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 28, 1996.
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, 1996, there were outstanding 14,731,964 shares of the Common
Stock of the registrant.
<PAGE>
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 Flows
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 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 122,599 $ 148,313 $ 318,803 $ 374,174
Cost of goods sold 92,664 114,561 248,257 293,434
-------------------------- --------------------------
Gross profit 29,935 33,752 70,546 80,740
Selling, general and
administrative expenses (20,342) (23,038) (64,741) (64,097)
Royalty income 1,586 1,602 4,114 4,668
Goodwill amortization (549) (643) (1,841) (1,933)
Restructuring costs (Note 3) (152) -- (11,730) --
Other income 45 77 111 354
--------- --------- --------- ---------
Income/(loss) from operations
before interest and income taxes 10,523 11,750 (3,541) 19,732
Interest expense, net 4,128 5,370 11,874 14,595
-------------------------------------------------------------
Income/(loss) from operations
before income taxes 6,395 6,380 (15,415) 5,137
Income taxes 60 62 24 125
-------------------------------------------------------------
Net income/(loss) $ 6,335 $ 6,318 $ (15,439) $ 5,012
========================== ========= ================
Net income/(loss) per share $ 0.42 $ 0.42 $ (1.02) $ 0.33
========= =========================== =========
Weighted average common stock and
common stock equivalents outstanding 15,113 15,188 15,073 15,187
=============================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
Sept. 28, December 30, Sept. 30,
1996 1995 1995
(Unaudited) (*) (Unaudited)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,792 $ 1,400 $ 1,439
Accounts receivable, net 56,536 35,290 59,674
Inventories (Note 2) 118,278 119,120 144,875
Prepaid expenses and
other current assets 3,256 5,016 6,338
-----------------------------------------------------------------------------------------------------
Total current assets 179,862 160,826 212,326
Property, plant and equipment, net 26,137 24,526 26,995
Other assets 64,486 70,368 70,938
---------------------------------------------------------------------------------------------------------------
Total assets $ 270,485 $ 255,720 $ 310,259
=====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 40,608 $ 14,422 $ 58,388
Accounts payable 33,874 26,755 32,874
Accrued liabilities 16,523 20,397 19,621
Net liabilities of discontinued
operations 131 311 407
Reserve for business restructuring (Note 3) 4,189 1,569 --
-------------------------------------------------------------------------------
Total current liabilities 95,325 63,454 111,290
Long term debt 109,574 110,040 109,908
Deferred liabilities 10,158 11,373 12,436
Shareholders' equity
Common stock 15,329 15,275 15,242
Additional paid-in capital 107,130 107,071 107,017
Deficit (63,263) (47,824) (43,314)
Excess of additional pension
liability over unrecognized
prior service cost (2,185) (2,185) (773)
Accumulated foreign currency
translation adjustment 31 130 67
Less - treasury stock, at cost (1,614) (1,614) (1,614)
---------- -------------------- ----------
Total shareholders' equity 55,428 70,853 76,625
-------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 270,485 $ 255,720 $ 310,259
======================================================================================================
</TABLE>
(*) Derived from the audited financial statements.
<PAGE>
See Notes to Condensed Consolidated
Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months Ended
Sept. 28, Sept. 30,
1996 1995
-----------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Income/(loss) from operations $ (15,439) $ 5,012
Adjustments to reconcile income/(loss) from
operations to net cash used in operating activities:
Depreciation 3,108 3,832
Amortization of intangibles 1,841 1,933
Write-down of fixed assets 227 --
Write-off of other assets 6,274 --
Loss on disposal of fixed assets 27 --
Changes in operating assets and liabilities:
Accounts receivable (21,246) (23,091)
Inventories 842 (20,276)
Prepaid expenses and other current assets 1,679 (1,074)
Other assets (1,958) (1,526)
Accounts payable 7,119 4,281
Accrued liabilities and reserve for
business restructuring (1,254) 773
Deferred liabilities (1,181) (1,043)
-------------------------------------------------------------------- ---------------------
Net cash used in operating activities (19,961) (31,179)
------------------------------------------------------ ---------------------
Cash Flows from Investing Activities:
Capital expenditures (5,027) (3,475)
Acquisition (694) --
Proceeds from sale of assets 54 108
--------------------------------
Net cash used in investing activities (5,667) (3,367)
---------- ---------------------
Cash Flows from Financing Activities:
Net short-term borrowings 26,186 34,482
Exercise of stock options 113 --
Other, net (99) (53)
---------- ----------------------
Net cash provided by financing activities 26,200 34,429
---------- ----------
Net cash provided by continuing operations 572 (117)
Cash used in discontinued operations (180) (409)
---------- ----------
Net decrease in cash and cash equivalents 392 (526)
Cash and cash equivalents - beginning of year 1,400 1,965
--------------------------------
Cash and cash equivalents - end of quarter $ 1,792 $ 1,439
================================
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ 15,030 $ 18,109
================================
Income taxes $ 129 $ 127
================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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 (collectively,
the "Company").
The Company's principal business is the designing, manufacturing, importing and
marketing of apparel. The Company sells its products to retailers, including
department and specialty stores, national chains, major discounters and mass
volume retailers, throughout the United States.
The results of operations for the three- and nine-months periods ended September
28, 1996 and September 30, 1995 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 1995 unaudited Condensed Consolidated
Statement of Operations to conform with the 1996 presentation.
Income/(loss) per share is based on the weighted average number of common shares
(including, as of September 28, 1996 and September 30, 1995, 331,996 and 593,503
shares, respectively, anticipated to be issued pursuant to the Company's plan of
reorganization) and common stock equivalents outstanding, if applicable. Loss
per share does not include common stock equivalents, inasmuch as their effect
would have been anti-dilutive.
<TABLE>
<CAPTION>
Note 2. Inventories
September 28, December 30, September 30,
1996 1995 1995
<S> <C> <C> <C>
Finished goods $ 76,967 $ 72,850 $ 88,695
Work-in-Process 16,550 15,829 29,492
Raw materials and supplies 24,761 30,441 26,688
----------- --------------------------------------
$ 118,278 $ 119,120 $ 144,875
=================================== =========
</TABLE>
Note 3. Restructuring Costs
In the nine-months period ended September 28, 1996, the Company recorded a
provision for restructuring of $11,730, of which $152 was recorded in the third
quarter, consisting of (i) $5,718 in connection with the decision to put its'
JJ. Farmer sportswear product line up for sale, which charge is primarily
related to the write-off of goodwill and write-down of other assets, (ii) $2,858
related to the write-off of certain assets related to the licensing of the Gant
dress shirt and accessories product lines, and the accrual of a portion of the
Gant future minimum royalties, which are not expected to be covered by future
sales, (iii) $1,842 primarily related to employee costs in connection with the
closing of a manufacturing and distribution facility in Thomson, Georgia, (iv)
$547 primarily related to employee costs in connection with the closing of a
manufacturing facility in Americus, Georgia and (v) $765 related primarily to
severance costs.
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 operations and financial 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 periods ended September 28, 1996 with the operating
results for the three- and nine- months periods ended September 30, 1995.
The following table sets forth certain financial data for the three- and
nine-months periods ended September 28, 1996 and September 30, 1995.
<TABLE>
<CAPTION>
(dollars in millions)
Three months ended Nine months ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
- ------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Net sales $122.6 $148.3 $318.8 $374.2
Gross profit $ 29.9 $ 33.8 $ 70.5 $ 80.7
Gross margin 24.4% 22.8% 22.1% 21.6%
Income/(loss) from operations
before interest and income taxes $10.5 $ 11.8 ($3.5) $ 19.7
</TABLE>
<PAGE>
Third Quarter 1996 Compared to Third Quarter 1995
Net sales for the third quarter of 1996 amounted to $122.6 million,
a 17.3% decrease from net sales of $148.3
- ---------
million in the third quarter of 1995.
<TABLE>
<CAPTION>
(dollars in millions)
Net sales and percentage of total Percentage
for the three months ended Increase/
Sept. 28, 1996 Sept. 30, 1995 (Decrease)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Men's Apparel $ 92.9 75.8% $118.8 80.1% (21.8%)
Children's Sleepwear and Underwear 19.9 16.2% 20.6 13.9% (3.5%)
Other Businesses (a) 9.8 8.0% 8.9 6.0 % 10.3%
---------------------- ------------------------
Total $122.6 100% $148.3 100% (17.3%)
==================== =====================
</TABLE>
(a) Represents the Made in the Shade division (a women's junior sportswear
business) and the retail outlet stores division (the "Stores division").
Sales of Men's Apparel decreased $25.9 million, or 21.8%. This decrease was
primarily attributable to: (i) the restructuring of the Company's men's apparel
businesses in the aggregate amount of $13.8 million, and (ii) the reduction in
sales of the Company's men's denim related merchandise (other than Canyon River
Blues jeans) in the amount of $9.2 million.
Sales of Other Businesses increased $0.9 million, or 10.3%. This increase
related to an increase in sales by the Made in the Shade division due to an
increase in the number of programs produced for mass volume retailers, offset by
a decrease in sales by the Stores division related primarily to a decrease in
sales through the Manhattan brand store format (an older and larger type of
retail outlet store).
Gross profit as a percentage of net sales increased to 24.4% ($29.9 million) in
the third quarter of 1996 from 22.8% of net sales ($33.8 million) in the
comparable 1995 quarter.
<TABLE>
<CAPTION>
(dollars in millions)
Gross profit and gross margin
for the three months ended
Sept. 28, 1996 Sept. 30, 1995
- ---------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Men's Apparel $ 20.4 21.9% $ 24.4 20.6 %
Children's Sleepwear and Underwear 5.8 29.4% 6.3 30.2%
Other Businesses (a) 3.7 37.8% 3.1 35.0%
-------- --------
Total $ 29.9 24.4% $ 33.8 22.8%
=============== ======
</TABLE>
(a) Represents the Made in the Shade division and the Stores division.
The increase in gross margin occurred principally in men's apparel as a result
of reduced sales of Perry Ellis sportswear to off-price retailers and reduced
sales of lower margin Manhattan label sportswear.
Selling, general and administrative expenses decreased to $20.3 million (16.6%
of net sales), as compared to the third quarter of 1995, when such expenses
amounted to $23.0 million (15.5% of net sales). The decrease in such expenses
(in dollars) was primarily attributable to cost savings resulting from the
restructuring of the men's apparel business, as discussed under the year to date
comparison below, and substantially reduced factoring charges resulting from a
change in the factoring arrangement, as disclosed in the Form 10-Q for the
second quarter ended June 29, 1996.
For the third quarter of 1996, income from operations before interest and income
taxes was $10.5 million, or 8.6% of net sales, as compared to income from
operations before interest and income taxes of $11.8 million, or 7.9% of net
sales, in the 1995 third quarter.
<TABLE>
<CAPTION>
(dollars in millions)
Income from operations before interest
and income taxes, and percentage of
net sales for the three months ended
Sept. 28, 1996 Sept. 30, 1995
- ---------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Men's Apparel $ 6.9 7.4% $ 8.6 5.8%
Children's Sleepwear and Underwear 4.3 21.8% 4.3 20.8%
Other Businesses (a) (0.4) (4.2%) (0.3) (3.5%)
---------- ------- ------
10.8 8.8% 12.6 8.5%
Corporate expenses (1.6) (2.1)
Licensing division income 1.3 1.3
---------- --------
Income from operations before
interest and income taxes $ 10.5 8.6% $ 11.8 7.9%
======== ==============
</TABLE>
(a) Represents the Made in the Shade division and the Stores division.
Net interest expense for the third quarter of 1996 amounted to $4.1 million as
compared to $5.4 million in the prior year's third quarter as a result of lower
average borrowings.
Net income for the third quarter of 1996 was $6.3 million,
or $0.42 per share, compared with net income of $6.3
- ----------
million, or $0.42 per share, for the third quarter of 1995.
Earnings before interest, taxes, depreciation, amortization and restructuring
charges was $12.4 million (10.1% of net sales) in the third quarter of 1996,
compared to $13.6 million (9.2% of net sales) in the third quarter of 1995, a
decrease of $1.2 million, or 8.8%. Although this measure is not contained in
Generally Accepted Accounting Principles and is not a substitute for operating
income, net income or net cash flows from operating activities, the Company
believes this information is helpful in understanding cash flow from operations
that is available for debt service, taxes and capital expenditures.
Year to Date 1996 Compared to Year to Date 1995
Net sales for the nine months ended September 28, 1996 amounted to $318.8
million, a 14.8% decrease from net sales of $374.2 million for the nine months
ended September 30, 1995.
<TABLE>
<CAPTION>
(dollars in millions)
Net sales and percentage of total Percentage
for the nine months ended Increase/
Sept. 28, 1996 Sept. 30, 1995 (Decrease)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Men's Apparel $262.8 82.4% $318.2 85.0% (17.4%)
Children's Sleepwear and Underwear 28.5 9.0% 29.0 7.8% (1.6%)
Other Businesses (a) 27.5 8.6% 27.0 7.2% 1.9%
---------------------- ----------------------
Total $318.8 100% $374.2 100% (14.8%)
==================== =====================
</TABLE>
(a) Represents the Made in the Shade division and the Stores division.
Sales of Men's Apparel decreased $55.4 million, or 17.4%. Approximately $42.1
million of such decrease relates to the Company's previously announced
restructuring of its Men's Apparel segment. Sales of Perry Ellis sportswear also
declined in the amount of $7.5 million as a result of lower sales to off-price
retailers ($17.1 million), as offset by increases in sales to traditional
department stores. Additionally, sales of jeans (other than Canyon River Blues)
experienced a reduction of $10.0 million from the prior year which were offset
by a $9.0 million, or 41.7%, increase realized in sales of Canyon River Blues
jeans.
Gross profit as a percentage of net sales increased to 22.1% in the nine months
ended September 28, 1996 from 21.6% of net sales for the nine months ended
September 30, 1995.
<TABLE>
<CAPTION>
(dollars in millions)
Gross profit and gross margin
for the nine months ended
Sept. 28, 1996 Sept. 30, 1995
- ---------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
Men's Apparel $ 53.7 20.5% $ 62.7 19.7%
Children's Sleepwear and Underwear 7.4 25.8% 8.5 29.5%
Other Businesses (a) 9.4 34.3% 9.5 35.3%
-------- --------
Total $ 70.5 22.1% $ 80.7 21.6%
=============== =============
</TABLE>
(a) Represents the Made in the Shade division and the Stores division.
The increase in gross margin occurred principally in men's apparel resulting
from higher margins on sportswear, as previously discussed, and increased
margins on neckwear, offset by lower margins on children's sleepwear due to
higher off-price sales of licensed character products.
Gross margins for the nine months ended September 28, 1996, were negatively
affected by $3.3 million (1.0% of net sales) of charges, primarily related to
markdowns, as discussed in the Company's Form 10-Q for the second quarter ended
June 29, 1996. Of this amount, $3.0 million (1.1 % of net sales) related to
Men's Apparel and the balance related to the Other Businesses.
Selling, general and administrative expenses increased to $64.7 million (20.3%
of net sales), as compared to the first nine months of 1995, when such expenses
amounted to $64.1 million (17.1% of net sales). The increase in such expenses
was primarily attributable to the installation of store fixtures for Perry Ellis
Sportswear shops in department stores and Canyon River Blues shops in Sears,
Roebuck & Co. ("Sears"). These expenditures commenced in the second half of
1995. The non-cash portion of the increased expenses relating to store fixtures
accounted for approximately 83% of the total increase in S,G&A expense.
S,G&A expenses for the first nine months included charges of $1.1 million, which
primarily related to the restructuring of the Men's Apparel businesses as
discussed in the Company's Form 10-Q for the second quarter ended June 29, 1996.
Royalty income for the nine months ended September 28, 1996 was $4.1 million,
compared to $4.7 million in the first nine months of 1995. This decrease
resulted primarily from (i) lower sales by licensees in the fourth quarter of
the prior year, which resulted in a decrease in royalties received by the
Company in the current year, and (ii) the expiration of certain license
agreements prior to 1996.
In the first nine months of 1996, the Company recorded a provision for
restructuring of $11.7 million consisting of (i) $5.7 million in connection with
the decision to put its' JJ. Farmer sportswear product line up for sale, which
charge is primarily related to the write-off of goodwill and the write-down of
other assets, (ii) $2.9 million related to the write-off of certain assets
related to the licensing of the Gant dress shirt and accessories product lines,
and the accrual of a portion of the Gant future minimum royalties, which are not
expected to be covered by future sales, (iii) $1.8 million primarily related to
employee costs in connection with the closing of a manufacturing and
distribution facility in Thomson, Georgia, (iv) $0.5 million primarily related
to employee costs in connection with the closing of a manufacturing facility in
Americus, Georgia and (v) $0.8 million related primarily to severance costs.
The restructuring of the menswear business is designed to focus resources on
those brands and products that offer the Company the opportunity for superior
margins because they either (i) have significant consumer recognition, such as
Perry Ellis, Manhattan and Joe Boxer products or (ii) require Salant's
merchandising, marketing and manufacturing expertise, which provides significant
added value to the Company's retail customer, as in the case of the Canyon River
Blues program for Sears. Salant will expend its energies on a selected number of
key brands and programs which offer it the opportunity to maximize its corporate
marketing and merchandising strengths in order to improve profitability.
For the nine months ended September 28, 1996, the loss from operations before
interest and income taxes was $3.5 million, or (1.1%) of net sales, as compared
to income from operations before interest and income taxes of $19.7 million, or
5.3% of net sales, in the first nine months of 1995. Income from operations as a
percentage of net sales was lower in 1996 primarily as a result of the net sales
decrease, the increase in S,G&A expenses and the provision for restructuring
discussed above.
<TABLE>
<CAPTION>
(dollars in millions)
Income/(loss) from operations before interest
and income taxes, and percentage of
net sales for the nine months ended
Sept. 28, 1996 Sept. 30, 1995
- ---------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Men's Apparel (a) $ (1.3) (0.5)% $ 18.2 4.9%
Children's Sleepwear and Underwear 3.3 11.5% 4.1 14.2%
Other Businesses (b) (2.6) (9.4%) (1.7) (6.5)%
--------- ------- -----
(0.6) (0.2%) 20.6 5.5%
Corporate expenses (6.2) (4.9)
Licensing division income 3.3 4.0
--------- -------
Income/(loss) from operations before
interest and income taxes $ (3.5) (1.1%) $ 19.7 5.3%
======= =============
</TABLE>
(a) Includes $11.7 million restructuring provision in 1996.
(b) Represents the Made in the Shade division and the Stores division.
Net interest expense for the nine months ended September 28, 1996 amounted to
$11.9 million as compared to $14.6 million in the prior year's first nine months
as a result of lower average borrowings.
The net loss for the first nine months of 1996 was $15.4 million, or ($1.02) per
share, compared with net income of $5.0 million, or $0.33 per share, for the
first nine months of 1995.
Earnings before interest, taxes, depreciation, amortization and restructuring
charges was $14.3 million (4.5% of net sales) in the nine months ended September
28, 1996, compared to $25.5 million (6.8% of net sales) in the first nine months
of 1995, a decrease of $11.2 million, or 43.9%. Although this measure is not
contained in Generally Accepted Accounting Principles and is not a substitute
for operating income, net income or net cash flows from operating activities,
the Company believes this information is helpful in understanding cash flow from
operations that is available for debt service, taxes and capital expenditures.
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") to provide seasonal working capital financing in the form of direct
borrowings and letters of credit, up to an aggregate of $135 million (the
"Maximum Credit"), 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 base rate of the Chase Manhattan Corporation (the "Prime Rate", which was
8.25% at September 28, 1996). 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 28, 1996, direct borrowings and
letters of credit outstanding under the Credit Agreement were $40.6 million and
$28.3 million, respectively, and the Company had unused availability of $21.1
million. 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. The
average interest rate on borrowings for the nine months ended September 28, 1996
and September 30, 1995 was 9.5% and 9.8%, respectively.
The Credit Agreement and the indenture (the "Indenture") governing the 10 1/2%
Senior Secured Notes due December 31, 1998 (the "Senior 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, 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 28, 1996, the Company was in compliance with all financial covenants
as indicated below:
<TABLE>
<CAPTION>
Covenant Sept. 28, 1996
Credit Agreement Covenants Level Actual Level
<S> <C> <C>
Working Capital $ 75.0 million $ 84.5 million
Stockholders' Equity $ 45.0 million $ 55.4 million
Maximum Loss $(15.0) million $ (6.7) million
</TABLE>
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 has complied
with this covenant for all periods through January 31, 1997.
The Company's cash used in operating activities was $20.0 million. This
represented an $11.2 million (36%) improvement over the first nine months of
1995 and was primarily a result of inventory management improvements. Inventory
decreased by $0.8 million in the first nine months of 1996; during the same
period in 1995, inventory increased $20.2 million.
The restructuring provision of $11.7 million in the first nine months 1996 has
required cash payments amounting to $1.6 million to date and will require
approximately $5.0 million of additional cash over a period of time extending
beyond 1996. In addition, the restructuring charge included a non- cash charge
relating primarily to the write-off of goodwill in the amount of $6.4 million.
Cash used for investing activities in the first nine months of 1996 was
$5.7 million, primarily related to capital expenditures.
Cash provided by financing activities in the first nine months of 1996
was $26.2 million, which represented short-term borrowings under the Credit
Agreement.This represents a 24% reduction from the $34.5 million of
short-term borrowings required in the first nine months of 1995.
Capital expenditures in the first nine months of 1996 were $5.0 million, as
compared to $3.5 million in the first nine months of 1995. These expenditures
were funded primarily from short term borrowings. Capital expenditures for the
full year of 1996 are anticipated to be approximately $9.0 million.
On October 28, 1996, the Company completed the sale of a leasehold interest in a
facility located in Glen Rock, New Jersey. The Net Cash Proceeds (as defined in
the Indenture) for such sale were $3,372,000. Pursuant to the Indenture, the
Company is required to make an offer to repurchase the Senior Notes in an amount
equal to the Net Cash Proceeds at 100% of the principal amount thereof.
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 flows together with funds
available under the Credit Agreement will be adequate to meet the financing
requirements it anticipates during the next twelve months. The Company has
initiated discussions to extend the Credit Agreement beyond March 31, 1997. The
Company anticipates that the Credit Agreement will be extended on satisfactory
terms into 1998. 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.
Factors that May Affect Future Results and Financial Condition.
The Company's future operating results and financial condition are dependent on
the Company's ability to successfully design, manufacture, import and market
apparel. Inherent in this process are many factors that the Company must
successfully manage in order to achieve favorable operating results and
financial condition including, without limitation, the following:
Competition. The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers (such as
the Company) and a large number of specialty manufacturers. The Company faces
substantial competition in its markets from manufacturers in both categories.
Many of the Company's competitors have greater financial resources than the
Company.
Apparel Industry Cycles and other Economic Factors. The apparel industry
historically has been subject to substantial cyclical variation, with consumer
spending on apparel tending to decline during recessionary periods. A decline in
the general economy or uncertainties regarding future economic prospects may
affect consumer spending habits, which, in turn, could have a material adverse
effect on the Company's results of operations and financial condition.
Retail Environment. Various retailers, including some of the Company's
customers, have experienced declines in revenue and profits in recent periods
and some have been forced to file for bankruptcy protection. To the extent that
these financial difficulties continue, there can be no assurance that the
Company's financial condition and results of operations would not be adversely
affected.
Seasonality of Business and Fashion Risk. The Company's principal products are
organized into seasonal lines for resale at the retail level during the Spring,
Fall and Christmas Seasons. Typically, the Company's products are designed as
much as one year in advance and manufactured approximately one season in advance
of the related retail selling season. Accordingly, the success of the Company's
products is often dependent on the ability of the Company to successfully
anticipate the needs of the Company's retail customers and the tastes of the
ultimate consumer up to a year prior to the relevant selling season.
Substantial Level of Indebtedness. The Company had indebtedness of $150.2
million as of September 28, 1996. This level of indebtedness could adversely
affect the Company's operations because a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of interest and
would, therefore, not be available for other purposes. Further, this level of
indebtedness might inhibit the Company's ability to obtain financing in the
future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes.
Foreign Operations. The Company's foreign sourcing operations are subject to
various risks of doing business abroad, including currency fluctuations
(although the predominant currency used is the U.S. dollar), quotas and, in
certain parts of the world, political instability. Any substantial disruption of
its relationship with its foreign suppliers could adversely affect the Company's
operations. Some of the Company's imported merchandise is subject to United
States Customs duties. In addition, bilateral agreements between the major
exporting countries and the United States impose quotas which limit the amount
of certain categories of merchandise that may be imported into the United
States. Any material increase in duty levels, material decrease in quota levels
or material decrease in available quota allocation could adversely affect the
Company's operations.
Dependence on Contract Manufacturing. In 1995, the Company produced 64% of all
of its products (in units) through arrangements with independent contract
manufacturers. The use of such contractors and the resulting lack of direct
control could subject the Company to difficulty in obtaining timely delivery of
products of acceptable quality. In addition, as is customary in the industry,
the Company does not have any long-term contracts with its raw material
suppliers or product manufacturers. While the Company is not dependent on one
particular product manufacturer or raw material supplier, the loss of several
such product manufacturers and/or raw material suppliers in a given season could
have a material adverse effect on the Company's performance.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial performance
should not be considered to be a reliable indicator of future performance, and
investors are cautioned not to use historical trends to anticipate results or
trends in the future. In addition, the Company's participation in the highly
competitive apparel industry often results in significant volatility of the
Company's common stock price.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the third quarter of 1996, the Company did not file any reports on Form
8-K.
Exhibits
Number Description
27 Financial Data Schedule
<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
Date: November 11, 1996 /s/ Richard P. Randall
---------------------------------------------------------
Richard P. Randall
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,792
<SECURITIES> 0
<RECEIVABLES> 69,523
<ALLOWANCES> 12,987
<INVENTORY> 118,278
<CURRENT-ASSETS> 3,256
<PP&E> 65,780
<DEPRECIATION> 39,643
<TOTAL-ASSETS> 270,485
<CURRENT-LIABILITIES> 95,325
<BONDS> 109,574
0
0
<COMMON> 15,329
<OTHER-SE> 40,099
<TOTAL-LIABILITY-AND-EQUITY> 270,485
<SALES> 122,599
<TOTAL-REVENUES> 124,185
<CGS> 92,664
<TOTAL-COSTS> 20,891
<OTHER-EXPENSES> (45)
<LOSS-PROVISION> 152
<INTEREST-EXPENSE> 4,128
<INCOME-PRETAX> 6,395
<INCOME-TAX> 60
<INCOME-CONTINUING> 6,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,335
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
