10-Q 1 form10q3rdquarter2001.txt FORM 10-Q FOR 3RD QUARTER 2001 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 29, 2001. 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, 2001, 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 3 Condensed Consolidated Statements of Comprehensive Income/(Loss) 4 Condensed Consolidated Balance Sheets 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION 18 Item 5. Other Events 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURE 18
Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data) Three Months Ended Nine Months Ended Sept 29, Sept 30, Sept 29, Sept 30, 2001 2000 2001 2000 Net sales $ 55,098 $ 56,344 $148,574 $158,830 Cost of goods sold 42,240 42,567 113,559 117,301 Gross profit 12,858 13,777 35,015 41,529 Selling, general and administrative expenses (11,404) (10,291) (35,695) (34,203) Royalty income 68 81 148 311 Goodwill amortization (157) (130) (470) (389) Other income/(expense) 2 -- (26) -- Income/(loss) before interest and income taxes 1,367 3,437 (1,028) 7,248 Interest income, net 42 343 309 888 Income/(loss) before income taxes 1,409 3,780 (719) 8,136 Income taxes expense/(benefit) -- 36 (37) 47 Net income $ 1,409 $ 3,744 $ (682) $ 8,089 Basic and diluted income/(loss) per share $ 0.14 $ 0.38 $ (0.07) $ 0.82 Weighted average common stock outstanding 9,901 9,901 9,901 9,901
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (Unaudited) (Amounts in thousands) Three Months Ended Nine Months Ended Sept 29, Sept 30, Sept 29, Sept 30, 2001 2000 2001 2000 Net income/(loss) $ 1,409 $ 3,744 $ (682) $ 8,089 Other comprehensive income, net of tax: Foreign currency translation adjustments 1 4 3 25 Comprehensive income/(loss) $ 1,410 $ 3,748 $ (679) $ 8,114
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) September 29, December 30, September 30, 2001 2000 2000 (Unaudited) (*) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,409 $ 34,683 $ 18,345 Accounts receivable, net 34,549 16,588 31,050 Inventories (Note 3) 51,890 45,283 40,700 Prepaid expenses and other current assets 6,397 6,305 5,540 Assets held for sale -- -- 100 Total current assets 95,245 102,859 95,735 Property, plant and equipment, net 12,666 13,185 13,757 Other assets 15,720 14,504 13,418 Total assets $ 123,631 $ 130,548 $ 122,910 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 13,048 $ 14,798 $ 12,629 Liabilities subject to compromise (Note 1) 1,143 1,611 2,395 Accrued liabilities 5,499 9,310 7,253 Net liabilities of discontinued Operations (Note 6) 749 744 1,261 Reserve for business restructuring (Note 5) 830 1,070 1,567 Total current liabilities 21,269 27,533 25,105 Deferred liabilities 5,668 5,642 4,090 Shareholders' equity: Common stock (Note 1) 10,000 10,000 10,000 Additional paid-in capital 206,040 206,040 206,040 Deficit (114,699) (114,017) (119,208) Accumulated other comprehensive loss (Note 4) (4,449) (4,452) (2,919) Less - treasury stock, at cost (198) (198) (198) Total shareholders' equity 96,694 97,373 93,715 Total liabilities and shareholders' equity $ 123,631 $ 130,548 $ 122,910 (*) 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 29, Sept 30, 2001 2000 Cash Flows from Operating Activities: Net(loss)/income $ (682) $ 8,089 Adjustments to reconcile (loss)/income from continuing operations to net cash used by operating activities: Depreciation 3,349 3,040 Amortization 470 389 Change in operating assets and liabilities (net of business acquired): Accounts receivable (17,961) (15,094) Inventories (4,660) 969 Prepaid expenses and other assets 57 (61) Accounts payable (1,750) 532 Accrued and other liabilities (4,061) (4,541) Reserve for business restructuring (240) (741) Liabilities subject to compromise (468) (2,209) Net cash used by continuing operating activities (25,946) (9,627) Cash provided by/(used in) discontinued operations 5 (48) Net cash used by operating activities (25,941) (9,675) Cash Flows from Investing Activities: Capital expenditures (1,893) (1,749) Store fixture expenditures (404) (372) Purchase of certain business assets (4,039) -- Net cash used by investing activities (6,336) (2,121) Cash Flows from Financing Activities: Other, net 3 25 Net cash provided by financing activities 3 25 Net decrease in cash and cash equivalents (32,274) (11,771) Cash and cash equivalents - beginning of year 34,683 30,116 Cash and cash equivalents - end of quarter $ 2,409 $ 18,345
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 29, Sept 30, 2001 2000 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 20 $ 83 Income taxes $ 64 $ 178 Guaranteed future purchase price payment $ 250 $ -- 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 with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") in order to implement a restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998. 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 confirming the Plan. The effective date of the Plan occurred on May 11, 1999. See the Company's annual report on Form 10-K for the fiscal year ended December 30, 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. Note 2. Basis of Presentation and Consolidation The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Salant and subsidiaries (collectively, the "Company"). 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. During the first quarter of 2001, the Company purchased certain assets of a business. The purchase price, including inventory, was approximately $4.3 million, with additional contingent payments due upon achieving future defined benchmarks. The acquisition was accounted for using the purchase method and the Company is currently in the process of allocating the purchase price. The pro forma effect of the asset purchase on the results of operations is not presented, as it is not material. The results of operations for the nine months ended September 29, 2001 and September 30, 2000 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 December 30, 2000. Note 3. Inventories September 29, December 30, September 30, 2001 2000 2000 Finished goods $ 39,804 $ 27,078 $ 26,232 Work-in-Process 7,086 11,009 8,806 Raw materials and supplies 5,000 7,196 5,662 $ 51,890 $ 45,283 $ 40,700 Note 4. Accumulated Other Comprehensive Income Foreign Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustment Adjustment Income/(Loss) 2001 Beginning of year balance $ (118) $ (4,334) $ (4,452) Nine months ended September 29, 2001 change 3 -- 3 End of quarter balance $ (115) $ (4,334) $ (4,449) 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) Note 5. Division Restructuring Costs In the first nine months of 2001, the Company used $240 of the restructuring reserve primarily for employee costs necessary to complete the shut down of Mexican operations, other employee benefit costs, and costs associated with equipment disposition. As of September 29, 2001, the reserve for business restructuring totaling $830 consisted of $450 of severance costs, $148 for future lease payments, $118 for costs to close Mexican operations and $114 of other miscellaneous restructuring costs. Note 6. Discontinued Operations As of September 29, 2001, the net liabilities of discontinued operations (the Company's Children's business) consisted of $548 of reserve for discontinued operations, $185 of liabilities subject to compromise, and $16 of miscellaneous liabilities. The reserve for discontinued operations totaling $548 consisted of $350 of severance costs and $198 for costs to close Mexican operations. Note 7. Segment Reporting The Company operates in two business segments: wholesale and retail. The wholesale apparel segment consists of businesses that design, produce and market men's apparel under various trademarks, owned or licensed by the Company or the customer, to wholesale customers. The retail segment of the Company consists of a chain of outlet stores, through which it sells Perry Ellis products produced by the Company and other Perry Ellis licensed manufacturers. As of September 29, 2001, the Company operated 41 Perry Ellis outlet stores. The Company's results of operations, by segment, were as follows: Three Months Ended Nine Months Ended September 29, September 30, September 29, September 30, 2001 2000 2001 2000 Net Sales Wholesale $ 48,713 $ 49,629 $ 131,666 $ 142,043 Retail 6,385 6,715 16,908 16,787 $ 55,098 $ 56,344 $ 148,574 $ 158,830 Gross Profit Wholesale $ 9,877 $ 10,384 $ 27,391 $ 33,473 Retail 2,981 3,393 7,624 8,056 $ 12,858 $ 13,777 $ 35,015 $ 41,529 Income/(loss) before Interest and Taxes Wholesale $ 1,429 $ 2,644 $ 89 $ 6,564 Retail (62) 793 (1,117) 684 $ 1,367 $ 3,437 $ (1,028) $ 7,248 Total Assets Wholesale $ 112,362 $ 113,435 Retail 11,269 9,475 $ 123,631 $ 122,910 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations Third Quarter of 2001 Compared with Third Quarter of 2000 Net Sales Net sales in the third quarter of 2001 were $55.1 million, a decrease of $1.2 million, or 2.2%, from net sales of $56.3 million in the third quarter last year. In the Company's wholesale segment, net sales in the third quarter were $48.7 million, a decrease of 1.9%, compared to net sales of $49.6 million in the third quarter of 2000. The Company's retail segment had net sales of $6.4 million, a decrease of 4.9%, compared to net sales of $6.7 million for the same period last year. The decrease in both of the Company's segments reflected the overall softness in the retail apparel sector of the economy, particularly at the department store level of distribution. This market softness caused an increase in the level of returns from retail accounts, additional markdowns given to retail accounts to clear out unsold inventory, and lower recoveries on inventory closeouts. Newly acquired and licensed wholesale business accounted for $5.9 million of net sales in the third quarter of 2001. Gross Profit Gross profit in the third quarter of 2001 was $12.9 million, or 23.3% of net sales, compared to $13.8 million, or 24.4%, in the third quarter of 2000. The Company's wholesale segment's gross profit percentage for the third quarter of 2001 was 20.3% of net sales, compared to 20.9% in the third quarter of 2000. In the Company's retail segment, gross profit percentage was 46.7% of net sales in the third quarter of 2001 compared to 50.5% in the third quarter of 2000. The margin decrease in both of the Company's segments was caused by the factors noted above in Net Sales. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses in the third quarter of 2001 increased to $11.4 million (20.7% of sales) as compared to $10.3 million (18.3% of sales) for the third quarter of 2000. SG&A expenses for newly acquired and licensed wholesale businesses increased to $1.5 million in the third quarter of 2001, from $0.3 million in the third quarter of 2000. This overall increase in SG&A was primarily the result of the increased SG&A costs associated with newly acquired and licensed wholesale businesses. Income Before Interest and Income Taxes Income from operations before interest and taxes was $1.4 million for the third quarter of 2001 as compared to income of $3.4 million for the third quarter of 2000. The decrease was primarily the result of lower gross profit and the increase in SG&A, which is detailed above. The retail segment's loss from operations before interest and income taxes of $0.1 million in the third quarter of 2001 compares to $0.8 million of income in the third quarter of 2000. Interest Income, Net Net interest income was $42,000 for the third quarter of 2001 as compared to $343,000 for the third quarter of 2000. The decrease was the result of lower invested cash balances and lower interest rates in the third quarter of 2001. Net Income In the third quarter of 2001, the Company reported net income of $1.4 million, or $.14 per share, as compared to net income of $3.7 million, or $.38 per share in the third quarter of 2000. Earnings Before Interest, Taxes, Depreciation and Amortization Earnings before interest, taxes, depreciation and amortization was $2.6 million, or 4.8% of net sales, for the third quarter of 2001, compared to $4.6 million, or 8.2% of net sales, in the third quarter of 2000. 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 operations. Year to Date 2001 Compared with Year to Date 2000 Net Sales Net sales in the first nine months of 2001 were $148.6 million, a decrease of $ 10.2 million, or 6.5%, from net sales of $158.8 million in the first nine months of last year. In the Company's wholesale segment, net sales for the first nine months of 2001 were $131.7 million, a decrease of 7.3%, compared to net sales of $142.0 million in the first nine months of 2000. The Company's retail segment had net sales of $16.9 million, an increase of 0.7%, compared to net sales of $16.8 million for the same period last year. The decrease in the wholesale segment reflects the overall softness in the retail apparel sector of the economy, particularly at the department store level of distribution. This market softness caused an increase in the level of returns from retail accounts, additional markdowns to retail accounts to clear out unsold inventory, and lower recoveries on the disposal of closeout inventory. Newly acquired and licensed wholesale business accounted for $11.1 million of net sales in the first nine months of 2001. The increase in net sales for the retail segment was primarily the result of the additional net sales contribution from new outlet stores opened between September 30, 2000 and September 29, 2001. Gross Profit Gross profit in the first nine months of 2001 was $35.0 million, or 23.6% of net sales, compared to $41.5 million, or 26.2% of net sales, in the first nine months of 2000. The Company's wholesale segment's gross profit percentage for the first nine months of 2001 was 20.8% of net sales, compared to 23.6% in the first nine months 2000. In the Company's retail segment, gross profit percentage was 45.1% of net sales in the first nine months of 2001 compared to 48.0% in the first nine months of 2000. The margin decrease in both of the Company's segments was caused by the various factors discussed in Net Sales, noted above. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses in the first nine months of 2001 increased to $35.7 million (24.0% of net sales) from $34.2 million (21.5% of net sales) as compared to the first nine months of 2000. SG&A expenses for newly acquired and licensed businesses increased $0.5 million for the first nine months of 2000 to $4.1 million in the first nine months of 2001. This increase was partially offset by lower employee costs and other reductions of overhead. (Loss)/Income Before Interest and Income Taxes Loss from operations before interest and taxes was $(1.0) million for the first nine months of 2001 as compared to income of $7.2 million for the first nine months of 2000. The decrease was primarily the result of lower net sales,lower gross profit and higher SG&A, which is detailed above. The retail segment's loss from operations before interest and income taxes was $(1.1) million in the first nine months of 2001 compared to $0.7 million in the first nine months of 2000. Interest Income, Net Net interest income was $309,000 for the first nine months of 2001 as compared to $887,000 for the first nine months of 2000. The decrease was the result of lower invested cash balances and lower interest rates in the first nine months of 2001. Net (Loss)/Income In the first nine months of 2001, the Company reported a net loss of $(0.7) million, or $(.07) per share, as compared to net income of $8.1 million, or $.82 per share in the first nine months of 2000. Earnings Before Interest, Taxes, Depreciation and Amortization Earnings before interest, taxes, depreciation and amortization was $2.8 million, or 1.9% of net sales, for the first nine months of 2001, compared to $10.7 million, or 6.7% of net sales, in the first nine months of 2000. 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 operations. 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. 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 working capital 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 29, 2001. 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 29, 2001, there were no direct borrowings outstanding; letters of credit outstanding under the Credit Agreement were $23.1 million and the Company had unused availability, based on outstanding letters of credit and existing collateral, of $37.9 million and cash of approximately $2.4 million available to fund its operations. At the end of the first nine months of 2000, there were no direct borrowings outstanding; letters of credit outstanding were $30.8 million, and the Company had unused availability of $32.8 million and cash of approximately $18.3 million available to fund its operations. The Company's cash used by operating activities for the first nine months of 2001 was $25.9 million, of which $8.1 million related to new businesses. The change in the individual components is primarily reflected by (i) an increase in net accounts receivable of $17.9 million, (ii) an increase in net inventories of $4.7 million, (iii) a decrease in accounts payable of $1.8 million, (iv) a decrease in accrued liabilities and reserve for business restructuring of $4.7 million and (v) a net loss from continuing operations of $0.7 million. These items were partially offset by non-cash charges, depreciation and amortization, of $3.8 million. Cash used by investing activities for the first nine months of 2001 was $6.3 million, which reflects $4.0 million used to purchase certain assets of a business, $1.9 million for capital expenditures, and $0.4 million for the installation of store fixtures in department stores. During fiscal 2001, the Company plans to make capital expenditures of approximately $2.8 million and to spend $0.6 million for the installation of stores fixtures in department stores. Working Capital At September 29, 2001, working capital totaled $73.9 million as compared to $70.6 million at the end of the first nine months of 2000 and the current ratio improved to 4.5:1 as compared to 3.8:1 at September 29, 2000. The components of working capital also changed significantly at September 29, 2001 as compared September 30, 2000. Cash decreased by $15.9 million, which was offset by an increase in inventory, a reduction in current liabilities and the purchase of certain assets of a business. The increase in inventory was due to additional inventory requirements related to additional retail outlet stores and new businesses that were added between the first nine months of 2000 and the first nine months of 2001. Current liabilities as of September 29, 2001 decreased $3.8 million as compared to September 30, 2000, due to the settlement of liabilities subject to compromise, restructuring charges and the timing of the payments in the normal course of business. 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. During the third quarter of 2000, the Company entered into a licensing agreement with Hartz & Company, Inc. ("Hartz") to design, produce and distribute men's sportswear and furnishings for Hartz's exclusive Tallia brand. This agreement will terminate with the conclusion of the Holiday 2001 season. In the first quarter of 2001, the Company purchased certain assets and trademarks of Tricots St. Raphael, Inc. which designs, produces, and markets better men's sweaters and sportswear. The Company has also begun to aggressively market its core competencies of design and sourcing to the private label market. 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 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 produced 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 worldwide operations 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 are subject to an increased level of economic instability. The impact of the occurrence of any of these events on the Company's business, and in particular its sources of supply, could have a material adverse effect on the Company's performance. Dependence on Contract Manufacturing. The Company produces substantially 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 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 July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have a significant impact on its financial statements. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles, such as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. However, this Statement retains the fundamental provisions of Statement 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for the first quarter in the fiscal year ending December 28, 2002. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. PART II - OTHER INFORMATION ITEM 5. OTHER EVENTS On October 15, 2001, Salant Holding Corporation, a Delaware corporation and a wholly owned subsidiary of the Company ("Holding"), entered into an Asset Purchase Agreement with Axis Clothing Corporation, a California company ("Axis") and Richard Solomon, an individual ("Solomon"), pursuant to which Holding will acquire certain assets of Axis (the "Acquisition").Consummation of the Acquisition is subject to satisfaction of various conditions and the receipt of certain consents. It is currently anticipated that the Acquisition will close in January 2002, although there can be no assurances that the transaction will be consummated or that it will be consummated within the anticipated time frame. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K During the third quarter of 2001, the Company did not file an 8-K. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SALANT CORPORATION Date: November 9, 2001 /s/ Awadhesh K. Sinha Awadhesh K. Sinha Chief Operating Officer and Chief Financial Officer