-----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, LKsosa4WIb4t7sMBw1ykRiNQnGQkIK5LLwJ7w1U+Aak169E59SWnxgnw/uaYMWRt WMPHvLGT6eUkdq89WTNW3g== 0000086346-97-000008.txt : 19970513 0000086346-97-000008.hdr.sgml : 19970513 ACCESSION NUMBER: 0000086346-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970512 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: 97600852 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 March 29, 1997. 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 May 6, 1997, there were outstanding 14,780,416 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 3
Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data) Three Months Ended March 29, March 30, 1997 1996 Net sales $ 89,432 $ 99,193 Cost of goods sold 69,643 76,612 Gross profit 19,789 22,581 Selling, general and administrative expenses (21,178) (21,961) Royalty income 1,107 1,128 Goodwill amortization (506) (649) Reversal of/(provision for) restructuring costs (Note 3) 754 (161) Other income 117 18 --------- --------- Income from operations before interest and income taxes 83 956 Interest expense, net 3,551 3,847 ---------------------------------------------------- Loss from operations before income taxes (3,468) (2,891) Income taxes 42 22 -------------------------- Net loss $ (3,510) $ (2,913) ========= ========= Net loss per share $ (0.23) $ (0.19) =================================== ================= Weighted average common stock and common stock equivalents outstanding 15,097 15,041 ==========================
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) March 29, December 28, March 30, 1997 1996 1996 (Unaudited) (*) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,261 $ 1,501 $ 1,385 Accounts receivable, net 45,279 40,214 30,166 Inventories (Note 2) 113,104 101,619 121,451 Prepaid expenses and other current assets 3,498 3,869 5,008 ----------------------------------------------------------------------------------------------------- Total current assets 163,142 147,203 158,010 Property, plant and equipment, net 26,968 25,185 24,204 Other assets 63,709 63,650 70,708 --------------------------------------------------------------------------------------------------------------- Total assets $ 253,819 $ 236,038 $ 252,922 ===================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable $ 32,921 $ 7,677 $ 16,995 Accounts payable 33,275 28,327 28,357 Accrued liabilities 14,466 18,008 17,455 Current portion of long term debt -- 3,372 -- Reserve for business restructuring (Note 3) 2,049 2,969 989 ------------------------------------------------------------------------------- Total current liabilities 82,711 60,353 63,796 Long term debt 104,879 106,231 110,015 Deferred liabilities 9,114 8,863 11,196 Shareholders' equity Common stock 15,339 15,328 15,275 Additional paid-in capital 107,142 107,130 107,071 Deficit (60,657) (57,147) (50,737) Excess of additional pension liability over unrecognized prior service cost (3,182) (3,182) (2,185) Accumulated foreign currency translation adjustment 87 76 105 Less - treasury stock, at cost (1,614) (1,614) (1,614) ---------- -------------------- ---------- Total shareholders' equity 57,115 60,591 67,915 ------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 253,819 $ 236,038 $ 252,922 ======================================================================================================
(*) 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) Three Months Ended March 29, March 30, 1997 1996 ------------------------------ Cash Flows from Operating Activities: Loss from operations $ (3,510) $ (2,913) Adjustments to reconcile loss from operations to net cash used in operating activities: Depreciation 1,143 1,132 Amortization of intangibles 1,051 923 Loss on disposal of fixed assets -- 82 Change in operating assets and liabilities: Accounts receivable (5,065) 5,124 Inventories (11,485) (2,331) Prepaid expenses and other current assets 371 8 Other assets (18) (647) Accounts payable 4,948 1,602 Accrued liabilities and reserve for business restructuring (4,417) (3,667) Deferred liabilities (1,101) (202) ---------------------------------------------------------------------- ---------- Net cash used in operating activities (18,083) (889) -------------------------------------------------------- --------------------- Cash Flows from Investing Activities: Capital expenditures (2,970) (932) Store fixture expenditures (1,093) (616) Proceeds from sale of assets -- 40 -------------------------------- Net cash used in investing activities (4,063) (1,508) ---------- --------------------- Cash Flows from Financing Activities: Net short-term borrowings 25,244 2,573 Retirement of long-term debt (3,372) -- Exercise of stock options 23 -- Other, net 11 (25) --------------------------------- Net cash provided by financing activities 21,906 2,548 ---------- ---------- Net cash (used in)/provided by continuing operations (240) 151 Cash used in discontinued operations -- (166) ---------- ---------- Net decrease in cash and cash equivalents (240) (15) Cash and cash equivalents - beginning of year 1,501 1,400 -------------------------------- Cash and cash equivalents - end of quarter $ 1,261 $ 1,385 ================================ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 6,493 $ 6,747 ================================ Income taxes $ 42 $ 13 ================================
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 months ended March 29, 1997 and March 30, 1996 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 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 to shareholders for the year ended December 28, 1996. Loss per share is based on the weighted average number of common shares (including, as of March 29, 1997 and March 30, 1996, 323,878 and 349,952 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. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", effective for interim and annual periods ending after December 15, 1997, establishes standards for computing and presenting earnings per share ("EPS") and simplifies the standards for computing EPS currently found in Accounting Principles Board ("APB") Opinion No. 15, ("Earnings Per Share"). Common stock equivalents under APB No. 15 are no longer included in the calculation of primary, or basic, EPS. Under SFAS No. 128, contingently issuable shares are still included in the calculation of basic EPS. Adoption of SFAS No. 128 is not expected to have a material impact on the Company.
Note 2. Inventories March 29, December 28, March 30, 1997 1996 1996 Finished goods $ 67,055 $ 58,663 $ 82,803 Work-in-Process 18,689 16,011 15,761 Raw materials and supplies 27,360 26,945 22,887 ---------- ------------------------------------- $113,104 $101,619 $121,451 ================================== ========
Note 3. Division Restructuring Costs In the first quarter of 1997, the Company reversed a previously recorded restructuring provision of $754. The provision was for net liabilities related to the JJ. Farmer sportswear product line. These net liabilities were settled for less than the carrying amount, resulting in the reversal of the excess portion of the provision. In the first quarter of 1996, the Company recorded a $161 restructuring provision, which related to the closure of certain unprofitable retail factory outlet stores. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations First Quarter of 1997 Compared with First Quarter of 1996 Net Sales The following table sets forth the net sales of each of the Company's three principal business segments for the three months ended March 29, 1997 and March 30, 1996 and the percentage contribution of each of those segments to total net sales:
Percentage Three Months Ended Increase/ March 29, 1997 March 30, 1996 (Decrease) - ------------------------------------------------------------------------------------------ ---------- (dollars in millions) Men's Apparel $79.5 89% $87.2 88% (8.8%) Children's Sleepwear and Underwear 4.4 5% 4.2 4% 4.8% Other Businesses (a) 5.5 6% 7.8 8% (29.5%) ------- ------ ------- ------ Total $89.4 100% $99.2 100% (9.8%) ================== =================
(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 by $7.7 million, or 8.8%, in the first quarter of 1997, as compared to the first quarter of 1996. This decrease resulted from (a) a $6.2 million reduction in sales of men's slacks, of which $1.8 million was a planned reduction based upon the Company's decision to eliminate unprofitable programs and the balance was due to operational difficulties in the move of manufacturing and distribution out of the Company's facilities in Thomson, Georgia, (b) a $6.1 million reduction in sales of men's sportswear, of which $4.8 million was a planned reduction based upon the Company's decision to eliminate its JJ. Farmer and Manhattan sportswear lines and the balance was primarily due to the Company's decision to accept returns of slow-moving Perry Ellis sportswear items to enable retailers to purchase additional Perry Ellis product, and (c) a planned $2.5 million reduction in sales of certain dress shirt lines, which was based upon the Company's decision to eliminate unprofitable businesses. These sales decreases were partially offset by (a) a $4.6 million increase in sales of jeans, which was due to the continuing success of the Canyon River Blues line which the Company manufactures for Sears, Roebuck & Co., and (b) a $3.6 million increase in sales of Perry Ellis dress shirts due to the addition of new distribution and the continued strong acceptance of these products by consumers. Sales of children's sleepwear and underwear increased by $0.2 million, or 4.8%, in the first quarter of 1997, as compared to the first quarter of 1996. This increase was primarily a result of the continuing expansion of the Joe Boxer children's product lines. Sales of other businesses decreased by $2.3 million, or 29.5%, in the first quarter of 1997, as compared to the first quarter of 1996. This decrease was due to lower sales by the Made in the Shade division, primarily as a result of strong price competition in the private label sector, resulting in the lack of orders at acceptable gross margins. The Company anticipates that sales of the Made in the Shade division will continue below 1996 levels. In response, the Company has instituted certain cost reduction programs designed to restore the division to profitability for the balance of 1997. In addition, the division has recently executed a license to produce a branded line of sportswear under the trademark Fly Girls, which is intended to improve the division's gross profit margins for the balance of 1997. Gross Profit The following table sets forth the gross profit and gross profit margin (gross profit as a percentage of net sales) for each of the Company's business segments for the three months ended March 29, 1997 and March 30, 1996:
Three Months Ended March 29, 1997 March 30, 1996 (dollars in millions) Men's Apparel $17.5 22.0% $19.1 21.9% Children's Sleepwear and Underwear 0.8 18.1% 0.9 21.2% Other Businesses 1.5 26.8% 2.6 33.0% ------- ------- Total $19.8 22.1% $22.6 22.8% ============= =============
The decline in gross profit in the men's apparel segment and for the Company as a whole was primarily attributable to the reduction in net sales discussed above. The gross profit margin of the Company's other businesses declined primarily as a result of margin pressures in the Company's Made in the Shade business. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses for the first quarter of 1997 were $21.2 million (23.7% of net sales) compared with $22.0 million (22.1% of net sales) for the first quarter of 1996. Reversal of /(Provision for) Restructuring Costs In the first quarter of 1997, the Company reversed a previously recorded restructuring provision of $0.8 million. The provision was for net liabilities related to the JJ. Farmer sportswear product line. These net liabilities were settled for less than the carrying amount, resulting in the reversal of the excess portion of the provision. The cash portion of the remaining reserve for restructuring is expected to be expended in the following manner: $1.2 million in the last three quarters of 1997, $0.4 million in 1998 and $0.4 million in 1999. Income from Operations Before Interest and Income Taxes The following table sets forth income from operations before interest and income taxes for each of the Company's three business segments, expressed both in dollars and as a percentage of net sales, for the three months ended March 29, 1997 and March 30, 1996:
Three Months Ended March 29, 1997 March 30, 1996 (dollars in millions) Men's Apparel (a) $ 4.8 5.9% $ 4.4 5.0% Children's Sleepwear and Underwear (1.0) (22.5%) (0.4) (10.6%) Other Businesses (2.3) (41.2%) (1.6) (20.0%) --------- ------------- 1.5 1.6% 2.4 2.4% Corporate expenses (2.2) (2.2) Licensing division income 0.8 0.8 --------- -------- Income from operations before interest and income taxes $ 0.1 0.1% $ 1.0 1.0% ================ ==============
(a) Includes the reversal of restructuring charges of $0.8 million in the first quarter of 1997. The $0.9 million reduction in income from operations before interest and income taxes in the first quarter of 1997 was primarily a result of the lower sales and gross profit, which was partially offset by lower SG&A expenses and the reversal of the provision for restructuring, as previously discussed. Interest Expense, Net Net interest expense was $3.6 million for the first quarter of 1997 compared with $3.8 million for the first quarter of 1996. Net Loss In the first quarter of 1997, the Company reported a net loss of $3.5 million, or $0.23 per share, as compared with a net loss of $2.9 million, or $0.19 per share, in the first quarter of 1996. Earnings Before Interest, Taxes, Depreciation, Amortization and Restructuring Charges Earnings before interest, taxes, depreciation, amortization and restructuring charges was $2.3 million (2.5% of net sales) in the first quarter of 1997, compared to $3.0 million (3.0% of net sales) in the first quarter of 1996, a decrease of $0.7 million, or 23%. 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 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"). The Credit Agreement provides the Company with working capital financing through September 30, 1998, 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. 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. Pursuant to the Credit Agreement, the interest rate charged on direct borrowings is one-half of one percent in excess of the base rate of The Chase Manhattan Bank, N.A. (the "Prime Rate", which was 8.5% at March 29, 1997) or 2.75% above the London Late Eurodollar rate (the "Eurodollar Rate", which was 5.6875% at March 29, 1997). Pursuant to the Credit Agreement, the Company sells to CIT, without recourse, certain eligible accounts receivable. The credit risk for such accounts is thereby transferred to CIT. The amounts due from CIT have been offset against the Company's direct borrowings from CIT in the accompanying balance sheets. The amounts which have been offset were $15.0 million at March 29, 1997 and $36.8 million at March 30, 1996. The decrease in the amounts which have been offset resulted from a change in the Credit Agreement, pursuant to which the Company has significantly reduced the amount of its receivables which are sold to CIT. On March 29, 1997, direct borrowings (including borrowings under the Eurodollar option) and letters of credit outstanding under the Credit Agreement were $32.9 million and $32.6 million, respectively, and the Company had unused availability of $18.8 million. On March 30, 1996, direct borrowings and letters of credit outstanding under the Credit Agreement were $17.0 million and $29.8 million, respectively, and the Company had unused availability of $24.4 million. During the first quarter of 1997, the maximum aggregate amount of direct borrowings and letters of credit outstanding under the Credit Agreement was $71.8 million at which time the Company had unused availability of $11.9 million. During the first quarter of 1996, the maximum aggregate amount of direct borrowings and letters of credit outstanding under the Credit Agreement was $48.5 million at which time the Company had unused availability of $18.3 million. The increase in direct borrowings compared to the first quarter of 1996 was a result of the change in the Company's factoring arrangement with CIT described above, pursuant to which the Company is now factoring significantly less of its receivables. The instruments governing the Company's outstanding debt 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 and paying cash dividends. In addition, under the Credit Agreement, the Company is required during the year to maintain a minimum level of stockholders' equity and to satisfy a maximum cumulative net loss test. The Company was at March 29, 1997, and currently is, in compliance with all of its covenants. The following table indicates the Company's compliance with the two financial covenants contained in the Credit Agreement: March 29, 1997 Credit Agreement Covenants Covenant Level Actual Level Stockholders' Equity no less than $52.0 million $57.1 million Maximum Loss (a) no more than $(10.0) million positive income (a) Maximum loss excludes write-offs for goodwill, restructuring expenses or other unusual or non-recurring expenses during the first two quarters of 1996, up to a maximum of $13.0 million. The indenture governing the Company's outstanding Senior Secured Notes requires the Company to reduce its outstanding indebtedness (excluding outstanding letters of credit) to $20 million or less for fifteen consecutive days during each twelve month period commencing on the first day of February. This covenant has been satisfied for the balance of the term of the Senior Secured Notes. The Company's cash used in operating activities for the first quarter of 1997 was $18.1 million, which reflects an $11.5 million increase in inventories and a $5.1 million increase in accounts receivable. A significant portion of these increases were planned to occur in the first quarter of 1997. Cash used for investing activities in the first quarter of 1997 was $4.1 million, which represented capital expenditures of $3.0 million and the installation of store fixtures in department stores of $1.1 million. During 1997, the Company plans to make capital expenditures of approximately $10.7 million and to spend an additional $4.2 million for the installation of store fixtures in department stores. Cash provided by financing activities in the first quarter of 1997 was $21.9 million, which represented short-term borrowings under the Credit Agreement of $25.2 million, partially offset by cash used to retire $3.4 million of Senior Secured Notes. The Company's principal sources of liquidity, both on a short-term and a long-term basis, are cash flow from 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 the cash flow anticipated from its future operations, the Company 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. 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. The Company's Senior Secured Notes, of which $104.9 million principal amount was outstanding at March 29, 1997, mature December 31, 1998. The Company does not expect to generate sufficient cash flow from operations to repay those notes at maturity and will seek to refinance the notes prior to maturity. There can be no assurance that the Company will obtain such refinancing or that the terms of such refinancing, if obtained, will not be less favorable to the Company than those of the Senior Secured Notes. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", effective for interim and annual periods ending after December 15, 1997, establishes standards for computing and presenting earnings per share ("EPS") and simplifies the standards for computing EPS currently found in Accounting Principles Board Opinion ("APB") No. 15, ("Earnings Per Share"). Common stock equivalents under APB No. 15 are no longer included in the calculation of primary, or basic, EPS. Under SFAS No. 128, contingently issuable shares are still included in the calculation of basic EPS. Adoption of SFAS No. 128 is not expected to have a material impact on the Company. 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, manufacture, 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. 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 its 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 $137.8 million as of March 29, 1997. 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 1996, the Company produced 61% 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 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K During the first quarter of 1997, 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: May 12, 1997 /s/ Thomas W. Busch -------------- --------------------- Thomas W. Busch Controller (Principal Accounting Officer) EX-27 2
5 1000 3-MOS JAN-03-1998 MAR-29-1997 1,261 0 58,301 13,022 113,104 163,142 57,350 30,382 253,819 82,711 0 0 0 15,339 41,776 253,819 89,432 90,656 69,643 91,327 0 (754) 3,551 (3,468) 42 (3,510) 0 0 0 (3,510) (.23) (.23)
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