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 September 30, 1995.
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 1-6666
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 November 6, 1995, there were outstanding 14,652,929 shares
of the Common Stock of the registrant.
TABLE OF CONTENTS
Page
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 Nine Months Ended
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 148,313 $ 125,404 $ 374,174 $ 303,445
Cost of goods sold 114,561 95,812 293,434 232,881
Gross profit 33,752 29,592 80,740 70,564
Selling, general and
administrative
expenses (22,706) (20,136) (63,407) (57,578)
Royalty income, net of
related expenses 1,270 1,565 3,978 4,380
Goodwill amortization (643) (641) (1,933) (1,756)
Other income 77 69 354 898
Income from continuing
operations before
interest, income
taxes and
extraordinary gain 11,750 10,449 19,732 16,508
Interest expense, net 5,370 4,277 14,595 11,563
Income from continuing
operations before income
taxes and
extraordinary gain 6,380 6,172 5,137 4,945
Income taxes 62 54 125 188
Income from continuing
operations before
extraordinary gain 6,318 6,118 5,012 4,757
Loss from discontinued
operations -- (19) -- (314)
Extraordinary gain -- -- -- 63
Net income $ 6,318 $ 6,099 $ 5,012 $ 4,506
Earnings per share:
Income per share from
continuing operations
before extraordinary
gain $ 0.42 $ 0.40 $ 0.33 $0.32
Loss per share
from discontinued
operations -- -- -- (0.02)
Net income per share $ 0.42 $ 0.40 $ 0.33 $0.30
Weighted average common stock
and common stock equivalents
outstanding 15,188 15,174 15,187 15,107
</TABLE>
See Notes to Condensed Consolidated Financial Statements.Salant
Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
Sept. 30, December 31, Oct. 1,
1995 1994 1994
(Unaudited) (*) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,439 $ 1,965 $ 1,678
Accounts receivable, net
(Note 3) 59,674 36,583 43,128
Inventories (Note 4) 144,875 124,599 124,915
Prepaid expenses and
other current assets 6,338 5,264 3,760
Net assets of discontinued
operations -- -- 10,764
Total Current Assets 212,326 168,411 184,245
Property, Plant and Equipment, net 26,995 27,460 27,673
Other Assets 70,938 71,345 72,458
Total Assets $ 310,259 $ 267,216 $ 284,376
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans payable (Note 3) $ 58,388 $ 23,906 $ 28,321
Accounts payable 32,874 28,593 29,619
Accrued liabilities 19,621 18,848 15,401
Net liabilities of discontinued
operations (Note 2) 407 816 --
Reserve for business restructuring -- -- 612
Total Current Liabilities 111,290 72,163 73,953
Long Term Debt (Note 5) 109,908 109,908 109,842
Deferred Liabilities 12,436 13,479 16,691
Shareholders' Equity
Common stock 15,242 15,242 15,242
Additional paid-in capital 107,017 107,017 107,017
Deficit (43,314) (48,326) (35,955)
Excess of additional pension
liability over unrecognized
prior service cost (773) (773) (986)
Accumulated foreign currency
translation adjustment 67 120 186
Less - treasury stock, at cost (1,614) (1,614) (1,614)
Total Shareholders' Equity 76,625 71,666 83,890
Total Liabilities and
Shareholders' Equity $ 310,259 $ 267,216 $284,376
</TABLE>
(*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30, Oct. 1,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities:
Income from continuing operations $ 5,012 $ 4,757
Adjustments to reconcile income from
continuing operations to net cash used
in operating activities:
Depreciation 3,832 3,773
Amortization of intangibles 1,933 1,756
Change in operating assets and
liabilities:
Accounts receivable (23,091) (18,510)
Inventories (20,276) (19,577)
Prepaid expenses and other
current assets (1,074) 494
Other assets (1,526) (1,241)
Accounts payable 4,281 7,895
Accrued liabilities and reserve for
business restructuring 773 (7,862)
Deferred liabilities (1,043) (69)
Net cash used in operating activities (31,179) (28,584)
Cash Flows from Investing Activities:
Capital expenditures (3,475) (3,838)
Acquisition -- (5,653)
Proceeds from sale of assets 108 274
Net cash used in investing activities (3,367) (9,217)
Cash Flows from Financing Activities:
Net short-term borrowings 34,482 28,321
Retirement of long-term debt -- (3,537)
Exercise of stock options -- 517
Other, net (53) --
Net cash provided by financing activities 34,429 25,301
Net cash used in continuing operations (117) (12,500)
Cash used in discontinued operations (409) (578)
Net decrease in cash and cash equivalents (526) (13,078)
Cash and cash equivalents - beginning of year 1,965 14,756
Cash and cash equivalents - end of quarter $1,439 $1,678
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 18,109 $ 14,566
Income taxes $ 127 $ 146
</TABLE>
See Notes to Condensed Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in 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. (As used herein, the "Company" includes Salant
and its subsidiaries but excludes Salant's Vera Scarf Division.)
In February 1995, Salant discontinued its Vera Scarf Division.
As further described in Note 2, the Condensed Consolidated
Financial Statements and the Notes thereto treat the Vera Scarf
Division as a discontinued operation, and, consistent with the
financial statements for 1994, the financial results of the Vera
Scarf Division are not included in the presentation of income
from continuing operations. In addition, the net assets and/or
net liabilities of the discontinued operations have been
separately classified in the Condensed Consolidated Balance
Sheets.
The results of operations for the three and nine months ended
September 30, 1995 and October 1, 1994 are not necessarily
indicative of a full year's operations. In the opinion of
management, the accompanying financial statements include all
adjustments, of a normal recurring nature,
which are necessary to present fairly such financial
statements. Significant intercompany balances and transactions
are eliminated in consolidation.
Certain reclassifications were made to the 1994 unaudited
Condensed
Consolidated Balance Sheet to conform with the 1995 presentation.
Income per share is based on the weighted average number of
common shares (including 593,503 shares to be issued pursuant to
the Company's plan of reorganization) and common stock
equivalents outstanding.
Note 2. Discontinued Operations
In February 1995, the Company discontinued the Vera Scarf
Division, which imported and marketed women's scarves. The loss
from operations of the Division in the prior year (for the three
and nine months ended October 1, 1994) was $19 and $314,
respectively.
Net sales of the Division were $92 and $1,516 for the three
months ended September 30, 1995 and October 1, 1994,
respectively, and $1,605 and $4,135 for the nine months ended
September 30, 1995 and October 1, 1994, respectively. The net
assets and/or net liabilities of the discontinued operations
have been reclassified on the balance sheets as net assets or
net liabilities of discontinued operations and consist
principally of accounts receivable, inventory and accrued losses
for the phase-out period.
Note 3. Loans Payable and Factor Advances
The Company has entered into an agreement with a factor, whereby
it sells, without recourse, certain eligible accounts
receivable. The credit risk for such accounts is thereby
transferred to the factor. The amounts due from the factor have
been offset against advances from the factor in the accompanying
balance sheets. The amounts which have been offset amounted to
$45,477 at September 30, 1995, $9,324 at December 31, 1994, and
$26,126 at October 1, 1994.
<TABLE>
<CAPTION>
Note 4. Inventories
September 30, December 31, October 1,
1995 1994 1994
<S> <C> <C> <C>
Finished goods $ 88,695 $ 70,882 $ 76,299
Work-in-Process 29,492 28,298 26,920
Raw materials and supplies 26,688 25,419 21,696
$ 144,875 $ 124,599 $ 124,915
</TABLE>
Note 5. Income Taxes
On June 27, 1990, Salant and its wholly-owned subsidiary, Denton
Mills, Inc. ("Denton"), each filed with the United States
Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"), a separate voluntary petition for relief
under chapter 11 of title 11 of the United States Code (the
"Chapter 11 Cases"). By proof of claim, as amended, the
Internal Revenue Service of the United States of America (the
"IRS") had asserted a claim (the "IRS Claim") against Salant in
the Chapter 11 Cases of approximately $5,200. The IRS Claim
included approximately $3,200 of Excise Taxes. Pursuant to an
interim agreement and formal written agreement, which was
approved by the Bankruptcy Court on May 26, 1995, Salant will
pay $100 to the IRS in full settlement of such Excise Tax
claims. The balance of the IRS Claim sought the payment of (i)
income taxes that were claimed to be owing for prior tax
periods; (ii) withholding and FICA taxes for the tax period
ended March 31, 1990; (iii) interest and penalties with respect
to those taxes; and (iv) FUTA taxes for the period from January
1 through June 27, 1990. On September 25, 1995, Salant and the
IRS executed a final agreement relating to such non-Excise
Taxes. Pursuant to this agreement, the IRS Claim was withdrawn,
and the IRS will pay Salant a net refund of approximately $875,
plus net interest from June 1, 1995. The settlement of the IRS
Claim will not have a material effect on the Company's
consolidated financial position or results of operations.
Note 6. Subsequent Event
The ILGWU National Retirement Fund (the "Fund") filed claims in
the Chapter 11 Cases against both Salant and Denton based on
both debtors' withdrawal liability (the "Fund's Claim"). The
agreed amount of the Fund's Claim was $1,700, which, in
accordance with the terms of the Third Amended Joint Plan of
Reorganization, is to be paid in common stock of Salant ("Salant
Common Stock"). Salant and the Fund were in dispute concerning
the proper valuation of Salant Common Stock and, consequently,
the amount of such stock necessary to pay the Fund's Claim. By
order dated June 2, 1995 (the "Order"), the Honorable Cornelius
Blackshear, a United States Bankruptcy Judge, determined that
Salant should tender 193,298 shares of Salant Common Stock to
the Fund in full satisfaction of the Fund's Claim. The Fund
appealed the Order in the United States District Court for the
Southern District Court of New York (the "Bankruptcy Court
Appeal").
Additionally, on February 2, 1995, the Fund and two of its
trustees commenced a civil action in the United States District
Court for the Southern District of New York against seven
subsidiaries of Salant, ILGWU National Retirement Fund et al. v.
Clantexport Inc. et al., No. 95 Civ. 0722 (DAB) (the "District
Court Case"). The complaint alleged, in substance, that the
defendants, as wholly-owned subsidiaries of Salant, were under
common control with Salant within the meaning of ERISA and
applicable regulations, and thus, that they are jointly and
severally liable for the withdrawal liability described above.
On October 19, 1995, Salant and the Fund entered into an
Agreement (the "Settlement Agreement"), settling the Fund's
Claim and dismissing the Bankruptcy Court Appeal and the
District Court Case. Pursuant to the Settlement Agreement,
Salant agreed to tender to the Fund 212,828 shares of Salant
Common Stock. In addition, if between March 11, 1996 and March
15, 1996 (the "Evaluation Period"), Salant Common Stock fails to
trade at or above $8.06 on the New York Stock Exchange, Salant
will tender to the Fund as additional consideration the lesser
of (i) 23,000 shares of Salant Common Stock or (ii) a number of
shares of Salant Common Stock that when added to the 212,828
shares previously tendered shall equal a value of $1,700. Both
the Bankruptcy Court Appeal Case and the District Court Case
have been dismissed. The shares to be issued in settlement of
the Fund's Claim are included in the 593,503 shares to be issued
pursuant to the Company's plan of reorganization discussed in
Note 2. The settlement of the Fund's Claim will not have a
material effect on the Company's consolidated financial position
or results of operations.
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 and nine months ended September 30, 1995
with the operating results for the three and nine months ended
October 1, 1994. In February 1995, the Company discontinued its
Vera Scarf Division. The financial statements included in this
report treat the Vera Scarf Division as a discontinued
operation, the effect of which is to exclude the results of
operations of the Vera Scarf Division from the Company's results
from continuing operations for each fiscal period presented.
See "Notes to the Condensed Consolidated Financial Statements---
Note 2."
The following table sets forth certain financial data for the
three and nine months ended September 30, 1995 and October 1,
1994:
<TABLE>
<CAPTION>
(dollars in millions)
Three months ended Nine months ended
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $148.3 $125.4 $374.2 $303.4
Gross profit $ 33.8 $ 29.6 80.7 $ 70.6
Gross margin percentage 22.8% 23.6% 21.6% 23.3%
EBITDA (a) $ 13.6 $ 12.3 $ 25.5 $ 22.0
</TABLE>
(a) Earnings before interest, taxes, depreciation,
amortization, discontinued operations and extraordinary gain.
The Company believes that EBITDA is helpful in understanding
cash flow from operations that is available for debt service,
taxes and capital expenditures. EBITDA is not a concept
contained in Generally Accepted Accounting Principles and is not
a substitute for operating income, net income or net cash flows
from operating activities.
Third Quarter 1995 Compared to Third Quarter 1994
The Company reported net sales increases for the quarter in each
of its major product categories. The increases were primarily
from Canyon River Blues, an exclusive brand program for Sears,
Roebuck and Co., and the Company's Perry Ellis sportswear line.
(dollars in millions)
Net sales and percentage of total
for the three months ended Percentage
September 30,1995 October 1,1994 Increase
Dress Shirts and Accessories(a) $47.4 32.0% $46.2 36.9% 2.5%
Sportswear(b) 36.8 24.8% 25.4 20.3% 45.0%
Slacks, Jeans and Shorts(c) 34.3 23.1% 24.4 19.4% 40.4%
Other(d) 29.8 20.1% 29.4 23.4 1.6%
Total $148.3 100% $125.4 100% 18.3%
(a) Includes the Fashion Shirt Group, the dress shirt portions of the
Manhattan Apparel Group and Perry Ellis Division and the Salant
Accessories Division.
(b) Includes the Sportswear portions of the Perry Ellis Division
and Manhattan Apparel Group (including the sport shirt portion
of Canyon River Blues) and the JJ. Farmer Division.
(c) Includes the Thomson and Texas Apparel Divisions (including
the jeans and shorts portion of Canyon River Blues).
(d) Includes the Children's Apparel Group, Made in the Shade
Division (a women's junior sportswear business) and the Retail
Stores Division.
Sales of sportswear increased $11.4 million, or 45.0%,
approximately one half of which is due to the growth of the
Company's Perry Ellis sportswear business, which increased by
34.9%. The balance of the increase is attributable to a) sales
of sport shirts under the Canyon River Blues label, which did
not exist last year, and b) the addition of the JJ. Farmer
division, which was acquired in June 1994.
Sales of slacks, jeans and shorts increased by 40.4% primarily
due to shipments of the Canyon River Blues denim apparel program
for men and boys.
Gross profit as a percentage of net sales decreased to 22.8%
($33.8 million) in the third quarter of 1995 from 23.6% of net
sales ($29.6 million) in the comparable 1994 quarter. The
reduction in gross profit margin occurred principally in men's
slacks and jeans, and was primarily related to the start-up of
the Canyon River Blues program.
Selling, general and administrative expenses as a percentage of
net sales decreased to 15.3% ($22.7 million), as compared to the
third quarter of 1994, when such expenses amounted to 16.1% of
net sales ($20.1 million). The decrease in such expenses as a
percentage of net sales was primarily attributable to fixed
costs which do not vary with sales.
For the third quarter of 1995, income from continuing operations
(before net interest expense of $5.4 million) was $11.8 million,
or 7.9% of net sales. For the third quarter of 1994, income from
continuing operations (before net interest expense of $4.3
million) was $10.4 million, or 8.3% of net sales. Income from
continuing operations as a percentage of net sales was lower in
1995 primarily as a result of continuing gross margin pressures,
as offset by the lower selling, general and administrative
expenses as a percentage of net sales, as described above.
Net interest expense for the third quarter of 1995 amounted to
$5.4 million as compared to $4.3 million in the prior year's
third quarter. Approximately $800,000 of the increase in
interest expense was due to higher average outstanding loan
balances utilized to support higher working capital
requirements, primarily as a result of the introduction of the
Canyon River Blues program. The remainder of the increase in
interest expense was due to increases in the average interest
rate on the Company's working capital facility, from 7.9% in the
third quarter of 1994 to 9.9% in the third quarter of 1995.
As a result of the above, net income for the 1995 third quarter
was $6.3 million, or $0.42 per share, compared with net income
of $6.1 million, or $0.40 per share, for the third quarter of
1994.
Year to Date 1995 Compared to Year to Date 1994
For the nine months ended September 30, 1995, net sales amounted
to $374.2 million, a 23.3% increase over net sales of $303.4
million for the nine months ended October 1, 1994. The increase
was due to significant sales increases in each of the Company's
major product lines: dress shirts and accessories; sportswear;
slacks, jeans and shorts; and, other products.
<TABLE>
<CAPTION>
(dollars in millions)
Net sales and percentage of total
for the nine months ended Percentage
Increase
September 30,1995 October 1, 1994
<S> <C> <C> <C> <C> <C>
Dress Shirts and
Accessories (a) $134.4 35.9% $124.2 40.9% 8.1%
Sportswear (b) 92.6 24.7% 57.3 18.9% 61.7%
Slacks, Jeans and Shorts (c) 90.7 24.3% 66.5 21.9% 36.5%
Other (d) 56.5 15.1% 55.4 18.3% 1.9%
Total $374.2 100% $303.4 100% 23.3%
</TABLE>
(a) Includes the Fashion Shirt Group, the dress shirt portions
of the Manhattan Apparel Group and Perry Ellis Division and the
Salant Accessories Division.
(b) Includes the Sportswear portions of the Perry Ellis Division
and Manhattan Apparel Group (including the sport shirt portion
of Canyon River Blues) and the JJ. Farmer Division.
(c) Includes the Thomson and Texas Apparel Divisions (including
the jeans and shorts portion of Canyon River Blues).
(d) Includes the Children's Apparel Group, Made in the Shade
Division (a women's junior sportswear business) and the Retail
Stores Division.
The reasons for the increases set forth in the table above are
substantially the same as the reasons discussed above with
respect to the third quarter of 1995.
Gross profit as a percentage of net sales decreased to 21.6%
($80.7 million) in the first nine months of 1995 from 23.3% of
net sales ($70.6 million) in the comparable 1994 period. The
reduction in gross profit as a percentage of net sales was
incurred primarily in men's dress shirts, slacks and jeans. The
cause of the reduction was the same as discussed for the third
quarter above, as well as higher costs of manufacturing in the
first quarter of 1995 in the Company's domestic dress shirt
facilities and its former jeans laundry in Texas, as discussed
in the Form 10-Q for the first quarter of 1995.
Selling, general and administrative expenses as a percentage of
net sales decreased to 16.9% ($63.4 million), as compared to the
first nine months of 1994, when such expenses amounted to 19.0%
of net sales ($57.6 million). The decrease in such expenses as
a percentage of net sales was primarily attributable to fixed
costs which do not vary with sales.
Other income for the nine months ended September 30, 1995 and
October 1, 1994, included $200 thousand and $500 thousand,
respectively, for an insurance reimbursement for legal fees and
expenses incurred in prior years.
For the nine months ended September 30, 1995, income from
continuing operations (before net interest expense of $14.6
million) was $19.7 million, or 5.3% of net sales. For the first
nine months of 1994, income from continuing operations (before
net interest expense of $11.6 million) was $16.5 million, or
5.4% of net sales. Income from continuing operations as a
percentage of net sales was lower in 1995 primarily for the same
reasons as the third quarter.
Net interest expense for the first nine months of 1995 amounted
to $14.6 million as compared to $11.6 million in the prior
year's comparable period. The increase in interest expense was
primarily due to the same reasons as discussed for the third
quarter.
As a result of the above, net income for the nine months ended
September 30, 1995 was $5.0 million, or $0.33 per share,
compared with net income of $4.5 million, or $0.30 per share,
for the nine months ended October 1, 1994.
Liquidity and Capital Resources
The Company is a party to a revolving credit, factoring and
security agreement, as amended, (the "Credit Agreement") with
The CIT Group/Commercial Services, Inc. ("CIT") which provides
the Company with seasonal working capital financing in the form
of direct borrowings and letters of credit, up to an aggregate
of $135 million during certain periods of 1995 (subject to an
asset based borrowing formula). Interest on direct borrowings
is charged monthly at an annual rate of one percent in excess of
the prime rate of Chemical Bank (the "Prime Rate") (which prime
rate was 8.75% at September 30, 1995). 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 September 30, 1995, direct borrowings and
letters of credit outstanding under the Credit Agreement were
$58.4 million and $27.4 million, respectively, and the Company
had unused availability of $5.4 million. As of October 1, 1994,
direct borrowings and letters of credit outstanding under the
Credit Agreement were $28.3 million and $38.9 million,
respectively, and the Company had unused availability of $3.7
million. The average interest rate on borrowings for the nine
months ended September 30, 1995 and October 1, 1994 was 9.8% and
7.4%, respectively.
At the end of the first nine months of 1995, the Company's short
term borrowings were $30.1 million higher than such borrowings
at the end of the first nine months of 1994. The increase in
borrowings was primarily the result of an increase in (a)
receivables as a result of the higher sales volume experienced
in the third quarter of 1995 as compared to 1994, and (b)
inventories to provide for businesses entered into during 1994
and in anticipation of higher sales in the fourth quarter of
1995, primarily as a result of the Canyon River Blues program
for men and boys which began in the second quarter of 1995.
The Credit Agreement and the indenture governing the Secured
Notes contain numerous financial and operating covenants,
including restrictions on the incurrence of indebtedness and
liens, investments in or acquisitions of the stock of all or a
substantial part of the assets of another person, sales of
property, capital expenditures, and payment of cash dividends.
In addition, under the Credit Agreement, the Company is required
(i) during the year, to maintain minimum levels of working
capital and stockholders' equity and to satisfy a maximum
cumulative net loss test and (ii) at year end, to satisfy a
ratio of total liabilities to stockholders' equity and a fixed
charge coverage ratio. At September 30, 1995, the Company was
in compliance with all financial covenants as indicated below:
Covenant September 30, 1995
Credit Agreement Covenants Level Actual Level
Working Capital $ 85.0 million $ 101.0 million
Stockholders' Equity $ 65.0 million $ 76.6 million
Maximum Loss $ (10.0) million income (a)
(a) In accordance with the Credit Agreement, maximum loss
excludes any write-off of goodwill in the 1994 fiscal year.
The Company is also required to reduce its indebtedness
(excluding outstanding letters of credit) to $20 million or less
for fifteen consecutive days during each twelve month period
commencing February 1, 1994. The Company complied with this
covenant for the period February 1, 1994 through January 31,
1995.
Capital expenditures in the first nine months of 1995 were $3.5
million, relating primarily to showroom and office space in New
York City and a new jeans laundry facility in Mexico, as
compared to $3.9 million in the first nine months of 1994.
Capital expenditures and certain expenses associated with the
establishment of Perry Ellis and Canyon River Blues shops in
department stores for 1995 are anticipated to be approximately
$6-7 million.
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 remainder of 1995, however its needs for
1996 may exceed the $120 million maximum borrowing limitation
under the Credit Agreement. The Company has entered into
discussions to (a) increase the maximum borrowing limitation
under the Credit Agreement, or (b) obtain alternative financing
sufficient to support its needs in 1996. There are no
assurances that the Company will be successful in increasing the
maximum borrowing limitation under the Credit Agreement. In
addition, there can be no assurance that future developments and
general economic trends will not adversely affect the Company's
operations and, hence, its anticipated cash flow, or its ability
to increase its maximum borrowing limitation under the Credit
Agreement.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) IRS Claim. On June 27, 1990, Salant and its wholly-owned
subsidiary, Denton Mills, Inc. ("Denton"), each filed with the
United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court"), a separate voluntary petition for
relief under chapter 11 of title 11 of the United States Code
(the "Chapter 11 Cases"). By proof of claim, as amended, the
Internal Revenue Service of the United States of America (the
"IRS") had asserted a claim (the "IRS Claim") against Salant in
the Chapter 11 Cases of approximately $5.2 million. The IRS
Claim included approximately $3.2 million of Excise Taxes, as
discussed in section (b) below. Pursuant to an interim agreement
and formal written agreement, which was approved by the
Bankruptcy Court on May 26, 1995, Salant will pay $100,000 to
the IRS in full settlement of such Excise Tax claims. The
balance of the IRS Claim sought the payment of (i) income taxes
that were claimed to be owing for prior tax periods; (ii)
withholding and FICA taxes for the tax period ended March 31,
1990; (iii) interest and penalties with respect to those taxes;
and (iv) FUTA taxes for the period from January 1 through June
27, 1990. On September 25, 1995, Salant and the IRS executed a
final agreement relating to such non-Excise Taxes. Pursuant to
this agreement, the IRS Claim was withdrawn, and the IRS will
pay Salant a net refund of approximately $875,000, plus net
interest from June 1, 1995.
(b) Minimum Funding Contributions for Salant's Pension Plans.
As discussed in section (a) above, the IRS filed a proof of
claim, as amended, in the amount of approximately $5.2 million,
of which approximately $3.2 million was in respect of Excise
Taxes and associated interest and penalties as a result of
Salant's inability to make certain contributions to its pension
plans by reason of the limitations on the payment of
pre-petition debt that are imposed under the Bankruptcy Code.
Salant and the IRS reached an interim agreement with respect to
the settlement of the Excise Tax claims which was read into the
record on July 30, 1993 at a hearing before the Bankruptcy
Court. A formal written agreement between Salant and the IRS on
the Excise Tax claims was executed and approved by the
Bankruptcy Court on May 26, 1995. The basic terms of the
agreement are that Salant will amortize the accumulated funding
deficiencies in the Retirement Plan and Pension Plan with
payments as follows: (i) $700,000 on the Consummation Date
(which was paid on September 15, 1993); (ii) $750,000 on
February 28, 1994 (which was paid on that date); (iii) $550,000
on February 28, 1995 (which was paid on that date); and (iv) a
cash payment on each anniversary of the Consummation Date during
the years 1995 through and including 2000 equal to the remainder
of the aggregate funding deficiency (after giving effect to the
payments provided in (i)-(iii) above) divided by six, together
with interest accruing on the outstanding balance from the
Consummation Date. (The payment in respect of item (iv) that was
due on September 20, 1995 was made in the amount of $837,900 on
September 15, 1995.) Pursuant to the interim and formal written
agreement, Salant will pay the IRS $100,000 in full settlement
of the Excise Tax claims.
(c) ILGWU National Retirement Fund. The ILGWU National
Retirement Fund (the "Fund") filed claims in the Chapter 11
Cases against both Salant and Denton based on both debtors'
withdrawal liability (the "Fund's Claim"). The agreed amount of
the Fund's Claim was $1.7 million, which, in accordance with the
terms of the Third Amended Joint Plan of Reorganization, is to
be paid in common stock of Salant ("Salant Common Stock").
Salant and the Fund were in dispute concerning the proper
valuation of Salant Common Stock and, consequently, the amount
of such stock necessary to pay the Fund's Claim. By order dated
June 2, 1995 (the "Order"), the Honorable Cornelius Blackshear,
a United States Bankruptcy Judge, determined that Salant should
tender 193,298 shares of Salant Common Stock to the Fund in full
satisfaction of the Fund's Claim. The Fund appealed the Order
in the United States District Court for the Southern District
Court of New York (the "Bankruptcy Court Appeal").
Additionally, on February 2, 1995, the Fund and two of its
trustees commenced a civil action in the United States District
Court for the Southern District of New York against seven
subsidiaries of Salant, ILGWU National Retirement Fund et al. v.
Clantexport Inc. et al., No. 95 Civ. 0722 (DAB) (the "District
Court Case"). The complaint alleged, in substance, that the
defendants, as wholly-owned subsidiaries of Salant, were under
common control with Salant within the meaning of ERISA and
applicable regulations, and thus, that they are jointly and
severally liable for the withdrawal liability described above.
On October 19, 1995, Salant and the Fund entered into an
Agreement (the "Settlement Agreement"), settling the Fund's
Claim and dismissing the Bankruptcy Court Appeal and the
District Court Case. Pursuant to the Settlement Agreement,
Salant agreed to tender to the Fund 212,828 shares of Salant
Common Stock. In addition, if between March 11, 1996 and March
15, 1996 (the "Evaluation Period"), Salant Common Stock fails to
trade at or above $8.06 on the New York Stock Exchange, Salant
will tender to the Fund as additional consideration the lesser
of (i) 23,000 shares of Salant Common Stock or (ii) a number of
shares of Salant Common Stock that when added to the 212,828
shares previously tendered shall equal a value of $1.7 million.
Both the Bankruptcy Court Appeal Case and the District Court
Case have been dismissed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the third quarter of 1995, the Company did not file any
reports on Form 8-K.
Exhibits
Number Description
10.33 Letter Agreement, dated as of August 31, 1995, between
Salant Corporation and Nicholas DiPaolo, amending his employment
agreement dated September 20, 1993.
27 Financial Data Schedule
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: November 9, 1995 /s/ Richard P. Randall
Richard P. Randall
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
August 31, 1995
Mr. Nicholas P. DiPaolo
Salant Corporation
1114 Avenue of the Americas
New York, New York 10028
Dear Nick:
Reference is hereby made to the Employment Agreement (the
"Employment Agreement"), dated as of September 20, 1993, between
yourself as the Employee and Salant Corporation ("Salant"), as
modified by the Agreement (the "September Agreement"), dated as
of September 22, 1993, between yourself as the Employee and
Salant.
We have mutually agreed to amend the Employment Agreement,
effective January 1, 1996, as follows:
1. Section 2 of the Employment Agreement is hereby deleted
in its entirety and substituted with the following therefore:
"Section 2. Term of Employment. For purposes of this
Agreement, the term "Employment Period" shall mean the period
commencing January 1, 1996 and ending December 31, 1996. The
Corporation agrees that if it intends to renew or extend the term
of the Employment Period beyond December 31, 1996, it will so
notify the Employee in writing on or before July 1, 1996."
2. Paragraph (a) of Section 3 is hereby deleted in its
entirety and substituted with the following therefore:
"(a) Salary. As annual salary for the services to be
rendered by the Employee a salary at the rate of $625,000 per
annum from January 1, 1996 through December 31, 1996, payable in
bi-weekly installments during the Employment Period."
Except as specifically set forth herein, the Employment
Agreement remains in full force and effect and is hereby
ratified, confirmed and approved. The Employment Agreement, as
modified by the September Agreement and this letter, is the only
agreement that governs the
terms of your employment. All other letters, agreements and
memorandum are hereby null and void.
If the foregoing correctly sets forth our mutual agreement,
please sign and return to me the three attached copies of this
letter.
Very truly yours,
SALANT CORPORATION
By: ______________________________
Todd Kahn
Vice President, General
Counsel and Secretary
Accepted and Agreed To:
By: _______________________________
Nicholas P. DiPaolo
Date: _____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-30-1995 DEC-30-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 1,439 1,439
<SECURITIES> 0 0
<RECEIVABLES> 71,045 71,045
<ALLOWANCES> (11,371) (11,371)
<INVENTORY> 144,875 144,875
<CURRENT-ASSETS> 212,326 212,326
<PP&E> 68,153 68,153
<DEPRECIATION> (41,158) (41,158)
<TOTAL-ASSETS> 310,259 310,259
<CURRENT-LIABILITIES> 111,290 111,290
<BONDS> 0 0
<COMMON> 15,242 15,242
0 0
0 0
<OTHER-SE> 61,383 61,383
<TOTAL-LIABILITY-AND-EQUITY> 310,259 310,259
<SALES> 148,313 374,174
<TOTAL-REVENUES> 149,583 378,152
<CGS> 114,561 293,434
<TOTAL-COSTS> 137,267 356,841
<OTHER-EXPENSES> 566 1579
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,370 14,595
<INCOME-PRETAX> 6,380 5,137
<INCOME-TAX> 62 125
<INCOME-CONTINUING> 6,318 5,012
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,318 5,012
<EPS-PRIMARY> .42 .33
<EPS-DILUTED> .42 .33
</TABLE>
