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,
2000.
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 1, 2000, there were outstanding 9,901,140 shares of the Common
Stock of the registrant.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Income
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
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 2, Sept 30,
Oct 2,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 56,344 $ 57,297 $158,830 $197,699
Cost of goods sold 42,567 43,186 117,301 156,987
-------- -------- -------- --------
Gross profit 13,777 14,111 41,529 40,712
Selling, general and
administrative expenses (10,291) (12,000) (34,203) (41,766)
Royalty income 81 193 311 1,687
Goodwill amortization (130) (130) (389) (389)
Provision for division
restructuring costs (Note 5) -- -- -- (4,039)
Other income -- 41 -- 463
------- -------- ----- --------
Income/(loss) from continuing operations
before interest, income taxes and
extraordinary gain 3,437 2,215 7,248 (3,332)
Interest (income)/expense, net (343) (174) (888) 597
-------- -------- -------- --------
Income/(Loss) from continuing operations
before income taxes and
extraordinary gain 3,780 2,389 8,136 (3,929)
Income taxes 36 18 47 77
------- --------- ------- --------
Income/(Loss) from continuing operations
before extraordinary gain 3,744 2,371 8,089 (4,006)
Discontinued operations (Note 6):
Loss from discontinued operations -- -- -- (1,955)
Extraordinary gain (Note 7) -- -- -- 24,703
------- --------- ------- --------
Net income $ 3,744 $ 2,371 $ 8,089 $ 18,742
======== ========= ======== ========
Basic and diluted income/(loss) per share (Note 8):
From continuing operations $ 0.38 $ 0.24 $ 0.82 $ (0.40)*
From discontinued operations -- -- -- (0.20)*
From extraordinary gain -- -- -- 2.47*
-------- ------- -------- --------
Basic and diluted income/(loss)
per share $ 0.38 $ .24 $ 0.82 $ 1.87*
======== ======== ======== ========
Weighted average common
stock outstanding 9,901 10,000 9,901 10,000*
======== ======== ======== =========
</TABLE>
*Nine months ended October 2, 1999 information is pro-forma - See Note 8.
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept 30, Oct 2, Sept 30, Oct 2,
2000 1999 2000 1999
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Net income $ 3,744 $ 2,371 $ 8,089 $ 18,742
Other comprehensive income, net of tax:
Foreign currency translation adjustments 4 -- 25 58
-------- -------- -------- --------
Comprehensive income $ 3,748 $ 2,371 $ 8,114 $ 18,800
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, January 1, October 2,
2000 2000 1999
(Unaudited) (*) (Unaudited)
----------- ---------- -----------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 18,345 $ 30,116 $ 10,276
Accounts receivable, net 31,050 15,956 35,689
Inventories (Note 3) 40,700 41,669 37,544
Prepaid expenses and other current assets 5,540 5,490 4,205
Assets held for sale 100 100 122
---------- ---------- ----------
Total current assets 95,735 93,331 87,836
Property, plant and equipment, net 13,757 14,185 13,640
Other assets 13,418 14,287 13,713
---------- ---------- ----------
Total assets $ 122,910 $ 121,803 $ 115,189
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ - $ -- $ 630
Accounts payable 12,629 12,097 7,542
Chapter 11 liabilities 2,395 4,604 4,271
Accrued liabilities 7,253 11,751 11,748
Reserve for business restructuring (Note 5) 1,567 2,308 3,677
Net liabilities of discontinued
Operations (Note 6) 1,261 1,309 536
--------- ---------- ---------
Total current liabilities 25,105 32,069 28,404
Deferred liabilities 4,090 4,133 3,896
Shareholders' equity:
Common stock (Note 1) 10,000 10,000 10,000
Additional paid-in capital 206,040 206,040 206,040
Deficit (119,208) (127,297) (129,156)
Accumulated other comprehensive income (Note 4) (2,919) (2,944) (3,995)
Less - treasury stock, at cost (198) (198) --
----------- ---------- ---------
Total shareholders' equity 93,715 85,601 82,889
---------- ---------- ----------
Total liabilities and shareholders' equity $ 122,910 $ 121,803 $ 115,189
========== ========== ==========
</TABLE>
(*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept 30, Oct 2,
2000 1999
Cash Flows from Operating Activities:
<S> <C> <C>
Income/(loss) from continuing operations $ 8,089 $ (4,006)
Adjustments to reconcile income/(loss) from continuing
operations to net cash (used in)/provided by
operating activities:
Depreciation 3,040 3,648
Amortization of intangibles 389 389
Change in operating assets and liabilities
Accounts receivable (15,094) 2,670
Inventories 969 32,046
Prepaid expenses and other current assets (61) 1,061
Accounts payable 532 4,711
Accrued liabilities (4,498) (1,939)
Reserve for business restructuring (741) 126
Chapter 11 liabilities (2,209) (19,954)
Deferred liabilities (43) (115)
--------- --------
Net cash(used in)/provided by continuing
operating activities (9,627) 18,637
Cash (used in)/provided by discontinued operations (48) 4,905
--------- --------
Net cash (used in)/provided by operating activities (9,675) 23,542
--------- --------
Cash Flows from Investing Activities:
Capital expenditures (1,749) (3,219)
Proceeds from the sale of assets -- 28,278
Store fixture expenditures (372) (1,739)
--------- --------
Net cash (used in)/provided by investing activities (2,121) 23,320
--------- --------
Cash Flows from Financing Activities:
Net short-term loan payments -- (37,866)
Other, net 25 58
-------- --------
Net cash provided by/(used in) financing activities 25 (37,808)
-------- --------
Net (decrease)/increase in cash and cash equivalents (11,771) 9,054
Cash and cash equivalents - beginning of year 30,116 1,222
-------- --------
Cash and cash equivalents - end of quarter $ 18,345 $ 10,276
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept 30, Oct 2,
2000 1999
Supplemental disclosures of cash flow information: Cash paid during the period
for:
<S> <C> <C>
Interest $ 83 $ 1,031
Income taxes 178 77
Supplemental investing and financing non-cash transactions:
Common Stock issued for Senior Notes -- 104,879
Common Stock issued for pre-petition interest -- 14,703
Common Stock issued for post-petition interest -- 121
</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. Financial Restructuring
On December 29, 1998 (the "Filing Date"), Salant Corporation ("Salant") filed a
petition under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court") (the "1998 Case") in order to implement a
restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998 (the
"Senior Notes"). Salant also filed its plan of reorganization (the "Plan") with
the Bankruptcy Court on the Filing Date in order to implement its restructuring.
On April 16, 1999, the Bankruptcy Court issued an order (the "Confirmation
Order") confirming the Plan. The effective date of the Plan occurred on May 11,
1999 (the "Effective Date"). See the Company's annual report on Form 10-K for
the fiscal year ended January 1, 2000 for more information on the Plan.
The authorized capital stock of Salant as of the Effective Date consists of (i)
45,000,000 shares of New Common Stock, $1.00 par value per share and (ii)
5,000,000 shares of preferred stock, $2.00 par value per share. No preferred
stock has been issued either in connection with the Plan or otherwise.
Post-restructuring, Salant has focused primarily on its Perry Ellis men's
apparel business and, as a result, Salant exited its other businesses, including
its Children's Group and non-Perry Ellis menswear divisions. During 1999, the
Company sold its John Henry and Manhattan businesses. These businesses included
the John Henry, Manhattan and Lady Manhattan trade names, the John Henry and
Manhattan dress shirt inventory, the leasehold interest in the dress shirt
facility located in Valle Hermosa, Mexico, and the equipment located at the
Valle Hermosa facility and at Salant's facility located in Andalusia, Alabama.
During 1999, Salant also sold its Children's Group, which primarily involved the
sale of inventory related to the Children's Group. Salant reports its business
operations as a single segment.
Note 2. Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Salant and subsidiaries (collectively, the "Company"). (As used
herein, the Company includes Salant and its subsidiaries but excludes the
Children's Group, which is reported herein as a discontinued operation.)
The Company's principal business is the designing, sourcing, importing and
marketing of men's apparel. The Company sells its products to retailers,
including department stores, specialty stores and off-price retailers, in
addition to its own outlet stores. For a portion of 1999, the Company made
limited sales of certain products to national chains and mass volume retailers.
The results of operations for the nine months ended September 30, 2000 and
October 2, 1999 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
have been eliminated in consolidation. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's annual report on form 10-K for the fiscal year ended January 1, 2000.
Note 3. Inventories
<TABLE>
<CAPTION>
September 30, January 1, October 2,
2000 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Finished goods $ 26,232 $ 25,385 $ 22,756
Work-in-Process 8,806 10,208 8,373
Raw materials and supplies 5,662 6,076 6,415
---------- ---------- ----------
$ 40,700 $ 41,669 $ 37,544
======== ======== ========
</TABLE>
Note 4. Accumulated Other Comprehensive Income
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustment Adjustment Income
2000
<S> <C> <C> <C>
Beginning of year balance $ (143) $ (2,801) $ (2,944)
Nine months ended
September 30, 2000 change 25 -- 25
------------ ------------ -----------
End of quarter balance $ (118) $ (2,801) $ (2,919)
=========== ========= ==========
1999
Beginning of year balance $ (197) $ (3,856) $ (4,053)
Nine months ended
October 2, 1999 change 58 -- 58
----------- --------- -----------
End of quarter balance $ (139) $ (3,856) $ (3,995)
=========== ========= =========
</TABLE>
Note 5. Division Restructuring Costs
In the first nine months of 2000, the Company used $741 of the restructuring
reserve, relating primarily to severance costs and expenses related to
maintaining the Andalusia, Alabama facility. Subsequent to the end of the third
quarter, the Company sold the Andalusia facility and will recognize an
immaterial gain on the transaction in the fourth quarter. As of September 30,
2000, the reserve for business restructuring totaling $1,567 consisted of $415
of severance and other employee related costs, $511 for future lease payments,
and $641 of other miscellaneous restructuring costs. It is anticipated that
these expenditures will be completed by the first quarter of 2001.
Note 6. Discontinued Operations
In the first nine months of 2000, the net liabilities of discontinued operations
decreased by $48 to $1,261 due primarily to the payment of accruals offset by a
gain of $226 on the sale of a distribution facility in Carrizo Springs, Texas.
Net sales of discontinued operations in the first nine months of 1999 were
$5,574.
Note 7. Extraordinary Gain
In the second quarter of 1999, the Company recorded an extraordinary gain of
$24,703 related to the conversion of the Senior Notes and the related unpaid
interest into equity. Pursuant to the Plan (see Note 1), the holders of Salant's
Senior Notes received, in the aggregate, 95% of the issued and outstanding
shares of New Common Stock, subject to dilution, in full satisfaction of all of
the outstanding principal amount ($104,879), plus all accrued and unpaid
interest ($14,824) on the Senior Notes. The holders of Salant's Senior Notes
received 9,500,000 shares of the New Common Stock.
Note 8. Pro Forma Information
Per share amounts for the nine months ended October 2,1999 are based on the
weighted average number of common shares as if the New Common Stock had been
issued at the beginning of the earliest period presented. Common stock
equivalents are not considered, as stock options for the New Common Stock are
anti-dilutive.
The following is a comparison of basic and diluted income/(loss) per share using
the historical shares outstanding. Common stock equivalents are not considered
for the Company's old common stock, as these stock options were cancelled or
anti-dilutive.
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept 30, Oct 2,
2000 1999
----- ----
Basic and diluted income/(loss) per share:
<S> <C> <C>
From continuing operations $0.82 ($0.32)
From discontinued operations -- (0.16)
From extraordinary gain -- 1.98
--------- ---------
Basic and diluted income per share $0.82 $1.50
======= =======
Weighted average common stock outstanding 9,901 12,469
====== ======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Third Quarter of 2000 Compared with Third Quarter of 1999
Net Sales
Net sales decreased by $1.0 million, or 1.7%, from $57.3 million in the third
quarter of 1999 to $56.3 million in the third quarter of 2000. This decrease
primarily resulted from a slower department store environment that reduced
product reorders for the third quarter of 2000 versus the third quarter of 1999.
Gross Profit
Gross profit percentage was 24.6% in the third quarter of 1999 as compared to
24.5% in the third quarter of 2000.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the third quarter of
2000 decreased to $10.3 million (18.3% of net sales) from $12.0 million (20.9%
of net sales) for the third quarter of 1999. The decrease in SG&A expenses was
primarily a result of the elimination of overhead costs associated with the
non-Perry Ellis businesses that were sold or closed during 1999.
Income from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
Income from continuing operations before interest, taxes and extraordinary gain
increased from $2.2 million in the third quarter of 1999 to $3.4 million for the
third quarter of 2000. The increase of $1.2 million is due primarily to decrease
in SG&A expenses.
Interest Income, Net
Net interest income was $343 thousand for the third quarter of 2000 compared
with interest income of $174 thousand for the third quarter of 1999. The
increase in net interest income resulted from a reduction in direct borrowings
and an increase in cash available for investment.
Net Income
In the third quarter of 2000, the Company reported net income of $3.7 million,
or $.38 per share, as compared to a net income of $2.4 million, or $.24 per
share, in the third quarter of 1999.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges, Discontinued Operations and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, discontinued operations and extraordinary gain was $4.6 million (8.2%
of net sales) in the third quarter of 2000 as compared to $3.5 million (6.1% of
net sales) for the third quarter of 1999, an increase of $1.1 million, or 31.4%.
The Company believes this information is helpful in understanding cash flow from
operations that is available for debt service and capital expenditures. 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.
Year to Date 2000 Compared with Year to Date 1999
Net Sales
Net sales decreased by $38.9 million, or 19.7%, from $197.7 million in the first
nine months of 1999 to $158.8 million in the first nine months of 2000. This
decrease primarily resulted from a reduction of $45.0 million related to the
sale and disposal of the Company's non-Perry Ellis businesses in 1999. Sales of
Perry Ellis products experienced an increase of $6.1 million, or 4.0%, over the
first nine months of the prior year.
Gross Profit
The gross profit percentage increased from 20.6% in the first nine months of
1999 to 26.1% for the first nine months of 2000. The increase of 5.5% was due
primarily to the elimination of the 1999 sales, at reduced prices, of non-Perry
Ellis inventory related to the businesses the Company liquidated or sold in
1999. The gross profit percentage for the Perry Ellis business decreased from
27.1% in first nine months of 1999 to 26.2% for the first nine months of 2000.
The decrease was due primarily to a change in the product mix with lower margin
sales comprising more of total sales in the first nine months of 2000 versus the
first nine months of 1999. The Company has also experienced lower margins for
close out sales of prior season Perry Ellis products.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the first nine months
of 2000 decreased to $34.2 million (21.5% of net sales) from $41.8 million
(21.1% of net sales) for the first nine months of 1999. The reduction of SG&A
was due to the elimination of overhead and personnel costs associated with the
sale and disposal of the non-Perry Ellis businesses during 1999.
Provision for Division Restructuring Costs
In the first nine months of 1999, the Company recorded a restructuring provision
of $4.0 million. The provision was primarily for severance costs related to the
sale of the John Henry and Manhattan businesses and its exit from the private
label denim jeans business.
Income / Loss from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
Income from continuing operations before interest and taxes and extraordinary
gain was $7.2 million for the first nine months of 2000 as compared to a loss of
$3.3 million for the first nine months of 1999. The increase of $10.5 million
was due primarily to the elimination of restructuring charges and a reduction of
the loss of margin on the close out of inventory from the businesses that were
no longer continued as part of the ongoing operations of the Company.
Interest Income / Expense, Net
Net interest income was $0.9 million for the first nine months of 2000 compared
with interest expense of $0.6 million for the first nine months of 1999. The
decrease in interest expense resulted from the elimination of short-term
borrowings and the increase in interest income resulted from interest income
from the cash generated through the sale of the John Henry and Manhattan
businesses.
Discontinued Operations
In the first nine months of 1999, the Company recorded an additional provision
of $2.0 million for expected losses during the phase out period of the
Children's Group. The additional amount was required due to the additional costs
of phasing out the Children's Group's production and distribution facilities.
Extraordinary Gain
An extraordinary gain of $24.7 million was recorded in the 1999 period due to
the exchange of the Senior Notes of $104.9 million and the related interest
payable of $14.8 million for 9.5 million shares of the Company's New Common
Stock.
Net Income
In the first nine months of 2000, the Company reported net income of $8.1
million, or $0.82 per share, as compared with a net income of $18.7 million, or
$1.87 per share, in the first nine months of 1999.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges, Discontinued Operations and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, discontinued operations and extraordinary gain was $10.7 million (6.7%
of net sales) in the first nine months of 2000, compared to $4.7 million (2.4%
of net sales) in the first nine months of 1999, an increase of $6.0 million, or
127.7%. The Company believes this information is helpful in understanding cash
flow from operations that is available for debt service and capital
expenditures. 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.
Liquidity and Capital Resources
On May 11, 1999, the effective date of the Plan, the Company entered into a
syndicated revolving credit facility (the "Credit Agreement") with The CIT
Group/Commercial Services, Inc. ("CIT") pursuant to and in accordance with the
terms of a commitment letter dated December 7, 1998.
The Credit Agreement provides for a general working capital facility, in the
form of direct borrowings and letters of credit, up to $85 million subject to an
asset-based borrowing formula. The Credit Agreement consists of an $85 million
revolving credit facility, with a letter of credit subfacility. As collateral
for borrowings under the Credit Agreement, the Company granted to CIT and a
syndicate of lenders arranged by CIT (the "Lenders") a first priority lien on
and security interest in substantially all of the assets of the Company. The
Credit Agreement has an initial term of three years.
The Credit Agreement also provides, among other things, that (i) the Company
will be charged an interest rate on direct borrowings of .25% in excess of the
Prime Rate or, at the Company's request, 2.25% in excess of LIBOR (as defined in
the Credit Agreement), and (ii) the Lenders may, in their sole discretion, make
loans to the Company in excess of the borrowing formula but within the $85
million limit of the revolving credit facility. The Company is required under
the Credit Agreement to maintain certain financial covenants relating to
consolidated tangible net worth, capital expenditures, maximum pre-tax
losses/minimum pre-tax income and minimum interest coverage ratios. The Company
was in compliance with all applicable covenants at September 30, 2000.
Pursuant to the Credit Agreement, the Company is charged the following fees: (i)
a documentary letter of credit fee of 1/8 of 1.0% on issuance and 1/8 of 1.0% on
negotiation; (ii) a standby letter of credit fee of 1.0% per annum plus bank
charges; (iii) a one time commitment fee of $325 thousand; (iv) an unused line
fee of .25%; (v) an agency fee of $100 thousand (for the second and third years
of the term of the Credit Agreement); (vi) a collateral management fee of $8,333
per month; and (vii) a field exam fee of $750 per day plus out-of-pocket
expenses.
At September 30, 2000, there were no direct borrowings outstanding; letters of
credit outstanding under the Credit Agreement were $30.8 million and the Company
had unused availability, based on outstanding letters of credit and existing
collateral, of $32.8 million. In addition to the unused availability, at such
date the Company had approximately $18.3 million of cash available to fund its
operations. At the end of the third quarter of 1999, direct borrowings and
letters of credit outstanding were $0.6 million and $29.1 million, respectively,
and the Company had unused availability of $32.4 million and cash of
approximately $10.3 million available to fund its operations.
The Company's cash used by operating activities for the first nine months of
2000 was $9.6 million, which primarily reflects (i) an increase in net accounts
receivable of $15.1 million, (ii) a decrease in accrued liabilities and reserve
for business restructuring of $5.2 million and (iii) a decrease in Chapter 11
liabilities of $2.2 million. These items were offset by (i) a decrease in
inventory of $1.0 million, (ii) non-cash charges, such as depreciation and
amortization, of $3.4 million and (iii) income from continuing operations of
$8.1 million.
Cash used by investing activities for the first nine months of 2000 was $2.1
million, which reflects $1.7 million of capital expenditures and $400 thousand
for the installation of store fixtures in department stores. During fiscal 2000,
the Company plans to make capital expenditures of approximately $3.2 million and
to spend $1.6 million for the installation of store fixtures in department
stores.
Factors that May Affect Future Results and Financial Condition.
This report contains or incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that
assumed facts or bases almost always vary from the actual results, and the
differences between assumed facts or bases and actual results can be material,
depending on the circumstances. Where, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, there can be no assurance that the statement of the expectation or
belief will result or be achieved or accomplished. The words "believe",
"expect", "estimate", "project", "seek", "anticipate" and similar expressions
may identify forward-looking statements. The Company's future operating results
and financial condition are dependent upon the Company's ability to successfully
design, source, import and market apparel. Taking into account the foregoing,
the following are identified as important factors that could cause results to
differ materially from those expressed in any forward-looking statement made by,
or on behalf of, the Company:
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. The Company also competes for private label programs with the internal
sourcing organizations of many of its own customers.
Strategic Initiatives. In the second quarter of 2000, the Company entered into a
license agreement with Hartz & Company, Inc. to design, produce and distribute
sportswear and furnishings for Hartz's exclusive Tallia brand. Management of the
Company is continuing to consider various strategic opportunities, including but
not limited to, new menswear licenses and/or acquisitions. Management is also
exploring ways to increase productivity and efficiency, and to reduce the cost
structures of its respective businesses. Through this process, management
expects to increase its distribution channels and achieve effective economies of
scale. No assurance may be given that any additional transactions resulting from
this process will be announced or completed.
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,
Transition, Fall and Holiday 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.
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. The Company's operations in Asia are subject to certain
political and economic risks including, but not limited to, political
instability, changing tax and trade regulations and currency devaluations and
controls. Although the Company has experienced no material foreign currency
transaction losses, its operations in the region are subject to an increased
level of economic instability. The impact of these events on the Company's
business, and in particular its sources of supply, cannot be determined at this
time.
Dependence on Contract Manufacturing. The Company produces substantially all of
its products (in units) through arrangements with independent contract
manufacturers. As the Company has closed its manufacturing facilities during
1999, the use of independent contractors has increased in fiscal year 2000. 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 fabric 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 in the
Company's common stock price.
New Accounting Pronouncements In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities". In June
2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133
to clarify four areas causing difficulties in implementation. The amendment
included expanding the normal purchase and sale exemption for supply contracts,
permitting the offsetting of certain intercompany foreign currency derivatives
and thus reducing the number of third party derivatives, permitting hedge
accounting for foreign-currency denominated assets and liabilities, and
redefining interest rate risk to reduce sources of ineffectiveness. We will
adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1,
2001. SFAS 133, as amended by SFAS 138, is not expected to have a material
impact on the Company's consolidated results of operations, financial position
or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company adopted the provisions of SAB 101 during the fourth quarter ending
December 30, 2000 and it will not have a material impact on the Company's
consolidated results of operations, financial position or cash flow.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the third quarter of 2000, the Company did not file a current report on
Form 8-K.
Exhibits
Number Description
27 Financial Data Schedule
18
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 8, 2000 /s/ Awadhesh K. Sinha
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Awadhesh K. Sinha
Chief Operating Officer and
Chief Financial Officer
