-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RZDV+dgMt8WhvseJ7CaMWVAcsTPCSZjNZ9JjkS+eX2jZCdQnIhxnby41cndbJPMS TF8F78a1FTQOJFLG3SjQjA== 0000086346-96-000014.txt : 19961113 0000086346-96-000014.hdr.sgml : 19961113 ACCESSION NUMBER: 0000086346-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALANT CORP CENTRAL INDEX KEY: 0000086346 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 133402444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06666 FILM NUMBER: 96658103 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2122217500 MAIL ADDRESS: STREET 1: 1058 CLAUSSEN RDSTE 101 CITY: AUGUSTA STATE: GA ZIP: 30907 10-Q 1 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. 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
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 ---------------------------------------------------------- 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 =============================================================
See Notes to Condensed Consolidated Financial Statements.
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: 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 ======================================================================================================
(*) 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) Nine Months Ended Sept. 28, Sept. 30, 1996 1995 ----------------------------- Cash Flows from Operating Activities: 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 ================================
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 (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.
Note 2. Inventories September 28, December 30, September 30, 1996 1995 1995 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 =================================== =========
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.
(dollars in millions) Three months ended Nine months ended Sept. 28, Sept. 30, Sept. 28, Sept. 30, 1996 1995 1996 1995 - ------------------------------------------------------------------------- ----------------- 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
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.
(dollars in millions) Net sales and percentage of total Percentage for the three months ended Increase/ Sept. 28, 1996 Sept. 30, 1995 (Decrease) -------------------------------------------------------------------- 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%) ==================== =====================
(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.
(dollars in millions) Gross profit and gross margin for the three months ended Sept. 28, 1996 Sept. 30, 1995 - ---------------------------------------------------------------------- ------------------- 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% =============== ======
(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.
(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 - ---------------------------------------------------------------------- ------------------- 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% ======== ==============
(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.
(dollars in millions) Net sales and percentage of total Percentage for the nine months ended Increase/ Sept. 28, 1996 Sept. 30, 1995 (Decrease) -------------------------------------------------------------------- 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%) ==================== =====================
(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.
(dollars in millions) Gross profit and gross margin for the nine months ended Sept. 28, 1996 Sept. 30, 1995 - ---------------------------------------------------------------------- ------------------ 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% =============== =============
(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.
(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 - ---------------------------------------------------------------------- ----------------- 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% ======= =============
(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:
Covenant Sept. 28, 1996 Credit Agreement Covenants Level Actual Level Working Capital $ 75.0 million $ 84.5 million Stockholders' Equity $ 45.0 million $ 55.4 million Maximum Loss $(15.0) million $ (6.7) million
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. 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 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) EX-27 2
5 1,000 9-MOS DEC-28-1996 SEP-28-1996 1,792 0 69,523 12,987 118,278 3,256 65,780 39,643 270,485 95,325 109,574 0 0 15,329 40,099 270,485 122,599 124,185 92,664 20,891 (45) 152 4,128 6,395 60 6,335 0 0 0 6,335 .42 .42
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