-----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, N2zpxUebisEf6XgUJLkiAsHuiBSdC+s2Lv8y5dqkdkILlA7R/rrjQ6VV4FC89FM6 dRLEnYBYNCF5v8ZMoo9cGg== /in/edgar/work/0000086346-00-000018/0000086346-00-000018.txt : 20001109 0000086346-00-000018.hdr.sgml : 20001109 ACCESSION NUMBER: 0000086346-00-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALANT CORP CENTRAL INDEX KEY: 0000086346 STANDARD INDUSTRIAL CLASSIFICATION: [2320 ] IRS NUMBER: 133402444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06666 FILM NUMBER: 756103 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 0001.txt 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)
Three Months Ended Nine Months Ended ------------------ ----------------- Sept 30, Oct 2, Sept 30, Oct 2, 2000 1999 2000 1999 -------- -------- -------- -------- 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* ======== ======== ======== =========
*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)
Three Months Ended Nine Months Ended ------------------ ----------------- Sept 30, Oct 2, Sept 30, Oct 2, 2000 1999 2000 1999 -------- --------- ------- -------- 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 ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements. Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
September 30, January 1, October 2, 2000 2000 1999 (Unaudited) (*) (Unaudited) ----------- ---------- ----------- ASSETS Current assets: 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 ========== ========== ==========
(*) 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 30, Oct 2, 2000 1999 Cash Flows from Operating Activities: 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 ======== ========
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 30, Oct 2, 2000 1999 Supplemental disclosures of cash flow information: Cash paid during the period for: 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
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
September 30, January 1, October 2, 2000 2000 1999 ------------ ------------ ------------ 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 ======== ======== ========
Note 4. Accumulated Other Comprehensive Income
Foreign Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustment Adjustment Income 2000 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) =========== ========= =========
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.
Nine Months Ended ----------------- Sept 30, Oct 2, 2000 1999 ----- ---- Basic and diluted income/(loss) per share: 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 ====== ======
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 ------------------ ----------------------- Awadhesh K. Sinha Chief Operating Officer and Chief Financial Officer EX-27 2 0002.txt FDS --
5 1,000 9-MOS DEC-30-2000 SEP-30-2000 18,345 0 31,050 0 40,700 95,735 13,757 0 122,910 25,105 0 0 0 10,000 73,715 122,910 158,830 159,141 117,301 151,893 0 0 (888) 8,136 47 8,089 0 0 0 8,089 .82 .82
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