SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
Commission File # 1-3185
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1426280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Palisade Avenue, Teaneck, N.J. 07666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 837-1700
Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ]
As of May 10, 1994, there were 17,845,000 shares of Common Stock, Par
Value $1 per share, outstanding.
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UNITED MERCHANTS AND MANUFACTURERS, INC.
AND SUBSIDIARIES
FORM 10-Q
- I N D E X -
Page
Number
Part I Financial Information
Consolidated Statement of Operations.............................. 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 4
Consolidated Balance Sheet........................................ 7
Consolidated Statement of Cash Flows.............................. 8
Notes to Consolidated Financial Statements........................ 9
Part II Other Information
Items............................................................. 16
Signatures........................................................ 16
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PART I - FINANCIAL INFORMATION
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000 omitted)
-----------------------------------------
Three Months Ended Nine Months Ended
March 31 March 31
------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- ---------
Net sales........................ $37,979 $41,153 $128,089 $145,913
Cost of sales.................... 30,058 33,735 98,495 112,750
Selling, general and
administrative expenses......... 11,120 12,386 34,868 41,944
Loss on termination of certain
operations (Note B)............. 463 1,596
--------- --------- --------- ---------
Operating Loss ($3,199) ($5,431) ($5,274) ($10,377)
Interest expense................. (3,084) (2,946) (9,352) (9,083)
Gain on sale of division......... 5,103 5,103
Other income .................... 86 4 1,325 299
Minority interest in net losses
of subsidiary................... 19 366 405 616
Provision for income taxes....... (25) (25) (75) (77)
--------- --------- --------- ---------
Loss before Change in
Accounting Principle ($1,100) ($8,032) ($7,868) ($18,622)
Cumulative effect of change in
accounting principle for post-
retirement benefits other than
pensions - no income tax effect
(Note C)........................ (15,303)
--------- --------- --------- ---------
Net Loss ($1,100) ($8,032) ($23,171) ($18,622)
Dividends applicable to preferred
stock (Note E).................. 1,125 1,125 3,375 3,375
--------- --------- --------- ---------
Net Loss Applicable
to Common Shares ($2,225) ($9,157) ($26,546) ($21,997)
========= ========= ========= =========
Average common shares outstanding 17,845 17,845 17,845 17,845
Loss per common share:
Before change in accounting
principle...................... ($0.12) ($0.51) ($0.63) ($1.23)
Change in accounting principle. (0.86)
--------- --------- --------- ---------
Net Loss per Common Share ($0.12) ($0.51) ($1.49) ($1.23)
========= ========= ========= =========
-------------------
The accompanying notes are an integral part of these financial statements.
3
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales of United Merchants and Manufacturers, Inc.
("UM&M" or the "Company") decreased by $3,174,000 and $17,824,000 in the
quarter and nine months ended March 31, 1994, respectively, as compared to
last year's third fiscal quarter and first nine months. These decreases
were primarily attributable to the sale or termination of certain of the
Company's operations during or subsequent to the end of last year's third
fiscal quarter. On a comparable basis, excluding the sales of operations
sold or terminated from the current and prior years' sales, net sales for
the quarter ended March 31, 1994 decreased by $626,000 as compared to the
same quarter last year and net sales for this year's nine-month period
decreased by $2,456,000 over the same period last year. On a comparable
basis, the Company's apparel textiles segment reported decreased sales in
the current year's third quarter and nine months as compared to the same
periods last year reflecting decreased unit sales for all product lines,
offset to some extent, by higher average selling prices. On a comparable
basis, net sales of the Company's home furnishings segment were
approximately the same in the current year's quarter as in last year's
quarter and increased in this year's nine-month period as compared to the
same period last year, primarily reflecting certain new programs as well
as sales to new customers. The apparel segment, consisting of the
Company's retail outlet store operation, experienced decreased sales in
the current year's quarter and nine months as compared to last year's
comparable periods, as the result of continued depressed consumer
spending. Net sales of the Company's accessories segment increased for
the three and nine months ended March 31, 1994 as compared to the same
periods last year reflecting increased consumer interest in the segment's
branded merchandise as well as continued increased sales of private label
merchandise.
For the quarter and nine months ended March 31, 1994, the Company
reported operating losses of $3,199,000 and $5,274,000, respectively, as
compared to operating losses of $5,431,000 and $10,377,000, respectively,
for the same periods last year. Operating results for last year's quarter
and nine-month period include losses of $463,000 and $1,596,000,
respectively, from the termination of certain operations. The apparel
textiles segment's greige fabrics operation reported an operating loss in
the current year's quarter which was approximately the same as in the same
quarter last year despite decreased sales, reflecting improved margins and
manufacturing performance. Despite the loss for the current year's
quarter, that operation reported an operating profit for the current
nine-month period as compared to an operating loss in last year's
comparable period, primarily as the result of higher margins and improved
manufacturing performance. Despite a decrease in net sales in the current
year's quarter as compared to last year's quarter, the Company's apparel
segment reported decreased operating losses this year, primarily
reflecting improved profit margins. For the current year's nine months,
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that segment reported increased operating losses as compared to the same
period last year as the benefit of improved margins in this year's third
quarter was more than offset by the impact of the decreased sales in this
year's nine-month period discussed above. The accessories segment reported
improved operating results in the current year periods, primarily as the
result of the increase in volume referred to above, improved gross profit
margins resulting from increased sales of designer merchandise in the
current quarter, which carries a higher gross margin than private label
merchandise, and management's efforts to control selling, general and
administrative expenses. Results for the current year's nine months were
also positively impacted by the disposition of the home furnishings
segment's cut and sew operation and the apparel segment's swimwear
operation during last year's second quarter.
Interest expense increased slightly in the current year's quarter and
nine months over the same periods last year as the result of slightly
increased average borrowings under the Company's revolving loan agreements
with its factor.
The net results for the current year's quarter and nine months
includes a gain of $5,103,000 on the sale by the Company of the Uniblend
yarn division of its apparel textiles segment.
The net results for the nine months ended March 31, 1994 include an
non-recurring, non-cash charge of $15,303,000 representing the cumulative
effect of a change in accounting principle for postretirement benefits
other than pensions. See Note C of Notes to Consolidated Financial
Statements for further discussion of this change.
LIQUIDITY AND CAPITAL RESOURCES
During recent years and for the nine months ended March 31, 1994, the
Company has incurred significant losses from operations and as of
March 31, 1994 has a stockholders' equity deficit. As of June 30, 1994,
the Company's independent auditors' report stated that recurring losses
from operations, the stockholders' equity deficit and the significant debt
owed by the Company to its factor raise substantial doubt as to the
Company's ability to continue as a going concern. The Company's financial
statements have been prepared assuming that the Company will continue as a
going concern and do not include any adjustments that might result from
the outcome of this uncertainty.
During the first nine months of fiscal 1994, the Company depended
primarily on borrowings to finance its operations. In March 1994, it
reduced its borrowings from its factor with the proceeds from the sale of
a division. The amounts which the Company borrows from its factor
fluctuate based on the Company's cash availability or requirements. On
November 18, 1993, the Company reached certain agreements with its
factor. Under the agreements, the Company agreed to reduce its
indebtedness to the factor to certain targeted amounts over periods of
time ending on March 31, 1994 (which targets were met) and June 30, 1994,
respectively. The factor has agreed that if the Company meets those
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targets and satisfies certain other requirements, it will accept in full
satisfaction of the balance of the Company's indebtedness to it a
long-term subordinated note as detailed in the agreement. At March 31,
1994, the Company's indebtedness to its factor aggregated approximately
$102,000,000. Although the Company will endeavor to meet the requirements
set out in the agreements, it can provide no assurance it will be able to
do so.
On May 9, 1994, the Company sold substantially all of the assets,
other than accounts receivable, and business, as a going concern, of its
Clarkesville Mill division. The proceeds from the transaction were, and
the collection of accounts receivable will be, used to reduce the
Company's indebtedness to its factor. See Note J of Notes to Financial
Statements for further information regarding this sale.
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.
See Note I of Notes to Consolidated Financial Statements for the
current status of the Company's litigation with the ILGWU National
Retirement Fund.
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UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
March 31 June 30
1994 1993
ASSETS --------- ---------
Current Assets:
Cash.................................................. $794 $1,057
Receivables, net of allowances of $2,348,000 at
March 31, 1994 and $2,707,000 at June 30, 1993....... 21,109 26,186
Inventories (Note H).................................. 29,773 34,714
Prepaid expenses and other current assets............. 2,163 2,272
--------- ---------
Total Current Assets $53,839 $64,229
Property, Plant and Equipment.......................... $49,202 $70,492
Less accumulated depreciation and amortization........ 34,226 46,156
--------- ---------
$14,976 $24,336
Goodwill............................................... 21,563 22,103
Other Assets and Deferred Charges (Note H)............. 16,607 17,310
--------- ---------
$106,985 $127,978
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Loans payable to factor (Note F)...................... $101,725 $110,904
Current maturities of long-term debt (Note G)......... 959
Trade payables........................................ 6,346 6,542
Accrued expenses and sundry liabilities (Note H)...... 10,380 10,479
--------- ---------
Total Current Liabilities $118,451 $128,884
Long-Term Debt, net of current maturities (Note G)..... 21,110 21,702
Other Long-Term Liabilities (Note H)................... 18,391 4,783
Minority Interest...................................... 1,904 2,309
Stockholders' Equity (Deficit):
Preferred stock, par value $1 per share; 10,000,000
shares authorized; 450,000 shares outstanding........ $450 $450
Common stock, par value $1 per share: 40,000,000
shares authorized; 17,845,000 shares outstanding
(excluding 22,800 shares held in treasury)........... 17,845 17,845
Capital in excess of par value........................ 64,674 64,674
Retained earnings (deficit)........................... (130,893) (107,722)
Unrealized pension liability adjustment............... (947) (947)
Notes receivable arising from stock purchase agreement (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($52,871) ($29,700)
--------- ---------
$106,985 $127,978
========= =========
-------------------
The accompanying notes are an integral part of these financial statements.
7
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (000 omitted)
-------------------
Nine Months Ended
March 31
-------------------
1994 1993
--------- ---------
Cash Flows from Operating Activities:
Net loss.............................................. ($23,171) ($18,622)
Adjustments to reconcile net loss to net cash
used for operating activities:
Change in accounting principle for post-retirement
benefits other than pensions....................... 15,303
Depreciation and amortization....................... 4,304 4,808
Minority interest................................... (405) (197)
Amortization of bond discount....................... 585 505
Loss on termination of certain operations........... 2,725
Less cash on termination of certain operations..... (1,653)
(Gain) on sale of division.......................... (5,103)
Decrease (increase) in assets:
Receivables.......................................... 5,077 3,083
Inventories.......................................... (166) (1,261)
Prepaid expenses and other current items............. (306) (230)
Other assets......................................... 616 1,260
Increase (decrease) in liabilities:
Trade payables ...................................... (196) (3,242)
Accrued expenses and sundry liabilities.............. 695 (2,227)
Other long-term liabilities.......................... (1,695) (2,269)
--------- ---------
Net Cash Used for Operating Activities ($4,462) ($17,320)
Cash Flows from Investing Activities:
Additions to property, plant and equipment............ ($2,651) ($1,954)
Dispositions of property, plant and equipment......... 32 242
Sales of divisions:
Proceeds from sale of divisions...................... 17,881 13,982
Non-cash proceeds - receivables...................... 252 (5,545)
--------- ---------
Net Cash Provided by Investing Activities $15,514 $6,725
Cash Flows from Financing Activities:
Increase (decrease) in loans payable to factor........ ($9,179) $10,439
Decrease in long-term debt............................ (2,136) (1,338)
Proceeds from sale of stock by subsidiary............. 38
--------- ---------
Net Cash Provided by (Used for) Financing Activities ($11,315) $9,139
--------- ---------
Decrease in Cash ($263) ($1,456)
Cash at beginning of period............................ 1,057 2,478
--------- ---------
Cash at end of period $794 $1,022
------------------- ========= =========
Supplemental disclosures of cash flow information:
Interest.............................................. $9,430 $9,277
Income Taxes.......................................... 75 77
The accompanying notes are an integral part of these financial statements.
8
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND LIQUIDITY
Basis of Presentation - The accompanying consolidated financial statements
of United Merchants and Manufacturers, Inc. ("UM&M" or the "Company") and
its subsidiaries have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. The results of operations of interim periods are
subject to year-end audit and adjustments and are not necessarily
indicative of the results of operations of the fiscal year. For further
information, refer to the consolidated financial statements and footnotes
included thereto in the Company's Annual Report on Form 10-K for the year
ended June 30, 1993.
Liquidity - During each of the three years ended June 30, 1993 and for the
current nine months, the Company has incurred significant losses from
operations and as of March 31, 1994 has a stockholders' equity deficit.
As of June 30, 1993, the Company's independent auditors' report stated
that the recurring losses from operations, stockholders' equity deficit
and the significant debt owed by the Company to its factor (see Note F -
Loans Payable to Factor - regarding the agreements reached on November 18,
1993 by the Company with its factor) raise substantial doubt as to the
Company's ability to continue as a going concern. The consolidated
financial statements have been prepared assuming that the Company will
continue as a going concern and do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE B - DISPOSITIONS AND TERMINATIONS OF CERTAIN OPERATIONS
During the quarter ended 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 of its apparel textiles segment.
The sale resulted in a gain of approximately $5.1 million. The proceeds
from the transaction, along with the collection of the accounts receivable
of the operation, 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 of $1.5
million during the six months ended June 30, 1993, of $3.8 million. This
loss was partially offset by sale of assets of a business previously
discontinued for $1.1 million more than the Company's carrying value of
these assets. Also during the quarter ended December 31, 1992, the
Company consummated the sale of the swimwear and the children's slip and
sleepwear operations of its Apparel segment. The Company recognized no
gain or loss on the sale of these two operations.
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Net sales and operating losses include net sales of the above mentioned
operations sold or closed prior to disposition of $11.6 million and
$14.2 million for the three months and $38.2 million and $53.6 million for
the nine months ended March 31, 1994 and 1993 and operating income of
$0.5 million and $0.7 million for the three months and operating income of
$2.0 million and operating losses of $1.2 million for the nine months
ended March 31, 1994 and 1993, respectively.
NOTE C - CHANGE IN ACCOUNTING PRINCIPLE FOR POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS
In addition to pension plans, the Company provides certain health care and
life insurance benefits for some retired employees. Only employees of its
Apparel Textiles and its Home Furnishings Segments who joined the Company
prior to January 1, 1988 are eligible for these postretirement benefits.
Salaried employees of these segments become eligible for the health care
and life insurance benefits as they retire from active employment; hourly
employees of these segments become eligible for life insurance benefits as
they retire. The health care benefits are provided under an unfunded
Company-sponsored plan which contains cost sharing features such as
deductibles and coinsurance. Employees who retire prior to age 65 but are
otherwise eligible for health care benefits may elect coverage under the
plan by paying "premiums" which approximate the Company's average cost for
these health care benefits. The retiree life insurance plan is
noncontributory; the Company pays premiums on an annual basis for the
coverage. The Company may amend or change these plans periodically.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The statement requires accrual of the cost
of providing postretirement benefits, including medical and life insurance
coverage, during the active service period of the employee rather than the
pay-as-you-go (cash) basis which the company used prior to adoption. The
company elected to immediately recognize the accumulated postretirement
benefit obligation (the "APBO") equal to the discounted present value of
expected future benefit payments attributed to employees service rendered
prior to July 1, 1993. This resulted in a one-time, non-cash charge
against earnings of $15.3 million. The discount rate used in determining
the APBO was 7.5%. The adoption of the new accounting principle will not
effect the Company's cash outlay for retiree benefits. The Company will
continue to evaluate ways in which it can better manage these benefits and
control the costs.
The details of the APBO at July 1, 1993 were as follows:
(000 omitted)
July 1
1993
--------
Retirees...................................................... $ 13,941
Fully eligible active plan participants....................... 411
Other active plan participants................................ 951
--------
Total APBO $ 15,303
========
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The net periodic postretirement benefit cost for the first nine months of
fiscal 1994 is as follows: (000 omitted)
Nine Months
Ended March 31
1994
--------
Service cost.................................................. $ 42
Interest cost on APBO......................................... 790
--------
Net periodic postretirement benefit cost $ 832
========
Postretirement benefit cost on a pay-as-you-go basis totaled $ 876,000 for
the nine months ended March 31, 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 each of the 1994 and
1995 fiscal years, then by 8.6% a year to the year 2000 and then by 7.3% a
year to the year 2010. A one percent increase in the health care cost
trend rates assumed would have increased the APBO at July 1, 1993 and the
net periodic postretirement benefit cost by 8%.
NOTE D - INCOME TAXES
The provisions for income taxes for the three and nine months ended
March 31, 1994 and 1993 varied from the expected relationship to loss
before income taxes since the operating losses did not result in income
tax benefits. The provisions consist of amounts for state and local
income taxes.
NOTE E - DIVIDENDS APPLICABLE TO PREFERRED STOCK
The Company has not declared nor paid any cash dividends on its 10%
Cumulative Preferred Stock in order to retain its available cash for use
in its operations. For financial statement purposes, cumulative preferred
dividends are deducted from the results of operations in determining
earnings applicable to common shares whether or not such dividends are
declared or paid.
NOTE F - LOANS PAYABLE TO FACTOR
The amounts borrowed from the factor fluctuate based on the Company's cash
availability or requirements. The loans are secured by substantially all
of the Company's assets.
At March 31, 1994, $60.0 million of the loans bear interest at 8 1/2% a
year and the balance of the loans bear interest at 2% over a bank's
reference rate. The loans are due on demand; however, effective July 1,
1992, as a condition to continuing the financing arrangements, the factor
required the Company to enter into an agreement under which a mandatory
payment of $20 million was due on or before December 31, 1992, an
additional $20 million was due on or before March 31, 1993 and an
additional $20 million was due on or before September 30, 1993. The
Company was unable to make the payments required. Notwithstanding the
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non-payments, the factor continued to make advances to the Company in
order for the Company to meet its ordinary and necessary business expenses
and subsequently waived the defaults.
On November 18, 1993, the Company reached certain agreements with its
factor. Under the agreements, the Company agreed to reduce its
indebtedness to the factor to certain targeted amounts over periods of
time ending on March 31, 1994 (which targets were met) and June 30, 1994,
respectively. The factor has agreed that if the Company meets those
targets and satisfies certain other requirements, it will accept in full
satisfaction of the balance of the Company's indebtedness to it a
long-term subordinated note as detailed in the agreement. At March 31,
1994, the Company's indebtedness to its factor aggregated approximately
$101.7 million. Although the Company will endeavor to meet the balance of
the requirements set out in the agreements, it can provide no assurance it
will be able to do so. For further information, see the agreement filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for the three
months ended September 30, 1993.
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following: (000 omitted)
------------------
March 31 June 30
1994 1993
-------- --------
3 1/2% Senior Subordinated Secured Debentures
due 2009 (net of unamortized discount of
$48,032,000 and $48,617,000 at March 31,
1994 and June 30, 1993, respectively)............ $ 21,110 $ 20,525
Capitalized leases................................ 0 2,136
-------- --------
Total Long-Term Debt $ 21,110 $ 22,661
Less current maturities........................... 0 959
-------- --------
$ 21,110 $ 21,702
======== ========
NOTE H - SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
March 31 June 30
1994 1993
-------- --------
Inventories:
Raw materials...................................... $ 6,964 $ 9,030
Work in process.................................... 4,726 5,795
Finished goods..................................... 18,083 19,889
-------- --------
$ 29,773 $ 34,714
======== ========
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(000 omitted)
------------------
March 31 June 30
1994 1993
-------- --------
Other assets and deferred charges:
Long-term assets held for sale...................... $ 5,206 $ 5,938
Note receivable from sale of divisions.............. 5,050 5,050
Deferred pension cost............................... 3,434 3,374
Interest receivable - sale of stock................. 1,680 1,606
Deposits............................................ 501 505
Other............................................... 736 837
-------- --------
$ 16,607 $ 17,310
======== ========
Accrued expenses and sundry liabilities:
Accrued compensation expenses....................... $ 1,819 $ 2,019
Accrued insurance................................... 326 1,345
Accrued workers compensation........................ 1,338 2,173
Accrued taxes other than payroll.................... 1,448 1,375
Accrued interest.................................... 605
Accrued shutdown costs.............................. 692 674
Accrued pension liability........................... 1,222 822
Postretirement benefits other than pension.......... 1,108
Other............................................... 1,822 2,071
-------- --------
$ 10,380 $ 10,479
======== ========
Other long-term liabilities:
Postretirement benefits other than pension.......... $ 14,195
Deferred pension liability.......................... 3,667 $ 3,888
Deferred shutdown costs............................. 260 562
Other............................................... 269 333
-------- --------
$ 18,391 $ 4,783
======== ========
NOTE I - LEGAL PROCEEDINGS
On November 2, 1990, the Company and two of its subsidiaries ("Debtors")
filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. On May 9, 1991, the Debtors filed a Reorganization Plan (the
"Plan") and related Disclosure Statement with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). The Plan
became effective August 26, 1991 (the "Effective Date").
In an ongoing 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
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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 B 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.
While representatives of the Company and the Fund conducted settlement
discussions in the summer and early fall of 1992 and in April 1993, no
such discussions are currently ongoing. On September 29, 1992, the
Bankruptcy Court advised the parties that it would proceed to a decision
on the issue of whether the Fund's claim was subject to discharge pursuant
to the confirmation order. That court also indicated that, pending this
determination, further proceedings on the Fund's claim and the Company's
objection thereto would be held in abeyance. On April 21, 1993, the
Bankruptcy Court also entered a stipulated order preventing the Fund from
pursuing any proceedings in connection with the alleged withdrawal
liability of the Company until that court or the United States District
Court for the District of Delaware (the "District Court") entered an order
deciding the issue of whether the Fund's claim was subject to discharge
pursuant to the confirmation order.
On February 24, 1994, the Fund notified Victoria Creations, Inc. ("VCI),
the Company's 79% owned subsidiary, that the Fund believes that VCI is
also liable for the withdrawal liability asserted by the Fund (see above)
against the Company (which the Company disputes) and demanded payment by
VCI. In seeking withdrawal liability from VCI, the Fund has asserted that
VCI should be treated under terms of the Act as subject to the "common
control" of its parent, the Company, and hence jointly and severally
liable for whatever withdrawal liability can be asserted against the
Company. Both the Company and VCI disagree with the Fund's assertion and
implication. On March 14, 1994, the Company filed a motion in the
Bankruptcy Court to prevent the Fund from taking any steps to assess or
collect any withdrawal liability of the Company against VCI; that matter
is presently scheduled to be heard by the Bankruptcy Court on May 13,
1994.
On April 18, 1994, the Bankruptcy Court held that the Fund's contingent
withdrawal liability claim was not discharged under the confirmation
order. If that decision is not reversed or modified on appeal, the
disputed claim of the Fund for withdrawal liability will, if valid,
constitute a liability of the reorganized Company. The Bankruptcy Court
did not rule on the merits of the Fund's asserted withdrawal liability
claim. On April 22, 1994, the Company filed an appeal from the Bankruptcy
Court's April 18, 1994 ruling to the District Court. Also, on April 25,
1994, the Bankruptcy Court granted the Company's motion for a stay pending
the appeal from the April 18, 1994 ruling, which stay will expire ten days
after the appeal has been docketed unless the stay is further extended by
the District Court. The Company intends to seek a further stay in the
District Court.
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The Company is a defendant in various other lawsuits. It is not expected
that these suits will result in judgements which in the aggregate would
have a material adverse effect on the Company's financial position.
NOTE J - SUBSEQUENT EVENT
On May 9, 1994, the Company sold, to an unrelated company, substantially
all of the assets (other than accounts receivable) and business, as a
going concern, of its Clarkesville Mill division. The value of this
transaction is estimated to be approximately $16.3 million in cash to the
Company, including collection of the accounts receivable retained by the
Company and the assumption by the purchaser of certain liabilities of the
operation. The Clarkesville Mill operations had net sales of
approximately $22 million for the year ended June 30, 1993 and $14 million
for the nine months ended March 31, 1994. At March 31, 1994, these
operations had net assets of approximately $12.9 million.
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UNITED MERCHANTS AND MANUFACTURERS, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Information required under this item is contained in Part I,
Notes F and G of Notes to Consolidated Financial Statements,
which are incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Registrant)
Date: May 12, 1994 By /s/ Norman R. Forson
Norman R. Forson
Senior Vice President and
Corporate Comptroller
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