SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1994
Commission file number 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 Ave, Teaneck, N.J. 07666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 837-1700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock-Par Value $1 Per Share.......... New York Stock Exchange
Preferred Stock...............................New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
3 1/2% Senior Subordinated Debentures due 2009
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 and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of Common Stock, Par Value $1 Per Share,
held by non-affiliates (based upon the closing sale price on the New York
Stock Exchange) on September 15, 1994 was approximately $4,690,000.
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 September 17, 1994, there were 17,845,000 shares of Common
Stock, Par Value $1 Per Share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 17, 1994 are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. Business.
General
United Merchants and Manufacturers, Inc. ("UM&M" or the "Company") is a
diversified company engaged principally in the manufacture and
distribution of apparel textiles and the design, manufacture and
distribution of accessories. The Company also operates 51 discount outlet
stores which sell the Company's and other manufacturers' products. The
Company's operations are located in the United States.
UM&M is engaged in two industry segments, as set forth below under
"Description of Principal Activities", consisting of (1) Apparel Textiles
and (2) Accessories and Apparel.
The Company generally conducts its business through divisions and
subsidiaries to which it gives a high degree of autonomy in operational
matters, while retaining centralized control by UM&M's management of
certain key management functions.
Recent Events
Financing - On June 30, 1994, the Company reduced its indebtedness to its
senior secured lender to the target amount established in an agreement
with that lender. At that time, in accordance with the agreement, the
lender accepted, in full satisfaction of the balance (approximately $63.4
million) of the Company's indebtedness to the lender, a 5% subordinated
contingent income note due June 30, 2019 in the principal amount of $30
million.
The satisfaction of this indebtedness by the Company was accounted for as
a "troubled debt restructuring" and resulted in an extraordinary, non-cash
gain from retirement of debt of $33.4 million
The Company reduced its indebtedness to the targeted amount through the
sale of two of the Company's operating divisions, sales of certain other
assets, and a borrowing of approximately $29 million from another lender.
The borrowings from the other lender consist of $12 million under secured
promissory notes and the balance under revolving loan and security
agreements which are classified as long-term debt (see Note E of Notes to
Consolidated Financial Statements for description of the notes).
Chapter 11 - 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"). The Plan
provided for the issuance of 450,000 shares of new Preferred Stock and
8,744,000 additional shares of Common Stock (increasing the total number
of shares of Common Stock to 17,845,000) of the Company. The
reorganization resulted in an extraordinary gain of $159.3 million from
retirement of liabilities in excess of value issued, which gain was
recognized in the three months ended September 30, 1991.
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Legal Proceedings - In a recently concluded proceeding in its bankruptcy
case, the Company asserted that, to the extent valid, the contingent
"withdrawal liability" under the Multi-Employer Pension Plan Amendments
Act of 1980 (the "Act") constituted a claim of the ILGWU National
Retirement Fund (the "Fund") against the Company's Chapter 11 estate which
was subject to discharge pursuant to the confirmation order and thus
payable from a disputed claims reserve established under the Company's
Plan. The Fund asserted that its claim was not subject to discharge and
asserted 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 disagreed
and consummated the sale of the divisions during December 1992 (see
below). In a letter dated February 5, 1993, the Fund informed the Company
that it believed that the sale of the divisions triggered a withdrawal
liability of $22.5 million. The Company disputed this assertion,
reasoning that, pursuant to federal law, it remained only secondarily
liable for any withdrawal liability that the purchasers of those
operations may trigger during the subsequent five-year period. The
Company also disputed the amount of the asserted withdrawal liability.
On April 18, 1994, the Bankruptcy Court held that the Fund's contingent
withdrawal liability claim was not discharged under the confirmation
order. Therefore, the Fund's contingent withdrawal liability claim would,
if valid, constitute a liability of the reorganized Company. On April 22,
1994, the Company filed an appeal from the Bankruptcy Court's April 18,
1994 ruling to the United States District Court for the District of
Delaware (the "District Court").
Rather than proceed with the appeal, on August 3, 1994, the Company and
the Fund reached an agreement whereby all disputes and matters regarding
withdrawal liability have been settled. Under the terms of the settlement
agreement, the Company issued to the Fund a subordinated contingent income
note in the principal amount of $22 million due June 30, 2019. See Note E
of Notes to Consolidated Financial Statements for description of the
note. For purposes of these financial statements, the note has been
discounted to present value to yield 13.5% to maturity, excluding the
contingent interest which may become payable under terms of the note. The
present value of the note, $928,000, has been charged to gain (loss) on
sale of divisions. As part of the settlement, the Fund will share in the
distribution of the shares of the Company's Common and Preferred Stock in
the disputed claims reserve established during the bankruptcy
proceedings. Also, the Fund has executed a release in favor of the
Company, and its subsidiaries, affiliates, directors, officers, employees
and agents, which, among other things, releases and discharges all of the
Fund's withdrawal liability claims pertaining to the December 1992 sale of
the Company's divisions. The terms of the settlement were approved by the
Bankruptcy Court on September 2, 1994, and all litigations pertaining to
the withdrawal liability dispute with the Fund are now being dismissed.
Dispositions and Terminations of Certain Operations - During the fiscal
year ended June 30, 1994, the Company sold substantially all of the assets
(other than accounts receivable) and business, as a going concern, of the
Uniblend operation of its apparel textiles segment and of its Clarkesville
Mill division. The sales resulted in gains totaling approximately $8.3
million. Also, during the quarter, the Company determined that non-cash
proceeds from the sale of two divisions in fiscal 1993 were uncollectible
and, therefore, recognized a loss on sale of divisions of $5.1 million.
2
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The proceeds from these two transactions, along with the collection of the
accounts receivable of the operations, were used to reduce the Company's
indebtedness to its factor.
During the fiscal year 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 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.
During the fiscal year ended December 31, 1991, the Company terminated the
operations of a finishing plant of its Home Furnishings segment. As a
result, the Company recognized a loss of $3.0 million.
Description of Principal Activities
The following is a description of each of UM&M's two business segments.
Apparel Textiles
The apparel textiles segment consists of the Company's Buffalo Mill, an
integrated yarn-spinning and weaving mill focused primarily on products
for the apparel market. The Buffalo Mill, located in South Carolina,
produces a wide variety of blended yarns, including specialty yarns, and
weaves fabrics mainly from the yarns which it produces.
The segment competes with a large number of small concerns, as well as
large integrated enterprises. In addition, low-priced imports and
fluctuations in the greige market are a significant factor impacting
margins. The principal factors of competition consist of quality,
styling, service, length of delivery cycle and price.
At June 30, 1994, this segment had approximately $9,670,000 unfilled
orders believed to be firm, all of which are expected to be filled during
the current fiscal year, compared to approximately $16,620,000 at the end
of fiscal 1993.
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Accessories and Apparel
The Company's accessories and apparel segment consists of it's 79% owned
subsidiary, Victoria Creations, Inc. ("Victoria") and a chain of 51
discount retail stores.
Victoria is one of the leading designers, manufacturers and distributors
of costume jewelry throughout the United States and also exports such
products, principally to Japan and Western Europe. Victoria produces a
broad range and assortment of costume jewelry, including relatively
expensive, high quality items sold under the Bijoux Givenchy(R),
Richelieu(R) and Karl Lagerfeld(R) trade names and private label jewelry
for major department and chain stores.
Victoria markets its products using its own sales force throughout the
United States, primarily to department and chain stores and, to a lesser
extent, to mass merchandisers and mail-order distributors. In addition,
Victoria has established a factory direct business to design and
manufacture unique and proprietary costume jewelry-type items for certain
customers.
The costume jewelry industry is highly fragmented and includes many small
firms. The Company believes that Victoria is one of the largest
manufacturers of costume jewelry in the United States. Within the
industry, there are manufacturers that focus on low-margin, basic items
and those that emphasize higher-margin (and higher risk) items geared to
be highly fashionable. The Company believes that only a few companies, of
which Victoria is one, combine manufacturing and marketing capabilities
for both basic and high fashion items.
Victoria competes on the basis of design, quality, reliability as a
supplier, service to the customer and price. Its major competitors are
the Monet, Marvela and Trifari divisions of Crystal Brands, Inc.,Anne
Klein division of Swank, Inc., Liz Claiborne, Inc. and Napier, Inc.
The Company does not believe that the dollar amount of unfilled orders is
significant to an understanding of its accessories business due to the
generally short time between receipt of a customer order and shipment of
the product.
The chain of discount retail stores consists of forty stores that sell
women's apparel and eleven stores that sell women's accessories which are
manufactured primarily by Victoria. Approximately 60% of women's apparel
items are sold under the name Jonathan Logan which is owned by the
Company.
In addition to price and image of product, store location, both
geographical and within a particular mall or outlet park, is a key
competitive factor.
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Selected Financial Data
The table below summarizes recent financial information for the Company.
This information was derived from consolidated financial statements which
have been reported on by the Company's independent auditors.
(000 omitted)
------------------------------------------------
Year Ended or at June 30
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Net sales.............. $ 98,259 $108,433 $ 91,832 $ 92,947 $106,502
Operating loss......... (11,735) (11,690) (16,896) (22,217) (32,230)
Loss from continuing
operations........... (23,241) (22,996) (26,887) (33,996) (67,656)
Loss per common share from
continuing operations (1.55) (1.54) (1.86) (3.74) (7.43)
Total assets........... 83,562 126,724 141,408 152,650 204,117
Liabilities subject to
compromise........... 204,279
Long-term debt and notes
payable.............. 80,559 133,564 117,500 69,374 255,498
- - ---------
During the five year period presented, the Company has sold, terminated
and/or restructured a number of domestic and foreign apparel and textile
operations. See Note C of Notes to Consolidated Financial Statements for
further information regarding such sales or terminations. The information
shown above has been restated to exclude the results of such operations;
the Company's net investment in such businesses is included in total
assets prior to such sale or termination.
No cash dividends on the Company's Common Stock have been paid during the
five years ended June 30, 1994.
The selected financial data should be read in conjunction with the related
Consolidated Financial Statements and notes thereto.
5
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Segment Information
A description of the Company's industry segments is set forth under
"Description of Principal Activities" above.
(000 omitted)
--------------------------------------
Apparel Corp.
and and
As of and for the year Apparel Acces- Unallo- Consol-
ended June 30: Textiles sories cated idated
-------- -------- -------- --------
1994
Net sales to unaffiliated
customers (a).................. $ 33,325 $ 64,934 $ 98,259
Operating loss (b).............. (504) (3,555) $(7,676) (11,735)
Identifiable assets (c)......... 14,200 55,556 13,806 83,562
Depreciation and amortization... 1,581 1,309 414 3,304
Capital expenditures............ 997 307 21 1,325
1993
Net sales to unaffiliated
customers (a).................. $ 39,645 $ 68,788 $ $108,433
Operating loss (b).............. (509) (1,216) (9,965) (11,690)
Identifiable assets (c)......... 16,477 56,483 53,764 126,724
Depreciation and amortization... 1,518 1,309 482 3,309
Capital expenditures............ 351 446 101 898
1992
Net sales to unaffiliated
customers (a).................. $ 30,375 $ 61,448 $ $ 91,823
Operating income (loss) (b)..... 478 (4,721) (12,653) (16,896)
Identifiable assets (c)......... 18,698 55,326 67,384 141,408
Depreciation and amortization... 1,556 1,338 737 3,631
Capital expenditures............ 743 196 458 1,397
- - ----------
(a) One customer accounted for 13.6%, 11.8%, and 11.9% of the
consolidated net sales of the Company for the years ended June 30,
1994, 1993, and 1992, respectively.
(b) Operating income (loss) by industry segment is net sales less costs
and operating expenses but before allocation of certain corporate
expenses. In computing operating income (loss), none of the
following items have been added or deducted: net interest expense,
other income, minority interest, income taxes, discontinued
operations, extraordinary items or change in accounting principles.
(c) Identifiable assets are those assets that can be directly traced to
or associated with the segments. Corporate assets include cash,
corporate property and equipment, assets held for sale and, in 1993,
notes due from sale of divisions.
The reported segment information necessarily includes allocations of
expenditures applicable to more than one of the Company's segments.
Although management believes such allocations are reasonable, the
operating income (loss) does not necessarily reflect the operating results
of such segments if the segments were operated as separate businesses.
6
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Information by Geographic Area
The Company's operations are primarily within the United States of America.
Research and Development
The Company's research and development activities are conducted at
laboratories maintained at certain of its manufacturing facilities. The
research effort concentrates on processing methods, products and methods
of quality control. Approximately $0.7 million was spent on research and
development during each of the fiscal years ended June 30, 1994, 1993 and
1992.
Environmental Considerations
The Company's manufacturing operations are subject to various Federal,
state and local laws restricting the discharge of materials into the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations because of
such regulations. The Company continually expends funds to assure that
its facilities are in compliance with applicable environmental
regulations. In fiscal 1994, the Company's capital expenditures for
environmental control facilities were not significant, and no significant
capital expenditures are expected in fiscal 1995.
Raw Materials
Raw materials used by the Company, including raw cotton and many varieties
of synthetic fibers, are currently available from several sources in
sufficient quantities for the Company's requirements.
Employee Relations
The Company currently employs approximately 1,500 persons. The Company
considers its labor relations with its employees to be good.
Capital Expenditures
Total capital expenditures of UM&M during the fiscal year ended
June 30, 1993 amounted to approximately $1.3 million. For information
concerning capital expenditures by business segment, see "Capital
expenditures" above under "Segment Information".
Item 2. Properties.
At June 30, 1994, the Company operated three significant domestic
manufacturing and distribution facilities, aggregating approximately
500,000 square feet, which are owned by the Company and are located in two
states.
Of the above three owned facilities, one is used by the Apparel Textiles
segment and two by the Accessories and Apparel segment.
In management's opinion, current facilities provide adequate production
capacity to meet the Company's planned business activities in each of its
industry segments.
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Item 3. Legal Proceedings.
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; accordingly,
no such lawsuit is described herein. Also see Note O of Notes to
Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is currently listed on the New York Stock
Exchange under the trading symbol (UMM). The approximate number of record
holders of the Company's Common Stock at August 31, 1994 was 8,000. The
following table sets forth the high and low sale price of the Company's
Common Stock as reported for the last two years on the New York Stock
Exchange Composite Tape.
Sale Price
------------------
Fiscal Year Quarter Ended High Low
- - ----------- ------------- -------- --------
1994...... June 30, 1994 $ 0.375 $ 0.15625
March 31, 1994 0.375 0.1875
December 31, 1993 0.46875 0.125
September 30, 1993 0.3125 0.09375
1993...... June 30, 1993 $ 0.46875 $ 0.15625
March 31, 1993 0.5625 0.3125
December 31, 1992 0.625 0.28125
September 30, 1992 0.50 0.375
No cash dividends on the Company's Common Stock have been paid during the
five years ended June 30, 1994 and the Company does not anticipate that
any such dividends will be paid in the near future.
Item 6. Selected Financial Data.
The information required by this Item is found in Item 1.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item begins on F-3.
Item 8. Financial Statements and Supplementary Data.
See Index on F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
8
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Information required under this Item with respect to the Directors is
contained in the Registrant's 1993 Proxy Statement, pursuant to Regulation
14A, which is incorporated herein by reference.
The following table sets forth the names, ages, present positions and
business experience during the last five years of all Executive Officers
of the Company. Officers are appointed to serve until the meeting of the
Board of Directors following the next Annual Meeting of Stockholders and
until their successors have been elected and have qualified.
Name Age(1) Present Position Business Experience
---- ------ ---------------- -------------------
Uzi Ruskin......... 49 Chairman, President, Chairman, President,
Chief Executive and Chief Executive and
Chief Operating Chief Operating
Officer Officer of UM&M
Sidney O. Margolis. 68 Executive Vice Executive Vice President
President and of UM&M
Assistant Secretary
Judith A. Nadzick.. 46 Executive Vice Executive Vice President,
President, Chief Chief Financial Officer,
Financial Officer Treasurer and Assistant
Officer, Treasurer Secretary of UM&M.
and Assistant
Secretary
Norman R. Forson... 64 Senior Vice Senior Vice President and
President and Chief Financial Officer
Corporate Jonathan Logan Division
Comptroller of UM&M; Senior Vice
President and Corporate
Comptroller of UM&M.
Zvi E. Sella....... 47 Senior Vice Senior Vice President of
President UM&M since January 1992;
President of a division
of UM&M from September
1991 to January 1992;
management consultant
from 1990 to September
1991; Executive Vice
President of Motorola,
Inc. from 1988 to 1990.
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Edward D. Taffet... 37 Senior Vice General Counsel since
President, General October 1989; Vice
Counsel and President and Secretary
Secretary from February 1991 to
February 1992; Senior
Vice President and
Secretary since February
1992.
(1) As of June 30, 1994.
Item 11. Executive Compensation.
Information required under this Item is contained in the Registrant's 1994
Proxy Statement, pursuant to regulation 14A, which is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information required under this Item is contained in the Registrant's 1994
Proxy Statement, pursuant to regulation 14A, which is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
Information required under this Item is contained in the Registrant's 1994
Proxy Statement, pursuant to regulation 14A, which is incorporated herein
by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a) 1. and 2. Financial Statements and Schedules - see "Index to
Financial Statements, Schedules and management's Discussion and Analysis"
on F-1.
Item 14(a) 3. Exhibits.
(3) Articles of Incorporation and By-Laws.
(3) 1. Restated Certificate of Incorporation. Incorporated by
reference to Form 8-K filed by Registrant as of August 26, 1991.
(3) 2. By-Laws as amended to date. Incorporated by reference to
Exhibit 3 of Form 10-K filed by registrant for the year ended June 30,
1985.
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(4) Instruments defining the rights of security holders, including
indentures.
(4) 1. Stock Purchase Agreement dated as of August 18, 1982 between the
Registrant and Monzoral Inc. (formerly Monzoral N.V.). Incorporated by
reference to Exhibit 10 to the Registrant's Form 8-K dated as of August
18, 1982, Commission File No. 1-3185. As amended by the Agreement filed
with Form S-3, File No. 33-4154.
(4) 2. Indenture dated July 1, 1990 between Registrant and First Trust
National Association, trustee, including the form of 3 1/2% Senior
Subordinated Secured Debentures due July 1, 2009. Incorporated by
reference to Exhibit 4(1) of Registrant's Form 8-K filed July 17, 1990.
Amendment of indenture incorporated by reference to Form T-3 filed July
10, 1991.
(10) Material Contracts. (See Index to Exhibits, E-1)
(22) Subsidiaries of the Registrant. (See Index to Exhibits, E-1)
Item 14(b) Reports on Form 8-K. Registrant filed a report on Form 8-K
as of June 30, 1994 reporting that it had restructured its borrowings. See
Note E of Notes to Consolidated Financial Statements for further
information regarding such restructuring.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: September 21, 1994 UNITED MERCHANTS AND MANUFACTURERS, INC.
(Registrant)
By /s/ Judith A. Nadzick
Judith A. Nadzick
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the
Chief Executive Officer, the Chief Financial Officer, and a majority of
the Board of Directors, on behalf of the Registrant and in the capacities
and on the dates indicated:
/s/ Uzi Ruskin Chairman, President, Chief September 21, 1994
Uzi Ruskin Executive Officer, Chief
Operating Officer and Director
/s/ Judith A. Nadzick Chief Financial Officer September 21, 1994
Judith A. Nadzick and Director
/s/ Norman R. Forson Chief Accounting Officer September 21, 1994
Norman R. Forson
/s/ Victor Danko Director September 21, 1994
Victor Danko
/s/ S. Arnold Hickox Director September 21, 1994
S. Arnold Hickox
/s/ Sidney O. Margolis Director September 21, 1994
Sidney O. Margolis
/s/ Robert D. Mathews Director September 21, 1994
Robert D. Mathews
/s/ Robert J. Swartz Director September 21, 1994
Robert J. Swartz
/s/ Hardof Wolf Director September 21, 1994
Hardof Wolf
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UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENTS, SCHEDULES
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Page
Consolidated Statement of Operations for the
Three Years Ended June 30, 1994................................... F-2
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. F-3
Consolidated Balance Sheet as of June 30, 1994 and 1993............. F-7
Consolidated Statement of Cash Flows for the
Three Years Ended June 30, 1994................................... F-8
Notes to Consolidated Financial Statements.......................... F-9
Independent Auditors' Report........................................ F-25
Schedules have been omitted because they are inapplicable or the
required information is included elsewhere in the consolidated financial
statements and notes thereto.
F-1
<PAGE>
PART I - FINANCIAL INFORMATION
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000 omitted)
------------------------------
Year Ended June 30
------------------------------
1994 1993 * 1992 *
--------- --------- ---------
Net sales................................. $98,259 $108,433 $91,823
Cost of goods sold........................ (68,844) (76,282) (66,305)
Selling, general and administrative
expenses................................. (41,150) (43,841) (42,414)
--------- --------- ---------
Operating Loss ($11,735) ($11,690) ($16,896)
Interest expense - net.................... (12,107) (12,166) (11,788)
Other income ............................. 286 167 719
Minority interest in net losses
of subsidiary............................ 415 795 1,178
Provision for income taxes................ (100) (102) (100)
--------- --------- ---------
Loss From Continuing Operations ($23,241) ($22,996) ($26,887)
Discontinued operations (Notes A and C):
Net earnings (loss) prior
to sale or closing...................... 2,216 433 (3,139)
Gain (loss) on sale or closing........... 2,176 (2,672) (2,970)
Extraordinary items:
Gain from settlement of liabilities
upon reorganization (Note B)............ 159,319
Gain on retirement of debt (Note D)...... 33,400
Cumulative effect of change in accounting
principle for post-retirement benefits
other than pensions (Note L)............. (15,303)
--------- --------- ---------
Net Earnings (Loss) ($752) ($25,235) $126,323
Dividends applicable to preferred
stock (Note H)........................... 4,500 4,500 3,813
--------- --------- ---------
Net Earnings (Loss) Applicable
to Common Shares ($5,252) ($29,735) $122,510
========= ========= =========
Average common shares outstanding (Note J) 17,845 17,845 16,503
Earnings (loss) per common share:
Continuing operations.................... ($1.55) ($1.54) ($1.86)
Discontinued operations.................. 0.25 (0.13) (0.37)
Extraordinary items...................... 1.87 9.65
Change in accounting principle........... (0.86)
--------- --------- ---------
Net Earnings (Loss) per Common Share ($0.29) ($1.67) $7.42
========= ========= =========
* - The amounts for 1993 and 1992 have been restated to report
separately the results of continuing and discontinued operations.
See Notes to Consolidated Financial Statements.
F-2
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Not Covered by Report of Independent Certified Public Accountants)
Results of Operations
During the three years ended June 30, 1994, the Company sold or closed
several significant operations as discussed in Note C of Notes to
Consolidated Financial Statements. Accordingly the statements of
operations for the 1993 and 1992 fiscal years have been restated to report
separately the results of continuing and discontinued operations.
For the fiscal year ended June 30, 1994, consolidated net sales decreased
by $10,174,000 to $98,259,000 from $108,433,000 in fiscal 1993, primarily
reflecting decreased sales of the Company's Apparel Textiles segment and
the retail outlet store operation of the Accessories and Apparel segment.
Consolidated net sales for fiscal 1993 had increased by $16,610,000 to
$108,433,000 from $91,823,000 in fiscal 1992 reflecting increased sales of
both of the Company's industry segments.
The Company reported an operating loss of $11,735,000 in fiscal 1994 which
was approximately the same as in fiscal 1993, as losses of the Accessories
and Apparel segment's retail outlet store operation more than offset
improved results of that segment's costume jewelry operation and decreased
corporate expenses. In fiscal 1993, the Company reported a decreased
operating loss of $11,690,000 as to compared to an operating loss of
$16,896,000 in fiscal 1992. The decreased operating loss in fiscal 1993
as compared to fiscal 1992 reflects significantly reduced corporate
overhead expenses and improved operating results of the Company's
Accessories and Apparel segment.
Selling, general and administrative expenses decreased in the current
fiscal year by $2,691,000 to $41,150,000 from $43,841,000 in fiscal 1993,
reflecting the decrease in net sales. Selling, general and administrative
expenses in fiscal 1993 had increased by $1,427,000 from $42,414,000 in
fiscal 1992, but decreased as a percentage of net sales to 40% of net
sales in fiscal 1993 from 46% in fiscal 1992, reflecting the Company's
continuing cost reduction efforts. More than two-thirds of the Company's
selling, general and administrative expenses are direct expenses of the
Company's retail outlet store and costume jewelry operations.
----------------------------
The following is a discussion of the comparative results of operations of
each of the Company's Industry Segments.
Apparel Textiles
In fiscal 1994, net sales for this segment decreased by $6,320,000 to
$33,325,000 from $39,645,000 in fiscal 1993, reflecting decreased unit
sales of the majority of the segment's products compounded by decreased
average unit selling prices.
F-3
<PAGE>
Despite the decreased volume discussed above, the operating loss of
$504,000 reported by the segment for fiscal 1994 was approximately the
same as in fiscal 1993 as the segment was able to reduce average unit cost
to maintain the same gross profit margins and, also, to reduce selling,
general and administrative expenses.
In fiscal 1993, net sales increased by $9,270,000 to $39,645,000 from
$30,375,000 in fiscal 1992. This increase reflected improved demand for
certain of the segment's basic commodity fabrics and was achieved despite
lower average unit selling prices.
The segment reported an operating loss in fiscal 1993 of $509,000 compared
to an operating profit of $478,000 in fiscal 1992, resulting from lower
gross profit margins in fiscal 1993 reflecting price pressures on certain
of the commodity products sold by that segment and increased selling,
general and administrative expenses as a result of higher sales in fiscal
1993.
Accessories and Apparel
In fiscal 1994, the segment reported net sales of $64,934,000, a decrease
of $3,854,000 from the $68,788,000 reported in fiscal 1993. Decreased
sales of the segment's retail outlet store operation as the result of
continued depressed consumer spending and a net decrease of seven stores
in the current fiscal year, more than offset the somewhat increased sales
of the segment's costume jewelry operation in the first and third quarters
of the current fiscal year. That operation achieved fourth quarter sales
this year which were approximately the same as in the fourth quarter of
fiscal 1993, even though last year's quarter included shipments for an
initial launch of a new (for the operation) label for the operation's
largest customer as more fully discussed below. The increase in net sales
of the costume jewelry operation in the current fiscal year reflects
strong consumer interest in the operation's domestic branded label
merchandise and increased sales of the operation's private label and
factory direct design and manufacturing businesses.
During fiscal 1993, net sales increased by $7,340,000 to $68,788,000 from
$61,448,000 in fiscal 1992, reflecting increased sales of both of the
segment's operations. Net sales of the segment's chain of retail outlet
stores increased by approximately 16% in fiscal 1993 as compared to 1992
as the result of additional stores opened subsequent to the end of fiscal
1992, as well as increased same store sales, the majority of which was
derived from markdown sales. The increase in net sales of the segment's
costume jewelry operation in fiscal 1993 as compared to fiscal 1992
resulted from improved sales in the last six months of the 1993 fiscal
year as compared to the same period in fiscal 1992. Sales for the first
half of fiscal 1993 were lower than those of the comparable period in
fiscal 1992 as a result of continued conservative buying by the
operation's largest customers, the major department stores, who serviced
the upsurge in retail sales during the quarter ended December 31, 1992
largely out of existing inventories. This then created the opportunity
for the sales increase in the second half of the 1993 fiscal year. As
mentioned above, sales in the last quarter of fiscal 1993 included
shipments for an initial launch of a new label for the operation's largest
F-4
<PAGE>
customer. This new label replaced a label under which the operation
previously supplied the customer. The increased sales in fiscal 1993 also
reflect increased sales in the operation's factory direct business which
capitalizes on design and manufacturing capabilities to produce unique,
proprietary items for certain customers.
The segment reported an operating loss of $3,555,000 in fiscal 1994 as
compared to an operating loss of $1,216,000 in fiscal 1993 as the result
of the losses of the segment's retail outlet store operation compared to
operating profits in fiscal 1993 which more than offset improved results
of the segment's costume jewelry operation. The operating loss reported
by the retail outlet store operation reflects the decreased sales referred
to above, as well as reduced gross profit margins resulting from markdown
sales Selling general and administrative expenses as a percentage of net
sales for that operation increased in fiscal 1994 as compared to fiscal
1993 as the result of certain fixed expenses associated with that
operation, higher costs of operating certain new stores opened during the
year as compared to those stores which were closed, and termination costs
associated with store closures. The improved results reported by the
segment's costume jewelry operation in fiscal 1994 as compared to fiscal
1993 resulted from increased sales as well as improved gross profit
margins reflecting the operation's continued emphasis on manufacturing and
purchasing efficiencies and lower sales of out-of-season merchandise,
which is sold at lower than normal margins, reflecting improved
forecasting.
In fiscal 1993 the segment reported an operating loss of $1,216,000
compared to an operating loss of $4,721,000 in fiscal 1992, primarily
reflecting improved results of the segment's costume jewelry operation in
fiscal 1993 as compared to fiscal 1992. This improvement is primarily
attributable to the increased volume referred to above as well as improved
gross profit margins reflecting the segment's increased emphasis on its
designer merchandise and factory direct business. Selling, general and
administrative expenses for this operation were also less, in both
absolute dollars and as a percentage of net sales, in fiscal 1993 as
compared to fiscal 1992, primarily reflecting staff reductions and
stringent cost controls. The segment's retail outlet store operation
reported an operating loss in fiscal 1993 as compared to approximately a
break-even in fiscal 1992, primarily as the result of start up expenses
associated with the opening of 13 new stores during the year and reduced
gross profit margins resulting from a depressed retail environment and the
need to markdown merchandise for sale.
-----------------------------
Interest expense in fiscal 1994 was approximately the same as in fiscal
1993, as average revolving loans payable to a factor and interest rates
did not change significantly in the current year versus last year.
Interest expense increased slightly during fiscal 1993 as compared to
fiscal 1992, as lower interest rates were more than offset by increased
average revolving loans payable to a factor during the year. Interest
income was insignificant during the three years ended June 30, 1994.
F-5
<PAGE>
Refer to Note F of Notes to Consolidated Financial Statements for
information regarding the provision for income taxes for fiscal 1994, 1993
and 1992.
Refer to Note C of Notes to Consolidated Financial Statements for a
discussion of significant operations sold or closed during the three years
ended June 30, 1994 which are shown as discontinued operations in all
years presented. Net earnings of these operations prior to sale or
closing amounted to $2,216,000 and $433,000 in fiscal 1994 and 1993,
respectively, while such operations reported a net loss of $3,139,000 in
fiscal 1992. The Company realized a gain of $2,176,000 in fiscal 1994 and
losses of $2,672,000 and $2,970,000 in fiscal 1993 and 1992, respectively,
on the sale or closing of these operations
Net results for fiscal 1994 include a 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 L of
Notes to Consolidated Financial Statements for further discussion of this
change. Net results for fiscal 1994 also include an extraordinary gain of
$33,400,000 on the retirement of debt as discussed more fully below and in
Note D of Notes to Consolidated Financial Statements.
Net earnings for fiscal 1992 include an extraordinary gain of $159,319,000
from the settlement of approximately $204,300,000 of liabilities in excess
of value issued in the Company's reorganization under Chapter 11 of the
United States Bankruptcy Code.
Liquidity and Capital Resources
During fiscal 1994, the Company depended on proceeds from the sales of
assets to finance its operations and to reduce its indebtedness as
discussed below.
On June 30, 1994, the Company reduced its indebtedness to its senior
secured lender to a targeted amount established in an agreement with that
lender in November 1993. At that time, in accordance with the agreement,
the lender accepted, in full satisfaction of the
balance (approximately $63,400,000) of the Company's indebtedness to the
lender, a 5% subordinated contingent income note due June 30, 2019 in the
principal amount of $30,000,000. The satisfaction of this indebtedness by
the Company was accounted for as a "troubled debt restructuring" and
resulted in an extraordinary, non-cash gain from the retirement of debt of
$33,400,000. The Company reduced its indebtedness to the targeted amount
through the sale of two of the Company's operating divisions, sales of
certain other assets and borrowings of approximately $29,000,000 from
another lender. These borrowings consist of $12,000,000 under secured
promissory notes and the balance under revolving loan and security
agreements and have been classified as long-term debt.
On August 3, 1994, the Company and the ILGWU National Retirement Fund (the
"Fund") reached an agreement with regard to a proceeding in the Company's
bankruptcy case with regard to the fund's contingent withdrawal liability
claim, whereby all disputes and matters regarding withdrawal liability
were settled. Under the terms of the settlement agreement, the Company
issued to the Fund a 5% subordinated contingent income note in the
F-6
<PAGE>
principal amount of $22,000,000 due June 30, 2019. This note has been
discounted to present value to yield 13.5% to maturity, excluding the
contingent interest which may become payable under the terms of the note.
The present value of the note, $928,000, has been recognized as a loss on
the sale of divisions. See Note E of Notes to Consolidated Financial
Statements for a description of the note and Note O of Notes to
Consolidated Financial Statements for a further discussion of the
litigation and settlement.
While the refinancing of its senior debt was a substantial, positive
development for the Company, as discussed in Note A of Notes to
Consolidated Financial Statements and in the Report of KPMG Peat Marwick
LLP, Independent Auditors, dated September 21, 1994, the recurring losses
from operations, the stockholders' equity (deficit) and the significant
debt raise substantial doubt as to the Company's ability to continue as a
going concern. In the future the Company's strategy is to continue to pay
down part of its debt through the sale of certain assets and to refinance
the remainder at more beneficial terms. In addition, the Company has
taken certain steps toward establishing, through a subsidiary, a
reinsurance business. Subject to completion of certain financing and
administrative agreements, this subsidiary plans to acquire certain types
of existing life insurance policies and other long-term annuity contracts
from mainly life insurance companies. Over a period of time, the Company
is hopeful that it will generate profits and positive cash flow as it
services these policies. There can be no assurances that the Company will
succeed in reducing or refinancing its indebtedness or in establishing
that profitable business.
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.
F-6A
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
June 30
-------------------
1994 1993 *
ASSETS --------- ---------
Current Assets:
Cash............................................... $662 $1,032
Receivables (Note M)............................... 15,286 15,560
Inventories (Note M)............................... 24,760 25,788
Prepaid expenses and other current assets.......... 1,826 1,544
Net assets of discontinued operations (Note A)..... 30,949
--------- ---------
Total Current Assets $42,534 $74,873
Property, Plant and Equipment (Note M).............. $37,447 $36,339
Less accumulated depreciation and amortization..... 26,327 23,880
--------- ---------
Net Property, Plant and Equipment $11,120 $12,459
Goodwill (Note A)................................... 21,383 22,103
Other Assets and Deferred Charges (Note M).......... 8,525 17,289
--------- ---------
$83,562 $126,724
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable (Note D)............................. $110,904
Current maturities of long-term debt............... 958
Trade payables..................................... $5,122 6,467
Accrued expenses and sundry liabilities (Note M)... 9,326 9,301
--------- ---------
Total Current Liabilities $14,448 $127,630
Long-Term Debt, net of current maturities (Note E).. 80,559 21,702
Other Long-Term Liabilities (Note M)................ 20,800 4,783
Minority Interest................................... 1,894 2,309
Stockholders' Equity (Deficit) (Note H):
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)........................ (108,474) (107,722)
Unrealized pension liability adjustment............ (4,634) (947)
Notes receivable arising from stock purchase
agreement......................................... (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($34,139) ($29,700)
--------- ---------
$83,562 $126,724
========= =========
* - The amounts for 1993 have been restated to report separately
the assets and liabilities and net assets of continuing and
discontinued operations.
See Notes to Consolidated Financial Statements.
F-7
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(000 omitted)
-----------------------------
Year ended June 30
-----------------------------
1994 1993 * 1992 *
--------- --------- ---------
Cash Flows from Operating Activities:
Net earnings (loss)....................... ($752) ($25,235)$126,323
Adjustments to reconcile net earnings (loss)
to net cash used for operating activities:
Extraordinary items:
Gain from settlement of liabilities
upon reorganization................... (159,319)
Gain on retirement of debt............. (33,400)
Change in accounting principle for post-
retirement benefits other than pension. 15,303
Depreciation and amortization........... 3,304 3,309 3,631
Minority interest....................... (415) (336) (1,178)
Amortization of bond discount........... 790 682 586
Gain on sale of divisions............... (2,176)
Decrease (increase) in assets:
Receivables.............................. 637 (7,162) 1,421
Inventories.............................. 1,028 3,602 1,296
Prepaid expenses and other current items. (282) 42 735
Other assets............................. 3,678 (1,250) 1,875
Increase (decrease) in liabilities:
Trade payables .......................... (1,345) (2,939) (1,746)
Accrued expenses and sundry liabilities.. 25 (763) (1,982)
Other long-term liabilities.............. 714 (2,496) (1,817)
Other - net............................... (3,687) 983 (392)
--------- --------- ---------
Net Cash Used for Operating Activities ($16,578) ($31,563)($30,567)
Cash Flows from Investing Activities:
Additions to property, plant and equipment ($1,325) ($898) ($1,397)
Dispositions of equipment................. 80 165
Net change in assets of discontinued
operations prior to sale................. 9,158 6,828 4,592
Sales of divisions:
Proceeds from sale of divisions.......... 29,981 13,702
Non-cash proceeds - receivables.......... (363) (5,050)
--------- --------- ---------
Net Cash Provided by Investing Activities $37,531 $14,747 $3,195
Cash Flows from Financing Activities:
Increase (decrease) in notes payable...... ($47,504) $16,934 $25,340
Increase in long-term debt................ 28,316 3,674
Decrease in long-term debt................ (2,135) (1,552) (731)
Proceeds from sale of stock by subsidiary. 38
--------- --------- ---------
Net Cash Provided by (Used for)
Financing Activities ($21,323) $15,420 $28,283
--------- --------- ---------
Increase (Decrease) in Cash ($370) ($1,396) $911
Cash at beginning of period................ 1,032 2,428 1,517
--------- --------- ---------
Cash at end of period $662 $1,032 $2,428
========= ========= =========
Supplemental disclosures of cash flow information:
Interest.................................. $12,233 $12,327 $11,788
Income Taxes.............................. 100 102 100
* - The amounts for 1993 and 1992 have been restated to report
separately the results of continuing and discontinued operations.
See Notes to Consolidated Financial Statements.
F-8
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies and Liquidity
Effective August 26, 1991, the Company reorganized under Chapter 11 of the
United States Bankruptcy Code. See Note B below.
Basis of Presentation - The consolidated financial statements include the
accounts of United Merchants and Manufacturers, Inc. ("UM&M" or the
"Company") and its subsidiaries. During the periods presented in these
financial statements, the Company sold or closed several significant
operations (see Note C below). Accordingly, the financial statements have
been restated to report separately the assets and results of continuing
and discontinued operations.
Liquidity - During each of the three years ended June 30, 1994, the
Company has incurred significant losses from operations and, as of June
30, 1994, has a stockholders' equity deficit. As discussed in Note D
below, the Company refinanced its senior debt as of June 30, 1994 and
thereby reduced the total indebtedness of the Company. While this was a
substantial, positive development for the Company, there still exists
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.
Goodwill - Goodwill is being amortized by the straight-line method over 40
years. Accumulated amortization of goodwill amounted to $6,585,000 and
$5,865,000 at June 30, 1994 and 1993, respectively. The goodwill included
in the consolidated balance sheet as of June 30, 1994 and 1993 is that of
Victoria Creations, Inc., the Company's 79%-owned subsidiary.
Inventories - Inventories are stated at the lower of cost (average or
first-in, first-out) or market values.
Property, Plant and Equipment - Property, plant and equipment are carried
at cost. The provision for depreciation and amortization is generally
computed using the straight-line method over the estimated useful lives of
the assets. The annual provisions for depreciation and amortization have
been computed principally using ranges of rates of 2% to 10% for buildings
and improvements and 4% to 33 1/3% for machinery and equipment.
NOTE B - Reorganization Under Chapter 11
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"). The Plan provided for the
issuance of 450,000 shares of new Preferred Stock and 8,744,000 additional
shares of Common Stock (increasing the total number of shares of Common
Stock to 17,845,000) of the Company. The reorganization resulted in an
extraordinary gain of $159.3 million from retirement of liabilities in
excess of value issued, which gain was recognized in the three months
ended September 30, 1991.
F-9
<PAGE>
NOTE C - Dispositions and Terminations of Certain Operations
During the quarter ended June 30, 1994, the Company sold substantially all
of the assets (other than accounts receivable) and business, as a going
concern, of its Clarkesville Mill operations. The sale resulted in a gain
of approximately $3.2 million. Also, during the quarter, the Company
determined that non-cash proceeds from the sale of two operations in
fiscal 1993 were uncollectible and, therefore, recognized a loss on sale
of those operations of $5.1 million.
During the quarter ended March 31, 1994, the Company sold substantially
all of the assets (other than accounts receivable) and business, as a
going concern, of the Uniblend operation. The sale resulted in a gain of
approximately $5.1 million.
The proceeds from these two transactions, along with the collection of the
accounts receivable of the operations, were used to reduce the Company's
indebtedness to its factor.
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 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.
During the quarter ended December 31, 1991, the Company terminated the
operations of a finishing plant of its Home Furnishings segment. As a
result, the Company recognized a loss of $3.0 million.
Net sales and operating losses for the years ended June 30, 1994, 1993,
and 1992 of the above mentioned operations sold or closed prior to
disposition were sales of $54.1 million, $85.2 million and $114.9 million
and operating income (losses) of $1.2 million, ($2.3) million and ($6.1)
million, respectively.
All gain (loss) amounts set forth above are before any related income tax
provision. The Company used available operating losses and net operating
loss carryforwards to eliminate the liability for such income taxes.
F-10
<PAGE>
NOTE D - Notes Payable
On June 30, 1994, the Company reduced its indebtedness to its senior
secured lender to the target amount established in an agreement with that
lender. At that time, in accordance with the agreement, the lender
accepted, in full satisfaction of the balance (approximately $63.4
million) of the Company's indebtedness to the lender, a 5% subordinated
contingent income note due June 30, 2019 in the principal amount of $30
million.
The satisfaction of this indebtedness by the Company was accounted for as
a "troubled debt restructuring" and resulted in an extraordinary, non-cash
gain from retirement of debt of $33.4 million
The Company reduced its indebtedness to the targeted amount through the
sale of two of the Company's operating divisions, sales of certain other
assets and a borrowing of approximately $29 million from another lender.
The borrowings from the other lender consist of $12 million under secured
promissory notes and the balance under revolving loan and security
agreements which are classified as long-term debt (see Note E below).
Prior to June 30, 1994, notes payable amounts were borrowed from the
Company's factor. These amounts were secured by substantially all of the
Company's assets and interest was charged at 2% a year over a bank's
reference rate.
Selected information with regard to the notes payable to factor prior to
this debt restructuring is as follows:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1994 1993 1992
-------- -------- --------
Maximum amount outstanding (at any
month end)............................... $115,669 $110,904 $ 97,897
Average amount outstanding during period.. 107,223 103,243 83,494
Interest paid to factor................... 8,783 8,806 8,392
Weighted average interest rate during
period (Interest paid divided by
average amount outstanding).............. 8.19% 8.53% 10.05%
F-11
<PAGE>
NOTE E - Long-Term Debt
Long-term debt consists of the following:
(000 omitted)
------------------
June 30
------------------
1994 1993
-------- --------
Secured promissory notes.......................... $ 12,000
Revolving loans................................... 16,316
3 1/2% Senior Subordinated Debentures due 2009
(net of unamortized discount of $47,827,000
and $48,617,000 at June 30, 1994 and 1993,
respectively).................................... 21,315 $ 20,525
5% Subordinated Notes due 2019:
Issued to former senior lender (see Note D above) 30,000
Issued in settlement of lawsuit (see note O
below) (net of unamortized discount of
$21,072,000 at June 30, 1994)................... 928
Capitalized Leases................................ 2,136
-------- --------
Total $ 80,559 $ 22,661
Less current maturities........................... 959
-------- --------
$ 80,559 $ 21,702
======== ========
The secured promissory notes and the revolving loans are secured by
substantially all of the Company's assets, are due June 30, 1996, may be
prepaid without premium or penalty and bear interest at the rate of 2% a
month.
The 3 1/2% Debentures are subordinate to "Senior Indebtedness", as defined
in the trust agreement, which at June 30, 1994 includes primarily the
secured promissory notes and the revolving loans. The 3 1/2% Debentures
are secured, secondarily to Senior Indebtedness, by substantially all of
the Company's assets, other than accounts receivable.
Interest on the 5% Subordinated Notes due 2019 is contingent and
non-cumulative. Interest will accrue and be payable only to the extent
net earnings of the Company (as defined in the notes) exceed $7.5 million
in a fiscal year. No payments on principal are required before maturity
date, June 30, 2019, unless net earnings (as defined in the notes) exceed
$7.5 million plus the interest payment on these notes in a fiscal year.
In such case, one-half of such excess will be paid to reduce the
outstanding principal of the notes.
F-12
<PAGE>
NOTE F - Income Taxes
The earnings (loss) before income taxes and minority interest are from
domestic operations and transactions. The provision for income taxes for
each of the three years ended June 30, 1994 consists of state and local
taxes.
As a result of domestic losses for the years ended June 30, 1994 and 1993,
no provision for Federal income taxes was made. For the year ended June
30, 1992, the Company had operating losses and net operating loss
carryforwards to offset the gain from settlement of liabilities upon
reorganization; therefore, no provision for Federal income taxes was made.
A reconciliation between the income taxes at the statutory Federal income
tax rate and the provision for income taxes for the three years ended June
30, 1994 is as follows:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1994 1993 1992
-------- -------- --------
Statutory rate applied to earnings (loss)
before income taxes and minority
interest................................ $ (362) $ (8,816) $ 42,583
Increase (decrease) in taxes rising from
effect of:
State and local income taxes............ 66 94 66
Amortization of Goodwill................ 245 245 245
Domestic losses not resulting in
tax benefit............................ 151 8,579 11,374
Utilization of net operating losses..... (54,168)
-------- -------- --------
Provision for Income Taxes................ $ 100 $ 102 $ 100
======== ======== ========
At June 30, 1994, the Company had unused Federal net operating loss
carryforwards of approximately $285 million, of which $2 million expires
in 1995; $33 million in 1997; $12 million in 1998; $35 million in 2000;
$14 million in 2002; $11 million in 2003; $64 million in 2005; $42 million
in 2006; $37 million in 2007, $31 million in 2008 and $ 4 million in
2009. In addition, the Company has available investment tax credit
carryforwards of approximately $2 million, expiring in various amounts
each year from 1995 through 2000.
The Company's ability to use its net operating loss carryforwards depends
upon many complex, technical aspects of Federal and state tax law.
F-13
<PAGE>
NOTE G - Commitments and Contingencies
Rental expense for real property, machinery and equipment for the three
years ended June 30, 1994 were as follows:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1994 1993 1992
-------- -------- --------
Total rentals paid..................... $ 5,593 $ 5,014 $ 5,677
Less sublease rentals received......... 2,291 1,579 2,112
-------- -------- --------
Net rental expense..................... $ 3,302 $ 3,435 $ 3,565
======== ======== ========
At June 30, 1994, approximate minimum rental commitments under
non-cancellable operating leases, primarily for real property, machinery
and equipment are as follows:
(000 omitted)
----------------------------
Net
Year ending Minimum Sublease Commit-
June 30 Payments Rentals Ments
-------- -------- -------- --------
1995.............................. $ 4,817 $ 1,603 $ 3,214
1996.............................. 4,377 1,605 2,772
1997.............................. 2,846 289 2,557
1998.............................. 2,237 182 2,055
1999.............................. 1,656 258 1,398
Thereafter........................ 11,152 11,152
-------- -------- --------
$ 27,085 $ 3,937 $ 23,148
======== ======== ========
The leases provide for minimum annual rentals, plus, in certain instances,
payment for real estate taxes, insurance, maintenance, etc.
At June 30, 1994 the Company had approximately $1.1 million of letters of
credit outstanding.
F-14
<PAGE>
NOTE H - Stockholders' Equity
A summary of the changes in the components of stockholders' equity for the
three years ended June 30, 1994 is as follows:
(000 omitted)
----------------------------
Year Ended June 30
-------------------------------
1994 1993 1992
--------- --------- ---------
Preferred Stock:
Beginning balance..................... $ 450 $ 450 $ 0
Reorganization Plan - Note B.......... 450
--------- --------- ---------
Ending balance $ 450 $ 450 $ 450
========= ========= =========
Common Stock:
Beginning balance *................... $ 17,845 $ 17,845 $ 9,101
Reorganization Plan - Note B.......... 8,744
--------- --------- ---------
Ending Balance * $ 17,845 $ 17,845 $ 17,845
========= ========= ==========
Capital in Excess of Par Value:
Beginning balance..................... $ 64,674 $ 64,674 $ 49,374
Reorganization Plan - Note B.......... 15,300
--------- --------- ---------
Ending balance $ 64,674 $ 64,674 $ 64,674
========= ========= =========
Retained Earnings (Deficit):
Beginning balance..................... $(107,722) $( 82,487) $(208,810)
Net earnings (loss).................... (752) (25,235) 126,323
--------- --------- ---------
Ending balance $(108,474) $(107,722) $( 82,487)
========= ========= =========
Unrealized Pension Plan Adjustments:
Beginning balance..................... $ (947) $ (1,968) $ (1,576)
Unrealized pension liability adjustment (3,687) 1,021 (392)
--------- --------- ---------
Ending balance $ (4,634) $ (947) $ (1,968)
========= ========= =========
Notes Receivable - Stock Purchase Agreement:
Beginning and ending balance.......... $ (4,000) $ (4,000) $ (4,000)
========= ========= =========
Total Stockholders' Equity (Deficit):
Beginning balance..................... $ (29,700) $ (5,486) $(155,911)
Reorganization Plan - Note B.......... 24,494
Unrealized pension liability adjustment (3,687) 1,021 (392)
Net earnings (loss).................... (752) (25,235) 126,323
--------- --------- ---------
Ending balance $ (34,139) $ (29,700) $ (5,486)
========= ========= =========
* - Excludes treasury stock
F-15
<PAGE>
As part of the Reorganization Plan (see Note B above), on August 26, 1991,
the effective date of the Plan, the authorized number of shares of
Preferred Stock increased to 10 million and of Common Stock to 40 million.
The preferred stock issued under the Reorganization Plan is designated
10% Cumulative Preferred Stock, Series 1. There are 450,000 shares of
this series authorized. Holders of the stock are entitled to receive
dividends at the annual rate of $10 a share. The first dividend payment
date under the Company's Restated Certificate of Incorporation was
scheduled to be July 15, 1992, the second July 15, 1993 and thereafter,
semi-annually; the Company has not declared or paid these dividends. There
are no mandatory redemption provisions for this stock. The preferred stock
has no general voting rights; however, since dividends which were
scheduled to be paid continue unpaid after six months past the scheduled
date, the number of directors constituting the board of directors of the
Company could be increased by two and the holders of the preferred stock
could elect the two additional directors. No such change has been made as
of June 30, 1994. For financial statement purposes, preferred dividends
which accrued during the period are deducted from the results of
operations in determining earnings (loss) applicable to common shares
whether or not such dividends are paid or declared. Liquidation value of
this series of preferred stock during the first year after issuance was
$35.26 a share and will increase over a 10 year period to $100 a share.
Pursuant to the terms of the stock purchase agreement dated August 18,
1982, as amended, between the Company and a corporation wholly-owned by
the President of the Company, the Company agreed to sell 1,000,000 shares
of its Common Stock in four annual installments of 250,000 shares each at
a purchase price of $5.00 per share, the closing price of Common Stock of
the Company on the New York Stock Exchange on August 17, 1982. The final
installment was purchased on March 10, 1986. The aggregate purchase price
of $5,000,000 was paid $1,000,000 in cash and $4,000,000 in notes due, as
amended, fifteen years after issuance. The notes bear interest, on
principal only, at a rate equal to 70% of the average investment yield for
the most recent auction of United States Treasury obligations with
maturities of 52 weeks computed as of the first day of each month. The
interest is payable at the time principal is paid. The notes are secured
by the shares purchased, with shares to be released to the extent each
note is paid. At June 30, 1994, the Company had receivables of $4,000,000
principal and $1,710,000 interest related to these notes.
NOTE I - Sale of Stock by Subsidiary
During the quarter ended December 31, 1992, as an incentive to certain of
its key employees, the Company's majority-owned subsidiary, Victoria
Creations, Inc., sold 300,000 shares of its authorized, but previously
unissued, Common Stock to those employees. This sale increased the total
number of shares of Victoria Creations, Inc. Common Stock outstanding from
7.5 million to 7.8 million, thus reducing the Company's percentage of
ownership from 83% to 79%.
F-16
<PAGE>
NOTE J - Per Share Data
Earnings (loss) per share amounts are based on the weighted average number
of common shares outstanding during the respective periods. The 1992
fiscal year average includes the shares issued in the Company's
reorganization under Chapter 11 (See Note B) from August 26, 1991.
NOTE K - Retirement Plans and Benefits
Substantially all of the Company's employees, other than the employees of
one subsidiary, who meet certain requirements of age, length of service
and hours worked per year, are covered by a Company sponsored retirement
plan. The plan is a noncontributory, defined benefit, trusteed plan.
Benefits paid to retirees are based upon years of credited service, age at
retirement and, in certain instances, average earnings. The Company's
policy is to fund the minimum amount required under the Employee
Retirement Income Security Act. Prior to the 1994 fiscal year, the
Company maintained four separate plans. During fiscal 1994, the four
plans were merged into and became one plan. Certain of the following
information for prior years for these plans has been restated, for
comparability purposes, to show the plans as if they had been merged as of
the beginning of the periods shown.
For the employees of the Company's one subsidiary mentioned above, who are
not covered by the above mentioned plans, the Company makes available a
retirement savings plan which includes the salary deferral feature
afforded by Section 401(k) of the Internal Revenue Code. During the years
ended June 30, 1994, 1993 and 1992, the Company's contributions to, and
expenses of, this plan were $40,000; $70,000 and $94,000, respectively.
The net periodic pension cost for the Company sponsored defined benefit
plan for the three years ended June 30, 1994 included the following
components:
(000 omitted)
----------------------------
Year Ended June 30
----------------------------
1994 1993 1992
-------- -------- --------
Cost of benefits earned during the period. $ 604 $ 663 $ 1,130
Prior service costs....................... 85 91 94
Interest cost on projected benefit
obligation............................... 5,410 5,537 5,525
Actual return on assets................... (526) (6,592) (6,525)
Adjust actual return to expected return... (5,236) 904 993
Amortization of deferred (gain) loss...... (27) 56 (175)
Cost recognized on sale or closing of
certain operations (Note C).............. 246 463
-------- -------- --------
Net Periodic Pension Cost $ 556 $ 1,122 $ 1,042
======== ======== ========
F-17
<PAGE>
The following sets forth the funded status of the Company sponsored plan
and the amounts recognized in the accompanying balance sheet at June 30,
1994 and 1993, respectively:
(000 omitted)
------------------
June 30
------------------
1994 1993
-------- --------
Actuarial present value of:
Vested benefit obligation.......................... $(66,289) $(67,614)
Nonvested benefit obligation....................... (178) (267)
-------- --------
Accumulated Benefit Obligation $(66,467) $(67,881)
Effect of projected future salary increases......... (1,815) (2,381)
-------- --------
Projected benefit obligation........................ $(68,282) $(70,262)
Plan assets at fair value, consists primarily of
equity securities and fixed income securities...... 60,330 67,127
-------- --------
Projected Benefit Obligation
in Excess of Plan Assets $ (7,952) $ (3,135)
Unrecognized prior service cost..................... 765 1,095
Unrecognized net loss............................... 6,815 2,043
Unrecognized net transitional asset................. (368) (393)
Additional accrued liability........................ (5,397) (2,787)
-------- --------
Pension Liability Recognized within
the Consolidated Balance Sheet $ (6,137) $ (3,177)
======== ========
In determining the actuarial present value of projected benefit obligation
of the Company sponsored plan as of June 30, 1994, the discount rate used
was 8.2%; the expected rate of return on plan assets was 9% and, in those
instances where average earnings are a factor in determining retirement
benefits, the weighted average rate of increase in compensation levels was
6%. The participants become fully vested as to their benefits after five
years of credited service.
The Company's pension plan was in an underfunded position at June 30, 1994
and 1993. Therefore, the Company recognized additional minimum liability
as of each date. Since the additional minimum liability exceeded the
pension intangible asset related to the plan at each date, the excess is
reported as a reduction of stockholders' equity.
F-18
<PAGE>
Prior to December 31, 1992 certain of the Company's employees were covered
under the ILGWU National Retirement Fund ("Fund"), a multi-employer,
union-sponsored, collectively-bargained, defined benefit plan. The
Company's contributions to the Fund during the six months ended
December 31, 1992 and the year ended June 30, 1992 amounted to $182,000
and $409,000, respectively. See Note O for discussion of "withdrawal
liability" under Multi-Employer Pension Plan Amendments Act of 1980.
NOTE L - 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 certain retired employees. Of the current
employees, only those of its Apparel Textiles Segment who joined the
Company prior to January 1, 1988 are eligible for these postretirement
benefits. Salaried employees of this segment become eligible for the
health care and life insurance benefits as they retire from active
employment; hourly employees of this segment 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 are as follows:
(000 omitted)
------------------
June 30 July 1
1994 1993
-------- --------
Retirees............................................ $ 13,618 $ 13,941
Fully eligible active plan participants............. 499 411
Other active plan participants...................... 1,012 951
-------- --------
Total APBO $ 15,129 $ 15,303
======== ========
F-19
<PAGE>
The net periodic postretirement benefit cost for the year ended June 30,
1994 is as follows: (000 omitted)
Year Ended
June 30
1994
--------
Service cost.................................................. $ 56
Interest cost on APBO......................................... 1,052
--------
Net periodic postretirement benefit cost $ 1,108
========
Postretirement benefit cost on a pay-as-you-go basis totaled $1.2 million
for the year ended June 30, 1993 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 the 1995 fiscal year,
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 M - Supplemental Balance Sheet Information
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
June 30
------------------
1994 1993
-------- --------
Receivables:
Due from factor.................................... $ 10,252 $ 10,501
Accounts receivable - trade........................ 5,253 3,846
Other.............................................. 2,153 3,920
-------- --------
$ 17,658 $ 18,267
Less allowances for doubtful accounts.............. 2,372 2,707
-------- --------
$ 15,286 $ 15,560
======== ========
Inventories:
Raw materials...................................... $ 6,347 $ 6,944
Work-in-process.................................... 1,800 1,805
Finished goods..................................... 16,613 17,039
-------- --------
$ 24,760 $ 25,788
======== ========
F-20
<PAGE>
(000 omitted)
------------------
June 30
------------------
1994 1993
-------- --------
Property, plant and equipment:
Land and buildings................................. $ 5,083 $ 5,006
Machinery, equipment and other..................... 31,801 31,256
Construction-in-progress........................... 563 77
-------- --------
$ 37,447 $ 36,339
less accumulated depreciation and amortization..... 26,327 23,880
-------- --------
Net Property, Plant and Equipment $ 11,120 $ 12,459
======== ========
Other assets and deferred charges:
Long-term assets held for sale..................... $ 4,952 $ 5,938
Interest receivable - sale of stock (Note H)....... 1,710 1,606
Deferred pension costs............................. 765 3,374
Deposits........................................... 352 505
Notes receivable - sale of divisions (Note C)...... 5,050
Other.............................................. 746 816
-------- --------
$ 8,525 $ 17,289
======== ========
Accrued expenses and sundry liabilities:
Accrued compensation expenses...................... $ 1,449 $ 1,595
Accrued taxes other than payroll................... 1,643 1,085
Accrued workers compensation....................... 1,493 2,173
Accrued interest................................... 1,208
Postretirement benefits other than pension......... 1,108
Accrued shutdown costs............................. 703 674
Accrued insurance.................................. 454 1,345
Accrued pension liability.......................... 822
Other.............................................. 1,268 1,607
-------- --------
$ 9,326 $ 9,301
======== ========
Other long-term liabilities:
Postretirement benefits other than pension......... $ 14,021
Accrued pension liability.......................... 6,137 $ 3,888
Deferred shutdown costs............................ 562
Other.............................................. 642 333
-------- --------
$ 20,800 $ 4,783
======== ========
F-21
<PAGE>
NOTE N - Supplemental Income Statement Information:
(000 Omitted)
----------------------------
Year Ended June 30
----------------------------
1994 1993 1992
-------- -------- --------
Other Income (Expense):
Gain (loss) on sale of Plant, Property
and Equipment........................... $ 3 $ (5) $ (10)
Loss on sale of stock of subsidiary...... (491)
Miscellaneous - net...................... 283 591 729
-------- -------- --------
$ 286 $ 167 $ 719
======== ======== ========
Maintenance and repairs................... $ 2,581 $ 3,133 $ 2,850
Advertising cost.......................... 2,477 2,091 2,615
F-22
<PAGE>
NOTE O - Legal Proceedings
In a recently concluded proceeding in its bankruptcy case (see Note B
above), the Company asserted that, to the extent valid, the contingent
"withdrawal liability" under the Multi-Employer Pension Plan Amendments
Act of 1980 (the "Act") constituted a claim of the ILGWU National
Retirement Fund (the "Fund") against the Company's Chapter 11 estate which
was subject to discharge pursuant to the confirmation order and thus
payable from a disputed claims reserve established under the Company's
Plan. The Fund asserted that its claim was not subject to discharge and
asserted 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 disagreed
and consummated the sale of the divisions during December 1992 (see Note C
above). In a letter dated February 5, 1993, the Fund informed the Company
that it believed that the sale of the divisions triggered a withdrawal
liability of $22.5 million. The Company disputed this assertion,
reasoning that, pursuant to federal law, it remained only secondarily
liable for any withdrawal liability that the purchasers of those
operations may trigger during the subsequent five-year period. The
Company also disputed the amount of the asserted withdrawal liability.
On April 18, 1994, the Bankruptcy Court held that the Fund's contingent
withdrawal liability claim was not discharged under the confirmation
order. Therefore, the Fund's contingent withdrawal liability claim would,
if valid, constitute a liability of the reorganized Company. On April 22,
1994, the Company filed an appeal from the Bankruptcy Court's April 18,
1994 ruling to the United States District Court for the District of
Delaware.
Rather than proceed with the appeal, on August 3, 1994, the Company and
the Fund reached an agreement whereby all disputes and matters regarding
withdrawal liability have been settled. Under the terms of the settlement
agreement, the Company issued to the Fund a subordinated contingent income
note in the principal amount of $22 million due June 30, 2019. See Note E
for description of the note. For purposes of these financial statements,
the note has been discounted to present value to yield 13.5% to maturity,
excluding the contingent interest which may become payable under terms of
the note. The present value of the note, $928,000, has been charged to
gain (loss) on sale of divisions. As part of the settlement, the Fund
will share in the distribution of the shares of the Company's Common and
Preferred Stock in the disputed claims reserve established during the
bankruptcy proceedings. Also, the Fund has executed a release in favor of
the Company, and its subsidiaries, affiliates, directors, officers,
employees and agents, which, among other things, releases and discharges
all of the Fund's withdrawal liability claims pertaining to the December
1992 sale of the Company's divisions. The terms of the settlement were
approved by the Bankruptcy Court on September 2, 1994, and all litigations
pertaining to the withdrawal liability dispute with the Fund are now being
dismissed.
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.
F-23
<PAGE>
NOTE P - Segment Information
The selected financial data for the three years ended June 30, 1994
regarding the Company's business segments and geographic areas of
operations are included in Part I, Item 1 of this Form 10-K and are
incorporated herein by reference.
Note Q - Major Customer
During the years ended June 30, 1994, 1993 and 1992, one of the Company's
customer's purchases amounted to 13.6%, 11.8% and 11.9%, respectively, of
the Company's consolidated net sales.
NOTE R - Selected Quarterly Financial Information (Unaudited)
(000 omitted)
--------------------------------------------
Quarter Ended
----------------------------------
Sep 30 Dec 31 Mar 31 June 30 Total
------- ------- ------- ------- --------
Year ended June 30, 1994:
Net sales................ $27,873 $26,545 $21,387 $22,454 $ 98,259
Gross profit............. 10,187 7,256 5,976 5,996 29,415
Loss from continuing
operations.............. (3,414) (5,836) (6,791) (7,200) (23,241)
Net earnings (loss)...... (17,489) (4,582) (1,100) 22,419 (752)
Earnings (loss) per
common share:
Continuing operations.. (0.25) (0.39) (0.45) (0.46) (1.55)
Net earnings (loss)
per common share...... (1.04) (0.32) (0.12) 1.19 (0.29)
Year ended June 30, 1993:
Net sales................ $30,730 $27,790 $22,508 $27,405 $108,433
Gross profit............. 11,820 7,813 5,064 7,454 32,151
Loss from continuing
operations.............. (1,728) (6,499) (8,304) (6,465) (22,996)
Net loss................. (2,691) (7,899) (8,032) (6,613) (25,235)
Loss per common share:
Continuing operations... (0.16) (0.43) (0.53) (0.42) (1.54)
Net loss per common share (0.21) (0.51) (0.51) (0.44) (1.67)
- - ----------
The amounts shown above, other than for the quarter ended June 30, 1994,
have been restated to report separately the results of continuing and
discontinued operations.
See Note C above for gains (losses) from disposition of divisions which
affected the results of operations for certain of the quarters shown above.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
United Merchants and Manufacturers, Inc.:
We have audited the consolidated balance sheets of United Merchants and
Manufacturers, Inc. and subsidiaries as of June 30, 1994 and 1993 and the
related consolidated statements of operations and cash flows for each of
the years in the three-year period ended June 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Merchants and Manufacturers, Inc. and subsidiaries at June 30, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 1994, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that United Merchants and Manufacturers, Inc. will continue as a
going concern. As discussed in Note A to the consolidated financial
statements, the Company's recurring losses from operations, net deficiency
in stockholders' equity and the significant debt raise substantial doubt
about its ability to continue as a going concern. Management's discussion
with regard to these matters is also included in Note A. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note L of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for postretirement benefits other
than pensions by adopting Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions".
KPMG PEAT MARWICK LLP
New York, New York
September 21, 1994
F-25
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
FORM 10K
INDEX TO EXHIBITS
Certain exhibits to this report on Form 10-K have been incorporated by
reference. For a list of these exhibits see Item 14 hereof.
The following exhibits are being filed herewith:
Exhibit No.
(10) Material Contracts:
a) Sidney O. Margolis - employment agreement is incorporated by
reference to Exhibit 10 of Form 10-K filed by the Registrant for
the year ended June 30, 1986. Amendment to employment agreement
dated June 9, 1989 is incorporated by reference to Exhibit 10 of
Form 10-K filed by the Registrant for the year ended June 30,
1989. Amendment to employment agreement dated July 22, 1992 is
incorporated herein by reference to Exhibit 10 of Form 10-K filed
by the registrant for the year ended June 30, 1992.
b) Judith A. Nadzick - employment agreement is incorporated by
reference to Exhibit 10 of Form 10-K filed by the Registrant for
the year ended June 30, 1987. Amendments to employment agreement
dated December 6, 1991 and July 22, 1992 are incorporated herein
by reference to Exhibit 10 of Form 10-K filed by the registrant
for the year ended June 30, 1992.
c) Uzi Ruskin - employment agreement is incorporated by reference to
Exhibit 10 of Form 10-K filed by the Registrant for the year ended
June 30, 1986. Amendment to employment agreement dated August 21,
1991 is incorporated by reference to Exhibit 10 of Form 10-K filed
by the Registrant for the year ended June 30, 1991.
(22) Subsidiaries of the Registrant................................. E-2
(27) Financial Data Schedule as of and for the year ended june 30, 1994
is filed herewith as Exhibit E-3.
E-1
<PAGE>
EXHIBIT 22
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Percentage
State or of Voting
Jurisdiction Securities
of Incorporation Owned
---------------- ----------
Victoria Creations, Inc. ................... Rhode Island 79%
The foregoing subsidiary is included in the consolidated financial
statements of the Company. A number of inactive and other subsidiaries
(all of which, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary) have been omitted from the above
list.
E-2
<PAGE>
[ARTICLE] 5
[CIK] 0000101357
[NAME] UNITED MERCHANTS AND MANUFACTURERS, INC.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1994
[PERIOD-END] JUN-30-1994
[CASH] 662
[SECURITIES] 0
[RECEIVABLES] 17,658
[ALLOWANCES] 2,372
[INVENTORY] 24,760
[CURRENT-ASSETS] 42,534
[PP&E] 37,447
[DEPRECIATION] 26,327
[TOTAL-ASSETS] 83,562
[CURRENT-LIABILITIES] 14,448
[BONDS] 80,559
[COMMON] 17,845
[PREFERRED-MANDATORY] 0
[PREFERRED] 450
[OTHER-SE] 64,674
[TOTAL-LIABILITY-AND-EQUITY] 83,562
[SALES] 98,259
[TOTAL-REVENUES] 98,259
[CGS] 68,844
[TOTAL-COSTS] 68,844
[OTHER-EXPENSES] 40,449
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 12,107
[INCOME-PRETAX] (23,141)
[INCOME-TAX] 100
[INCOME-CONTINUING] (23,241)
[DISCONTINUED] 4,392
[EXTRAORDINARY] 33,400
[CHANGES] (15,303)
[NET-INCOME] (752)
[EPS-PRIMARY] (0.29)
[EPS-DILUTED] (0.29)
</TABLE>
