UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 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 August 10, 1994 there were outstanding 14,416,463 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 4. Submission of Matters to a Vote of
Security Holders
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 Six Months Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $ 89,316 $ 85,918 $ 180,660 $ 180,975
Cost of goods sold 70,120 65,398 138,888 138,366
Gross profit 19,196 20,520 41,772 42,609
Royalty income, net of related expenses 1,357 1,652 2,882 3,390
Selling, general and administrative
expenses 19,271 18,773 38,832 38,578
Bankruptcy administration expenses - 2,716 - 5,456
Income from operations before
interest, taxes and extraordinary
gain 1,282 683 5,822 1,965
Interest expense, net 3,951 984 7,341 1,783
Income/(loss) from operations before
income taxes and extraordinary
gain <2,669> <301> <1,519> 182
Income taxes 71 187 139 260
Loss from operations before
extraordinary gain <2,740> <488> <1,658> <78>
Extraordinary Gain 63 - 63 -
Net loss <2,677> <488> <1,595> <78>
Loss per share:
Loss per share before extraordinary
gain $ <0.18> $ <0.14> $ <0.11> $ <0.02>
Extraordinary gain - - - -
Net loss per share $ <0.18> $ <0.14> $ <0.11> $ <0.02>
Weighted average common stock outstanding
(Note 1) 14,988 3,464 14,902 3,464
</TABLE>
See Notes to Condensed Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
July 2, July 3,
1994 January 1, 1993
(Unaudited) 1994 (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,620 $ 2,157 $ 1,600
Accounts receivable, net 41,010 37,382 42,961
Inventories (Note 4) 127,119 104,513 122,675
Prepaid expenses/other cur assets 4,572 4,420 5,099
Total Current Assets 174,321 148,472 172,335
Property, plant and equipment, net 27,565 27,493 30,207
Other assets 81,980 77,425 78,725
Total Assets $ 283,866 $ 253,390 $ 281,267
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY)
Current Liabilities:
Accounts payable $ 24,633 $ 21,777 $ 18,139
Loans payable 38,023 - 27,791
Accrued liabilities 15,950 22,056 18,634
Reserve for business restructuring 880 2,038 15,374
Total Current Liabilities 79,486 45,871 79,938
Long term debt (Note 5) 108,251 111,851 -
Deferred liabilities 18,348 16,766 2,499
Liab def pursuant to chapter 11 cases - - 263,415
Shareholders' Equity/(Deficiency):
Common stock-issued and issuable 15,232 15,016 3,698
Additional paid-in capital 107,001 106,726 17,708
Deficit <42,056> <40,461> <84,247>
Excess of additional pension liability over
unrecognized prior service cost adjust <986> <986> <353>
Accumulated foreign currency translation
adjustment 204 221 223
Less - treasury stock, at cost <1,614> <1,614> <1,614>
Total Shareholders' Equity/(Deficiency) 77,781 78,902 <64,585>
Total Liabilities and Shareholders'
Equity/(Deficiency) $ 283,866 $ 253,390 $ 281,267
</TABLE>
See Notes to Condensed Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 2, July 3,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Income from operations $ <1,658> $ <78>
Adjustments to reconcile income from operations
to net cash used in operating activities:
Depreciation 2,610 2,966
Amortization of intangibles 1,251 1,232
Change in assets and liabilities:
Accounts receivable <3,628> <4,062>
Inventories <19,120> <17,528>
Prepaid expenses and other current assets 394 <1,157>
Other assets 94 4
Accounts payable 2,526 <2,730>
Accrued liabilities/ reserve for
business restructuring <7,130> 635
Deferred liabilities <4> 37
Net cash used in operating activities <24,665> <20,681>
Cash Flows from Investing Activities:
Capital expenditures, net <2,425> <4,175>
Acquisitions <8,689> -
Proceeds from sale of assets 265 -
Net cash used in investing activities <10,849> <4,175>
Cash Flows from Financing Activities:
Net short-term borrowings 38,023 27,791
Exercise of stock options 491 6
Repayment of pre-petition secured debt - <4,042>
Repurchase of long-term debt <3,537> -
Net cash provided by financing activities 34,977 23,755
Net decrease in cash and cash equivalents <537> <1,101>
Cash and cash equivalents - beginning of year 2,157 2,701
Cash and cash equivalents - end of the first half $ 1,620 $ 1,600
</TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Supplemental disclosures of cash flow information:July 2, July 3,
Cash paid during the year for: 1994 1993
<S> <C> <C>
Interest $ 7,558 $1,549
Income taxes $ 87 $ 104
Conversion of accrued liabilities to liabilities deferred
pursuant to chapter 11 cases $1,037
</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 month and six month
periods ended July 2, 1994 and July 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) outstanding during the three
month and six month periods ended July 2, 1994 and July 3, 1993.
Common stock equivalents were not included in the per share
calculations as their effect would be antidilutive.
Note 2. Acquisitions
On June 10, 1994, the Company acquired all the capital stock of
JJ. Farmer Clothing Inc. (a Canadian corporation) and the assets
of JJ. Farmer International Limited (a Hong Kong corporation)
(collectively "JJ. Farmer") for approximately $5,311 in cash. The
purchase price is subject to adjustment based on the future
profitability of JJ. Farmer. The acquisition has been accounted
for as a purchase, and accordingly, JJ. Farmer's operating
results have been included in the Company's consolidated results
of operations commencing June 11, 1994. Pro forma results of
operations have not been presented as the effect would not be
significant. JJ. Farmer's net sales for the five months ended May
31, 1994 and the twelve months ended December 31, 1993 were
$3,392 and $13,104, respectively. The excess of cost over the
book value of net assets acquired ($4,456 subject to adjustment)
is being amortized over a period of not more than 15 years on a
straight-line basis.
In June 1994, the Company entered into various licensing
agreements for dress shirts and men's accessories using the
trademarks GANT and SALTY DOG. As part of these agreements, the
Company purchased inventory from the licensor, made advance
royalty payments to the licensor, and is required to make future
minimum royalty payments.
Note 3. 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 part of continuing operations.
The following is a summary of certain selected financial data for
the Salant Children's Apparel Group during the prior year period
in which it was reported as a discontinued operation.
<TABLE>
<CAPTION>
as of July 3, 1993
<S> <C>
Total assets $ 31,632
Total liabilities 11,402
Quarter Ended
July 3, 1993
Net sales $ 4,372
Operating loss 1,647
</TABLE>
Note 4. Inventories
<TABLE>
<CAPTION>
July 2, January 1, July 3,
1994 1994 1993
<S> <C> <C> <C>
Finished goods...... $ 80,672 $ 60,686 $ 79,567
Work-in-process..... 28,766 27,661 23,331
Raw materials and
supplies.... 17,681 16,166 19,777
$ 127,119 $104,513 $122,675
</TABLE>
Note 5. Long Term Debt
In May 1994, the Company purchased and retired $3,600 of its
10 1/2% Senior Secured Notes due December 31, 1998 in an open
market transaction at a price below the principal amount thereof.
As a result of this transaction, the Company recorded an
extraordinary gain of $63.
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 month and six month periods ended July 2,
1994 with the operating results for the three and six months
ended July 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 three month and six month periods ended
July 2, 1994. Operating results for the three and six months
ended July 3, 1993 (which had reflected the Children's Apparel
Group in discontinued operations) have been adjusted accordingly.
Second Quarter 1994 Compared to Second Quarter 1993
For the second quarter of 1994, net sales amounted to $89.3
million, a 4.0% increase over the net sales of $85.9 million in
the comparable 1993 quarter. The increase in net sales was
attributable primarily to increased sales of men's slacks by the
Thomson Division and sales by Manhattan Sportswear, a division
which did not start shipping until the third quarter of 1993.
These improvements more than offset the reduced sales of the
Company's denim-based products and dress shirts.
Gross profit as a percentage of net sales decreased to 21.5%
($19.2 million) in the second quarter of 1994 from 23.9% of net
sales ($20.5 million) in the comparable 1993 quarter. The
reduction in gross profit versus the prior year was primarily the
result of (i) continuing price pressure in the Company's dress
shirt businesses, as well as start-up costs relating to the
manufacture of wrinkle free dress shirts, and (ii) the effects in
1994 of weak sales of Perry Ellis sportswear at retail in late
1993 and late deliveries of Spring 1994 imported linen-based
sportswear. The negative impact of these items was partially
reduced by increased profitability of the Company's Children's
Apparel and Thomson Divisions.
Selling, general and administrative expenses for the second
quarter of 1994 amounted to $19.3 million (21.6% of net sales) as
compared to the second quarter of 1993, when such expenses
amounted $18.8 million (21.8% of net sales).
Royalty income (net of related expenses) for the second quarter
of 1994 was $1.4 million, as compared to $1.7 million in the
second quarter of 1993.
There were no bankruptcy administration expenses for the second
quarter of 1994, compared with $2.7 million incurred in the
comparable 1993 period.
For the second quarter of 1994, income from operations (before
net interest expense of $4.0 million) was $1.3 million, or 1.4%
of net sales. For the second quarter of 1993, income from
operations (before bankruptcy administration expenses of $2.7
million and net interest expense of $1.0 million) was $3.4
million, or 4.0% of net sales.
The shortfall in income from operations versus prior year was
primarily the result of the reduction in gross profit described
above.
Net interest expense for the second quarter of 1994 amounted to
$4.0 million as compared to $1.0 million in the prior year's
second quarter. During the second quarter of 1993, Salant was
operating under chapter 11 of the Bankruptcy Code and
accordingly, was not accruing interest on its prepetition debt.
Net loss for the 1994 second quarter was $2.7 million compared
with a net loss of $488 thousand for the second quarter of 1993.
Net loss per share was $0.18 (based on a weighted average of
14,988,000 shares outstanding) in the second quarter of 1994,
compared to a net loss per share of $0.14 (based on a weighted
average of 3,464,000 shares outstanding) in the second quarter of
1993.
Year to Date 1994 Compared to Year to Date 1993
For the six months ended July 2, 1994, the Company reported net
sales of $180.7 million, compared to net sales of $181.0 million
for the six months ended July 3, 1993.
Gross profit as a percentage of net sales decreased to 23.1%
($41.8 million) for the six months ended July 2, 1994 from 23.5%
of net sales ($42.6 million) in the comparable 1993 period. The
decrease in gross profit as a percentage of net sales was
primarily the result of the same factors as indicated for the
second quarter.
Selling, general and administrative expenses for the first six
months of 1994 amounted to $38.8 million (21.5% of net sales), as
compared to the comparable 1993 period, when such expenses
amounted to $38.6 million (21.3% of net sales).
Royalty income (net of related expenses) for the first six months
of 1994 was $2.9 million, as compared to $3.4 million in the
comparable 1993 period.
There were no bankruptcy administration expenses for the six
months ended July 2, 1994, compared with $5.5 million incurred in
the comparable 1993 period.
For the first six months of 1994, income from operations (before
net interest expense of $7.3 million) was $5.8 million, or 3.2%
of net sales, compared to income from operations (before
bankruptcy administration expenses of $5.5 million and net
interest expense of $1.8 million) of $7.4 million, or 4.1% of net
sales, in the first six months of 1993. The decline in income
from operations for the six months is primarily the result of the
same factors as indicated for the second quarter.
Net interest expense for the first half of 1994 amounted to $7.3
million as compared to $1.8 million in the first half of 1993.
During the first half of 1993, Salant was operating under Chapter
11 of the Bankruptcy Code and accordingly, was not accruing
interest on its prepetition debt.
The net loss for the six months ended July 2, 1994 was $1.6
million compared with a net loss of $78 thousand for the first
six months of 1993. The net loss per share was $0.11 (based on a
weighted average of 14,902,000 shares outstanding) in the first
half of 1994, compared to a net loss per share of $0.02 (based on
a weighted average of 3,464,000 shares outstanding) in the first
half 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 7.25% at July 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 July 2, 1994, direct borrowings and
letters of credit outstanding under the Agreement were $38.0
million and $40.2 million, respectively, and the Company had
unused availability of $23.1 million. As of July 3, 1993, direct
borrowings and letters of credit outstanding under the previous
financing agreement were $27.8 million and $37.3 million,
respectively and the unused availability amounted to
$10.7 million. The average interest rate on borrowings under
these financing agreements for the three months ended July 2,
1994 and July 3, 1993 was 6.9% and 7.4%, 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 connection with the consummation of its plan
of reorganization. In May 1994, the Company purchased and
retired $3.6 million of its 10 1/2% Senior Secured Notes due
December 31, 1998 in an open market transaction at a price below
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 of 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 tests
relating to its ratio of total liabilities to stockholders'
equity, fixed charge coverage, and maximum cumulative net loss.
At July 2, 1994, the Company was in compliance with all
covenants.
During the first six months of 1994, the Company's short term
borrowings increased by $38.0 million. The primary reasons for
the increased borrowings were (i) increases in accounts
receivable of $3.6 million and inventories of $19.1 million which
reflected the Company's normal seasonal pattern, (ii) cash
payments aggregating $8.7 million in connection with the
acquisition of JJ. Farmer and the GANT and SALTY DOG license
agreements, and (iii) the payment of $3.5 million to purchase a
portion of the Company's 10 1/2% Senior Secured Notes. During the
first six months of 1993, the Company's short-term borrowings
increased by $27.8 million.
On June 10, 1994, the Company acquired all the capital stock of
JJ. Farmer Clothing Inc. (a Canadian corporation) and the assets
of JJ. Farmer International Limited (a Hong Kong corporation)
(collectively "JJ. Farmer") for $5.3 million in cash plus
additional amounts based on future profitability. This
acquisition is expected to advance the Company's stated strategy
of increasing its penetration of the casual apparel market and to
assist the Company in marketing its other brands in Canada.
In June 1994, the Company entered into various licensing
agreements for dress shirts and men's accessories using the
trademarks GANT and SALTY DOG.
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
financing 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.<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of the Company's shareholders was
held on May 10, 1994.
(b) The shareholders approved the election of three
Directors for a three-year term expiring at the 1997 Annual
Meeting of the Company's shareholders, with the votes for such
election as follows:
<TABLE>
<CAPTION>
Director For Withheld
<S> <C> <C>
Nicholas P. DiPaolo 11,709,504 10,009
Harold Leppo 11,710,166 9,347
Edward M. Yorke 11,710,166 9,347
</TABLE>
(c) The shareholders ratified the reappointment of
Deloitte & Touche as the Company's independent accountants for
the fiscal year 1994. The votes for the ratification were
11,712,657, the votes against the ratification were 4,109 and the
votes abstained were 2,645.
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 July 2, 1994.
<PAGE>
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
/s/ R.P. Randall
Date: August 12, 1994
Richard P. Randall
Senior Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial
Officer)
