-----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, TWEGi8DYyfmywQGn5O3fkujTK/YcS0rIYuqte9YpNEDhDZzfBh7Ok/AKxYJoZWv1 XjReoHuqoSy7534sXfS2mg== 0000086346-96-000003.txt : 19960401 0000086346-96-000003.hdr.sgml : 19960401 ACCESSION NUMBER: 0000086346-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960329 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06666 FILM NUMBER: 96540803 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS 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-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6666 SALANT CORPORATION (Exact name of registrant as specified in its charter) 1114 Avenue of the Americas, New York, New York 10036 Telephone: (212) 221-7500 Incorporated in the State of Delaware Employer Identification No. 13-3402444 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1 per share, registered on the New York Stock Exchange, and Series B Warrants, registered on the American Stock Exchange. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (l) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 March 19, 1996, there were outstanding 14,668,010 shares of the Common Stock of the registrant. Based on the closing price of the Common Stock on the New York Stock Exchange on such date, the aggregate market value of the voting stock held by non-affiliates of the registrant on such date was $37,222,078. For purposes of this computation, shares held by affiliates and by directors and executive officers of the registrant have been excluded. Such exclusion of shares held by directors and executive officers is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. Documents incorporated by reference: The definitive Proxy Statement of Salant Corporation relating to the 1996 Annual Meeting of Stockholders is incorporated by reference in Part III hereof. TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Disagreements on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K SIGNATURES PART I ITEM 1. BUSINESS Introduction. Salant Corporation ("Salant"), which was incorporated in Delaware in 1987, is the successor to a business founded in 1893 and incorporated in New York in 1919. Salant designs, manufactures, imports and markets to retailers throughout the United States brand name and private label apparel products primarily in three product categories: (i) menswear; (ii) children's sleepwear and underwear; and (iii) other products, as described below. Salant sells its products to department and specialty stores, national chains, major discounters and mass volume retailers throughout the United States. (As used herein, the "Company" includes Salant and its subsidiaries, but excludes Salant's Vera Scarf division.) Men's Apparel. The men's apparel business is comprised principally of the Perry Ellis, Texas Apparel, Thomson, Manhattan Apparel, Accessories, Fashion Shirt and JJ. Farmer divisions. The Perry Ellis division markets dress shirts and sportswear under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS AMERICA trademarks. The Texas Apparel division markets men's and boy's jeans under Sears, Roebuck & Co.'s ("Sears") CANYON RIVER BLUES trademark, various other private labels and under the PERRY ELLIS AMERICA trademark. The Thomson division markets slacks primarily under the THOMSON and PERRY ELLIS trademarks and under various private labels. The Manhattan Apparel division markets dress shirts and sportswear under the MANHATTAN trademark as well as sportswear under private label. The Accessories division markets neckwear, belts and suspenders and the Fashion Shirt division markets dress shirts under a number of different trademarks, primarily JOHN HENRY. The JJ. Farmer division markets collection sportswear under the JJ. FARMER trademark. Children's Sleepwear and Underwear. The children's sleepwear and underwear business is conducted by the Company's Children's Apparel Group (the "Children's Group"). The Children's Group markets licensed character blanket sleepers primarily using a number of well-known, licensed cartoon characters, such as the various DISNEY characters. The Children's Group also markets pajamas under the OSHKOSH B'GOSH trademark, and sleepwear and underwear under the JOE BOXER trademark. Other Businesses. The other businesses of the Company consist of (i) the women's junior apparel business, conducted by the Company's Made in The Shade division ("Made In the Shade") and (ii) a chain of factory outlet stores (the "Stores division"), through which the Company sells its own products and those of other apparel manufacturers. Licensing Income. The Company receives royalty income from the licensing of certain of its owned trademarks to other manufacturers. Principal Product Lines. The following table sets forth, for fiscal years 1995 through 1993, the percentage of the Company's total net sales contributed by each category of product:
Fiscal Year 1995 1994 1993 Men's Apparel 85% 82% 80% Children's Sleepwear and Underwear 8% 8% 10% Other Businesses 7% 10% 10%
For more detailed information regarding the Company's product categories see Note 10 to the Consolidated Financial Statements. Approximately 12% of the Company's net sales in the year ended December 30, 1995 were made to Federated Department Stores, Inc. ("Federated"), which includes all 1995 net sales to Macy's Department Stores ("Macy's"), which was acquired by Federated in 1994, and the Broadway Stores, Inc. ("Broadway"), which was acquired by Federated in February 1996. In 1994 and 1993, net sales to a combined Federated/Macy's and Broadway would have represented approximately 15% and 12% of the Company's net sales, respectively. In 1995, approximately 11% of the Company's net sales were made to TJX Corporation ("TJX"), which includes all 1995 net sales to Marshall's Corporation ("Marshall's"), which was acquired by TJX in February 1996. In 1994 and 1993, net sales to a combined TJX/Marshall's would have represented approximately 11% and 12% of the Company's net sales, respectively. No other customer accounted for more than 10% of the Company's net sales during 1995, 1994 or 1993. In 1995, approximately 13% of the Children's Group's net sales were made to various divisions of the Dayton Hudson Corporation. In addition, approximately 16% of the Children's Group net sales were equally divided between two customers: JC Penney Company and WalMart Stores, Inc. In 1995, approximately 19% of the net sales of Other Businesses were made to JC Penney Company. The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of brand recognition, quality, fashion, price and customer service. A significant factor in the marketing of the Company's products is the consumer perception of the trademark or brand name under which those products are marketed. Approximately 73% of the Company's net sales for 1995 was attributable to products sold under Company owned or licensed designer trademarks and other internationally recognized brand names and the balance was attributable to products sold under retailers' private labels. The following table lists the principal owned or licensed trademarks under which the Company's products were sold in 1995 and the product lines associated with those trademarks. Trademarks used under license are indicated with an asterisk; all other listed trademarks are owned by the Company.
Trademark Product Lines BATMAN * Children's sleepwear DISNEY Characters *.............................................. Children's sleepwear and underwear DR. DENTON....................................................... Children's sleepwear and underwear GANT *........................................................... Men's dress shirts, neckwear, belts and suspenders JJ. FARMER....................................................... Men's and women's sportswear JOE BOXER *...................................................... Children's sleepwear and underwear JOHN HENRY....................................................... Men's dress shirts, neckwear, belts and suspenders; men's jeans LIBERTY OF LONDON *.............................................. Men's dress shirts, neckwear, belts and suspenders MADE IN THE SHADE................................................ Women's junior sportswear MANHATTAN........................................................ Men's dress shirts and sportswear NINO CERRUTI *................................................... Men's dress shirts and neckwear OSH KOSH B'GOSH *................................................ Children's sleepwear PEANUTS *........................................................ Men's dress shirts, neckwear and suspenders PERRY ELLIS *.................................................... Men's sportswear, dress shirts, neckwear, belts and suspenders PERRY ELLIS AMERICA *............................................ Men's casual sportswear and jeans PORTFOLIO BY PERRY ELLIS *....................................... Men's dress slacks, dress shirts, neckwear, belts and suspenders POWER RANGERS *.................................................. Children's sleepwear and underwear RON CHERESKIN *.................................................. Men's dress shirts SALTY DOG *...................................................... Men's dress shirts, neckwear, belts and suspenders SAVE THE CHILDREN *.............................................. Men's neckwear and suspenders THOMSON.......................................................... Men's casual and dress slacks and dress shirts UNICEF *......................................................... Men's neckwear WORLD WILDLIFE FUND *............................................ Men's t-shirts and neckwear
During 1995, approximately 31% of the Company's net sales was attributable to products sold under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS AMERICA trademarks; these products are sold through leading department and specialty stores. Products sold under the MANHATTAN label accounted for approximately 10% of the Company's net sales during 1995; these products are marketed primarily through mass volume retailers. Products sold under the JOHN HENRY label accounted for approximately 8% of the Company's net sales during 1995; these products are marketed primarily through department and specialty stores. Products sold to Sears under its exclusive brand CANYON RIVER BLUES accounted for 8% of the Company's net sales during 1995. Products sold under the THOMSON label accounted for approximately 5% of the Company's net sales during 1995; these products are sold primarily through department and specialty stores. No other line of products accounted for more than 5% of the Company's net sales during 1995. Trademarks Owned by the Company and Related Licensing Income. The Company owns the DR. DENTON, JJ. FARMER, JOHN HENRY, LADY MANHATTAN, MADE IN THE SHADE, MANHATTAN and THOMSON trademarks, among others. All of the significant brand names owned by the Company have been registered or are pending registration with the United States Patent and Trademark Office. The Company has sought to capitalize on consumer recognition of and interest in its trademarks by licensing various of those trademarks to others. As of the end of 1995, licenses were outstanding to approximately 63 licensees to make or sell apparel products and accessories in the United States and to 36 licensees in 28 other countries under the MANHATTAN, LADY MANHATTAN, JOHN HENRY and VERA trademarks, which produced royalty income of approximately $6.6 million in 1995. Products under license include men's activewear, dress shirts, gloves, hats, leather accessories, neckwear, optical frames, outerwear, pajamas, robes, scarves, slacks, socks, sportcoats, sportshirts, sunglasses, sweaters, swimwear and underwear, and women's blouses and tops, handbags, intimate apparel, lingerie, optical frames, pants, scarves, shirts and socks. Trademarks Licensed to the Company. The name Perry Ellis and related trademarks are licensed to the Company under a series of license agreements with Perry Ellis International, Inc. ("PEI"). The license agreements contain renewal options which, subject to compliance with certain conditions contained therein, permit the Company to extend the terms of such license agreements. Assuming the exercise by the Company of all available renewal options, the license agreements covering men's apparel and accessories will expire on December 31, 2015. The Company also has rights of first refusal worldwide for any new licenses granted by PEI for men's apparel and accessories. The Company is also a licensee of various trademarks, including BATMAN, GANT, LIBERTY OF LONDON, NINO CERRUTI, OSH KOSH B'GOSH, PEANUTS, RON CHERESKIN, SALTY DOG, SAVE THE CHILDREN, WORLD WILDLIFE FUND, certain DISNEY characters, POWER RANGERS, JOE BOXER and UNICEF, for various categories of products under license agreements expiring between 1996 and 2003. The agreements under which the Company is licensed to use trademarks owned by others typically provide for royalties at varying percentages of net sales under the licensed trademark, subject to a minimum annual royalty payable irrespective of the level of net sales. The Company anticipates that it will be able to extend, if it so desires, the term of any material licenses when they expire. Design and Manufacturing. Products sold by the Company's various divisions are manufactured to the designs and specifications (including fabric selections) of designers employed by those divisions. In limited cases, the Company's designers may receive input from one or more of the Company's licensors on general themes or color palettes. During 1995, approximately 18% of the products produced by the Company (measured in units) were manufactured in the United States, with the balance manufactured in foreign countries. Facilities operated by the Company accounted for approximately 78% of its domestic-made products and 26% of its foreign-made products; the balance in each case was attributable to unaffiliated contract manufacturers. In 1995, approximately 42% of the Company's foreign production was manufactured in Mexico, approximately 12% was manufactured in the Dominican Republic and approximately 11% was manufactured in Guatemala. 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. Although the Company's operations have not been materially adversely affected by any of such factors to date, any substantial disruption of its relationships with its foreign suppliers could adversely affect its 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 amounts 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 allocations could adversely affect the Company's operations. As discussed in Item 2. Properties, the Company has manufacturing facilities located in Mexico. The adoption of the North American Free Trade Agreement (NAFTA) has benefited the Company by (i) reducing and/or eliminating United States Customs duties on merchandise manufactured in the Company's leased facilities in Mexico, (ii) eliminating quotas on this merchandise, and (iii) eliminating restrictions on the export of merchandise from the United States for sale in both Mexico and Canada. Also, the devaluation in 1995 of the Mexican peso against the U.S. dollar benefited the Company as a result of employees being paid in Mexican pesos which the Company purchases with U.S. dollars. However, the benefit of the devaluation (gross amount of $5.0 million) was offset by increased expenses relating to the devaluation in Mexico; the estimated net benefit was $2.5 million. Raw Materials. The raw materials used in the Company's manufacturing operations consist principally of finished fabrics made from natural, synthetic and blended fibers. These fabrics and other materials, such as leathers used in the manufacture of various accessories, are purchased from a variety of sources both within and outside the United States. The Company believes that adequate sources of supply at acceptable price levels are available for all such materials. Substantially all of the Company's foreign purchases are denominated in U.S. currency. No single supplier accounted for more than 10% of Salant's raw material purchases during 1995. The Company has not engaged in financial activities through the use of derivatives or otherwise to hedge or diminish currency risks or fluctuations. Seasonality of Business. Although the Company typically introduces and withdraws various individual products throughout the year, the Company's principal products are organized into seasonal lines for resale at the retail level during the spring, fall and Christmas seasons. 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. Backlog of Orders. The Company does not consider the amount of its backlog of orders to be significant to an understanding of its business primarily due to increased utilization of EDI technology, which provides for the electronic transmission of orders from customers' computers to the Company's computers. As a result, orders are placed closer to the required delivery date than had been the case prior to EDI technology. As of March 2, 1996, the Company's backlog of orders was approximately $114 million, 17% less than the backlog of orders of approximately $137 million that existed as of March 4, 1995. This decrease is primarily related to a planned shift in the focus of sales of men's slacks, away from branded and private label sales and toward sales under the PERRY ELLIS trademark. Employees. As of the end of 1995, the Company employed approximately 4,200 persons, of whom 3,600 were engaged in manufacturing and distribution operations and the remainder were employed in executive, marketing and sales, product design, engineering and purchasing activities and in the operation of the Company's factory outlet stores. Certain manufacturing employees are covered by collective bargaining agreements with various unions, which expire between August 31, 1996 and November 30, 1997. The Company believes that its relations with its employees are satisfactory. 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 larger 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 seeks to maintain its competitive position in the markets for its branded products on the basis of the strong brand recognition associated with those products and, with respect to all of its products, on the basis of styling, quality, fashion, price and customer service. Environmental Regulations. Current environmental regulations have not had, and in the opinion of the Company, assuming the continuation of present conditions, will not have a material effect on the business, capital expenditures, earnings or competitive position of the Company. Bankruptcy Court Cases. On June 27, 1990 (the "Filing Date"), Salant and its wholly owned subsidiary, Denton Mills, Inc. ("Denton Mills"), each filed with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") a separate voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") (Case Nos. 90-B-12037 (CB) and 90-B-12038 (CB)) (the "Chapter 11 Cases"). The Company's other United States subsidiaries on the Filing Date did not seek relief under the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills (the "Reorganization Plan"). The Reorganization Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Item 3. Legal Proceedings and in Note 18 to the financial statements. Vera Scarf Division - Discontinued Operation. In February 1995, the Company discontinued its Vera Scarf division, which imported and marketed women's scarves under (i) the Company-owned trademarks VERA and ACUTE, (ii) trademarks licensed to the Company, including PERRY ELLIS, and (iii) retailers' private labels. The Company closed the Vera Scarf division in 1995. The financial statements of the Company included in this report treat the Vera Scarf division as a discontinued operation. ITEM 2. PROPERTIES The Company's principal executive offices are located at 1114 Avenue of the Americas, New York, New York 10036. The Company's principal properties consist of six domestic manufacturing facilities located in Alabama, Georgia (2), New York, Tennessee and Texas, four manufacturing facilities located in Mexico, and six distribution centers located in Georgia, New York, South Carolina (2) and Texas (2). The Company owns approximately 1,279,000 square feet of space devoted to manufacturing and distribution and leases approximately 570,000 square feet of such space. The Company owns approximately 34,000 square feet of combined office, design and showroom space and leases approximately 172,000 square feet of such space. The Children's Group has exclusive use of the Tennessee manufacturing facility, shares one of the Mexican manufacturing facilities with the Texas Apparel division and has its distribution center in a building in Texas which it shares with the Texas Apparel division. As of the end of 1995, the Company's Stores division operated 71 factory outlet stores, comprising approximately 214,000 square feet of selling space, all of which are leased. Except as noted above, substantially all of the owned and leased property of the Company is used in connection with its men's apparel business or general corporate administrative functions. The Company believes that its plant and equipment are adequately maintained, in good operating condition, and are adequate for the Company's present needs. ITEM 3. LEGAL PROCEEDINGS (a) Chapter 11 Cases. On June 27, 1990, Salant and Denton Mills each filed with the Bankruptcy Court a separate voluntary petition for relief under chapter 11 of the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order confirming the debtors' Reorganization Plan. The Reorganization Plan was consummated on September 20, 1993. From that date through December 30, 1995 (approximately 27 months), the Company made cash payments of $8.8 million, issued $111.9 million of new 10-1/2% senior secured notes, and issued 10.9 million shares of common stock in settlement of certain undisputed and disputed claims in the chapter 11 proceedings. Salant anticipates that an additional $4.8 million in cash and an additional 376 thousand shares of common stock may ultimately be distributed in connection with the resolution of all remaining claims. Provisions for such distributions had previously been made in the consolidated financial statements at the time of emergence from the bankruptcy during the year ended January 1, 1994. The process of resolving claims is continuing and, pursuant to the Reorganization Plan, remains under the jurisdiction of the Bankruptcy Court. (b) Other. The Company is a defendant in several other legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions will not have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1995, no matter was submitted to a vote of security holders of Salant by means of the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Salant's Common Stock is traded on the New York Stock Exchange (the "NYSE") under the trading symbol SLT. The high and low sale prices per share of Common Stock (based upon the NYSE composite tape as reported in published financial sources) for each quarter of 1995 and 1994 are set forth below. The Company did not declare or pay any dividends during such years. Both (i) the indenture governing Salant's 10-1/2% Senior Secured Notes due December 31, 1998 (the "Senior Notes"), and (ii) the revolving credit, factoring and security agreement, dated September 20, 1993 (the "Credit Agreement"), with the CIT Group/Commercial Services, Inc. require the satisfaction of certain net worth tests prior to the payment of any cash dividends by Salant. As of December 30, 1995, Salant was prohibited from paying cash dividends by the most restrictive of these provisions.
High and Low Sale Prices Per Share of the Common Stock Quarter High Low 1995 Fourth $ 5 7/8 $ 3 3/8 Third 6 3 1/4 Second 4 1/4 2 3/4 First 5 7/8 3 1/4 1994 Fourth $ 6 $ 4 3/8 Third 7 5 Second 8 3/8 6 1/8 First 9 3/8 6 3/4
On March 19, 1996, there were 1,177 holders of record of shares of Common Stock, and the closing market price was $4 5/8. All of the outstanding voting securities of the Company's subsidiaries are owned beneficially and (except for shares of certain foreign subsidiaries of the Company owned of record by others to satisfy local laws) of record by the Company. ITEM 6. SELECTED FINANCIAL DATA (Amounts in thousands except share, per share and ratio data)
Dec. 30, Dec. 31, Jan. 1, Jan. 2, Dec. 28, 1995 1994 1994 1993 1991 (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) For The Year Ended: Continuing Operations: Net sales $ 501,522 $ 419,285 $ 402,098 $ 411,021 $392,804 Income/(loss) from continuing operations (498) 3,507 7,816 (4,687) (17,731) Discontinued Operations: Loss from operations, net of income taxes - (9,639) (589) (1,299) (1,378) Estimated loss on disposal, net of income taxes - (1,796) - (11,772) - Reversal of estimated loss on disposal, net of income taxes - - 11,772 - - Extraordinary gain (a) 1,000 63 24,707 - - Net income/(loss)(b) 502 (7,865) 43,706 (17,758) (19,109) Income/(loss) per share from continuing operations before extraordinary gain $ (0.03) $ 0.23 $ 1.10 $ (1.35) $ (5.12) Income/(loss) per share from discontinued operations - (0.76) 1.57 (3.78) (0.40) Income per share from extraordinary gain 0.06 - 3.48 - - Net income/(loss) per share (b) 0.03 (0.53) 6.15 (5.13) (5.52) Cash dividends per share - - - - - At Year End: Current assets $ 160,826 $ 168,411 $157,622 $ 160,146 $159,864 Total assets 255,720 267,216 253,232 259,466 270,651 Current liabilities 63,454 72,163 45,713 55,093 38,091 Long-term debt 110,040 109,908 111,851 - - Deferred liabilities 11,373 13,479 16,766 2,462 5,833 Liabilities deferred pursuant to chapter 11 cases - - - 266,420 272,977 Working capital 97,372 96,248 111,909 105,053 121,773 Current ratio 2.5:1 2.3:1 3.4:1 2.9:1 4.2:1 Shareholders' equity/(deficiency) $ 70,853 $ 71,666 $ 78,902 $(64,509) $(46,250) Book value per share $ 4.71 $ 4.78 $ 5.34 $ (18.62) $ (13.37) Number of shares outstanding 15,041 15,008 14,781 3,463 3,463
(a) Includes, for the year ended December 30,1995, a gain of $1,000 (6 cents per share) related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Chapter 11 proceeding; for the year ended December 31, 1994, a gain of $63 (no per share effect) related to the purchase and retirement of a portion of the Company's 10 1/2% Senior Secured Notes at a price below the principal amount thereof; and for the year ended January 1, 1994, a gain of $24,707 ($3.48 per share) related to the settlement and anticipated settlement of claims arising from the Chapter 11 proceeding. (b) Includes, for the year ended December 30, 1995, a provision of $3,550 (24 cents per share; tax benefit not available) for restructuring costs principally related to (i) fixed asset write-downs at locations to be closed and (ii) inventory markdowns for discontinued product lines; for the year ended January 1, 1994, a provision of $5,500 (77 cents per share; tax benefit not available) for restructuring costs principally related to the costs incurred in connection with the closure of certain unprofitable operations, including (i) inventory markdowns associated with those product lines and (ii) fixed asset write-downs at closed locations; for the year ended January 2, 1993, (a) a provision of $4,824 ($1.39 per share; tax benefit not available) for restructuring costs principally related to (i) the estimated costs to be incurred in connection with the closure of certain unprofitable operations, (ii) the rejection, pursuant to the Bankruptcy Code, of certain lease obligations, and (iii) the write-off of leasehold improvements, and buildings and equipment at closed locations, and (b) the write-off of certain intangible assets of $6,759 ($1.95 per share; tax benefit not available); and for the year ended December 28, 1991, (a) a provision of $12,984 ($3.75 per share; tax benefit not available) for restructuring costs principally related to (i) the closure of certain women's wear operations, (ii) the closure of certain unprofitable retail factory outlet stores, (iii) the rejection, pursuant to the Bankruptcy Code, of certain lease obligations and (iv) an accrual for payment pursuant to a severance agreement with the previous chief executive officer of Salant, (b) the write-off of certain intangible and other assets of $6,587 ($1.90 per share; tax benefit not available) and (c) management fee income of $1,962 ($0.57 per share) as a result of a settlement of certain litigation. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the consolidated results of operations and financial condition should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to provide additional information concerning the financial activities and condition of Salant Corporation ("Salant") and its subsidiary companies (collectively, the "Company"). Results of Operations The following discussion compares the operating results of the Company for the year ended December 30, 1995 with the operating results for the years ended December 31, 1994 and January 1, 1994. In February 1995, the Company discontinued its Vera Scarf division. The financial statements included in this Annual Report, consistent with the 1994 Annual Report, treat the Vera Scarf division as a discontinued operation, the effect of which is to exclude the results of operations of the Vera Scarf division from the Company's results from continuing operations for each year presented. See Note 17 of the Notes to the Consolidated Financial Statements. As announced in March 1994, the Company determined to retain and continue to operate its Children's Apparel Group. Consequently, the Company's financial statements for all periods presented include the results of operations of that division.
(dollars in millions) For the year ended December 30, December 31, January 1, 1995 1994 1994 Net sales $501.5 $419.3 $402.1 Gross profit $103.9 $ 93.2 $ 98.1 Gross margin 20.7% 22.2% 24.4% Income from continuing operations before interest, income taxes and extraordinary gain $19.2 $19.5 $15.6
Fiscal 1995 Compared with Fiscal 1994 For the 1995 fiscal year, net sales amounted to $501.5 million, a 19.6% increase over net sales of $419.3 million in fiscal year 1994. The increase was primarily attributable to significant sales increases in the men's apparel business.
(dollars in millions) Net sales and percentage of total Percentage for the year ended Increase/ December 30, 1995 December 31, 1994 (Decrease) Men's Apparel $423.9 85% $343.5 82% 23.4% Children's Sleepwear and Underwear 39.9 8% 35.5 8% 12.5% Other Businesses (a) 37.7 7% 40.3 10% (6.5%) Total $501.5 100% $419.3 100% 19.6%
(a) Includes the Made in the Shade division (a women's junior sportswear business) and the Stores division. Net sales of men's apparel increased $80.4 million, or 23.4%. This increase was primarily attributable to (a) the introduction of Canyon River Blues, an exclusive brand program for Sears, Roebuck & Co., which accounted for $41.7 million of the increase, (b) the growth of the Company's Perry Ellis sportswear business, which increased $18.2 million, or 30.1%, in 1995, (c) an increase in the Company's dress shirt sales of $11.2 million, or 8.8%, in 1995, and (d) an increase in sportswear sales by the Manhattan Sportswear division of $6.0 million, or 39.3%, in 1995. Excluding dress shirt net sales under the GANT label, which was licensed in June 1994, the Company's dress shirt net sales increased 7.4% in 1995. Net sales of Children's sleepwear and underwear increased $4.4 million, or 12.5%, in 1995. This increase was primarily a result of the expansion of the JOE BOXER product line, which began shipping in 1994. Net sales of the other businesses decreased $2.6 million, or 6.5%, in 1995, primarily as a result of lower shipments by the Made in the Shade division due to the lack of orders at acceptable margins. Gross profit as a percentage of net sales decreased to 20.7% in 1995 from 22.2% in 1994. The reduction in gross profit as a percentage of net sales was primarily a result of continuing pressure on selling prices in all product categories and at all levels of distribution which are, in large part, a result of the slow retail economy. In addition, certain businesses entered into and expanded in 1995 (Canyon River Blues and Manhattan Sportswear) yield a lower gross margin than traditionally earned by the Company's merchandise. The Company's gross margin was also negatively affected by higher than expected costs associated with the start-up of the Canyon River Blues program which are not anticipated to continue in 1996.
(dollars in millions) Gross profit and gross margin for the year ended December 30, 1995 December 31, 1994 Men's Apparel $79.1 18.7% $70.9 20.6% Children's Sleepwear and Underwear 10.8 26.9% 7.9 22.2% Other Businesses (a) 14.0 37.1% 14.4 35.7% Total $103.9 20.7% $ 93.2 22.2%
(a) Includes the Made in the Shade division (a women's junior sportswear business) and the Stores division. Selling, general and administrative ("S,G&A") expenses for 1995 amounted to $85.4 million, or 17.0% of net sales, as compared to $79.3 million, or 18.9% of net sales, for 1994. The reduced S,G&A expenses as a percentage of net sales relates, in part, to certain businesses entered into and expanded in 1995 (as indicated above) which required minimal incremental expenses. The provision for restructuring of $3.6 million related primarily to the planned closing in 1996 of a manufacturing facility in Thomson, Georgia, as well as certain expenses related to the discontinuation of several dress shirt lines, including Liberty of London, Nino Cerruti and Ron Chereskin. It is anticipated that additional charges totalling approximately $1.5 to $2.0 million relating to the closure in Thomson, Georgia will be incurred in 1996. Income from continuing operations before interest, income taxes and extraordinary gain as a percentage of net sales decreased to 3.8% in 1995 from 4.6% in 1994. This percentage reduction was primarily a result of the gross margin decrease, S,G&A expense changes and the provision for restructuring as discussed above.
(dollars in millions) Income from continuing operations before interest, income taxes and extraordinary gain and percentage of net sales for the year ended December 30, 1995 December 31, 1994 Men's Apparel $ 19.8 4.7% $ 17.4 5.1% Children's Sleepwear and Underwear 5.2 13.0% 3.1 8.8% Other Businesses (a) (2.2) (5.9%) (0.5) (1.3%) 22.8 4.5% 20.0 4.8% Corporate expenses (9.2) (6.2) Licensing division income 5.6 5.7 Income from continuing operations before interest, income taxes and extraordinary gain $ 19.2 3.8% $ 19.5 4.6%
(a) Includes the Made in the Shade division (a women's junior sportswear business) and the Stores division. Net interest expense for 1995 amounted to $19.4 million as compared to $15.6 million in the prior year, an increase of $3.8 million. Of this amount, $2.7 million was attributable to a higher average outstanding loan balance in 1995. $1.1 million of this increase related to an increase in the weighted average interest rate on borrowings from 7.8% in 1994 to 9.9% in 1995, of which the majority related to an increase in the average prime rate. The loss from continuing operations before extraordinary gain was $0.5 million, or $0.03 per share, versus income from continuing operations before extraordinary gain of $3.5 million, or $0.23 per share, a year earlier. At the end of 1995, the Company had 15,102,000 weighted average common and common equivalent shares outstanding versus 14,954,000 weighted average common shares outstanding at the end of the prior year. For 1994, the Company recognized a charge of $11.4 million, or $0.76 per share for the discontinuance of the Vera Scarf division (inclusive of approximately $300 thousand of losses incurred by the division in the first three quarters of 1994). The Vera Scarf division had net sales of $5.1 million in 1994. In the fourth quarter of 1995, the Company recorded an extraordinary gain of $1 million related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the chapter 11 proceeding. As a result of the above, net income for 1995 was $0.5 million, or $0.03 per share, compared with a net loss of $7.9 million, or $0.53 per share in 1994. As of December 30, 1995, there were 15,042,000 shares of the Company's common stock outstanding. The weighted average number of common and common equivalent shares outstanding for the 1995 fiscal year was 15,102,000, including 376,000 shares that the Company anticipates will be issued to creditors. Earnings before interest, taxes, depreciation, amortization, restructuring charges, discontinued operations and extraordinary gain was $30.5 million in 1995, compared to $27.0 million in 1994, an increase of $3.5 million, or 13.1%. The Company believes this information is helpful in understanding cash flow from operations that is available for debt service, taxes 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. Inflation and Recent Legislation Management believes that the rate of inflation over the past three years has not had a material impact on Salant's operating results. The adoption of the North American Free Trade Agreement (NAFTA), enacted in 1993, has benefited the Company's business by (i) reducing and/or eliminating United States Customs duties on merchandise manufactured in the Company's leased facilities in Mexico, (ii) eliminating quotas on this merchandise, and (iii) eliminating restrictions on the export of merchandise from the United States for sale in both Mexico and Canada. Also, the devaluation of the Mexican peso against the U.S. dollar throughout 1995 benefited the Company as a result of employees being paid in Mexican pesos which the Company purchases with U.S. dollars. However, the benefit of the devaluation (gross amount of $5.0 million) was offset by increased expenses relating to the devaluation in Mexico; the estimated net benefit was $2.5 million. Fiscal 1994 Compared with Fiscal 1993 For the 1994 fiscal year, net sales amounted to $419.3 million, a 4.3% increase over net sales of $402.1 million in fiscal year 1993. The increase was attributable to significant sales increases in the men's apparel business achieved by the Company's Perry Ellis, Thomson, Manhattan Apparel and JJ. Farmer divisions. Manhattan Apparel commenced shipping men's sportswear in September 1993, and JJ. Farmer is a label which was acquired in June 1994. These increases were partially offset by reductions in net sales of denim-based products and men's accessories. Notwithstanding the popularity of the casualwear trend in offices which contributed to a slight decrease in the overall dress shirt market, the Company's dress shirt net sales increased slightly in 1994 as compared to 1993. In 1994, the Company signed a new license agreement for dress shirts to be produced and sold under the GANT label. This label accounted for net sales of $2.8 million in 1994.
(dollars in millions) Net sales and percentage of total Percentage for the year ended Increase/ December 31, 1994 January 1, 1994 (Decrease) Men's Apparel $343.5 82% $323.7 80% 6.1% Children's Sleepwear and Underwear 35.5 8% 39.5 10% (10.1%) Other Businesses (a) 40.3 10% 38.9 10% 3.7% Total $419.3 100% $402.1 100% 4.3%
(a) Includes the Made in the Shade division (a women's junior sportswear business) and the Stores division. Gross profit as a percentage of net sales decreased to 22.2% ($93.2 million) in 1994 from 24.4% ($98.1 million) in 1993. The reduction in gross profit as a percentage of net sales was incurred primarily in men's apparel. The cause of the reduction was (a) continuing pressure on selling prices, (b) a change in the Company's mix to lower priced sportswear, which carries a lower gross profit margin, as a result of the introduction of Manhattan label sportswear late in the third quarter of 1993, and (c) certain cost increases related to the introduction of wrinkle-free dress shirts.
(dollars in millions) Gross profit and gross margin for the year ended December 31, 1994 January 1, 1994 Men's Apparel $70.9 20.6% $79.1 24.4% Children's Sleepwear and Underwear 7.9 22.2% 5.8 14.7% Other Businesses (a) 14.4 35.7% 13.2 34.0% Total $ 93.2 22.2% $ 98.1 24.4%
(a) Includes the Made in the Shade division (a women's junior sportswear business) and the Stores division. S,G&A expenses for 1994 amounted to $79.2 million, or 18.9% of net sales, as compared to $73.9 million, or 18.4% of net sales, for 1993. The increase in S,G&A expenses was primarily attributable to (a) costs of $2.2 million associated with new product lines (JJ. Farmer which was acquired in June 1994 and Manhattan sportswear, which began shipping in September 1993) and (b) payroll and occupancy costs of $1.3 million related to an increase in the number of factory outlet stores in operation in 1994. Royalty income in 1994 was $6.7 million. During 1993, royalty income was $8.0 million. The decrease in royalty income was primarily the result of the termination of a significant license agreement in 1993, and the absence of the related licensing revenue in 1994. The product for which royalties previously were received became the basis of the Company's Manhattan Sportswear division, which commenced shipping in the third quarter of 1993. The license for this product had contributed income of $580 thousand in 1993. In 1993, the Company recorded a $5.5 million provision for restructuring, which included $5.0 million related to the restructuring of the Children's Apparel Group. Income from continuing operations before interest, income taxes and extraordinary gain increased as a percentage of net sales from 3.9% in 1993 to 4.6% in 1994. This percentage increase was primarily as a result of the absence of the provision for restructuring of $5.5 million and the bankruptcy administration expenses of $8.9 million which were recorded in 1993, as offset by the lower gross margins achieved in 1994, as discussed above.
(dollars in millions) Income from continuing operations before interest, income taxes and extraordinary gain and percentage of net sales for the year ended December 31, 1994 January 1, 1994 Men's Apparel $ 17.4 5.1% $ 29.1 9.0% Children's Sleepwear and Underwear 3.1 8.8% (3.1) (8.1)% Other Businesses (a) (0.5) (1.3%) (0.4) (1.0)% 20.0 4.8% 25.6 6.4% Corporate expenses (6.2) (7.5) Licensing division income 5.7 6.4 Bankruptcy administration expenses -- (8.9) Income from continuing operations before interest, income taxes and extraordinary gain $ 19.5 4.6% $ 15.6 3.9%
(a) Includes the Made in the Shade division (a women's junior sportswear business) and the Stores division. Net interest expense for 1994 amounted to $15.6 million compared to $7.5 million in the prior year. Until September 20, 1993, Salant was operating under chapter 11 of the Bankruptcy Code and, accordingly, was not accruing interest on its prepetition debt. Income from continuing operations before extraordinary gain was $3.5 million, or $0.23 per share, compared to $7.8 million, or $1.10 per share, a year earlier. At the end of 1994, the Company had 14,954,000 weighted average shares outstanding versus 7,104,000 weighted average shares and share equivalents outstanding at the end of the prior year. The increase in the number of shares outstanding was related to the Company's emergence from bankruptcy in September 1993. For 1994, the Company recognized a charge of $11.4 million, or $0.76 per share, reflecting the discontinuance of the Vera Scarf division (inclusive of approximately $300 thousand of losses incurred by the division in the first three quarters of 1994). The Vera Scarf division had net sales of $5.1 million in 1994. For 1993, the Company recognized an extraordinary gain of $24.7 million, or $3.48 per share, related to the Company's emergence from bankruptcy, a loss from discontinued operations of $589,000, or $0.08 per share, and a reversal of estimated loss on disposal of discontinued operations of $11.8 million, or $1.65 per share. As a result of the above, the net loss for 1994 was $7.9 million, or $0.53 per share, compared with net income of $43.7 million, or $6.15 per share in 1993. As of December 31, 1994, there were 14,218,000 shares of the Company's common stock outstanding, including 10,504,000 shares issued to creditors in connection with the Company's reorganization, consummated on September 20, 1993. The weighted average number of shares outstanding for 1994 was 14,954,000 shares, including 789,000 shares that the Company anticipated would be issued to creditors. Earnings before interest, taxes, depreciation, amortization, bankruptcy administration expenses, restructuring charges, discontinued operations and extraordinary gain was $27.0 million in 1994, compared to $37.8 million in 1993, a decrease of $10.8 million, as described above. The Company believes that this information is helpful in understanding cash flow from operations that is available for debt service, taxes 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 entered into a revolving credit, factoring and security agreement, as amended (the "Credit Agreement"), with The CIT Group/Commercial Services, Inc. ("CIT"), to provide seasonal working capital financing, in the form of direct borrowings and letters of credit, up to an aggregate of $135 million, subject to an asset based borrowing formula (the "Maximum Credit"). On March 27, 1996, the Company and CIT executed the Seventh Amendment to the Credit Agreement (the "Amendment"). The Amendment extends the term of the Credit Agreement to March 31, 1997 and provides the Company with the ability to cease factoring at September 20, 1996. The Amendment also increased the Maximum Credit to $135 million during certain periods of 1996, which was consistent with the Maximum Credit provided in 1995. In addition, the Amendment also modified certain financial covenants relating to working capital and stockholders' equity. In the absence of the Amendment, Salant would not have been able to satisfy the stockholders' equity covenant for its 1995 fiscal year. Interest on direct borrowings is charged monthly at an annual rate of one percent in excess of the base rate of Chemical Bank (the "Prime Rate") (which Prime Rate was 8.5% at December 30, 1995). 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. At the end of 1995, direct borrowings and letters of credit outstanding under the Credit Agreement were $14.4 million and $31.4 million, respectively, and the Company had unused availability of $27.5 million. At the end of 1994, direct borrowings and letters of credit outstanding under the Credit Agreement were $23.9 million and $50.5 million, respectively, and the Company had unused availability of $4.1 million. In September 1993, the Company issued $111.9 million principal amount of 10 1/2% Senior Secured Notes due December 31, 1998 (the "Secured Notes") in connection with the consummation of its plan of reorganization, as referenced in Exhibit 4.3. In May 1994, the Company purchased and retired $3.6 million of the Secured Notes in an open market transaction at a price below the principal amount thereof. The Credit Agreement and the indenture governing the Secured Notes contain numerous financial and operating covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock of all or a substantial part of the assets of another person, selling property, making capital expenditures, and paying cash dividends. In addition, under the Credit Agreement, the Company is required to maintain minimum levels of working capital and stockholders' equity and to satisfy a ratio of total liabilities to stockholders' equity, a fixed charge coverage ratio, and a maximum cumulative net loss test. At December 30, 1995, the Company was in compliance with all financial covenants as indicated below:
Covenant December 30, 1995 Credit Agreement Covenants Level (a) Actual Level Working Capital $ 85.0 million $ 97.4 million Stockholders' Equity $ 60.0 million $ 70.9 million Liabilities/Equity less than 3.0 2.6 Fixed Charge Ratio greater than 1.5 1.6 Maximum Loss $(10.0) million positive income
(a) The covenant levels reflect all modifications in the Credit Agreement made pursuant to the Amendment. The Company is also required to reduce its indebtedness (excluding outstanding letters of credit) to $20 million or less for fifteen consecutive days during each twelve month period commencing February 1, 1994. The Company has complied with this covenant for all periods through January 31, 1997. At the end of 1995, the Company's short term borrowings were $9.5 million lower than such borrowings at the end of 1994. The Company's cash flow from operating activities (the Company's primary source of cash) was $13.5 million. This represented a $36.5 million improvement over 1994 and was primarily a result of asset management improvements primarily relating to inventory and accounts receivable. The lower inventory balances resulted from supply and demand process improvements made during the year. Cash used in 1995 for investing activities was $4.2 million, primarily related to capital expenditures. Cash used in financing activities in 1995 was $9.4 million, which represented repayments of short-term borrowings under the Credit Agreement. Cash flow generated from operations was used to make these repayments. Capital expenditures in 1995 amounted to $4.3 million as compared to $4.9 million in 1994. Capital expenditures for 1996 are anticipated to be approximately $7.7 million. The Company's business is seasonal in nature. As a result, Salant's working capital requirements increase significantly during the first three quarters of each year. Salant's principal sources of liquidity, both on a short-term and a long-term basis, are provided by operations and borrowings under the Credit Agreement. Based upon its analysis of its consolidated financial position, its cash flow during the past twelve months, and its cash flow anticipated from future operations, Salant believes that its future cash flow and the funds available under the Credit Agreement will be adequate to meet the financing requirements it anticipates in 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. Effective in 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits", which requires the accrual method of accounting for certain of these benefits. SFAS No. 112 was adopted as a result of the implementation of a formal short term disability policy for employees. Prior to 1995, the Company recognized the cost of providing these benefits on a cash basis. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Adoption of SFAS No. 121, which is effective for years beginning after December 15, 1995, is not expected to have a material impact on the Company. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". The standard encourages, but does not require, companies to recognize compensation expense of grants for stock, stock options and other equity instruments to employees based on fair value accounting rules. SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro forma net income and earnings per share under the new method. The standard is effective for fiscal years beginning after December 15, 1995. The Company has not yet determined if it will adopt the accounting provisions of SFAS No. 123 or only the disclosure provision. However, the Company does not believe that adoption of SFAS No. 123 will have a significant effect on its results of operations. Factors that May Affect Future Results and Financial Condition. The Company's future operating results and financial condition are dependent on the Company's ability to successfully design, manufacture, import and market apparel. Inherent in this process are many factors that the Company must successfully manage in order to achieve favorable operating results and financial condition including, without limitation, the following: Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Company) and a large number of specialty manufacturers. The Company faces substantial competition in its markets from manufacturers in both categories. Many of the Company's competitors have greater financial resources than the Company. Apparel Industry Cycles and other Economic Factors. The apparel industry historically has been subject to substantial cyclical variation, with consumer spending on apparel tending to decline during recessionary periods. A decline in the general economy or uncertainties regarding future economic prospects may affect consumer spending habits, which, in turn, could have a material adverse effect on the Company's results of operations and 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 protection under the Bankruptcy Code. 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 $124.5 million as of December 30, 1995. 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. The Company currently produces 64% of all of its products (in units) through arrangements with independent contract manufacturers. The use of such contractors and the resulting lack of direct control could subject the Company to difficulty in obtaining timely delivery of products of acceptable quality. In addition, as is customary in the industry, the Company does not have any long-term contracts with its fabric suppliers or product manufacturers. While the Company is not dependent on one particular product manufacturer or fabric supplier, the loss of several such product manufacturers and/or fabric suppliers in a given season could have a material adverse effect on the Company's performance. Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors are cautioned not to use historical trends to anticipate results or trends in the future. In addition, the Company's participation in the highly competitive apparel industry often results in significant volatility of the Company's common stock price. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report To the Board of Directors and Stockholders of Salant Corporation: We have audited the accompanying consolidated balance sheets of Salant Corporation and subsidiaries as of December 30, 1995 and December 31, 1994, and the related consolidated statements of operations, shareholders' equity/deficiency and cash flows for the years ended December 30, 1995, December 31, 1994 and January 1, 1994. Our audits also included the financial statement schedule listed in the index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Salant Corporation and subsidiaries as of December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for the years ended December 30, 1995, December 31, 1994 and January 1, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP March 20, 1996 (March 27, 1996 as to Note 8) New York, New York
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) Year Ended December 30, December 31, January 1, 1995 1994 1994 Net sales $ 501,522 $ 419,285 $ 402,098 Cost of goods sold 397,630 326,059 303,989 Gross profit 103,892 93,226 98,109 Selling, general and administrative expenses (85,372) (79,273) (73,944) Royalty income 6,606 6,699 8,040 Goodwill amortization (2,575) (2,376) (2,194) Other income/(expense) 244 1,196 (70) Division restructuring costs (Note 2) (3,550) -- (5,500) Bankruptcy administration expenses -- -- (8,861) Income from continuing operations before interest, income taxes and extraordinary gain 19,245 19,472 15,580 Interest expense, net (Notes 8 and 9) 19,425 15,617 7,523 Income/(loss) from continuing operations before income taxes and extraordinary gain (180) 3,855 8,057 Income taxes (Note 11) 318 348 241 Income/(loss) from continuing operations before extraordinary gain (498) 3,507 7,816 Discontinued operations (Notes 17 and 19): Loss from operations -- (9,639) (589) Estimated loss on disposal -- (1,796) -- Reversal of estimated loss on disposal -- -- 11,772 Extraordinary gain (Notes 3 and 9) 1,000 63 24,707 Net income/(loss) $ 502 $ (7,865) $ 43,706 Earnings/(loss) per share: Income/(loss) per share from continuing operations before extraordinary gain $ (0.03) $ 0.23 $ 1.10 Income from reversal of estimated loss on disposal of discontinued operations -- -- 1.65 Loss per share from discontinued operations -- (0.76) (0.08) Extraordinary gain 0.06 -- 3.48 Net income/(loss) per share $ 0.03 $ (0.53) $ 6.15 Weighted average common stock outstanding 15,102 14,954 7,104
See Notes to Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) December 30, December 31, 1995 1994 ASSETS Current assets: Cash and cash equivalents $ 1,400 $ 1,965 Accounts receivable - net of allowance for doubtful accounts of $3,007 in 1995 and $2,565 in 1994 (Notes 8 and 9) 35,290 36,583 Inventories (Notes 4 and 8) 119,120 124,599 Prepaid expenses and other current assets 5,016 5,264 Total current assets 160,826 168,411 Property, plant and equipment, net (Notes 5 and 8) 24,526 27,460 Other assets (Notes 6, 9 and 11) 70,368 71,345 $ 255,720 $ 267,216 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable 14,422 $ 23,906 Accounts payable 26,755 28,593 Reserve for business restructuring (Note 2) 1,569 -- Accrued salaries, wages and other liabilities (Note 7) 20,397 18,848 Net liabilities of discontinued operations (Note 17) 311 816 Total current liabilities 63,454 72,163 Long term debt (Notes 9 and 16) 110,040 109,908 Deferred liabilities (Note 14) 11,373 13,479 Commitments and contingencies (Notes 6, 8, 9, 11, 12, 13 and 15) Shareholders' equity (Note 13): Preferred stock, par value $2 per share: Authorized 5,000 shares; none issued -- -- Common stock, par value $1 per share: Authorized 30,000 shares; 15,275 15,242 issued and issuable - 15,275 shares in 1995; issued and issuable - 15,242 shares in 1994 Additional paid-in capital 107,071 107,017 Deficit (47,824) (48,326) Excess of additional pension liability over unrecognized prior service cost adjustment (Note 12) (2,185) (773) Accumulated foreign currency translation adjustment 130 120 Less - treasury stock, at cost - 234 shares (1,614) (1,614) Total shareholders' equity 70,853 71,666 $ 255,720 $ 267,216
See Notes to Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIENCY) (Amounts in thousands) Excess of Additional Pension Liability Over Unrecog- Cumulative Total nized Foreign Share- Common Stock Add'l Prior Currency Treasury Stock holders' Number Paid-In Service Translation Number of Equity/ of Shares Amount Capital Deficit Cost Adjustment Shares Amount (Deficiency) Balance at January 2, 1993 3,698 $3,698 $17,702 $(84,167) $(353) $225 234 $(1,614) $(64,509) Stock options exercised 24 24 90 114 Shares issued and issuable in settlement of claims 11,294 11,294 88,934 100,228 Net income 43,706 43,706 Excess of additional pension liability over unrecognized prior service cost adjustment (633) (633) Foreign currency translation adjustments (4) (4) Balance at January 1, 1994 15,016 15,016 106,726 (40,461) (986) 221 234 (1,614) 78,902 Stock options exercised 226 226 291 517 Net loss (7,865) (7,865) Excess of additional pension liability over unrecognized prior service cost adjustment 213 213 Foreign currency translation adjustments (101) (101) Balance at December 31, 1994 15,242 15,242 107,017 (48,326) (773) 120 234 (1,614) 71,666 Stock options exercised 33 33 54 87 Net income 502 502 Excess of additional pension liability over unrecognized prior service cost adjustment (1,412) (1,412) Foreign currency translation adjustments 10 10 Balance at December 30, 1995 15,275 $15,275 $107,071$(47,824) $ (2,185) $ 130 234 $(1,614) $70,853
See Notes to Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 30, December 31, January 1, 1995 1994 1994 Cash Flows from Operating Activities Income/(loss) from continuing operations $ (498) $ 3,507 $ 7,816 Adjustments to reconcile income from continuing operations to net cash provided by/(used in) operating activities: Depreciation 5,116 5,113 5,619 Amortization of intangibles 2,575 2,376 2,194 Write-down of fixed assets 1,850 -- 2,095 Loss on sale of fixed assets 132 -- -- Changes in operating assets and liabilities: Accounts receivable 1,293 (11,965) (1,987) Inventories 5,479 (19,262) 844 Prepaid expenses and other current assets 248 (947) (378) Other assets (1,646) (1,302) 48 Accounts payable (1,838) 6,869 266 Accrued salaries, wages and other liabilities (191) (5,786) 5,941 Reserve for business restructuring 1,569 (2,038) (3,042) Deferred liabilities (598) 330 398 Net cash provided by/(used in) operating activities 13,491 (23,105) 19,814 Cash Flows from Investing Activities Capital expenditures, net (4,286) (4,926) (8,153) Acquisition -- (5,720) -- Proceeds from sale of assets 122 294 795 Net cash used in investing activities (4,164) (10,352) (7,358) Cash Flows from Financing Activities Net short-term borrowings/(repayments) (9,484) 36,516 -- Repayment of pre-petition secured debt -- -- (15,940) Retirement of long-term debt -- (3,537) -- Exercise of stock options 87 517 65 Other, net 10 (101) (254) Net cash (used in)/provided by financing activities (9,387) 33,395 (16,129) Net cash used in continuing operations (60) (62) (3,673) Cash used in discontinued operations (505) (119) (304) Net decrease in cash and cash equivalents (565) (181) (3,977) Cash and cash equivalents - beginning of year 1,965 2,146 6,123 Cash and cash equivalents - end of year $ 1,400 $ 1,965 $ 2,146
Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 20,280 $ 16,150 $ 3,847 Income taxes $ 331 $ 674 $ 206
Conversion of accounts payable, accrued expenses, long-term debt and deferred liabilities to liabilities deferred pursuant to chapter 11 cases $ 1,515 Conversion of liabilities deferred pursuant to chapter 11 cases to accounts payable and deferred liabilities $ 10,249 Issuance of long-term debt $ 111,851 Issuance of common stock $ 100,228 See Notes to Consolidated Financial Statements SALANT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Amounts in Thousands of Dollars, Except Share and Per Share Data) Note 1. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The Consolidated Financial Statements include the accounts of Salant Corporation ("Salant") and subsidiaries. (As used herein, the "Company" includes Salant and its subsidiaries but excludes Salant's Vera Scarf division.) In February 1995, Salant discontinued its Vera Scarf division. As further described in Note 17, the Consolidated Financial Statements and the Notes thereto reflect the Vera Scarf division as a discontinued operation, and the financial results of the Vera Scarf division are not included in the presentation of income/(loss) from continuing operations. In addition, the net liabilities of the discontinued Vera Scarf division operations have been separately classified in the Consolidated Balance Sheets. Significant intercompany balances and transactions are eliminated in consolidation. 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 preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On June 27, 1990 (the "Filing Date"), Salant and one of its subsidiaries, Denton Mills, Inc. ("Denton Mills"), filed separate voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills, Inc. (the "Reorganization Plan"). The Reorganization Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Note 18. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. The 1995, 1994 and 1993 fiscal years were each comprised of 52 weeks. Reclassifications Certain reclassifications were made to the 1994 and 1993 Consolidated Financial Statements to conform with the 1995 presentation. Cash and Cash Equivalents The Company considers cash on hand and deposits in banks as cash and cash equivalents for the purposes of the statements of cash flows. Accounts Receivable The Company has entered into an agreement with a factor, as further described in Note 8, whereby it sells, without recourse, certain eligible accounts receivable. The credit risk for such accounts is thereby transferred to the factor. The amounts due from the factor have been offset against advances from the factor in the accompanying balance sheets. The amounts which have been offset were $33,792 at December 30, 1995 and $9,324 at December 31, 1994. This increase in the amounts which have been offset results from a change in the agreement with the factor. Inventories Inventories are stated at the lower of cost (principally determined on a first-in, first-out basis for apparel operations and the retail inventory method on a first-in, first-out basis for outlet store operations) or market. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated or amortized over their estimated useful lives, or for leasehold improvements, the lease term, if shorter. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes.
The annual depreciation rates used are as follows: Buildings and improvements 2.5% - 10.0% Machinery, equipment and autos 6.7% - 33.3% Furniture and fixtures 10.0% - 50.0% Leasehold improvements Over the life of the asset or the term of the lease, whichever is shorter
Other Assets Intangible assets are being amortized on a straight-line basis over their respective useful lives. Costs in excess of fair value of net assets acquired, which relate to the acquisition of the net assets of Manhattan Industries, Inc. ("Manhattan") and JJ. Farmer Clothing, Inc. are assessed for recoverability on an annual basis. In evaluating the value and future benefits of these intangible assets, their carrying value would be reduced by the excess, if any, of the intangibles over management's best estimate of undiscounted future operating income of the acquired businesses before amortization of the related intangible assets over the remaining amortization period. Intangible assets are being amortized over periods ranging from 7 1/2 to 40 years. Fair Value of Financial Instruments For financial instruments, including cash and cash equivalents, accounts receivable and payable, and accruals, it was assumed that the carrying amount approximated fair value because of their short maturity. Long-term debt, which was issued at the market rate of interest, currently trades at approximately 85% of the principal amount. Income/(Loss) Per Share Income/(loss) per share is based on the weighted average number of common shares (including, as of December 30, 1995, 375,889 shares anticipated to be issued pursuant to the Reorganization Plan) and common stock equivalents outstanding, if applicable. Loss per share for 1994 did not include common stock equivalents, inasmuch as their effect would have been anti-dilutive. Revenue Recognition Revenue is recognized at the time the merchandise is shipped. Retail factory outlet store revenues are recognized at the time of sale. Accounting Changes Effective in 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," which requires the accrual method of accounting for certain of these benefits. SFAS No. 112 was adopted as a result of the implementation of a formal short term disability policy for employees. Prior to 1995, the Company recognized the cost of providing these benefits on a cash basis. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Adoption of SFAS No. 121, which is effective for years beginning after December 15, 1995, is not expected to have a material impact on the Company. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". The standard encourages, but does not require, companies to recognize compensation expense of grants for stock, stock options and other equity instruments to employees based on fair value accounting rules. SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro forma net income and earnings per share under the new method. The standard is effective for fiscal years beginning after December 15, 1995. The Company has not yet determined if it will adopt the accounting provisions of SFAS No. 123 or only the disclosure provision. However, the Company does not believe that adoption of SFAS No. 123 will have a significant effect on its results of operations. Note 2. Restructuring Costs In the fourth quarter of 1995, the Company recorded a $3,550 restructuring provision, which included (i) fixed asset write-downs at locations to be closed and (ii) inventory markdowns for discontinued product lines. In the fourth quarter of 1993, the Company recorded a $5,500 restructuring provision, of which $5,000 related to the restructuring of the Children's Apparel Group, as more fully described in Note 19. Note 3. Extraordinary Gain In the fourth quarter of 1995, the Company recorded an extraordinary gain of $1,000 related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the chapter 11 proceeding. In September 1993, the Company recorded an extraordinary gain of $24,707 consisting of (i) an extraordinary gain of $45,974 from the settlement and anticipated settlement of claims arising from the chapter 11 proceeding for less than their full amount and (ii) an extraordinary loss of $21,267 arising from the settlement of accrued interest and fees in respect of the Company's secured bank debt during the pendency of the Company's chapter 11 cases.
Note 4. Inventories December 30, December 31, 1995 1994 Finished goods $ 72,850 $ 70,882 Work-in-process 15,829 28,298 Raw materials and supplies 30,441 25,419 $119,120 $124,599
Finished goods inventory includes in transit merchandise of $6,500 at December 30, 1995 and December 31, 1994.
Note 5. Property, Plant and Equipment December 30, December 31, 1995 1994 Land and buildings $ 14,779 $ 16,808 Machinery, equipment, furniture and fixtures 40,347 40,794 Leasehold improvements 8,315 5,958 Property held under capital leases 1,345 1,345 64,786 64,905 Less accumulated depreciation and amortization 40,260 37,445 $ 24,526 $ 27,460
Note 6. Other Assets December 30, December 31, 1995 1994 Excess of cost over net assets acquired, net of accumulated amortization of $12,014 in 1995 and $10,059 in 1994 $50,641 $52,542 Trademarks and license agreements, net of accumulated amortization of $3,274 in 1995 and $2,795 in 1994 14,588 15,067 Leasehold interests, net of accumulated amortization of $965 in 1995 and $823 in 1994 1,478 1,620 Other 3,661 2,116 $70,368 $71,345
In June 1994, the Company entered into various licensing agreements for dress shirts and men's accessories using the trademarks GANT and SALTY DOG. As part of these agreements, the Company purchased inventory from the licensor, made advance royalty payments to the licensor, and is required to make future minimum royalty payments.
Note 7. Accrued Salaries, Wages and Other Liabilities December 30, December 31, 1995 1994 Accrued salaries and wages $ 3,268 $ 3,721 Accrued pension and retirement benefits 3,737 1,791 Accrued royalties 1,716 1,852 Accrued interest 3,716 3,716 Other accrued liabilities 7,960 7,768 $ 20,397 $ 18,848
Note 8. Financing and Factoring Agreements The Company entered into a revolving credit, factoring and security agreement, as amended (the "Credit Agreement"), with The CIT Group/Commercial Services, Inc. ("CIT") to provide seasonal working capital financing, including direct borrowings and letters of credit, of up to $135,000, subject to an asset based borrowing formula (the "Maximum Credit"). On March 27, 1996, the Company and CIT executed the Seventh Amendment to the Credit Agreement (the "Amendment"). The Amendment extends the term of the Credit Agreement to March 31, 1997 and provides the Company with the ability to cease factoring at September 20, 1996. The Amendment also increased the Maximum Credit to $135,000 during certain periods of 1996, which was consistent with the Maximum Credit provided in 1995. In addition, the Amendment also modified certain financial covenants relating to working capital and stockholders' equity. In the absence of the Amendment, Salant would not have been able to satisfy the stockholders' equity covenant for its 1995 fiscal year. As of December 30, 1995 and December 31, 1994, $27,500 and $4,085, respectively, was available under this facility. Interest on direct borrowings is charged monthly at an annual rate of one percent in excess of the base rate of Chemical Bank (the "Prime Rate") (8.5% at December 30, 1995). As collateral for borrowings under the Credit Agreement, the Company granted to CIT a security interest in substantially all of the assets of the Company. As of December 30, 1995 and December 31, 1994, direct borrowings were $14,422 and $23,906, respectively. As of December 30, 1995 and December 31, 1994, letters of credit outstanding under the Credit Agreement were $31,415 and $50,515, respectively. The weighted average interest rate on borrowings under the Credit Agreement for the years ended December 30, 1995 and December 31, 1994 was 9.9% and 7.8%, respectively. The Credit Agreement contains numerous financial and operating covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock of all or a substantial part of the assets of another person, selling property, incurring capital expenditures, and paying cash dividends. In addition, the Company is required to maintain minimum levels of working capital and stockholders' equity and to satisfy a ratio of total liabilities to stockholders' equity, a fixed charge coverage ratio and a maximum cumulative net loss test. At December 30, 1995, Salant was in compliance with all financial covenants, as contained in the Credit Agreement. Note 9. Long-Term Debt On September 20, 1993, Salant issued $111,851 principal amount of 10 1/2% Senior Secured Notes (the "Secured Notes") due December 31, 1998. The Secured Notes may be redeemed at any time prior to maturity, in whole or in part, at the option of the Company, at a premium to the principal amount thereof plus accrued interest. The premium on redemption declines annually from 4.2% in 1996 to 2.1% in 1997 and to 0% in 1998. The Secured Notes are secured by a first lien (subordinated to the lien securing borrowings under the Credit Agreement to the extent of $15,000) on certain accounts receivable, certain intangible assets, the capital stock of Salant's subsidiaries and certain real property of the Company, and by a second lien on substantially all of the other assets of the Company. The Secured Notes contain various restrictions pertaining to the incurrence of indebtedness, the purchase of capital stock and the payment of dividends. Under the most restrictive of these provisions, the Company currently may not purchase or redeem any shares of its capital stock, or declare or pay cash dividends. In May 1994, the Company purchased and retired $3,600 of the Secured Notes in an open market transaction at a price below the principal amount thereof. As a result of this transaction, the Company recorded an extraordinary gain of $63 in 1994. Note 10. Segment Information and Significant Customers 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. As an adjunct to its apparel manufacturing operations, the Company operates 71 factory outlet stores in various parts of the United States. Foreign operations are not significant. These products have been classified in the following industry segments: (i) men's apparel, (ii) children's sleepwear and underwear and (iii) other products, consisting of women's junior apparel and retail factory outlet store operations. Information concerning the Company's business segments in 1995, 1994 and 1993 is as follows:
1995 1994 1993 NET SALES Men's Apparel $423,894 $343,455 $323,742 Children's Sleepwear and Underwear 39,936 35,513 39,493 Other Businesses 37,692 40,317 38,863 Total net sales $501,522 $419,285 $402,098 OPERATING INCOME Men's Apparel $ 19,819 $ 17,366 $ 29,134 Children's Sleepwear and Underwear 5,184 3,119 (3,189) Other Businesses (2,205) (522) (395) 22,798 19,963 25,550 Corporate expenses (9,176) (6,171) (7,487) Licensing division income 5,623 5,680 6,378 Bankruptcy administration expenses -- -- (8,861) Interest expense, net (19,425) (15,617) (7,523) Income/(loss) from continuing operations before income taxes and extraordinary gain $ (180) $ 3,855 $ 8,057 IDENTIFIABLE ASSETS Men's Apparel $170,203 $161,751 $120,353 Children's Sleepwear and Underwear 16,349 14,273 16,656 Other Businesses 20,179 18,092 17,032 Corporate 48,989 73,100 86,680 Total identifiable assets $255,720 $267,216 $240,721 CAPITAL EXPENDITURES Men's Apparel 1,389 $ 2,629 $ 6,072 Children's Sleepwear and Underwear 492 435 212 Other Businesses 584 1,140 1,109 Corporate 1,821 722 760 Total capital expenditures $ 4,286 $ 4,926 $ 8,153 DEPRECIATION AND AMORTIZATION Men's Apparel $ 2,534 $ 2,549 $ 1,876 Children's Sleepwear and Underwear 345 311 662 Other Businesses 514 473 481 Corporate 4,298 4,156 4,794 Total depreciation and amortization $ 7,691 $ 7,489 $ 7,813
Approximately 12% of the Company's net sales in the year ended December 30, 1995 were made to Federated Department Stores, Inc. ("Federated") which includes all 1995 net sales to The Broadway Stores, Inc., ("Broadway") which was acquired by Federated in February 1996. In 1994 and 1993, net sales to Federated, including all net sales to Broadway and to Macy's Department Stores ("Macy's"), which was acquired by Federated in 1994, represented approximately 15% and 12% of the Company's net sales, respectively. In 1995, approximately 11% of the Company's net sales were made to TJX Corporation ("TJX"), which includes all 1995 net sales to Marshall's Corporation ("Marshall's"), which was acquired by TJX in February 1996. In 1994 and 1993, net sales to TJX, including all net sales to Marshall's, represented approximately 11% and 12% of the Company's net sales, respectively. In 1995, approximately 13% of the Children's Group's net sales were made to various divisions of the Dayton Hudson Corporation. In addition, in 1995 approximately 16% of the Children's Group net sales were equally divided between two customers: JC Penney Company and WalMart Stores, Inc. In 1995, approximately 19% of the net sales of Other Businesses were made to JC Penney Company. No other customer accounted for more than 10% of the Company's net sales during 1995, 1994 or 1993. Note 11. Income Taxes The provision for income taxes consists of the following:
December 30, December 31, January 1, 1995 1994 1994 Current: Federal $ 100 $ 100 $ -- State -- 20 32 Foreign 218 228 209 $ 318 $ 348 $ 241
The following is a reconciliation of the tax provision/(benefit) at the statutory Federal income tax rate to the actual income tax provision:
1995 1994 1993 Income tax provision/(benefit), at 34% $ (61) $ 1,097 $ 2,543 Loss producing no current tax benefit 61 Utilization of net operating loss carryforward (1,097) (2,543) Alternative minimum tax 100 100 State, local and foreign taxes 218 248 241 Income tax provision $ 318 $ 348 $ 241
The adoption of SFAS No. 109, as of January 3, 1993, had no cumulative effect on earnings or effect on income tax expense for the year ended January 1, 1994, as the Company recognized a net deferred tax asset of $64,364, offset in full by a valuation allowance as of the date of adoption. The tax effects of significant items comprising the Company's net deferred tax asset consists of the following:
December 30, December 31, 1995 1994 Deferred tax liabilities: Differences between book and tax basis of property $ (6,253) $ (6,090) Deferred tax assets: Reserves not currently deductible 17,155 16,862 Operating loss carryforwards 43,182 43,873 Tax credit carryforwards 3,055 2,992 Expenses capitalized into inventory 4,959 5,857 68,351 69,584 Net deferred asset 62,098 63,494 Valuation allowance (62,098) (63,494) Net deferred tax asset $ -- $ --
At December 30, 1995, the Company had net operating loss carryforwards ("NOLs") for income tax purposes of approximately $105,000, which can be used to offset future taxable income, expiring from 1999 to the year 2008. Approximately $51,000, which arose from the acquisition of Manhattan in April 1988, will offset goodwill when utilized. The implementation of the Reorganization Plan and transactions that have occurred within the three-year period preceding the consummation of the Reorganization Plan have caused an "ownership change" for federal income tax purposes as of the date the Reorganization Plan was consummated. As a result of such ownership change, the use of the NOLs to offset future taxable income has been limited by the requirements of section 382 of the Internal Revenue Code of 1986, as amended. The annual limit under section 382 is approximately $7,200 over a fifteen year carryover period. Upon consummation of the Reorganization Plan, the Company realized cancellation of indebtedness income of approximately $917 and the NOLs have been reduced or limited accordingly. In addition, at December 30, 1995, the Company had available investment tax and other credits of $3,092 which expire between 1996 and 1999, of which $1,986 will reduce goodwill and the balance will reduce income tax expense when utilized. Utilization of these credits may be limited in the same manner as the NOLs, as described above. On the Filing Date, the Internal Revenue Service of the United States of America (the "IRS") was in the process of examining the tax returns of Manhattan for the years ended January 31, 1982 through January 31, 1986 and January 31, 1988. By proof of claim, as amended, the IRS had asserted a claim (the "IRS Claim") against Salant of approximately $5,200. The IRS Claim included approximately $3,200 of Excise Taxes. Pursuant to an interim agreement and formal written agreement, which was approved by the Bankruptcy Court on May 26, 1995, Salant will pay $100 to the IRS in full settlement of such Excise Tax claims. The balance of the IRS Claim sought the payment of (i) income taxes that were claimed to be owing for prior tax periods; (ii) withholding and FICA taxes for the tax period ended March 31, 1990; (iii) interest and penalties with respect to those taxes; and (iv) FUTA taxes for the period from January 1 through June 27, 1990. On September 25, 1995, Salant and the IRS executed a final agreement relating to such non-Excise Taxes. Pursuant to this agreement, the IRS Claim was withdrawn, and the IRS will pay Salant a net refund of approximately $875, plus net interest from June 1, 1995. Note 12. Employee Benefit Plans Pension and Retirement Plans The Company has several defined benefit plans for virtually all full-time salaried employees and certain nonunion hourly employees. The Company's funding policy for its plans is to fund the minimum annual contribution required by applicable regulations. The Company also has a nonqualified supplemental retirement and death benefit plan covering certain employees. The funding for this plan is based on premium costs of related insurance contracts. Pension expense includes the following components:
1995 1994 1993 Service cost-benefit earned during the period $ 1,029 $ 1,125 $ 1,183 Interest cost on projected benefit obligation 2,714 2,626 2,555 Loss/(return) on assets (4,697) 1,331 (2,008) Net amortization 2,286 (3,437) 169 Net periodic pension cost $ 1,332 $ 1,645 $ 1,899
The reconciliation of the funded status of the plans at December 30, 1995 and December 31, 1994 is as follows:
December 30, December 31, 1995 1994 Accumulated Accumulated Plan Plan Benefits Benefits Exceed Exceed Plan Assets Plan Assets Actuarial present value of benefit obligation Vested benefit obligation $ (36,211) $ (28,645) Nonvested benefit obligation (597) (838) Accumulated benefit obligation $ (36,808) $ (29,483) Projected benefit obligation $ (40,833) $ (33,579) Plan assets at fair value 30,900 25,947 Projected benefit obligation in excess of plan assets (9,933) (7,632) Unrecognized net obligation at date of initial application, amortized over 15 years 810 897 Unrecognized net loss 4,616 784 Unrecognized prior service cost (1,176) (739) Recognition of minimum liability under SFAS No. 87 (2,524) (1,160) Accrued pension cost $ (8,207) $ (7,850)
Assumptions used in accounting for defined benefit pension plans are as follows:
1995 1995 1994 1994 1993 1993 Non- Qualified Non- Qualified Non- Qualified Qualified Plans Qualified Plans Qualified Plans Plan Plan Plan Discount rate 7.0% 7.0% 8.5% 8.5% 7.5% 7.5% Rate of increase in compensation levels N/A 5.0% N/A 5.5% N/A 5.5% Expected long-term rate of return on assets 8.0% 8.5% 8.0% 8.0% 12.0% 8.0%
Assets of the Company's qualified plans are invested in directed trusts. Assets in the directed trusts are invested in common and preferred stocks, corporate bonds, money market funds and U.S. government obligations. The nonqualified supplemental plan assets consist of the cash surrender value of certain insurance contracts. The Company also contributes to certain union retirement and insurance funds established to provide retirement benefits and group life, health and accident insurance for eligible employees. The total cost of these contributions was $4,263, $4,693, and $5,060 in 1995, 1994 and 1993, respectively. The actuarial present value of accumulated plan benefits and net assets available for benefits for employees in the union administered plans are not determinable from information available to the Company. Long Term Savings and Investment Plan Salant sponsors the Long Term Savings and Investment Plan, under which eligible salaried employees may contribute up to 15% of their annual compensation, subject to certain limitations, to a money market fund, a fixed income fund and/or an equity fund. Salant contributes a minimum matching amount of 20% of the first 6% of a participant's annual compensation and may contribute an additional discretionary amount in cash or in the Company's common stock. In 1995, 1994 and 1993 Salant's aggregate contributions to the Long Term Savings and Investment Plan amounted to $239, $239 and $208, respectively. Note 13. Stock Options, Warrants and Shareholder Rights On September 20, 1993, pursuant to the Reorganization Plan, the Company adopted the 1993 Stock Plan under which directors receive an automatic grant of stock options pursuant to a formula contained in such plan and options or awards may be granted to key employees of the Company for the purchase of an aggregate of 600,000 shares of the Company's common stock. The 1988 and 1987 Stock Plans authorized the Company to grant stock options or stock awards aggregating 1,200,000 shares of Salant common stock to officers, key employees and, in the case of the 1988 Stock Plan, directors. The 1993, 1988 and 1987 Stock Plans authorized such grants (subject to certain restrictions applicable to 1993 Stock Plan stock options granted to directors) at such prices and pursuant to such other terms and conditions as the Stock Plan Committee may determine. Options may be nonqualified stock options or incentive stock options and may include stock appreciation rights. Exercise prices of options are ordinarily equal to 100% of the fair market value of the Company's shares on the date of grant of the options. Options expire no later than ten years from the date of grant and become exercisable in varying amounts over periods ranging from the date of grant to five years from the date of grant. The following table summarizes stock option transactions during 1993, 1994 and 1995:
Shares Price Range Options outstanding at January 2, 1993 1,050,240 $1.00-15.125 Options granted during 1993 392,000 $6.69-10.69 Options exercised during 1993 (24,095) $1.00-5.875 Options surrendered or canceled during 1993 (55,371) $2.25-12.875 Options outstanding at January 1, 1994 1,362,774 $1.00-15.125 Options granted during 1994 61,050 $4.94-6.69 Options exercised during 1994 (226,666) $2.00-2.63 Options surrendered or canceled during 1994 (39,950) $5.125-12.00 Options outstanding at December 31, 1994 1,157,208 $1.00-15.125 Options granted during 1995 205,300 $3.3125-5.1875 Options exercised during 1995 (33,334) $2.625 Options surrendered or canceled during 1995 (65,601) $3.00-12.00 Options outstanding at December 30, 1995 1,263,573 $1.00-15.125 Options exercisable at December 30, 1995 904,209 $1.00-15.125 Options exercisable at December 31, 1994 809,672 $1.00-15.125
At December 30, 1995, there were 176,342 shares of Salant common stock reserved for future grants of stock options or stock awards. Pursuant to the Reorganization Plan, the Company issued 2,371,182 Salant B Warrants (the "Warrants") to holders of the Company's common stock immediately prior to the consummation date. Each Warrant expires three years from the date of issuance and entitles the registered holder thereof to purchase one share of common stock of the Company at prices of $16 during the first year after issuance, $18 during the second year after issuance and $20 thereafter. No Warrants were exercised in 1993, 1994, or 1995. The Company has a shareholder rights plan (the "Rights Plan"), which provides for a dividend distribution of one right for each share of Salant common stock to holders of record at the close of business on December 23, 1987. The rights will expire on December 23, 1997. With certain exceptions, the rights will become exercisable only in the event that an acquiring party accumulates 20 percent or more of the Company's voting stock, or if a party announces an offer to acquire 30 percent or more of such voting stock. Each right, when exercisable, will entitle the holder to buy one one-hundredth of a share of a new series of cumulative preferred stock at a price of $30 per right or upon the occurrence of certain events, to purchase either Salant common stock or shares in an "acquiring entity" at half the market value thereof. The Company will generally be entitled to redeem the rights at three cents per right at any time until the 10th day following the acquisition of a 20 percent position in its voting stock. In July 1993, the Rights Plan was amended to provide that an acquisition or offer by Apollo Apparel Partners, L.P., or any of its subsidiaries, will not cause the rights to become exercisable. In summary, as of December 30, 1995, there were 1,263,573 shares of Common Stock reserved for the exercise of stock options, 176,342 shares of Common Stock reserved for future grants of stock options or awards and 2,371,182 shares of Common Stock reserved for the Warrants, for a total of 3,811,097 shares of Common Stock reserved for the future issuance of stock options, stock awards and warrants. Note 14. Deferred Liabilities
December 30, December 31, 1995 1994 Lease obligations $ 1,206 $ 1,225 Deferred pension obligations 5,087 6,253 Liability for chapter 11 claims settlements 4,600 6,001 Other 480 -- $ 11,373 $ 13,479
Note 15. Commitments and Contingencies (a) Lease Commitments The Company conducts a portion of its operations in premises occupied under leases expiring at various dates through 2012. Certain of the leases contain renewal options. Rental payments under certain leases may be adjusted for increases in taxes and operating expenses above specified amounts. In addition, certain of the leases for outlet stores contain provisions for additional rent based upon sales. In 1995, 1994 and 1993, rental expense was $7,265, $5,914 and $5,478, respectively. As of December 30, 1995, future minimum rental payments under noncancelable operating leases (exclusive of renewal options, percentage rentals, and adjustments for property taxes and operating expenses) were as follows:
Fiscal Year 1996 $6,759 1997 5,584 1998 5,113 1999 3,989 2000 2,328 Thereafter 11,001 Total $34,774
(b) Employment Agreements The Company has employment agreements with certain executives, which provide for the payment of compensation aggregating approximately $4,742 in 1996, $1,070 in 1997 and $250 in 1998. In addition, such employment agreements provide for incentive compensation based on various performance criteria. Note 16. Acquisition On June 10, 1994, the Company acquired all the capital stock of JJ. Farmer Clothing Inc. (a Canadian corporation) and the assets of JJ. Farmer International Limited (a Hong Kong corporation) (collectively "JJ. Farmer") for approximately $5,311 in cash. The purchase price is subject to adjustment based on a number of items, including the future profitability of JJ. Farmer. Through December 30, 1995, the Company made additional payments of $463. The acquisition has been accounted for as a purchase, and accordingly, JJ. Farmer's operating results have been included in the Company's consolidated results of operations commencing June 11, 1994. Pro forma results of operations have not been presented as the effect would not be significant. JJ. Farmer's net sales for the five months ended May 31, 1994 and the twelve months ended December 31, 1993 were $3,392 and $13,104, respectively. The excess of cost over the book value of net assets acquired ($4,589 subject to adjustment) is being amortized over a period of not more than 15 years on a straight-line basis. As part of the acquisition, the Company agreed to pay to the sellers of JJ. Farmer, certain minimum amounts in the years 1996 through 1999. The present value of such future payments is $1,789, and is included in long-term debt. Note 17. Discontinued Operations In February 1995, the Company discontinued the operations of the Vera Scarf division, which imported and marketed women's scarves. The loss from operations of the division in 1994 was $9,639, which included a fourth quarter charge of $9,004 for the write-off of goodwill and other intangible assets. The loss from operations of the division in 1993 was $589. Additionally, in 1994 the Company recorded a fourth quarter charge of $1,796 to accrue for expected operating losses during the phase-out period through June 1995. No income tax benefits have been allocated to the division's 1994 or 1993 losses. Such losses are included in the Company's net operating loss carryforward disclosed in Note 11. Net sales of the division were $1,673, $5,087, and $5,138 in 1995, 1994, and 1993 respectively. The net assets and/or net liabilities of the discontinued operations have been reclassified on the balance sheets as net assets or net liabilities of discontinued operations, and consist principally of accounts receivable, inventory and accrued losses for the phase-out period. Note 18. Consummation of the Plan of Reorganization From the Consummation Date through December 30, 1995, pursuant to the Reorganization Plan, the Company made cash payments of $8,800, issued $111,851 of new 10-1/2% senior secured notes and issued 10.9 million shares of common stock to creditors in settlement of certain claims in the chapter 11 proceedings. Salant anticipates that an additional $4,761 in cash and an additional 376 thousand shares of common stock ultimately will have been distributed to creditors by the time all remaining claims have been resolved. Provisions for such distributions had previously been made in the consolidated financial statements. As further described in Note 3, upon consummation of the Reorganization Plan, the Company recorded an extraordinary gain of $24,707 relating to the settlement of indebtedness pursuant to the Reorganization Plan. Note 19. Discontinued Operations Subsequently Retained In March 1993, the Company adopted a formal plan to restructure and sell its Children's Apparel Group. Consequently, the division was accounted for as a discontinued operation for 1992 and the first three quarters of 1993. In March 1994, the Company concluded that the value of the division would be maximized by retaining the Children's Apparel Group as part of its continuing operations. As a result, the assets, liabilities and results of operations for all periods presented have been presented as part of continuing operations. In the fourth quarter of 1993, a previous estimated loss on disposal charge was reversed in its entirety and the Company recorded a provision of $5,000 for restructuring costs, including (i) the costs of closure of certain unprofitable product lines, (ii) inventory markdowns associated with those product lines, and (iii) fixed asset write-downs at closed locations. Note 20. Quarterly Financial Information (Unaudited)
Fiscal year ended December 30, 1995 Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $501,522 $127,347 $148,313 $122,061 $103,801 Gross profit 103,892 23,152 33,752 24,521 22,467 Income/(loss) from continuing operations (498) (5,509) 6,318 392 (1,699) Extraordinary gain (See note 3) 1,000 1,000 -- -- -- Net income/(loss) 502 (4,509) 6,318 392 (1,699) Income/(loss) per share from continuing operations (a) $ (0.03) $ (0.36) $ 0.42 $ 0.03 $ (0.11) Income per share from extraordinary gain 0.06 0.06 -- -- -- Net income/(loss) per share (a) 0.03 (0.30) 0.42 0.03 (0.11)
Fiscal year ended December 31, 1994
Total 4th Qtr.3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $419,285 $115,840 $125,403 $ 88,184 $ 89,858 Gross profit 93,226 22,662 29,591 18,867 22,106 Income/(loss) from continuing operations 3,507 (1,251) 6,119 (2,521) 1,160 Discontinued operations: Income/(loss) from discontinued operations (9,639) (9,325) (21) (219) (74) Estimated loss on disposal (1,796) (1,796) -- -- -- Extraordinary gain 63 -- -- 63 -- Net income/(loss) (7,865) (12,372) 6,098 (2,677) 1,086 Income/(loss) per share from continuing operations (a) $ 0.23 $ (0.08) $ 0.40 $ (0.17) $ 0.07 Loss per share from discontinued operations (a) (0.76) (0.74) -- (0.01) -- Net income/(loss) per share (a) (0.53) (0.82) 0.40 (0.18) 0.07
Reference is made to Notes 2, 3 and 17 concerning fourth quarter adjustments during the years ended December 30, 1995 and December 31, 1994. (a) Income/(loss) per share of common stock is computed separately for each period. The sum of the amounts of income/(loss) per share reported in each period differs from the total for the year due to the issuance of shares and, when appropriate, the inclusion of common stock equivalents. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference from the Proxy Statement of Salant Corporation. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Proxy Statement of Salant Corporation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the Proxy Statement of Salant Corporation. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the Proxy Statement of Salant Corporation. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K Financial Statements The following financial statements are included in Item 8 of this Annual Report: Independent Auditors' Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity/(Deficiency) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Financial Statement Schedule The following Financial Statement Schedule for the years ended December 30, 1995, December 31, 1994, and January 1, 1994 is filed as part of this Annual Report: Schedule II - Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are inapplicable or not required, or the information is included elsewhere in the financial statements or notes thereto. SALANT CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (1) (2) Balance at Charged to Charged to Balance Beginning Costs and Other Accounts Deductions at End Description of Period Expenses -- Describe -- Describe of Period YEAR ENDED DECEMBER 30, 1995: Accounts receivable - allowance for doubtful accounts $2,565 $1,510 $ -- $1,068 (A) $3,007 Reserve for business restructuring $ -- $3,550 $ -- $1,981 (B) $1,569 YEAR ENDED DECEMBER 31, 1994: Accounts receivable - allowance for doubtful accounts $2,261 $1,068 $ -- $ 764 (A) $2,565 Reserve for business restructuring $2,038 $2,038 $ -- $ -- $ -- YEAR ENDED JANUARY 1, 1994: Accounts receivable allowance for doubtful accounts $3,776 $ 63 $ -- $1,578 (A) $2,261 Reserve for business restructuring $5,931 $5,500 $ -- $9,393 (B) $2,038 Reserve for loss on disposal of discontinued operations $11,772 $ -- $ -- $11,722 (C) $ --
NOTES: (A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in plant closings and business restructuring. (C) Reversal of estimated loss on disposal of discontinued operation. Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended December 30, 1995. Exhibits Incorporation Number Description By Reference To
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated July 28, 1993. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. July 28, 1993. 3.2 Form of Bylaws, as amended, of Salant Corporation, effective September 21, 1994. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior October 2, 1993. Secured Notes due December 31, 1998. 4.4 Warrant Agreement, dated Exhibit 10.35 to as of September 20, 1993, Quarterly Report on between Salant Corporation Form 10-Q for the and Bankers Trust Company, quarter ended October 2, 1993. as Warrant Agent. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of June 13, Registration Statement filed 1988, between Nicholas P. DiPaolo June 17, 1988. and Salant Corporation. 10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.5 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. ended September 30, 1989. 10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.7 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.8 Employment Agreement, dated as of Exhibit 19.4 to December 31, 1990, between Herbert Annual Report on R. Aronson and Salant Corporation. * Form 10-K for fiscal year 1990. 10.9 Letter Agreement, dated Exhibit 19.1 to Quarterly June 20, 1992, amending the Report on Form 10-Q for Employment Agreement, dated as of the quarter ended October 3, 1992. December 31, 1990, between Herbert R. Aronson and Salant Corporation. * 10.10 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.11 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.12 Employment Agreement, Exhibit 10.32 to dated as of June 1, 1993, Quarterly Report on between Todd Kahn Form 10-Q for the and Salant Corporation. * quarter ended July 8, 1993. 10.13 Employment Agreement, dated Exhibit 10.36 to as of September 20, 1993, between Quarterly Report on Nicholas P. DiPaolo and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.14 Employment Agreement, dated Exhibit 10.38 to as of July 30, 1993, between Quarterly Report on Richard P. Randall and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.15 Employment Agreement, dated Exhibit 10.32 to Annual Report on as of December 21, 1993, between Form 10-K for Fiscal Year 1993. Elliot M. Lavigne and Salant Corporation. * 10.16 Agreement, dated as of Exhibit 10.33 to Annual Report on September 22, 1993, between Nicholas Form 10-K for Fiscal Year 1993. P. DiPaolo and Salant Corporation. * 10.17 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.18 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.19 Letter Agreement, dated Exhibit 10.46 to October 18, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the December 31, 1990, between Herbert quarter ended October 1, 1994. R. Aronson and Salant Corporation. * 10.20 Letter Agreement, dated Exhibit 10.47 to October 25, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the July 30, 1993, between Richard quarter ended October 1, 1994. Randall and Salant Corporation. * 10.21 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on dated February 28, 1995, to the Form 8-K, dated March 2, 1995. Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.22 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.23 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.24 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on and Investment Plan as amended Form 10-K for Fiscal Year 1994. and restated. * 10.25 Letter Agreement, dated Exhibit 10.26 to Annual Report on February 15, 1995, amending the Form 10-K for Fiscal Year 1994. Employment Agreement, dated July 30, 1993, between Richard Randall and Salant Corporation. * 10.26 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.27 Letter Agreement, dated April 12, Exhibit 10.28 to 1995, amending the Employment Quarterly Report Agreement, dated June 1, 1993, on Form l0-Q for between Todd Kahn and Salant the quarter Corporation. * ended April 1, 1995. 10.28 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.29 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.30 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.31 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.32 Letter Agreement, dated as of Exhibit 10.33 to August 31, 1995, amending the Quarterly Report Employment Agreement, dated on Form l0-Q for September 20, 1993, between the quarter Nicholas P. DiPaolo and ended September Salant Corporation. * 30, 1995. 10.33 Letter Agreement, dated December 1, 1995, between Lubin, Delano & Company and Salant Corporation. 10.34 Seventh Amendment to Credit Agreement, dated as of March 27, 1996, to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 21 List of Subsidiaries of the Company 27 Financial Data Schedule
* constitutes a management contract or compensatory plan or arrangement. Incorporation Number Description By Reference To SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 1996 By: /s/ Richard P. Randall Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on March 22, 1996.
Signature Title /s/ Nicholas P. DiPaolo Chairman of the Board, Nicholas P. DiPaolo President and Chief Executive Officer (Principal Executive Officer); Director /s/ Michael A. Lubin Executive Vice President and Michael A. Lubin Chief Operating Officer /s/ Richard P. Randall Senior Vice President Richard P. Randall and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Craig M. Cogut Craig M. Cogut Director /s/ Ann Dibble Jordan Ann Dibble Jordan Director /s/ Robert Katz Robert Katz Director /s/ Harold Leppo Harold Leppo Director /s/ Bruce F. Roberts Bruce F. Roberts Director /s/ John S. Rodgers John S. Rodgers Director /s/ Marvin Schiller Marvin Schiller Director /s/ Edward M. Yorke Edward M. Yorke Director
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS to FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995 SALANT CORPORATION EXHIBIT INDEX Incorporation Number Description By Reference To
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated July 28, 1993. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. July 28, 1993. 3.2 Form of Bylaws, as amended, of Salant Corporation, effective September 21, 1994. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987 Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior October 2, 1993. Secured Notes due December 31, 1998. 4.4 Warrant Agreement, dated Exhibit 10.35 to as of September 20, 1993, Quarterly Report on between Salant Corporation Form 10-Q for the and Bankers Trust Company, quarter ended October 2, 1993. as Warrant Agent. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of June 13, 1988, Registration Statement filed between Nicholas P. DiPaolo and June 17, 1988. Salant Corporation. 10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.5 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. ended September 30, 1989. 10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.7 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.8 Employment Agreement, dated as of Exhibit 19.4 to December 31, 1990, between Herbert Annual Report on R. Aronson and Salant Corporation. * Form 10-K for fiscal year 1990. 10.9 Letter Agreement, dated Exhibit 19.1 to Quarterly June 20, 1992, amending the Report on Form 10-Q for Employment Agreement, dated as of the quarter ended October 3, 1992. December 31, 1990, between Herbert R. Aronson and Salant Corporation. * 10.10 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.11 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.12 Employment Agreement, Exhibit 10.32 to dated as of June 1, 1993, Quarterly Report on between Todd Kahn and Form 10-Q for the Salant Corporation. * quarter ended July 8, 1993. 10.13 Employment Agreement, dated Exhibit 10.36 to as of September 20, 1993, between Quarterly Report on Nicholas P. DiPaolo and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.14 Employment Agreement, dated Exhibit 10.38 to as of July 30, 1993, between Quarterly Report on Richard P. Randall and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.15 Employment Agreement, dated Exhibit 10.32 to Annual Report on as of December 21, 1993, between Form 10-K for Fiscal Year 1993. Elliot M. Lavigne and Salant Corporation. * 10.16 Agreement, dated as of Exhibit 10.33 to Annual Report on September 22, 1993, between Nicholas Form 10-K for Fiscal Year 1993. P. DiPaolo and Salant Corporation. * 10.17 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.18 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.19 Letter Agreement, dated Exhibit 10.46 to October 18, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the December 31, 1990, between Herbert quarter ended October 1, 1994. R. Aronson and Salant Corporation. * 10.20 Letter Agreement, dated Exhibit 10.47 to October 25, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the July 30, 1993, between Richard quarter ended October 1, 1994. Randall and Salant Corporation. * 10.21 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on dated February 28, 1995, to the Form 8-K, dated March 2, 1995. Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.22 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.23 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.24 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on and Investment Plan as amended Form 10-K for Fiscal Year 1994. and restated. * 10.25 Letter Agreement, dated Exhibit 10.26 to Annual Report on February 15, 1995, amending the Form 10-K for Fiscal Year 1994. Employment Agreement, dated July 30, 1993, between Richard Randall and Salant Corporation. * 10.26 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.27 Letter Agreement, dated April 12, Exhibit 10.28 to 1995, amending the Employment Quarterly Report Agreement, dated June 1, 1993, on Form l0-Q for between Todd Kahn and Salant the quarter Corporation. * ended April 1, 1995. 10.28 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.29 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.30 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.31 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.32 Letter Agreement, dated as of Exhibit 10.33 to August 31, 1995, amending the Quarterly Report Employment Agreement, dated on Form l0-Q for September 20, 1993, between the quarter Nicholas P. DiPaolo and ended September Salant Corporation. * 30, 1995. 10.33 Letter Agreement, dated December 1, 1995, between Lubin, Delano & Company and Salant Corporation. 10.34 Seventh Amendment to Credit Agreement, dated as of March 27, 1996, to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 21 List of Subsidiaries of the Company 27 Financial Data Schedule
* constitutes a management contract or compensatory plan or arrangement. EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Birdhill, Limited, a Hong Kong corporation Carrizo Manufacturing Co., S.A. de C.V., a Mexican corporation Clantexport, Inc., a New York corporation Denton Mills, Inc., a Delaware corporation JJ. Farmer Clothing, Inc., a Canadian corporation Frost Bros. Enterprises, Inc., a Texas corporation Manhattan Industries, Inc., a Delaware corporation Manhattan Industries, Inc., a New York corporation Manhattan Industries (Far East) Limited, a Hong Kong corporation Maquiladora Sur S.A. de C.V., a Mexican corporation Salant Canada, Inc., a Canadian corporation SLT Sourcing, Inc., a New York corporation Vera Licensing, Inc., a Nevada corporation Vera Linen Manufacturing, Inc., a Delaware corporation EX-1 2 SEVENTH AMENDMENT TO CREDIT AGREEMENT SEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of March 27, 1996 (this "Amendment"), to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended by letter agreement Re: Amendment to Credit Agreement with respect to the Mississippi Property, dated June 14, 1994 (the "First Amendment") and by letter agreement Re: Amendment to Credit Agreement with respect to Additional Guarantors, dated August 24, 1994 (the "Second Amendment"), and by the Third Amendment to Credit Agreement, dated as of February 28, 1995 (the "Third Amendment"), and by the Fourth Amendment to Credit Agreement, dated as of March 1, 1995 (the "Fourth Amendment"), and by the Fifth Amendment to Credit Agreement, dated as of June 28, 1995 (the "Fifth Amendment") and by the Sixth Amendment to Credit Agreement, dated as of August 15, 1995 (the "Sixth Amendment") (as so amended, and as further amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), between THE CIT GROUP/COMMERCIAL SERVICES, INC. ("Lender") and SALANT CORPORATION ("Borrower"). W I T N E S S E T H : WHEREAS, Lender and Borrower are parties to the Credit Agreement; WHEREAS, Borrower has requested Lender to amend the Credit Agreement to increase the Maximum Credit and the Revolving Loan Limit as defined therein and to amend certain financial covenants set forth therein; and WHEREAS, Lender is willing to make such amendments to the Credit Agreement upon the terms and subject to the conditions set forth in this Amendment; NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree, effective as of the Effective Date, as defined below, as follows: 1. Defined Terms. Initially capitalized terms used and not otherwise defined herein shall have their respective meanings as defined in the Credit Agreement. 2. Amendment of Section 3.1(a) (iii). Section 3.1(a) (iii) of the Credit Agreement is amended in its --------------------------------- entirety to read as follows: "(iii) Fifty percent (50%) of the value of Eligible Inventory, provided, however, that solely for, and at all times during the months of May, June, July and August of 1996, such advance rate shall be sixty percent (60%) of the value of Eligible Inventory." 3. Amendment of Section 3.1(c). Section 3.1(c) of the Credit Agreement is amended in its entirety to read --------------------------- as follows: "(c) Notwithstanding anything to the contrary contained herein or in any of the other Financing Agreements, except in Lender's discretion, the aggregate unpaid principal amount of Revolving Loans outstanding at any time based on the value of all Eligible Inventory shall not exceed $60,000,000 (the "Inventory Sublimit"), provided, however, that solely for, and at all times during, the months of May, June, July and August of 1996, the Inventory Sublimit may equal but shall not exceed $70,000,000. On or before September 10, 1996, Borrower shall pay in full to Lender that portion of the Revolving Loans which is equal to the difference (such amount, the "Inventory Overadvance") between: (i) the aggregate amount of Revolving Loans then outstanding with respect to Eligible Inventory, and (ii) the lesser of: (A) the maximum amount of Revolving Loans with respect to Eligible Inventory to which Borrower is entitled on September 1, 1996, based on an advance rate of fifty percent (50%) of the value of Eligible Inventory, and (B) the Inventory Sublimit as in effect on September 1, 1996. Borrower's failure to pay the Inventory Overadvance in full on or before September 10, 1996, shall constitute an Event of Default under Section 8.1(a) of this Agreement." 4. Amendment of Section 3.3. Section 3.3 of the Credit Agreement is amended in its entirety to read as follows: "3.3 Maximum Credit The aggregate principal amount of the Revolving Loans and Letter of Credit Accommodations at any time outstanding shall not exceed $120,000,000, provided, however, that solely for, and at all times during, the months of March, April, May, June, July, August, September and October of 1996, such outstanding amount shall not exceed the amount set forth opposite each such month and provided, further, however, that during the first twenty (20) days of each month, the Maximum Credit may equal but shall not exceed the higher of (i) the Maximum Credit on the last day of the immediately preceding month or (ii) the amount set forth below opposite such month:
Month (1996) Amount March $132,000,000 April $135,000,000 May $130,000,000 June $132,000,000 July $130,000,000 August $135,000,000 September $135,000,000 October $130,000,000
Notwithstanding anything to the contrary contained herein, the Maximum Credit as of November 21, 1996 and thereafter shall not exceed $120,000,000." 5. Amendment of Section 3.6(k). The first sentence of Section 3.6(k) of the Credit Agreement is amended in its entirety to read as follows: "From and after September 30, 1996, Borrower shall have the right to cease factoring the Accounts of any of its divisions or other operating units upon not less than sixty (60) days prior written notice to Lender, provided, however, that (x) all Accounts shall at all times constitute security for all Obligations and (y) if Borrower delivers a notice to Lender in accordance with this Section 3.6(k) that Borrower will cease any and all further factoring of its Accounts, the exercise of such right shall be subject to Borrower's executing and delivering to Lender all such documents as Lender shall reasonably request in connection therewith." 6. Amendment of Section 7.18. Section 7.18 of the Credit Agreement is amended in its entirety to read as follows: "7.18 Working Capital Borrower shall not at the end of any fiscal month permit its consolidated working capital to be less than $80,000,000 during the period from the Consummation Date through the day before the last day of its 1993 fiscal year, and $85,000,000 during the period from the last day of its 1993 fiscal year through the day before the last day of its 1996 fiscal year, and $90,000,000 thereafter." 7. Amendment of Section 7.19. Section 7.19 of the Credit Agreement is amended in its entirety to read as follows: "7.19 Stockholders' Equity Borrower shall not permit its consolidated stockholders' equity to be less than $55,000,000 at any time during the period from the Consummation Date through the day before the last day of its 1993 fiscal year, $60,000,000 at any time during the period from the last day of its 1993 fiscal year through the day before the last day of its 1996 fiscal year, and $70,000,000 thereafter. Notwithstanding anything to the contrary contained herein, write-offs for goodwill, restructuring expense or other unusual or non-recurring expense arising during Borrower's 1996 fiscal year in connection with or pursuant to a restructuring and which Borrower would otherwise be required to include in the determination of Borrower's consolidated stockholders' equity, shall, in an aggregate amount not to exceed $5,000,000, be excluded from such determination of Borrower's consolidated stockholders' equity from and after December 28, 1996." 8. Amendment of Section 7.21. Section 7.21 of the Credit Agreement is amended in its entirety to read as follows: "7.21 Fixed Charge Coverage Ratio Borrower shall not permit the ratio of (a) the sum of (i) the consolidated net income (including royalty income) from continuing operations (excluding any unusual or non-recurring items of income or expense) before interest and taxes of Borrower and its Subsidiaries during any computation period and (ii) the consolidated depreciation and amortization expenses of Borrower and its Subsidiaries for such computation period to (b) the sum of (I) the consolidated interest expense (including all imputed interest on capital lease obligations) of Borrower and its Subsidiaries and (II) the aggregate amount of all scheduled repayments of Indebtedness (other than the Obligations) by Borrower and its Subsidiaries during the computation period, to be less than 1.5:1.0 at the end of its 1993, 1994, 1995 and 1996 fiscal years." 9. Amendment of Section 10.1(a). Section 10.1(a) of the Credit Agreement is amended in its entirety to read as follows: "10.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date hereof and shall continue in full force and effect for a term ending on March 31, 1997 (the "Renewal Date") and from year to year thereafter, unless sooner terminated pursuant to the terms hereof." 10. Representations and Warranties. Borrower hereby represents and warrants to Lender that the representations and warranties set forth in Section 6 of the Credit Agreement are true on and as of the date hereof as if made on and as of the date hereof after giving effect to this Amendment, except to the extent any such representation or warranty expressly relates to a prior date, and breach of any of the representations and warranties made in this paragraph 8 shall constitute an Event of Default under Section 8.1(b) or 8.1(c) of the Credit Agreement, as applicable. Borrower further represents and warrants that, after giving effect to this Amendment, no Event of Default or event which, with the lapse of time or the giving of notice or both, would become an Event of Default has occurred and is continuing. 11. Effectiveness. This Amendment shall become effective on the date (the "Effective Date") Lender shall have received each of the following: a. The written consent of all Participants to the execution and delivery of this Amendment by Lender. b. Counterparts of this Amendment, duly executed and delivered by Borrower and Lender. c. A duly executed copy of the Consent of Guarantors substantially in the form of Exhibit A hereto. 12. Continuing Effect of Credit Agreement. This Amendment shall not constitute a waiver or amendment of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as a consent to any further or future action on the part of Borrower that would require consent of Lender. Except as expressly amended, the provisions of the Credit Agreement are and shall remain in full force and effect. 13. Counterparts. This Amendment may be executed in counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 14. Governing Law. This Amendment shall be governed by, and construed and interpreted in accordance with,the laws of the state of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. THE CIT GROUP/COMMERCIAL SERVICES, INC. By: Title: SALANT CORPORATION By: Title: EXHIBIT A CONSENT OF GUARANTORS Each of the undersigned, CLANTEXPORT, INC., DENTON MILLS, INC., FROST BROS. ENTERPRISES, INC., SLT SOURCING, INC., each a Guarantor under its respective Guarantee, each dated as of September 20, 1993, and SALANT CANADA INC. and JJ. FARMER CLOTHING INC., each a guarantor under its respective Guaranty (Unlimited Liability), each dated as of September 20, 1994 (individually, in the case of each of the foregoing Guarantors, its "Guarantee"), made in favor of the CIT Group/Commercial Services, Inc. ("Lender"), pursuant to the Credit Agreement as defined in the Seventh Amendment to Credit Agreement, dated as of March __, 1996 between Lender and Salant Corporation (the "Amendment"), to which this Consent is attached, hereby consents to the Amendment and the matters contemplated thereby, and hereby confirms and agrees that its Guarantee is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, on and after the effective date of the Amendment, each reference in its Guarantee to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by the Amendment. IN WITNESS WHEREOF, each of the undersigned has caused this Consent of Guarantors to be duly executed and delivered by its authorized officer this __ day of March, 1996. CLANTEXPORT, INC. FROST BROS. ENTERPRISES, INC. By: By: Title: Title: DENTON MILLS, INC. SLT SOURCING, INC. By: By: Title: Title: VERA LICENSING, INC. SALANT CANADA INC. By: By: Title: Title: JJ. FARMER CLOTHING, INC. By: Title: EX-2 3 December 1, 1995 Salant Corporation 1114 Avenue of the Americas New York, NY 10036 Attn: Mr. Nicholas P. DiPaolo Chairman of the Board Ladies and Gentlemen: The purpose of this letter is to confirm the engagement, effective October 1, 1995 (the "Effective Date"), of Lubin, Delano & Company ("LD&C") by Salant Corporation (the "Company") to render certain financial advisory and investment banking services to the Company. Section 1. Prior Agreement. LD&C and the Company are parties to an agreement dated January 2, 1994, as amended by a letter dated February 28, 1995 (collectively, the "Prior Agreement"). This letter hereby replaces the Prior Agreement and such agreement shall be deemed null and void as of the Effective Date. Section 2. Services to be Rendered. LD&C will render such financial advisory and investment banking services as may from time to time by agreed upon by LD&C and the Company. The Company acknowledges that all opinions and advice given by LD&C to the Company in connection with LD&C's engagement are intended solely for the benefit and use of the Company (including their management, directors and attorneys) and the Company agrees that no such opinion or advice shall be used, reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose (other than for the Company's internal use), nor shall any public references to LD&C be made by the Company (or such persons) without the prior written consent of LD&C, which consent shall not be unreasonably withheld. Section 3. Confidential Treatment. LD&C hereby agrees that any information furnished by the Company in the course of LD&C's engagement hereunder and LD&C's work product in connection with its engagement hereunder will be kept confidential and will not, without the prior written consent of the Company, be disclosed to any third party, provided, however, that (i) any such material may be disclosed to LD&C's partners, employees and attorneys who need to know such information in connection with LD&C's performance of services hereunder (it being understood that such partners, employees and attorneys will be informed by LD&C of the confidential nature of such material and that by receiving such material they are agreeing to be bound by this Section 2 and that LD&C shall be responsible for any breach by such person of any of the provisions hereof), and (ii) any such material may be disclosed as may be legally required in response to a summons or subpoena or in connection with any litigation or in order to comply with any law, order, regulation or ruling applicable to LD&C, provided, however, that either (a) LD&C shall give the Company at least ten days written notice (or shorter, but prompt, notice to the extent LD&C is required to respond to legal process in fewer than ten days) prior to any disclosure of any such material, setting forth the reasons for the disclosure of such material and the basis upon which such disclosure will not, in LD&C's reasonable judgement, constitute a breach of this agreement, or (b) LD&C may make such disclosure to a Court under seal. LD&C further agrees that in the event any disclosure of such material is to be made by LD&C under clause (ii) above and LD&C has not made such disclosure to a Court under seal, LD&C will not oppose any application by the Company that the disclosure of such material be made under an appropriate confidentiality order and seal. Subject to the foregoing, LD&C shall take all reasonable steps to protect such material to prevent any disclosure or use thereof except as provided by this agreement. LD&C further agrees that, upon the Company's request, LD&C will promptly return, or destroy, any or all of such information. Section 4. Monthly Retainer. The Company shall pay to LD&C a monthly retainer, payable in advance, of $8,333.33 commencing on the Effective Date. Section 5. Expenses. In addition to any fees that may be payable to LD&C hereunder, the Company hereby agrees, from time to time upon request, to reimburse LD&C for all reasonable travel and other out-of-pocket expenses incurred in connection with LD&C's engagement hereunder. Section 6. Indemnification. The Company agrees to indemnify LD&C (and its partners, agents and employees) as described in the letter agreement between LD&C and the Company dated September 20, 1993, which is attached hereto. Section 7. Termination of Engagement. LD&C's engagement hereunder will continue and be coterminous to Michael A. Lubin's Employment Period (as such term is defined in the Employment Agreement, dated October 10, 1995, between Michael A. Lubin and the Company), provided, however, that LD&C will be entitled to any and all fees paid or due under Section 4 hereof through the date of termination, and provided, further, that the provisions of Sections 3, 5 and 6 hereof shall survive such termination. Please confirm that the foregoing is in accordance with your understandings and agreements with LD&C by signing and returning to LD&C the duplicate of this letter enclosed herewith. Very truly yours, LUBIN, DELANO & COMPANY By: General Partner ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN: SALANT CORPORATION By: Title: EX-27 4
5 1000 12-MOS DEC-30-1995 DEC-30-1995 1400 0 38297 (3007) 119120 160826 64786 (40260) 255720 63454 0 0 0 15275 55578 255720 501522 508372 397630 483002 6125 0 19425 (180) 318 (498) 0 1000 0 502 .03 .03
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