UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-2433
SALANT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3402444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 221-7500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
As of May 11, 1994, there were outstanding 13,923,236 shares of the
Common Stock of the registrant.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations.........
Condensed Consolidated Balance Sheets...................
Condensed Consolidated Statements of
Cash Flow..............................................
Notes to Condensed Consolidated Financial Statements....
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................
Item 6. Exhibits and Reports on Form 8-K.................
SIGNATURE.................................................
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION> Three Months Ended
------------------
April 2, April 3,
1994 1993
---------- ----------
<S> <C> <C>
Net sales $ 91,346 $ 95,057
Cost of goods sold 68,768 72,968
---------- ----------
Gross profit 22,578 22,089
Royalty income, net of related
expenses 1,525 1,738
Selling, general and
administrative expenses 19,561 19,805
Bankruptcy administration
expenses - 2,740
--------- ---------
Income from operations
before interest and income taxes 4,542 1,282
Interest expense, net 3,389 799
--------- ---------
Income from operations
before income taxes 1,153 483
Income taxes 68 73
--------- ---------
Net income $ 1,085 $ 410
========= =========
Net income per share $ 0.07 $ 0.10
========= =========
Weighted average common stock
and common stock equivalents
outstanding (Note 1)
15,137 3,957
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
April 2, April 3,
1994 January 1, 1993
(Unaudited) 1994 (Unaudited)
----------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,074 $ 2,157 $ 1,694
Accounts receivable, net 48,427 37,382 51,864
Inventories (Note 3) 112,628 104,513 115,575
Prepaid expenses and other current
assets 3,695 4,420 3,913
--------- --------- ---------
Total Current Assets 166,824 148,472 173,046
Property, plant and equipment, net 26,916 27,493 28,960
Other assets 76,748 77,425 79,385
--------- --------- ---------
Total Assets $ 270,488 $ 253,390 $ 281,391
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY)
Current Liabilities:
Accounts payable $ 24,744 $ 21,777 $ 21,961
Loans payable 21,968 - 20,578
Accrued liabilities 13,576 22,056 19,355
Current portion of long term debt
(Note 4) 3,600 - -
Reserve for business restructuring 1,155 2,038 16,249
--------- --------- ---------
Total Current Liabilities 65,043 45,871 78,143
Long term debt 108,251 111,851 -
Deferred liabilities 16,762 16,766 2,504
Liabilities deferred pursuant to
chapter 11 cases - - 264,846
Shareholders' Equity/(Deficiency):
Common stock-issued and issuable 15,212 15,016 3,698
Additional paid-in capital 106,976 106,726 17,702
Deficit <39,376> <40,461> <83,759>
Excess of additional pension liability
over unrecognized prior service cost
adjustment <986> <986> <353>
Accumulated foreign currency translation
adjustment 220 221 224
Less - treasury stock, at cost <1,614> <1,614> <1,614>
--------- --------- ---------
Total Shareholders' Equity/(Deficiency) 80,432 78,902 <64,102>
--------- --------- --------
Total Liabilities and Shareholders'
Equity/(Deficiency) $ 270,488 $ 253,390 $ 281,391
========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
1994 1993
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Income from operations $ 1,085 $ 410
Adjustments to reconcile income from operations
to net cash used in operating activities:
Depreciation 1,288 1,467
Amortization of intangibles 616 616
Change in assets and liabilities:
Accounts receivable <11,045> <12,965>
Inventories <8,115> <10,429>
Prepaid expenses and other current assets 725 29
Other assets 22 <40>
Accounts payable 2,967 1,092
Accrued liabilities and reserve for business
restructuring <9,241> 1,748
Deferred liabilities <4> 42
---------- ----------
Net cash used in operating activities <21,702> <18,030>
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures, net <835> <1,429>
Proceeds from sale of assets 40 -
---------- ----------
Net cash used in investing activities <795> <1,429>
---------- ----------
Cash Flows from Financing Activities:
Net short-term borrowings 21,968 20,578
Repayment of pre-petition secured debt - <2,126>
Exercise of stock options 446 -
---------- ----------
Net cash provided by financing activities 22,414 18,452
---------- ----------
Net decrease in cash and cash equivalents <83> <1,007>
Cash and cash equivalents - beginning of year 2,157 2,701
---------- ----------
Cash and cash equivalents - end of quarter $ 2,074 $ 1,694
========== ==========
</TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
Supplemental disclosures of cash flow April 2, April 3,
information:
Cash paid during the year for: 1994 1993
---------- ----------
<S> <C> <C>
Interest $ 6,436 $ 850
Income taxes $ 50 $ 49
Conversion of accrued liabilities to
liabilities deferred
pursuant to chapter 11 cases $ 552
</TABLE>
See Notes to Condensed Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Thousands of Dollars Except Share Data)
(Unaudited)
Note 1. Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial
Statements include the accounts of Salant Corporation ("Salant")
and subsidiaries (collectively, the "Company").
The results of operations for the three months ended April 2, 1994
and April 3, 1993 are not necessarily indicative of a full year's
operations. In the opinion of management, the accompanying
financial statements include all adjustments which are necessary to
present fairly such financial statements. Significant intercompany
balances and transactions are eliminated in consolidation.
Certain reclassifications were made to the 1993 unaudited Condensed
Consolidated Financial Statements to conform with the 1994
presentation.
Income per share is based on the weighted average number of common
shares (including shares to be issued pursuant to the Company's
plan of reorganization) and common share equivalents outstanding
during the three months ended April 2, 1994 and April 3, 1993.
Note 2. Discontinued Operations Subsequently Retained
In March 1993, the Company adopted a formal plan to restructure and
sell the Salant Children's Apparel Group (formerly referred to as
the Obion Denton division), which manufactures children's
sleepwear. Consequently, the division was accounted for as a
discontinued operation for fiscal 1992 and the first three quarters
of fiscal 1993. In March 1994, the Company concluded that the
value of the division would be maximized by retaining the Salant
Children's Apparel Group as part of its continuing operations. As
a result, the assets, liabilities and results of operations of the
Salant Children's Apparel Group for all periods have been presented
as continuing operations.
The following is a summary of certain selected financial data for
the Salant Children's Apparel Group during the period in which it
was reported as a discontinued operation.
<TABLE>
<CAPTION>
April 3, 1993
<S> <C>
Total assets $ 28,336
Total liabilities 13,669
Quarter Ended
April 3, 1993
Net sales $ 3,289
Operating loss <660>
</TABLE>
Note 3. Inventories
April 2, January 1, April 3,
1994 1994 1993
------------- ------------ ----------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Finished goods................ $ 72,429 $ 60,686 $ 71,101
Work-in-process............... 24,669 27,661 24,386
Raw materials and supplies.... 15,530 16,166 20,088
-------- -------- --------
$112,628 $104,513 $115,575
======== ======== ========
Note 4. Current Portion of Long Term Debt
In May 1994, the Company purchased $3,600 of its 10 1/2% Senior Secured Notes
due December 31, 1998 (the "Secured Notes") in an open market transaction at
below par. The purchased Secured Notes will be retired. Consequently, the
purchased Secured Notes have been classified as the current portion of long
term debt on the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of the consolidated results
of operations and financial condition should be read in conjunction
with the accompanying unaudited Condensed Consolidated Financial
Statements and related Notes to provide additional information
concerning the financial activities and condition of Salant
Corporation ("Salant") and its subsidiary companies (collectively,
the "Company").
Results of Operations
The following discussion compares the operating results of the
Company for the three months ended April 2, 1994 with the operating
results for the three months ended April 3, 1993. As announced in
March 1994, the Company determined to retain and continue to
operate its Children's Apparel Group (formerly referred to as the
Obion Denton Division). Consequently, the Company's financial
statements include the results of operations of that division in
the results of operations for the quarter. Operating results for
the three months ended April 3, 1993 (which had reflected the
Children's Apparel Group in discontinued operations) have been
adjusted accordingly.
First Quarter 1994 Compared to First Quarter 1993
For the first quarter of 1994, the Company reported net sales of
$91.3 million, a decrease of 3.9% from net sales of $95.1 million
in the comparable 1993 period. The decrease in net sales was
attributable primarily to a reduction in sales of dress shirts,
consistent with the general weakness in the U.S. dress shirt
market, and lower sales of denim-based products. Management does
not anticipate a significant improvement in the U.S. dress shirt
market in the next six months.
During the first quarter of 1994, the Company negotiated a series
of licenses for the GANT and SALTY DOG names for use in dress
shirts, neckwear and small leather goods exclusively by the Company
in the United States. The licensor, Crystal Brands, is operating
under Chapter 11 of the U.S. Bankruptcy Code and, accordingly, the
licenses are subject to bankruptcy court approval.
Gross profit as a percentage of net sales increased to 24.7% ($22.6
million) in the first quarter of 1994 from 23.2% of net sales
($22.1 million) in the comparable 1993 quarter. The increase in
gross profit as a percentage of net sales was primarily the result
of increased gross profit margins on sales of children's sleepwear,
and denim-based products and improved margins at the Company's
retail stores division.
Selling, general and administrative expenses for the first quarter
of 1994 amounted to $19.6 million (21.4% of net sales), as compared
to the first quarter of 1993, when such expenses amounted to $19.8
million (20.8% of net sales).
Royalty income (net of related expenses) for the first quarter of
1994 was $1.5 million, a reduction of $0.2 million from the $1.7
million in the first quarter of 1993.
There were no bankruptcy administration expenses for the first
quarter of 1994, compared with $2.7 million incurred in the
comparable 1993 period.
Income from operations before interest and income taxes amounted to
$4.5 million in the first quarter of 1994 and included $500
thousand related to an insurance reimbursement of legal fees and
expenses incurred in prior years in connection with certain
litigation. Income from operations before interest and income taxes
in the first quarter of 1993 amounted to $1.3 million.
Net interest expense for the first quarter of 1994 amounted to $3.4
million as compared to $800 thousand in the prior year's first
quarter. During the first quarter of 1993, Salant was operating
under chapter 11 of the Bankruptcy Code and, accordingly, was not
accruing interest on its prepetition debt.
Net income for the 1994 first quarter was $1.1 million compared
with net income of $410 thousand for the first quarter of 1993.
Net income per share was $0.07 (based on a weighted average of
15,137,000 shares and common share equivalents outstanding) in the
first quarter of 1994, compared to net income per share of $0.10
(based on a weighted average of 3,957,000 shares and common share
equivalents outstanding) in the first quarter of 1993.
Liquidity and Capital Resources
In September 1993, the Company entered into a two year revolving
credit, factoring and security agreement (the "Credit Agreement")
with The CIT Group/Commercial Services, Inc. ("CIT") to provide
seasonal working capital financing, in the form of direct
borrowings and letters of credit, up to an aggregate of $120
million (subject to an asset based borrowing formula). Interest on
direct borrowings is charged monthly at an annual rate of one-half
of one percent in excess of the prime rate of Chemical Bank (which
prime rate was 6.25% at April 2, 1994). As collateral for
borrowings under the Credit Agreement, Salant has granted to CIT a
security interest in substantially all of the assets of the
Company. As of April 2, 1994, direct borrowings and letters of
credit outstanding under the Agreement were $22.0 million and $35.9
million, respectively, and the Company had unused availability of
$26.9 million. As of April 3, 1993, direct borrowings and letters
of credit outstanding under the previous financing agreement were
$20.6 million and $36.4 million, respectively and the unused
availability amounted to $2.0 million. The average interest rate
on borrowings under these financing agreements for the three months
ended April 2, 1994 and April 3, 1993 was 6.3% and 7.6%,
respectively.
In September 1993, the Company issued $111.9 million principal
amount of 10 1/2% Senior Secured Notes due December 31, 1998 (the
"Secured Notes") in conjunction with the consummation of its plan
of reorganization. In May 1994, the Company purchased, in an open
market transaction, $3.6 million of Secured Notes at less than the
principal amount thereof.
The Credit Agreement and the indenture governing the Secured Notes
contain numerous financial and operating covenants, including
restrictions on incurring indebtedness and liens, making
investments in or purchasing the stock or all or a substantial part
of the assets of another person, selling property, making capital
expenditures, and paying cash dividends. In addition, the Company
is required to maintain minimum levels of working capital and
stockholders' equity and to satisfy a ratio of total liabilities to
stockholders' equity, a fixed charge coverage ratio, and a maximum
cumulative net loss test. At April 2, 1994, the Company was in
compliance with all covenants.
During the first three months of 1994, the Company's short term
borrowings increased by $22.0 million. The primary reasons for the
increased borrowings were increases in accounts receivable of $11.0
million and increases in inventories of $8.1 million which
reflected the Company's normal seasonal pattern. During the first
three months of 1993, the Company's short-term borrowings increased
by $20.6 million.
The Company's business is seasonal in nature. As a result, the
Company's working capital requirements increase significantly
during the first three quarters of each year. Salant's principal
sources of liquidity, both on a short-term and a long-term basis,
are provided by operations and borrowings under the Credit
Agreement. Based upon its analysis of its consolidated financial
position, its cash flow during the past twelve months, and its cash
flow anticipated from future operations, Salant believes that its
future cash flow, together with the funds available under the
Credit Agreement, will be adequate to meet its seasonal working
capital and capital expenditure requirements for the next twelve
months. There can be no assurance, however, that future
developments and general economic trends will not adversely affect
the Company's operations and, hence, its anticipated cash flow.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SEC INVESTIGATION. As previously disclosed, an investigation was
conducted by the Staff of the Securities and Exchange Commission
(the "SEC") concerning the accuracy of certain statements in
Salant's Annual Report (Form 10-K) for the year ended December 30,
1989, and its Quarterly Report (Form 10-Q) for the quarter ended
March 31, 1990 (collectively, the "Two SEC Filings"). The SEC
investigation focused on management's belief, as stated in the
Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") section in the Two SEC Filings, that
Salant's then existing credit lines would have been sufficient to
meet its then working capital requirements. On May 12, 1994, the
SEC issued an order (the "Order") pursuant to Section 21C of the
Securities Exchange Act of 1934 (the "Exchange Act") finding that
Salant failed to comply with Item 303 of Regulation S-K in the MD&A
of the Two SEC Filings. The Order further stated that Salant's
former chief financial officer, Martin F. Tynan, was a cause of
such failure.
Simultaneously with the filing of the Order, and without admitting
or denying the findings contained therein, Salant and Tynan have
consented to the issuance of the Order. In addition to the findings
contained in the Order, the SEC has ordered that, pursuant to
Section 21C of the Exchange Act, Salant and Tynan cease and desist
from committing or causing any violation, and committing or causing
any future violation, of Section 13(a) of Exchange Act and Rules
12b-20, 13a-1 and 13a-13 promulgated under the Exchange Act. The
issuance of the Order has no material adverse impact on Salant.
This matter is now concluded.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended April 2, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SALANT CORPORATION
Date: May 13, 1994 /s/ Richard P. Randall
Richard P. Randall
Senior Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial
Officer)
</TABLE>
