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 April 3, 1999.
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 7, 1999, there were outstanding 14,984,608 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 3. Defaults Upon Senior Securities
Item 4. Submission of Matter to a Vote of Security Holders
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
April 3, April 4,
1999 1998
--------- ---------
Net sales $ 78,582 $ 76,945
Cost of goods sold 61,749 60,978
--------- ---------
Gross profit 16,833 15,967
Selling, general and
administrative expenses (16,744) (15,173)
Royalty income 1,077 1,121
Goodwill amortization (130) (470)
(Provision)/reversal for restructuring (Note 5) (4,039) 160
Other income 15 63
--------- ---------
(Loss)/Income from continuing operations before
interest and income taxes (2,988) 1,668
Interest expense, net 806 3,433
--------- -----------
Loss from continuing operations
before income taxes (3,794) (1,765)
Income taxes 22 3
--------- ---------
Loss from continuing operations (3,816) (1,768)
Loss from discontinued operations (1,955) (1,529)
---------- ----------
Net loss $ (5,771) $ (3,297)
========== ==========
Basic and diluted loss per share:
Loss per share from continuing operations $ (0.25) $ (0.12)
Loss per share from discontinued operations (0.13) (0.10)
---------- ----------
Basic and diluted loss per share $ (0.38) $ (0.22)
========== ==========
Weighted average common stock outstanding 15,170 15,170
========= =========
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
Three Months Ended
April 3, April 4,
1999 1998
Net loss $ (5,771) $ (3,297)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 36 3
-------- --------
Comprehensive income $ (5,807) $ (3,294)
========= ========
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
April 3, January 2, April 4,
1999 1999 1998
(Unaudited) (*) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,898 $ 1,222 $ 1,661
Accounts receivable, net 49,144 38,359 45,763
Inventories (Note 3) 53,388 69,590 82,856
Prepaid expenses and other current assets 5,233 5,266 5,024
Assets held for sale (Note 1) 1,400 28,400 --
Net assets of discontinued operations 1,540 6,860 19,685
---------- ---------- ----------
Total current assets 117,603 149,697 154,989
Property, plant and equipment, net 12,942 12,371 23,610
Other assets 13,403 14,061 57,143
---------- ---------- ----------
Total assets $ 143,948 $ 176,129 $ 235,742
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY / DEFICIENCY
Current liabilities:
Loans payable $ -- $ 38,496 $ 44,625
Accounts payable 6,788 2,831 22,743
Liabilities subject to compromise (Note 1) 136,575 143,807 --
Accrued liabilities 13,551 14,344 17,550
Current portion of long term debt -- -- 104,879
Deposits (Note 1) 12,196 -- --
Reserve for business restructuring (Note 5) 7,473 3,551 1,582
---------- ---------- ----------
Total current liabilities 176,583 203,029 191,379
Deferred liabilities 4,010 4,010 5,354
Shareholders' equity
Common stock 15,405 15,405 15,405
Additional paid-in capital 107,249 107,249 107,249
Deficit (153,668) (147,897) (78,532)
Accumulated other comprehensive income (Note 4) (4,017) (4,053) (3,499)
Less - treasury stock, at cost (1,614) (1,614) (1,614)
----------- ---------- ----------
Total shareholders'(deficiency)/ equity (36,645) (30,910) 39,009
----------- ------------ ----------
Total liabilities and shareholders' equity $ 143,948 $ 176,129 $ 235,742
========== ========== ==========
(*) 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
April 3, April 4,
1999 1998
-------- ----------
Cash Flows from Operating Activities:
Loss from continuing operations $ (3,816) $ (1,768)
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation 1,180 1,875
Amortization of intangibles 130 470
Change in operating assets and liabilities:
Accounts receivable (10,785) (6,128)
Inventories 16,202 1,921
Prepaid expenses and other current assets 33 (1,488)
Accounts payable 3,957 (1,146)
Accrued and other liabilities 11,403 1,984
Reserve for restructuring 3,922 (1,182)
Liabilities subject to compromise (7,232) --
Deferred liabilities -- (28)
-------- --------
Net cash provided/(used) by continuing operations 14,996 (5,490)
Cash provided/(used) by discontinued operations 3,364 (3,724)
-------- --------
Net cash provided/(used) by operations 18,360 (9,214)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (1,146) (1,797)
Proceeds from sale of assets 27,000 --
Store fixture expenditures (76) (348)
-------- --------
Net cash provided by (used in) investing activities 25,778 (2,145)
-------- --------
Cash Flows from Financing Activities:
Net short-term borrowings (38,496) 10,825
Other, net 36 2
-------- --------
Net cash (used)/provided by financing activities (38,460) 10,827
-------- --------
Net increase/(decrease) in cash and cash equivalents 5,676 (532)
Cash and cash equivalents - beginning of year 1,222 2,193
-------- --------
Cash and cash equivalents - end of quarter $ 6,898 $ 1,661
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 861 $ 1,195
========= ========
Income taxes $ 22 $ 3
========= ========
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
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
On December 29, 1998 (the "Filing Date") Salant Corporation filed a petition
under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code")
in 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
Notes due December 31, 1998 (the "Senior Notes"). Salant also filed its Plan of
Reorganization (the "Plan") with the Bankruptcy Court in order to implement its
restructuring. Salant's major note and equity holders support the Plan. In
addition, Salant has obtained a $85 million debtor-in-possession facility (the
"DIP Facility") from its existing working capital lender, The CIT
Group/Commercial Services, Inc. ("CIT"), during the chapter 11 case. On May 11,
1999, the Company entered into a syndicated revolving credit facility (the
"Credit Agreement") with CIT pursuant to and in accordance with the terms of a
commitment letter dated December 7, 1998 (the "CIT Commitment Letter"), which
replaced the CIT DIP Facility.
The Plan provides that (i) all of the outstanding principal amount of Senior
Notes, plus all accrued and unpaid interest thereon, will be converted into 95%
of Salant's new common stock, subject to dilution, and (ii) all of Salant's
existing common stock will be converted into 5% of Salant's new common stock,
subject to dilution. Salant's general unsecured creditors (including trade
creditors) are unimpaired and upon consummation of the Plan will be paid in
full. The Plan has been approved by all of the holders of Senior Notes that
voted and over 96% of the holders of Salant common stock that voted. On April
16, 1999, the Bankruptcy Court entered an order confirming the Plan. Salant
consummated the Plan on May 11, 1999.
As of the Filing Date Salant had $143,807 (consisting of $14,703 in Senior Note
interest, $104,879 of Senior Notes and $24,225 of unsecured pre-bankruptcy
claims) of liabilities subject to compromise, in addition to loans payable to
CIT. In addition, Salant accrued the estimated fees in the 1998 fourth quarter
of $3.2 million for the administration of the chapter 11 proceedings. During the
first quarter of 1999, the Company paid certain liabilities that were supported
by letters of credit and other liabilities that were approved by the Bankruptcy
Court in order to effectuate the sale of non-Perry Ellis assets.
Post-restructuring, Salant intends to focus primarily on its Perry Ellis men's
apparel business and, as a result, intends to exit its other businesses,
including its Children's Group and non-Perry Ellis menswear divisions. In the
first quarter of 1999, the Company sold its John Henry and Manhattan businesses.
These businesses include 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. The Company received $27 million for the sale of
trademarks and property, plant and equipment in the first quarter. Salant also
received a deposit on the sale of inventory, which is included in current
liabilities in the accompanying balance sheet. In the first quarter of 1999,
Salant has also sold its Children's Group, the proceeds of which related
primarily to the sale of inventory. As a result of the above, Salant will now
report its business operations as a single segment.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Note 2. Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Salant Corporation ("Salant") and subsidiaries (collectively,
the "Company"). (As used herein, the Company includes Salant and its
subsidiaries but excludes Salant Children's Group and the Made in the Shade
divisions.)
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 April 3, 1999 and April 4,
1998 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 to shareholders for the year ended January 2, 1999.
Loss per share is based on the weighted average number of common shares
(including, as of April 3, 1999 and April 4, 1998, 185,854 and 205,854 shares,
respectively, anticipated to be issued pursuant to the Company's 1993 bankruptcy
plan of reorganization). Loss per share for the first quarters of 1999 and 1998
did not include common stock equivalents, including 1,086,967 and 1,319,393
stock options, respectively, inasmuch as their effect would have been
anti-dilutive.
Note 3. Inventories
April 3, January 2, April 4,
1999 1999 1998
Finished goods $ 34,300 $ 42,022 $ 49,672
Work-in-Process 9,438 17,225 18,817
Raw materials and supplies 9,650 10,343 14,367
--------- ---------- ----------
$ 53,388 $ 69,590 $ 82,856
======== ======== ========
Note 4. Accumulated Other Comprehensive Income
Foreign Currency Minimum Pension Accumulated Other
Translation Liability Comprehensive Income
Adjustments Adjustment
1999 $ (197) $ (3,856) $ (4,053)
----
Beginning of year balance 36 -- 36
---------- ------------ -----------
Current period change $ (161) $ (3,856) $ (4,017)
========== ========= =========
End of quarter balance
1998
Beginning of year balance $ 6 $ (3,508) $ (3,502)
Current period change 3 -- 3
------------ ------------ ------------
End of quarter balance $ 9 $ (3,508) $ (3,499)
=========== ========= =========
Note 5. Division Restructuring Costs
In the first quarter of 1999, the Company recorded a restructuring provision of
$4,039. The provision was primarily for severance related to the sale of the
John Henry and Manhattan dress shirts and trademarks and the restructuring of
the Company to focus primarily on the Perry Ellis men's apparel business. As of
April 3, 1999, the reserve for business restructuring totaling $7,473 consisted
of $4,840 of severance costs, $845 for future lease payments, $592 for
royalties, and $1,196 of other miscellaneous restructuring costs. It is
anticipated that these expenditures will be completed by the first quarter of
2000.
Note 6. Discontinued Operations
In the first quarter of 1999, an additional provision of $1,955 was recorded to
account for additional costs incurred in the closing of the Children's Group
manufacturing and distribution facilities. The net assets of discontinued
operations decreased to $1,540 due primarily to the sale and disposal of
inventory. Net sales of discontinued operations in the first quarter of 1999 and
1998 was 5,923 and 7,942, respectively.
Note 7. Pro Forma Information
The following table sets forth the unaudited historical capitalization of the
Company as of April 3, 1999 and the unaudited pro forma capitalization of the
Company after giving effect to the Plan as if the Plan had occurred on April 3,
1999:
Actual Pro forma
April 3, 1999 April 3, 1999
------------- -------------
Cash and cash equivalents $ 6,898 $ 6,898
----------- ------------
Accounts payable $ 6,788 $ 23,781
Liabilities subject to compromise 136,575 --
Other liabilities 37,230 37,230
----------- -----------
Total liabilities 180,593 61,011
Shareholders' (deficiency/equity) (36,645) 82,937
----------- -----------
Total capitalization $ 143,948 $ 143,948
========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
First Quarter of 1999 Compared with First Quarter of 1998
Net Sales
Net sales increased by $1.6 million, or 2.1% in the first quarter of 1999, as
compared to the first quarter of 1998. This increase primarily resulted from an
increase of $8.3 million in sales of Perry Ellis sportswear and an increase in
Perry Ellis accessories of $2.1 million offset by a decrease of $4.0 million of
Perry Ellis dress shirts, $3.3 million of non-Perry Ellis denim and $1.5 million
in Perry Ellis slacks.
The increase in sales in Perry Ellis sportswear was a result of the continuing
success at retail of the Perry Ellis Collection sportswear. The loss of sales in
Perry Ellis dress shirts was a result of (i) a $2.8 million decrease in regular
price sales because of a softness in the dress shirt market in general, and (ii)
a planned decrease of $1.2 million in off-price channel sales. Perry Ellis slack
sales were $1.5 million lower than prior year because of a planned reduction in
off-price sales. Sales of the non-Perry Ellis denim bottoms business experienced
a decrease due to the planned closing of that business. Sales of non-Perry Ellis
dress shirts included approximately $2.5 million of John Henry and Manhattan
dress shirts to Supreme International Corporation in connection with the
purchase of those trademarks and inventory.
Gross Profit
The gross profit percentage increased by 0.7% in the first quarter of 1999, as
compared to the first quarter of 1998. The gross profit of Perry Ellis products
increased by 2.6% primarily as a result of better sales mix. The gross profit of
non-Perry Ellis products dropped by 7.2% due to lower margins on the sales of
business the Company has liquidated or sold.
Selling, General and Administrative Expenses
Selling administrative ("SG&A") expenses for the first quarter of 1999 increased
to $16.7 million (21.3% of net sales) from $15.2 million (19.7% of net sales)
for the first quarter of 1998. The increase in SG&A was primarily a result of
(i) a $500,000 increase in advertising expenses primarily related to the
increase in sales of Perry Ellis products, and (ii) project completion bonuses
of $400,000 to MIS personnel relating to year 2000 compliance and other system
enhancements. In addition, as a result of the over-achievement of the operating
plan for the Perry Ellis division of the Company in the first quarter of 1999,
the Company accrued approximately $900,000 of bonus expense pursuant to its 1999
management incentive plan.
Provision for Restructuring
In the first quarter of 1999, the Company recorded a restructuring provision of
$4.0 million. The provision was primarily for severance related to the sale of
the John Henry and Manhattan dress shirts and trademarks and the restructuring
of the Company to focus primarily on the Perry Ellis men's apparel business.
Income from Operations Before Interest and Income Taxes
Income from operations before interest and taxes decreased from $1.7 million of
income to a loss of $3.0 million for the first quarter of 1999. The decrease of
$4.7 million is due primarily to the restructuring provision and additional SG&A
expenses.
Interest Expense, Net
Net interest expense was $0.8 million for the first quarter of 1999 compared
with $3.4 million for the first quarter of 1998. The decrease in interest
expense resulted from the discontinuance of interest accrued on the Senior Notes
due to the filing of Chapter 11.
Discontinued Operations
In the first quarter of 1999, the Company recorded an additional provision of
$2.0 million for expected losses during the phase out period. The additional
amount was required due to additional costs of phasing out the Children's
Group's production and distribution facilities. The $1.5 million loss in the
prior year was due to the loss from operations of the Children's Group.
Net Loss
In the first quarter of 1999, the Company reported a net loss of $5.8 million,
or $0.38 per share, as compared with a net loss of $3.3 million, or $0.22 per
share, in the first quarter of 1998.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges and Loss on Discontinued Operations
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, and discontinued operations was $3.85 million (5.0% of net sales) in
the first quarter of 1998, compared to $2.36 million (3.0% of net sales) in the
first quarter of 1999, a decrease of $1.49 million, or 38.7%. 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
Upon commencement of the Chapter 11 Case, Salant filed a motion seeking the
authority of the Bankruptcy Court to enter into a revolving credit facility with
CIT pursuant to and in accordance with the terms of the Ratification and
Amendment Agreement, dated as of December 29, 1998 (the "Amendment") which,
together with related documents are referred to herein as the "CIT DIP
Facility", effective as of the Filing Date, which would replace the Company's
existing working capital facility under the Credit Agreement. On December 29,
1998, the Bankruptcy Court approved the CIT DIP Facility on an interim basis and
on January 19, 1999 approved the CIT DIP Facility on a final basis.
The CIT DIP Facility provided 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 CIT DIP Facility consisted of an $85 million
revolving credit facility, with a $30 million letter of credit subfacility. As
collateral for borrowings under the CIT DIP Facility, the Company granted to CIT
a first priority lien on and security interest in substantially all of the
Company's assets and those of its subsidiaries, with superpriority
administrative claim status over any and all administrative expenses in the
Company's Chapter 11 Case, subject to a $2 million carve-out for professional
fees and the fees of the United States Trustee.
On May 11, 1999, the Company entered into a syndicated revolving credit facility
(the "Credit Agreement") with CIT pursuant to and in accordance with the terms
of a commitment letter dated December 7, 1998 (the "CIT Commitment Letter"),
which replaced the CIT DIP Facility described above.
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 will consist of a $85
million revolving credit facility, with at least a $35 million letter of credit
subfacility. As collateral for borrowings under the Credit Agreement, Salant
granted to CIT and a syndicate of lenders to be arranged by CIT (the "Lenders")
a first priority lien on and security interest in substantially all of the
assets of Salant. The Credit Agreement has an initial term of three years.
The Credit Agreement also provided, among other things, that (i) Salant 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 Salant in excess of the borrowing formula but within the $85 million
limit of the revolving credit facility. The Company is required under the
agreement to maintain certain financial covenants relating to consolidated
tangible net worth, maximum pre-tax losses / minimum pre-tax income and minimum
interest coverage ratios.
Pursuant to the Credit Agreement, Salant will pay 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 commitment fee of $325 thousand; (iv) an unused line fee of
.25%; (v) an agency fee of $100 thousand (only 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.
The Company's cash provided by operating activities in the first quarter of 1999
was $18.4 million, which primarily reflects the decrease in inventory of $16.2
million, an increase in accrued and other liabilities of $11.4 million, an
increase in accounts payable of $4.0 million and an increase in reserve for
business restructuring of $4.0 million offset by (i) an increase in accounts
receivable of $10.8 million, and (ii) a decrease in liabilities subject to
compromise of $7.2 million.
Cash provided by investing activities in the first quarter of 1999 was $25.8
million, of which $27 million was from the payment of the sale to Supreme
International of the assets relating to the John Henry and Manhattan trademarks
and licenses. Also in the first quarter, the Company used $1.1 million for
capital expenditures and $0.1 million for the installation of store fixtures in
department stores. During fiscal 1999, the Company plans to make capital
expenditures of approximately $5.0 million and to spend an additional $2.5
million for the installation of store fixtures in department stores.
Cash used in financing activities in the first quarter of 1999 was $38.5
million, primarily attributable to payments on the short-term borrowings under
the Credit Agreement.
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:
Disruption of Operations Relating to the Chapter 11 Case. The commencement of
the Chapter 11 Case could adversely affect the Company's and its subsidiaries'
relationships with their customers, suppliers or employees. If the Company's and
its subsidiaries' relationships with customers, suppliers or employees are
adversely affected, the Company's operations could be materially affected. The
Company anticipates, however, that it will have sufficient cash to service the
obligations that it intends to pay during the period prior to and through the
consummation of the Plan.
Even though the Plan was consummated on May 11, 1999, there can be no assurance
that the Company would not thereafter suffer a disruption in its business
operations as a result of filing the Chapter 11 Case, particularly in light of
the fact that the Company has been a debtor in bankruptcy on two prior
occasions.
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 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 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, including those of its
licensees, 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. The Company's risks associated with the
Company's Asian operations may be higher in 1999 than has historically been the
case, due to the fact that financial markets in East and Southeast Asia have
recently experienced and continue to experience difficult conditions, including
a currency crisis. As a result of recent economic volatility, the currencies of
many countries in this region have lost value relative to the U.S. dollar.
Although the Company has experienced no material foreign currency transaction
losses since the beginning of this crisis, 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 and
royalty income cannot be determined at this time.
Dependence on Contract Manufacturing. For the year ended January 2, 1999, the
Company produced 65% of all of its products (in units) through arrangements with
independent contract manufacturers. Upon consummation of the Plan, substantially
all of the Company's inventory will be manufactured by independent contractors.
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.
Year 2000 Compliance. The Company has completed an assessment of its information
systems ("IS"), including its computer software and hardware, and the impact
that the year 2000 will have on such systems and Salant's overall operations.
The Company has completed its assessment of date critical non-IS and has
determined that they are year 2000 compliant. As of November 17, 1998, the
Company has completed the implementation of new financial systems that are year
2000 compliant ("Y2K"). In addition, the Company has completed all testing of
software modifications to correct the Y2K problems on certain existing software
programs, including its primary enterprise systems (the "AMS System") at a total
cost of $3.5 million. The Company anticipates that any business units that are
using software that is not Y2K compliant will be converted to the modified
software by the end of the second quarter of 1999, at an estimated cost of $500
thousand. The Company has also identified certain third party software and
hardware that is not Y2K compliant. The Company expects that these systems will
be converted by the end of the third quarter of 1999 to systems that will be Y2K
compliant at an estimated cost of $2.0 million. The funding for these activities
has or will come from internally generated cash flow and/or borrowings under the
Company's working capital facility. As a result of the Company's (i) successful
implementation of its new financial systems, (ii) completed testing of the
modifications to the AMS System, and (iii) expectation that all non Y2K systems
will be converted by the end of the second quarter of 1999, the Company has not
developed a contingency plan to address Y2K issues. If, however, the Company
fails to complete such conversion in a timely manner, such failure will have a
material adverse effect on the business, financial condition and results of
operations of the Company. To ensure business continuity, the Company began
surveying its suppliers of key goods and services in 1998 for Y2K compliance.
The Company continues to follow-up with its key business partners on a global
basis to obtain responses to its inquiries. Based on responses received to date,
management will perform a risk assessment by the end of the second quarter of
1999 and develop necessary contingency plans in the third quarter of 1999.
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about February 3, 1999 the Company commenced a solicitation of its
shareholders to accept the Plan. Pursuant to the Plan the solicitation expired
on March 15, 1999. The shares voting for the Plan were 7,861,681 and the shares
voting against the Plan were 251,594.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the first quarter of 1999, the Company filed one 8-K dated January 5,
1999 reporting (i) the filing of a voluntary petition for relief under Chapter
11 Title 11 of the Bankruptcy Code with the Bankruptcy Court, (ii) the filing of
a copy of the Plan, and (iii) the filing of the Preliminary Order of the
Bankruptcy Court approving the DIP Facility.
Exhibits
Number Description
10.43 Amended and Restated Revolving Credit and Security Agreement, between Salant
Corporation and the CIT Group / Commercial Services, Inc., as Agent, dated May 11, 1999
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 17, 1999 /s/ Awadhesh Sinha
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Awadhesh Sinha
Executive Vice President
And Chief Financial Officer