decrease) in liabilities:
Trade payables ...................................... (632) (3,120)
Accrued expenses and sundry liabilities.............. 206 (1,007)
Other long-term liabilities.......................... (1,502) (1,370)
--------------------
Net Cash Provided by (Used for) Operating Activities $6,205 ($6,307)
Cash Flows from Investing Activities:
Additions to property, plant and equipment............ ($1,453) ($1,149)
Dispositions of property, plant and equipment......... 32 242
Sales of divisions:
Proceeds from sale of divisions...................... 13,874
Non-cash proceeds - receivables...................... (8,759)
--------------------
Net Cash Provided by (Used for) Investing Activities ($1,421) $4,208
Cash Flows from Financing Activities:
Increase (decrease) in loans payable to factor........ ($4,378) $2,713
Decrease in long-term debt............................ (468) (717)
Proceeds from sale of stock by subsidiary............. 38
--------------------
Net Cash Provided by (Used for) Financing Activities ($4,846) $2,034
--------------------
Decrease in Cash ($62) ($65)
Cash at beginning of period............................ 1,057 2,478
--------------------
Cash at end of period $995 $2,413
------------------- ====================
Supplemental disclosures of cash flow information:
Interest.............................................. $5,940 $5,850
Income Taxes.......................................... 0 (5)
The accompanying notes are an integral part of these financial statements.
8
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND LIQUIDITY
Basis of Presentation - The accompanying consolidated financial statements
of United Merchants and Manufacturers, Inc. ("UM&M" or the "Company") and
its subsidiaries have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. The consolidated financial statements as of and for
the three and six months ended December 31, 1993 and 1992 are unaudited
and are subject to year-end audit and adjustments. The results of
operations for the interim periods are not necessarily indicative of the
results of operations for the fiscal year. For further information, refer
to the consolidated financial statements and footnotes included thereto in
the Company's Annual Report on Form 10-K for the year ended June 30, 1993.
Liquidity - During each of the three years ended June 30, 1993 and for the
current six months, the Company has incurred significant losses from
operations and as of December 31, 1993 has a stockholders' equity
deficit. As of June 30, 1993, the Company's independent auditors' report
stated that the recurring losses from operations, stockholders' equity
deficit and the significant debt owed by the Company to its factor (see
Note F - Loans Payable to Factor - regarding the agreements reached on
November 18, 1993 by the Company with its factor) raise substantial doubt
as to the Company's ability to continue as a going concern. The
consolidated financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE B - DISPOSITIONS AND TERMINATIONS OF CERTAIN OPERATIONS
During the quarter ended December 31, 1992, the Company sold certain
assets of and discontinued a converting operation of its Home Furnishings
segment. The discontinuance resulted in a loss, after adjustment of $1.5
million during the six months ended June 30, 1993, of $3.8 million. This
loss was partially offset by sale of assets of a business previously
discontinued for $1.1 million more than the Company's carrying value of
these assets. Also during the quarter ended December 31, 1992, the
Company consummated the sale of the swimwear and the children's slip and
sleepwear operations of its Apparel segment. The Company recognized no
gain or loss on the sale of these two operations.
Net sales and operating losses include net sales of the above mentioned
operations sold or closed prior to disposition of $6.7 million for the
three months and $13.3 million for the six months ended December 31, 1992
and operating losses of $3.4 million for the three months and $5.5 million
for the six months ended December 31, 1992.
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NOTE C - CHANGE IN ACCOUNTING PRINCIPLE FOR POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS
In addition to pension plans, the Company provides certain health care and
life insurance benefits for some retired employees. Only employees of its
Apparel Textiles and its Home Furnishings Segments who joined the Company
prior to January 1, 1988 are eligible for these postretirement benefits.
Salaried employees of these segments become eligible for the health care
and life insurance benefits as they retire from active employment; hourly
employees of these segments become eligible for life insurance benefits as
they retire. The health care benefits are provided under an unfunded
Company-sponsored plan which contains cost sharing features such as
deductibles and coinsurance. Employees who retire prior to age 65 but are
otherwise eligible for health care benefits may elect coverage under the
plan by paying "premiums" which approximate the Company's average cost for
these health care benefits. The retiree life insurance plan is
noncontributory; the Company pays premiums on an annual basis for the
coverage. The Company may amend or change these plans periodically.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The statement requires accrual of the cost
of providing postretirement benefits, including medical and life insurance
coverage, during the active service period of the employee rather than the
pay-as-you-go (cash) basis which the company used prior to adoption. The
company elected to immediately recognize the accumulated postretirement
benefit obligation (the "APBO") equal to the discounted present value of
expected future benefit payments attributed to employees service rendered
prior to July 1, 1993. This resulted in a one-time, non-cash charge
against earnings of $15.3 million. The discount rate used in determining
the APBO was 7.5%. The adoption of the new accounting principle will not
effect the Company's cash outlay for retiree benefits. The Company will
continue to evaluate ways in which it can better manage these benefits and
control the costs.
The details of the APBO at July 1, 1993 were as follows:
(000 omitted)
July 1
1993
--------
Retirees...................................................... $ 13,941
Fully eligible active plan participants....................... 411
Other active plan participants................................ 951
--------
Total APBO $ 15,303
========
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The net periodic postretirement benefit cost for the first half of fiscal
1994 is as follows: (000 omitted)
Six Months
Ended Dec 31
1993
--------
Service cost.................................................. $ 28
Interest cost on APBO......................................... 524
--------
Net periodic postretirement benefit cost $ 552
========
Postretirement benefit cost on a pay-as-you-go basis totaled $ 591,000 for
the six months ended December 31, 1992 and has not been restated.
The health care cost trend rates used in developing the above amounts
assume such costs increase by an average of 9% in each of the 1994 and
1995 fiscal years, then by 8.6% a year to the year 2000 and then by 7.3% a
year to the year 2010. A one percent increase in the health care cost
trend rates assumed would have increased the APBO at July 1, 1993 and the
net periodic postretirement benefit cost by 8%.
NOTE D - INCOME TAXES
The provisions for income taxes for the three and six months ended
December 31, 1993 and 1992 varied from the expected relationship to loss
before income taxes since the operating losses did not result in income
tax benefits. The provisions consist of amounts for state and local
income taxes.
NOTE E - DIVIDENDS APPLICABLE TO PREFERRED STOCK
The Company has not declared nor paid any cash dividends on its 10%
Cumulative Preferred Stock in order to retain its available cash for use
in its operations. For financial statement purposes, cumulative preferred
dividends are deducted from the results of operations in determining
earnings applicable to common shares whether or not such dividends are
declared or paid.
NOTE F - LOANS PAYABLE TO FACTOR
The amounts borrowed from the factor fluctuate based on the Company's cash
availability or requirements. The loans are secured by substantially all
of the Company's assets.
At December 31, 1993, $60.0 million of the loans bear interest at 8 1/2% a
year and the balance of the loans bear interest at 2% over a bank's
reference rate. The loans are due on demand; however, effective July 1,
1992, as a condition to continuing the financing arrangements, the factor
required the Company to enter into an agreement under which a mandatory
payment of $20 million was due on or before December 31, 1992, an
additional $20 million was due on or before March 31, 1993 and an
additional $20 million was due on or before September 30, 1993. The
Company was unable to make the payments required. Notwithstanding the
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non-payments, the factor continued to make advances to the Company in
order for the Company to meet its ordinary and necessary business expenses
and subsequently waived the defaults.
On November 18, 1993, the Company reached certain agreements with its
factor. Under the agreements, the Company agreed to reduce its
indebtedness to the factor to certain targeted amounts over periods of
time ending on March 31, 1994 and June 30, 1994, respectively. The factor
has agreed that if the Company meets those targets and satisfies certain
other requirements, it will accept in full satisfaction of the balance of
the Company's indebtedness to it a long-term subordinated note as detailed
in the agreement. At December 31, 1993, the Company's indebtedness to its
factor aggregated approximately $106.5 million. Although the Company will
endeavor to meet the requirements set out in the agreements, it can
provide no assurance it will be able to do so. For further information,
see the agreement filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the three months ended September 30, 1993.
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following: (000 omitted)
------------------
Dec 31 June 30
1993 1993
-------- --------
3 1/2% Senior Subordinated Secured Debentures
due 2009 (net of unamortized discount of
$48,237,000 and $48,617,000 at December 31,
1993 and June 30, 1993, respectively)............ $ 20,905 $ 20,525
Capitalized leases................................ 1,668 2,136
-------- --------
Total Long-Term Debt $ 22,573 $ 22,661
Less current maturities........................... 1,028 959
-------- --------
$ 21,545 $ 21,702
======== ========
NOTE H - SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
Dec 31 June 30
1993 1993
-------- --------
Inventories:
Raw materials...................................... $ 9,761 $ 9,030
Work in process.................................... 6,059 5,795
Finished goods..................................... 16,915 19,889
-------- --------
$ 32,735 $ 34,714
======== ========
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(000 omitted)
------------------
Dec 31 June 30
1993 1993
-------- --------
Other assets and deferred charges:
Long-term assets held for sale...................... $ 5,485 $ 5,938
Note receivable from sale of divisions.............. 5,050 5,050
Deferred pension cost............................... 3,529 3,374
Interest receivable - sale of stock................. 1,654 1,606
Deposits............................................ 505 505
Other............................................... 1,205 837
-------- --------
$ 17,428 $ 17,310
======== ========
Accrued expenses and sundry liabilities:
Accrued compensation expenses....................... $ 2,025 $ 2,019
Accrued insurance................................... 234 1,345
Accrued workers compensation........................ 1,542 2,173
Accrued taxes other than payroll.................... 1,444 1,375
Accrued interest.................................... 1,210
Accrued shutdown costs.............................. 691 674
Accrued pension liability........................... 1,097 822
Postretirement benefits other than pension.......... 1,108
Other............................................... 1,334 2,071
-------- --------
$ 10,685 $ 10,479
======== ========
Other long-term liabilities:
Postretirement benefits other than pension.......... $ 14,195
Deferred pension liability.......................... 3,783 3,888
Deferred shutdown costs............................. 372 562
Other............................................... 234 333
-------- --------
$ 18,584 $ 4,783
======== ========
NOTE I - LEGAL PROCEEDINGS
On November 2, 1990, the Company and two of its subsidiaries ("Debtors")
filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. On May 9, 1991, the Debtors filed a Reorganization Plan (the
"Plan") and related Disclosure Statement with the U. S. Bankruptcy Court
in Delaware (the "Bankruptcy Court"). The Plan became effective August
26, 1991 (the "Effective Date").
In an ongoing proceeding in its bankruptcy case, the Company asserts that
the contingent "withdrawal liability" under the Multi-Employer Pension
Plan Amendments Act of 1980 (the "Act") constitutes a claim of the ILGWU
National Retirement Fund (the "Fund") against the Company's Chapter 11
estate which is subject to discharge pursuant to the confirmation order
and will be payable from a disputed claims reserve established under the
Company's Plan. The Fund does not consider itself to have a claim subject
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to discharge and asserts that any "withdrawal" (as defined in the Act)
from the Fund subsequent to the Plan's Effective Date would trigger a
withdrawal liability of the reorganized Company. The Fund also asserted
that the Company's proposed (as of the Effective Date) sale in 1992 of
certain of its divisions would trigger a withdrawal liability. The
Company disagrees. The Company consummated the sale of the divisions
during December 1992 (see Note B above). In a letter dated February 5,
1993, the Fund informed the Company that it believes that the sale of the
divisions triggered a withdrawal liability of $22.5 million. The Company
disagrees.
While representatives of the Company and the Fund conducted settlement
discussions in the summer and early fall of 1992 and in April 1993, no
such discussions are currently ongoing. On September 29, 1992, the
Bankruptcy Court advised the parties that it will proceed to a decision on
the issue of whether the Fund's claim is subject to discharge pursuant to
the confirmation order. That court also has indicated that, pending this
determination, further proceedings on the Fund's claim and the Company's
objection thereto will be held in abeyance. As of February 11, 1994, the
issue of dischargeability of the Fund's claim is still pending before the
Bankruptcy Court.
The Company is a defendant in various lawsuits. It is not expected that
these suits will result in judgements which in the aggregate would have a
material adverse effect on the Company's financial position.
NOTE J - OTHER MATTERS
As noted in the Company's Report on Form 10-K for the year ended June 30,
1993, on August 25, 1993, the Company granted, to an unrelated company, an
option to purchase substantially all of the assets (other than accounts
receivable) and business, as a going concern, of its Buffalo Mill
division. The option was not exercised and expired in December 1993.
In November 1993, the Company signed a letter of intent to sell
substantially all of the assets (other than accounts receivable) and
business, as a going concern, of the Uniblend operation of its apparel
textiles segment to a group of investors which includes members of key
management of Uniblend. The value of this transaction, if consummated, is
estimated to be approximately $23 million in cash to the Company,
including the collection of the accounts receivable retained by the
Company and the assumption by the purchaser of certain liabilities of the
operation. The Uniblend operations had net sales of approximately
$55 million for the year ended June 30, 1993, and $27 million for the six
months ended December 31, 1993. At December 31, 1993, the Uniblend
operation had assets of approximately $18 million. There can be no
assurance that this transaction will be consummated.
14
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UNITED MERCHANTS AND MANUFACTURERS, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Information required under this item is contained in Part I,
Notes F and G of Notes to Consolidated Financial Statements,
which are incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Registrant)
Date: February 11, 1994 By /s/ Norman R. Forson
Norman R. Forson
Senior Vice President and
Corporate Comptroller
15
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