-----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, R/v2esfEvAReC6C/MAQmNJ2QTJz0a6BY4bX9S09cizTQ/G99SX1L9snZB0lmv9Rh zQtJoe9KAoBf6gP7SeH4WQ== 0000086346-03-000007.txt : 20030313 0000086346-03-000007.hdr.sgml : 20030313 20030313143920 ACCESSION NUMBER: 0000086346-03-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021228 FILED AS OF DATE: 20030313 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: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06666 FILM NUMBER: 03602241 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2122217500 MAIL ADDRESS: STREET 1: 1058 CLAUSSEN RDSTE 101 CITY: AUGUSTA STATE: GA ZIP: 30907 10-K 1 form10_k2002.txt 2002 FORM 10-K 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 28, 2002 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) Delaware 13-3402444 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No) 1114 Avenue of the Americas, New York, New York 10036 (Address of Principal Executive Offices) Telephone: (212) 221-7500 (Registrants Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1 per share, Trading Over-The-Counter - Bulletin Board 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 __ X 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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes __ No X 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 6, 2003, there were outstanding 8,782,198 shares of the Common Stock of the registrant. Based on the closing price of the Common Stock on June 28, 2002, the last business day of the registrants most recently computed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant on such date was $5,785,214. 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. TABLE OF CONTENTS
Page PART I Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item7A. Quantitative and Qualitative Disclosures about Market Risk 23 Item 8. Financial Statements and Supplementary Data 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 49 PART III Item 10. Directors and Executive Officers of the Registrant 49 Item 11. Executive Compensation 51 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 68 Item 13. Certain Relationships and Related Transactions 70 Item 14. Controls and Procedures 70 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 71 SIGNATURES 81 CERTIFICATIONS 82
PART I ITEM 1. BUSINESS Introduction. Salant Corporation ("Salant" or the "Company"), which was incorporated in Delaware in 1987, is the successor to a business founded in 1893 and incorporated in New York in 1919. The Company designs, produces, imports and markets to retailers throughout the United States brand name and private label menswear apparel products. The Company currently sells its products to department stores, specialty stores, major discounters and national chains throughout the United States. As an adjunct to its apparel operations, the Company currently operates 38 retail outlet stores in various parts of the United States. The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of brand recognition, quality, fashion, price, customer service and merchandising expertise. The Company operates in the following business segments: (i) men's apparel wholesale and (ii) retail outlet operations. These segments are more fully described below. As used herein, the "Company" includes Salant and its subsidiaries. On December 29, 1998 (the "Filing Date"), Salant Corporation filed a petition under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (the "1998 Case") in order to implement a restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998 (the "Senior Notes"). Salant also filed its plan of reorganization (the "Plan") with the Bankruptcy Court on the Filing Date in order to implement its restructuring. On April 16, 1999, the Bankruptcy Court issued an order confirming the Plan. The effective date of the Plan occurred on May 11, 1999. On November 30, 2001, the Bankruptcy Court approved the closing of the Company's 1998 Case. Men's Apparel - Wholesale. In fiscal 2002, the Company's wholesale business was primarily comprised of Perry Ellis and Axis products. The Company markets men's accessories, dress shirts, slacks and sportswear under the PERRY ELLIS and PORTFOLIO BY PERRY ELLIS trademarks and sportswear under the AXIS, A(X)IST and AXIS LA trademarks. The Company also markets sportswear under the TRICOTS ST. RAPHAEL, JNCO and OCEAN PACIFIC trademarks, as well as, private label sportswear and accessories. Retail Outlet Operations. The Company's retail outlet stores business consists of a chain of outlet stores (the "Stores Division"), through which it sells products manufactured by the Company and other Perry Ellis licensed manufacturers. At the end of fiscal 2002, the Company operated 40 Perry Ellis outlet stores. Significant Customers. Approximately 16%, 12% and 17% of the Company's sales were made to The May Department Stores Company in 2002, 2001 and 2000, respectively. Approximately 14%, 15% and 19% of the Company's sales were made to Federated Department Stores, Inc. in 2002, 2001 and 2000, respectively. In addition, approximately 12%, 18% and 18% of the Company's sales were made to Dillard's Inc. in 2002, 2001 and 2000, respectively. Also in 2002, approximately 10% of the Company's sales were made to J.C. Penney Company, Inc. ("J.C. Penney") In 2001 and 2000, approximately 12% and 13% of the Company's sales were made to The TJX Companies, Inc., respectively. Trademarks. Approximately 65.2% of the Company's net sales for 2002 were attributable to products sold under the licensed Perry Ellis trademarks, primarily PERRY ELLIS and PORTFOLIO BY PERRY ELLIS (the "Perry Ellis Trademarks"); these products are sold primarily through leading department and specialty stores. The balance is attributable to products sold under retailers' private labels and other owned or licensed trademarks. In January 2001, the Company purchased certain assets of Tricots St. Raphael, Inc. ("Tricots"). Tricots is a better menswear brand distributed primarily through better department and men's specialty stores in the U.S. and Canada. In January 2002, the Company purchased the assets and trademarks of Axis Clothing Corporation ("Axis"). Axis designs, produces and markets men's designer sportswear for various channels of distribution, including better department and specialty stores. Trademarks Licensed to the Company. The Perry Ellis Trademarks are licensed to the Company under Licenses 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. During 2002, the Company entered into a license agreement to develop the JNCO young men's sportswear label and shipping began in the second quarter of 2002. In 2001, the Company entered into a license agreement with Ocean Pacific Apparel Corporation ("OP") to design, produce and distribute men's sportswear, including big and tall lines, throughout the United States. In connection with the OP license agreement, the Company signed an agreement providing for J.C. Penney to be the exclusive retailer of OP regular priced products through fiscal 2003. In 2000, the Company entered into a license agreement with Hartz & Company, Inc. ("Hartz") to design, produce and distribute sportswear and furnishings for Hartz's exclusive Tallia brand. This agreement was terminated, by its terms, at the end of the first quarter 2002. Design and Production. Products sold by the Company's various divisions are produced to the designs and specifications (including fabric selections) of designers employed by those divisions. In limited cases, the Company's designers also receive input from the Company's licensors on general themes and color palettes. During 2002, approximately 1.1% of the units produced by the Company were manufactured in the United States, with the balance manufactured in foreign countries. The units produced by the Company were attributable to unaffiliated contract manufacturers. In 2002, approximately 21.9% of the Company's foreign production was manufactured in Hong Kong, approximately 19.3% was manufactured in Guatemala and approximately 10.7% was manufactured in China, with the balance produced in various other foreign countries. 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. Most 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 import duty levels, material decrease in quota levels or material decrease in quota allocations could adversely affect the Company's operations. Raw Materials. The raw materials used in the Company's 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. During fiscal 2002, two suppliers each accounted for more than 10% of the Company's raw material purchases. Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers/wholesalers (such as the Company) and a larger number of specialty manufacturers/wholesalers. The Company faces substantial competition in its markets from companies 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, are not expected to have a material effect on the business, capital expenditures, earnings or competitive position of the Company. Seasonality of Business and Backlog of Orders. This information is included under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Employees. As of the end of 2002, the Company employed 712 persons, of whom 208 were engaged in distribution operations and the remainder were employed in executive, marketing and sales, product design, general and administrative, purchasing activities and in the operation of the Company's retail outlet stores. The Company believes that its relations with its employees are satisfactory. Employees at the Company's Winnsboro, South Carolina distribution facility are covered by a collective bargaining agreement. Subsequent Events. On February 3, 2003, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with PEI and Connor Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of PEI. PEI is the licensor of the Perry Ellis Trademarks to the Company. Under the terms of the Merger Agreement, PEI will acquire the Company in a stock/cash transaction with a total merger consideration of approximately $91,000,000, comprised of approximately $52,000,000 in cash and approximately $39,000,000 worth of newly issued shares of PEI common stock (the "Merger"). Each holder of outstanding common stock of the Company will receive approximately $9.3691 per share comprised of at least $5.3538 per share of cash and up to $4.0153 per share of PEI common stock. The Merger Agreement provides that the maximum number of shares of PEI common stock to be issued in the Merger is limited to 3,250,000, in which case the remaining merger consideration will be paid in cash. The exact fraction of a share of PEI common stock that the Company stockholders will receive for each of their shares will be determined based on the Nasdaq average closing sale price of the PEI common stock for the 20-consecutive trading day period ending three trading days prior to the closing date. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of PEI. The Merger has been approved by all of the members of the Board of Directors of the Company. The Merger requires that a majority of the stockholders of the Company approve the Merger and that a majority of the stockholders of PEI approve the issuance of up to 3,250,000 shares of PEI's common stock in connection with the Merger Agreement, and is subject to SEC approval, Hart-Scott-Rodino regulatory review, the absence of material adverse changes, and certain other customary closing conditions. Stone Ridge Partners LLC is serving as financial advisor to the Company and has delivered a fairness opinion to the Company's board of directors. In addition, George Feldenkreis, PEI's Chairman and CEO, and Oscar Feldenkreis, PEI's President and COO, have each agreed to vote the PEI shares they control in favor of the issuance of the PEI common stock in the transaction. Pursuant to the Merger Agreement, PEI also agreed to file and maintain in effect a registration statement for the Company's affiliates to enable them to resell shares of PEI common stock they receive in the Merger without legal restriction. The Company has amended the Rights Agreement dated May 17, 2002, between the Company and Mellon Investor Services LLC to provide that the Merger will not trigger any rights or events thereunder. It is anticipated that the Merger will be consummated in June 2003. ITEM 2. PROPERTIES The Company's principal executive offices are located at 1114 Avenue of the Americas, New York, New York 10036. During 1999 and 2000, the Company sold or closed all manufacturing and distribution facilities, except for the owned distribution facility in South Carolina which has 360,000 square feet of space devoted to distribution. The Company also has a short-term lease for an additional 26,000 square feet of distribution space. The Company leases approximately 136,000 square feet of combined office, design and showroom space. As of the end of fiscal 2002, the Company's Stores Division operated 40 retail outlet stores, comprising approximately 104,000 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, retail outlet stores or general corporate administrative functions. The Company believes that its facilities and equipment are adequately maintained, in good operating condition, and are adequate for the Company's present needs. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in several legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flow. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 2002, 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 STOCKHOLDER MATTERS Salant's common stock is currently traded on the Over-the-Counter Bulletin Board under the trading symbol SLNT.OB. The high and low sale prices per share of common stock for each quarter of 2002 and 2001 are set forth below. The Company's financing agreement requires the satisfaction of certain net worth tests and other financial benchmarks prior to having the right to pay any cash dividends. The Company did not declare or pay any dividends during such years. High and Low Sale Prices Per Share of Salant's Common Stock Quarter High Low 2002 Fourth $4.990 $2.140 Third 2.800 2.150 Second 3.100 2.650 First 2.700 1.750 2001 Fourth $2.050 $1.640 Third 2.590 1.600 Second 4.000 2.650 First 3.250 2.625 On March 6, 2003 there were 282 holders of record of shares of common stock, and the closing market price was $8.90. All of the outstanding voting securities of the Company's subsidiaries are owned beneficially and of record by the Company, except for shares of certain foreign subsidiaries of the Company owned of record by others to satisfy local laws. ITEM 6. SELECTED FINANCIAL DATA (Amounts in thousands except share, per share and ratio data) The following selected consolidated financial data as of December 28, 2002 and December 29, 2001 and for each of the fiscal years in the three year period ended December 28, 2002 have been derived from the consolidated financial statements of the Company, which have been audited by Deloitte & Touche LLP, whose report thereon appears under Item 8, "Financial Statements and Supplementary Data". The selected consolidated balance sheet data for fiscal years 1998 through 2000 and statement of operations data for fiscal years 1998 and 1999 have been derived from the Company's audited consolidated financial statements, which are not included herein. Such consolidated financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the consolidated financial statements, including the related notes thereto, included elsewhere herein.
Dec 28, Dec. 29, Dec. 30, Jan. 01, Jan. 02, 2002 2001 2000 2000 1999 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) For The Year Ended: Continuing Operations: Net sales $251,903 $207,773 $208,303 $248,730 $300,586 Restructuring reversal/(costs) (a) - 100 629 (4,039) (24,825) Income/(loss) from continuing operations before discontinued operations and extraordinary gain 19,522 (2,149) 12,711 (2,148) (56,775) Discontinued Operations: Income/(loss) from operations, net of income taxes 31 273 569 (1,955) (10,163) Loss on disposal, net of income taxes - - - - (5,724) Extraordinary gain (b) - - - 24,703 - Net income/(loss)(a) 19,553 (1,876) 13,280 20,600 (72,662) Basic earnings/(loss) per share (d) Earnings/(loss) per share from continuing operations before discontinued operations and extraordinary gain (a) $2.08 $(0.22) $1.28 $(0.21) $(5.68) Earnings/(loss) per share from discontinued operations .00 .03 .06 (0.20) (1.59) Earnings per share from extraordinary gain (b) - - - 2.47 - Basic earnings/(loss) per share (a) 2.08 (0.19) 1.34 2.06 (7.27) Diluted earnings/(loss) per share (d) Earnings/(loss) per share from continuing operations before discontinued operations and extraordinary gain (a) $2.06 $(0.22) $1.28 $(0.21) $(5.68) Earnings/(loss) per share from discontinued operations .00 .03 .06 (0.20) (1.59) Earnings per share from extraordinary gain(b) - - - 2.47 - Diluted earnings/(loss) per share (a) 2.06 (0.19) 1.34 2.06 (7.27) Cash dividends per share - - - - - At Year End: Current assets $104,506 $86,757 $102,859 $93,331 $149,697 Total assets 142,529 117,732 130,548 121,803 176,129 Current liabilities (c) 31,336 18,272 27,533 32,069 201,766 Deferred liabilities 10,105 4,377 5,642 4,133 5,273 Working capital/(deficiency) 73,170 68,485 75,326 61,262 (52,069) Current ratio 3.3:1 4.7:1 3.7:1 2.9:1 0.7:1 Shareholders' equity / (deficiency) $101,065 $95,083 $97,373 $85,601 $(30,910) Book value per share $11.51 $9.60 $9.83 $8.65 $(2.04) Number of shares outstanding 8,782 9,901 9,901 9,901 15,171 Pro forma book value per share - - - - $(3.09) Pro forma number of shares outstanding - - - - 10,000
(a) Includes, for the year ended December 29, 2001 a reversal of $100 ($0.01 per share; tax benefit not available) related primarily to better than anticipated recovery on certain assets. For the year ended December 30, 2000 a reversal of $629 ($0.06 per share; tax benefit not available) related primarily to better than anticipated recovery on the sale of assets and settlement of previously recorded liabilities. For the year ended January 1, 2000, a provision for $4,039 ($0.40 per pro forma share; tax benefit not available) for restructuring costs related primarily to severance for employees terminated in connection with the Company's restructuring and exit from its non-Perry Ellis businesses. For the year ended January 2, 1999, a provision of $24,825 ($2.48 per pro forma share; tax benefit not available) for restructuring costs primarily related to the Company's intention to focus solely on its Perry Ellis men's apparel business and, as a result, exit its non-Perry Ellis menswear divisions. See Note 3. - Restructuring Costs to the consolidated financial statements for additional discussion regarding years 2000-2002. (b) Includes, for the year ended January 1, 2000, a gain of $24,703 ($2.47 per pro forma share) related to the conversion of all the Senior Notes and the related unpaid interest into equity (c) At January 1, 2000 the Senior Notes had been converted into equity. At January 2, 1999, long term debt of $104,879 was classified as liabilities subject to compromise and as a current liability, respectively. See Note 1. - Financial Reorganization to the consolidated financial statements. (d) Pro forma basic income/(loss) per share is based on the weighted average number of common shares as if the new common stock had been issued at the beginning of the earliest period presented for fiscal 1999 and1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview The Company markets men's accessories, dress shirts, slacks and sportswear primarily to department stores principally under various trademarks including the PERRY ELLIS and PORTFOLIO BY PERRY ELLIS trademarks. In fiscal 2001, the Company's business was primarily comprised of Perry Ellis products. In fiscal 2002, the Company's business was primarily comprised of Perry Ellis and Axis products. The Company also sells men's products under the trademarks of Tricot St. Raphael, JNCO and Ocean Pacific. As an adjunct to its apparel wholesale operations the Company currently operates 38 retail outlet stores in various parts of the United States. See "Critical Accounting Policies and Estimates" and "Factors that May Affect Future Results and Financial Condition", included as part of this "Management's Discussion and Analysis of Financial Condition and Results of Operations" for factors that may effect the results of operations or liquidity. Results of Operations Fiscal 2002 Compared with Fiscal 2001 Net Sales In fiscal 2002, net sales increased by $44.1 million, or 21.2%, from $207.8 million in fiscal 2001, to $251.9 million. In the Company's wholesale segment, net sales for fiscal 2002 were $224.7 million, an increase of 23.7%, compared to net sales of $181.6 million in fiscal 2001. Perry Ellis net sales decreased by $21.4 million in fiscal 2002 compared to fiscal 2001. The decrease was due primarily to a decrease in prior season inventory dispositions. Axis, which was purchased in January 2002, accounted for a $38.3 million increase in net sales. Other brands and labels accounted for the remaining increase of $27.2 million in fiscal 2002 compared to fiscal 2001. The Company's retail segment had net sales of $27.2 million in fiscal 2002, an increase of 4.1%, compared to net sales of $26.1 million for fiscal 2001. The increase in net sales for the retail segment was the result of additional net sales from new retail outlet stores opened during 2002. Gross Profit In fiscal 2002, gross profit increased $28.7 million to $74.1 million from $45.4 million in fiscal 2001. Gross profit percentage increased to 29.4% in fiscal 2002 from 21.9% in fiscal 2001. The Company's wholesale segment's gross profit percentage for fiscal 2002 increased to 27.4% of net sales compared to 18.7% of net sales in fiscal 2001. The increase was primarily the result of lower sales deductions and a decrease in prior season inventory dispositions. In the Company's retail segment, gross profit percentage was 45.7% of net sales in fiscal 2002 compared to 43.8% in fiscal 2001. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") for fiscal 2002 were $59.7 million, or 23.7% of net sales, compared to $47.8 million, or 23.0% of net sales, in fiscal 2001, an increase of $11.9 million, or 24.9%. A portion of the increase in SG&A of $3.8 million was for incentive payments and was offset primarily by a $2.0 million decrease in advertising and a $1.5 million decrease in selling expenses. SG&A expenses for newly acquired and licensed businesses were responsible for $10.4 million of the total increase for fiscal 2002. SG&A for the Company's retail segment increased $1.2 million, primarily due to additional stores opened in 2002. Royalty Income Royalty income increased by $0.3 million, to $0.5 million in fiscal 2002 from $0.2 million in fiscal 2001. The increase in royalties was due primarily to additional license agreements signed or acquired in 2002. Provision for Restructuring In fiscal 2002 the Company recognized no income or expense relating to restructuring. At the end of fiscal 2002, $0.6 million remained in the reserve of which $0.5 million relates to severance and other employee costs and $0.1 million for other restructuring items. In the fourth quarter of fiscal 2001, the Company recorded a net reversal of $0.1 million due to favorable recovery of assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to medical benefits. During 2001, the Company used approximately $0.4 million of its restructuring reserves related to consulting and employee costs of $0.3 million and for lease payments, operating expenses and other restructuring costs of $0.1 million. Interest Income, Net In fiscal 2002, net interest income was $0.2 million compared to net interest income of $0.3 million in fiscal 2001. The decrease was due to lower interest rates and the use of cash for the acquisition of Axis. Income Tax Benefit In fiscal 2002, the Company recorded $5.1 million of income tax benefit, including $5.0 million related to the reversal of a valuation allowance previously recorded against the deferred tax assets for operating loss carry-forwards. Management has evaluated the available evidence about future taxable income and other possible sources of realization of deferred tax assets and has concluded that it is more likely than not, that the recognized deferred tax assets will be fully utilized. The remaining $0.1 million in benefit was due to foreign income tax refunds. In fiscal 2001, the Company recorded $46 thousand of income tax benefit due to foreign tax refunds. Loss/Income from Continuing Operations before Discontinued Operations In fiscal 2002, the Company's income from continuing operations before discontinued operations was $19.5 million, or $2.06 per share, compared to a loss of $2.1 million, or $0.22 per share, in fiscal 2001. Income from Discontinued Operations In fiscal 2002 the Company recorded $31 thousand of income related to favorable settlement of liabilities related to it's children's business which consisted of selling children's sleepwear and underwear by the Salant Children's Apparel Group (the "Children's Group"). At the end of fiscal 2002, $0.4 million remained in the reserve, all of which relates to severance and the other miscellaneous closing costs. In fiscal 2001, the Company recorded income of $0.3 million due to better than anticipated settlement of liabilities related to it's Children's Group. At the end of fiscal 2001, $0.5 million remained in the reserve of which approximately $0.4 million was for severance and the remaining balance related to the settlement of liabilities and other closing costs. Net Income/Loss Net income for fiscal 2002 was $19.6 million, or $2.06 per fully diluted share, compared to a loss of $1.9 million, or $.19 per fully diluted share for fiscal year 2001. Earnings before Interest, Taxes, Depreciation, Amortization, Reorganization Costs, Restructuring Charges and Discontinued Operations Earnings before interest, taxes, depreciation, amortization, reorganization costs, restructuring charges and discontinued operations was $20.0 million, or 7.9% of net sales in fiscal 2002, compared to $2.3 million, or 1.1% of net sales in fiscal 2001, an increase of $17.7 million. The Company believes this information is helpful in understanding cash flow from continuing operations, which is available for potential acquisitions and capital expenditures. This measure is not included in accounting principles generally accepted in the United States of America ("GAAP") and is not a substitute for operating income, net income or cash flows from operating activities. Below is a reconciliation from the financial statements to the non-GAAP measurement. Fiscal Fiscal 2002 2001 Income/(loss) from continuing operations before interest, income taxes and discontinued operations $ 14.2 $ (2.5) Reversal of restructuring costs -- (0.1) Reversal of reorganization costs -- (0.3) Depreciation expense 4.8 4.6 Amortization of intangibles 1.0 0.6 Non-GAAP financial measurement $ 20.0 $ 2.3 Fiscal 2001 Compared with Fiscal 2000 Net Sales In fiscal 2001, net sales of $207.8 million were $0.5 million, or 0.3%, less than net sales of $208.3 million in fiscal 2000. In the Company's wholesale segment, net sales for fiscal 2001 were $181.6 million, a decrease of 0.7%, compared to net sales of $182.9 million in fiscal 2000. Newly acquired and licensed wholesale businesses offset the sales declines in the ongoing businesses and accounted for $17.1 million of net sales in fiscal 2001. The Company's retail segment had net sales of $26.1 million in fiscal 2001, an increase of 2.8%, compared to net sales of $25.4 million for fiscal 2000. The decrease in the wholesale segment reflects the overall softness in the retail apparel sector of the economy, particularly at the department store level of distribution. This market softness caused an increase in the level of returns and order cancellations from retail accounts, additional markdowns to retail accounts to clear out unsold inventory, and lower recoveries on the disposal of closeout inventory. The increase in net sales for the retail segment was the result of additional net sales from new retail outlet stores opened during 2001. Gross Profit In fiscal 2001, gross profit of $45.4 million was $10.2 million less than gross profit of $55.6 million in fiscal 2000. Gross profit percentage decreased from 26.7% in fiscal 2000 to 21.9% in fiscal 2001. The Company's wholesale segment's gross profit percentage for fiscal 2001 was 18.7% of net sales, compared to 24.0% in fiscal 2000. In the Company's retail segment, gross profit percentage was 43.8% of net sales in fiscal 2001 compared to 46.2% in fiscal 2000. The margin decrease in both of the Company's segments was caused by the various factors discussed in Net Sales above. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal 2001 were $47.8 million, or 23.0% of net sales, compared to $45.2 million, or 21.7% of net sales, in fiscal 2000, an increase of $2.6 million, or 5.8 %. SG&A expenses for newly acquired and licensed businesses increased from $0.8 million for fiscal 2000 to $5.5 million in fiscal 2001. This increase was partially offset by $1.0 million reversal of accruals established for claims relating to the Company's 1998 Case and by lower employee costs and other reductions of overhead. Royalty Income Royalty income decreased by $0.5 million, or 74.1%, to $0.2 million in fiscal 2001 from $0.7 million in fiscal 2000. The decrease in royalties was due to the termination of a sublicense. Provision for Restructuring In the fourth quarter of fiscal 2001, the Company recorded a net reversal of $0.1 million due to favorable recovery of assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to medical benefits. During 2001, the Company used approximately $0.4 million of its restructuring reserves related to consulting and employee costs of $0.3 million and for lease payments, operating expenses and other restructuring costs of $0.1 million. At the end of fiscal 2001, $0.6 million remained in the reserve of which $0.5 million related to severance and other employee costs, $0.1 million for lease buyouts and other restructuring items. During fiscal 2000, the Company realized $0.6 million in favorable recoveries on the disposal and sale of buildings and other assets and settlements of previously recorded liabilities, partially offset by an increase in the estimated severance related to the closure of the Company's Mexican manufacturing operations. During 2000, the Company incurred approximately $0.9 million of restructuring costs that were provided for in 1999 and 1998. These costs included severance and employee costs of $0.5 million, lease payments of $0.1 million and the remaining balance for other restructuring costs, offset by $0.3 million of gains from the sale of property, plant and equipment. Interest Income, Net In fiscal 2001, net interest income was $0.3 million compared to net interest income of $1.2 million in fiscal 2000. The decrease was due to lower interest rates and the use of cash for operations. Loss/Income from Continuing Operations before Discontinued Operations In fiscal 2001, the Company's loss from continuing operations before discontinued operations was $2.1 million, or $0.22 per share, compared to income of $12.7 million, or $1.28 per share, in fiscal 2000. Income from Discontinued Operations In fiscal 2001, the Company recorded income of $0.3 million related to better than anticipated settlement of liabilities related to it's Children's Group. At the end of fiscal 2001, $0.5 million remained in the reserve of which approximately $0.4 million was for severance and the remaining balance related to the settlement of liabilities and other closing costs. In fiscal 2000, the Company recorded income of $0.6 million related to the discontinuance of its Children's Group. The income related primarily to better than anticipated recovery on the sale of assets (primarily real estate holdings) related to the Children's Group. Net Loss/Income Net loss for fiscal 2001 was $1.9 million, or $0.19 per share, compared to income of $13.3 million, or $1.34 per share for fiscal year 2000. Earnings before Interest, Taxes, Depreciation, Amortization, Reorganization Costs, Restructuring Charges and Discontinued Operations Earnings before interest, taxes, depreciation, amortization, reorganization costs, restructuring charges and discontinued operations was $2.3 million (1.1% of net sales) in fiscal 2001, compared to $15.5 million (7.4% of net sales) in fiscal 2000, a decrease of $13.2 million, or 84.5%. The Company believes this information is helpful in understanding cash flow from continuing operations, which is available for potential acquisitions and capital expenditures. This measure is not included in GAAP and is not a substitute for operating income, net income or cash flows from operating activities. Below is a reconciliation from the financial statements to the non-GAAP measurement. Fiscal Fiscal 2001 2000 (Loss)/income from continuing operations before interest, income taxes and discontinued operations $ (2.5) $ 11.5 Reversal of restructuring costs (0.1) (0.6) Reversal of reorganization costs (0.3) -- Depreciation expense 4.6 4.1 Amortization of intangibles 0.6 0.5 Non-GAAP financial measurement $ 2.3 $ 15.5 Liquidity and Capital Resources On May 11, 1999, the Company entered into a three year syndicated revolving credit facility, (the "Credit Agreement"), as amended and restated on November 30, 2001, with The CIT Group/Commercial Services, Inc. ("CIT"). Effective May 11, 2002, the Company signed an amendment with CIT to extend the Credit Agreement for an additional three years. The Credit Agreement provides for a general working capital facility, in the form of direct borrowings and letters of credit, up to $85 million subject to an asset-based borrowing formula. The Credit Agreement consists of an $85 million revolving credit facility, with a $45 million letter of credit sub-facility. As collateral for borrowings under the Credit Agreement, the Company granted to CIT a first priority lien on, and security interest in, substantially all of the assets of the Company. The Credit Agreement also provides, among other things, that (i) the Company will be charged an interest rate on direct borrowings at the Prime Rate or, at the Company's request, 2.25% in excess of LIBOR (as defined in the Credit Agreement), and (ii) CIT may, in their sole discretion, make loans to the Company in excess of the borrowing formula but within the $85 million limit of the revolving credit facility. The Company is required under the agreement to comply with certain financial covenants including, but not limited to, consolidated tangible net worth, consolidated working capital, capital expenditures, minimum pre-tax income, minimum interest coverage ratio and an annual provision to reduce cash borrowings to zero for 30 consecutive days. The Company was in compliance with all applicable covenants at December 28, 2002. At the end of fiscal 2002, there were no direct borrowings outstanding under the Credit Agreement. Letters of credit outstanding were $38.0 million and the Company had unused availability, based on outstanding letters of credit and existing collateral, of $35.9 million. In addition to the unused availability, the Company had approximately $21.2 million of cash available to fund its operations. At the end of fiscal 2001, there were no direct borrowings outstanding and letters of credit outstanding under the Credit Agreement were $19.6 million, at which time the Company had unused availability of $38.6 million. In addition to the unused availability, the Company had approximately $19.8 million of cash available to fund its operations. During fiscal 2002, the maximum aggregate amount of direct borrowings and letters of credit outstanding at any one time was $39.0 million, at which time the Company had unused availability of $42.4 million. During fiscal 2001, the maximum aggregate amount of direct borrowings and letters of credit outstanding at any one time was $27.8 million, at which time the Company had unused availability of $17.0 million. December 28, December 29, 2002 2001 Maximum Availability under Credit Agreement $73.9 $58.2 Borrowings under Credit Agreement - - Outstanding Letters of Credit 38.0 19.6 Current Availability under Credit Agreement 35.9 38.6 Cash on Hand 21.2 19.8 Available to fund operations $57.1 $58.4 The Company's cash provided by operating activities for fiscal 2002 was $21.0 million, which primarily reflects (i) income from continuing operations of $19.6 million, (ii) an increase in accounts payable of $8.0 million, (iii) a net increase in various liability accounts of $3.8 million, (iv) a decrease in prepaid expenses and other assets of $1.7 million and (v) and non-cash charges, such as depreciation and amortization, of $5.8 million. These items were offset by (i) an increase in accounts receivable of $8.2 million, (ii) an increase in deferred tax assets of $5.0 million and (iii) an increase in inventory of $4.7 million. Cash used by investing activities for fiscal 2002 was $16.8 million, which primarily reflected the purchase of certain Axis assets in the first quarter of fiscal 2002. The aggregate purchase price was approximately $12.4 million, plus estimated direct acquisition costs of $0.8 million. Of the total purchase price $10.6 million was paid at closing and $1.8 million was placed in escrow and is payable in two annual and equal payments on the anniversary date of the closing. As a result, Salant has diversified its operations for men's designer sportswear by expanding its channels of distribution, including specialty stores. The Company also made $2.7 million of capital expenditures and spent $0.9 million for the installation of store fixtures in department stores. Cash used in financing activities for fiscal 2002 was $2.8 million which related to the July 2002 purchase of 1,118,942 shares of the Company's common stock, par value $1.00 per share, at a price of two and a half dollars ($2.50) per share, for an aggregate purchase price of $2.8 million. The shares are being held as treasury stock of the Company. During fiscal 2003, the Company plans to make capital expenditures of approximately $4.3 million and to spend an additional $1.0 million for the installation of store fixtures in department stores. The Company's cash used in operating activities for fiscal 2001 was $7.8 million, which primarily reflected (i) a loss from continuing operations of $2.1 million, (ii) an increase in accounts receivable of $12.0 million, (iii) an increase in prepaid and other current assets of $2.4 million and (iv) a net decrease in various liability accounts of $9.1 million. These items were offset by a decrease in inventory of $12.5 million and non-cash charges, such as depreciation and amortization, of $ 5.3 million. Cash used by investing activities for fiscal 2001 was $7.1 million, which primarily reflected $2.3 million of capital expenditures, $0.7 million for the installation of store fixtures in department stores and $4.0 million for the purchase of the assets of a business. At the end of fiscal year 2002, working capital totaled $73.1 million as compared to $68.5 million at the end of the fiscal year 2001, and the current ratio was 3.3:1 as compared to 4.8:1 at the end of fiscal 2001. The components of working capital changed significantly as of fiscal year end 2002 as compared to fiscal year end 2001. Cash increased by $1.4 million and current liabilities increased by $13.1 million. Accounts receivable increased by $8.2 million, inventory increased by $5.2 million, the Company recorded a current tax asset of $5.0 million, and prepaid expenses decreased by $2.1 million. Accounts receivable increased due to the increased sales within the fourth quarter of 2002, compared to the fourth quarter of 2001. The increase in inventory was due to additional inventory needs for newly acquired and licensed businesses. The current deferred tax asset was recorded based on the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" and the Company's positive earnings trend. Prepaid assets decreased primarily due the reduction of prepaid pension expense. Current liabilities increased $13.1 million at fiscal year end 2002 as compared to fiscal year end of 2001 due to the timing of inventory purchases and receipts, and additional accrued liabilities related to incentive payments. Below is a table of the Company's contractual obligations as of December 28, 2002. Contractual Obligations Payments due by period Total 1 Year 2-3 years 4-5 years More than 5 years Operating Leases $43,114 $5,925 $10,994 $8,164 $18,031 Employment Agreements $2,971 $2,496 $ 475 -- -- Total $46,085 $7,7911 $11,469 $8,164 $18,031 Critical Accounting Policies and Estimates The Company's significant accounting policies are more fully described in Note 2 to the Company's consolidated financial statements. Certain of the Company's accounting policies require the application of significant judgement by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent degree of uncertainty. These judgements are based on historical experience, the Company's observation of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The Company's significant accounting policies include: Revenue Recognition - Sales are recognized upon shipment of products to customers since title passes upon shipment and, in the case of sales by the Company's retail outlet stores, when goods are sold to consumers. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded based upon historical experience and current trends. The Company has met with its significant customers prior to the issuance of its financial statements and does not expect a material deviation from the recorded allowances. While such allowances have historically been within the Company's expectations and the provisions established, there can be no assurance that the Company will continue to experience the same allowance rate as in the past. Inventories - Inventories are valued at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving and aged merchandise are provided based on historical experience and current product demand. The Company evaluates the adequacy of the reserves quarterly. While markdowns have historically been within the Company's expectations and the provisions established, there can be no assurance that the Company will continue to experience the same level of markdowns as in the past. Valuation of Long-Lived Assets - The Company periodically reviews the carrying value of the Company's long-lived assets for recoverability. The review is based upon the Company's projections of anticipated future cash flows. While the Company believes that the estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect the Company's evaluations. Deferred Taxes -- The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized based on differences between financial statement and tax basis of assets and liabilities using presently enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to that portion which is expected to more likely than not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during periods prior to the expiration of the related net operating losses. Retirement-Related Benefits -- The pension obligations related to the Company's defined benefit pension plans are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate, expected return of plan assets, future compensation increases, and other factors, which are updated on an annual basis. Management is required to consider current market conditions, including changes in interest rates, in making these assumptions. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized pension expense or benefit and the Company's pension obligation in future periods. The fair value of plan assets is based on the performance of the financial markets, particularly the equity markets. The equity markets can be, and recently have been, very volatile. Therefore, the market value of plan assets can change dramatically in a relatively short period of time. Additionally, the measurement of the plans' benefit obligations is highly sensitive to changes in interest rates. As a result, if the equity markets decline and/or interest rates decrease, the plans' estimated accumulated benefit obligation could exceed the fair value of plan assets and, therefore, the Company would be required to establish an additional minimum liability, which would result in a reduction in shareholders' equity for the amount of the shortfall. For fiscal 2002, 2001 and 2000, the Company recorded an additional minimum pension liability calculated under the provisions of SFAS No. 87 of $10.8 million, $0.4 million and $1.5 million, respectively, as an adjustment to accumulated other comprehensive loss. (See Note 13 of Notes to Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data".) New Accounting Standards Effective December 30, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position and no longer be amortized, but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle. The Company did not recognize any impairment after completion of the transitional impairment test. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective December 30, 2001. Previously reported net loss for the fiscal year ended December 29, 2001 would have decreased by $0.1 million due to the amount adjusted for the exclusion of goodwill amortization. In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and was effective for the first quarter in the fiscal year ending December 28, 2002. The adoption of this statement did not have an impact on the consolidated financial statements. In April 2002, the FASB issued SFAS No.145, "Recession of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections". In addition to amending and rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS No. 145 precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS No. 145 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for the year ended December 31, 2002 and for interim financial statements for the first quarter ending after December 31, 2002. The adoption of this Statement did not have a material impact on the consolidated financial statements, as the Company has not decided to adopt the fair value method of accounting for stock-based compensation. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others- an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. However, the disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is not a party to any agreement in which it is a guarantor of indebtedness of others. Accordingly, this pronouncement is currently not applicable to the Company. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or SPEs). In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The objective of FIN 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. However, certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities as defined in FIN 46. Accordingly, this pronouncement is currently not applicable to the Company. Seasonality Although the Company typically introduces and withdraws various individual products throughout the year, its principal products are organized into the customary Spring, Transition, Fall and Holiday retail seasonal lines. 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 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. At March 5, 2003, the Company's backlog of orders was approximately $64.8 million, which was 41.3% more than the backlog of orders of approximately $48.4 million that existed at March 20, 2002. The increase in the backlog is due primarily to Axis and the other new businesses added during fiscal 2002. Factors that May Affect Future Results and Financial Condition This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, there can be no assurance that the statement of the expectation or belief will result or be achieved or accomplished. The words "believe", "expect", "estimate", "project", "seek", "anticipate" and similar expressions may identify forward-looking statements. The Company's future operating results and financial condition are dependent upon the Company's ability to successfully design, source, import and market apparel. Taking into account the foregoing, the following are identified as important factors that could cause results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line suppliers (such as the Company) and a large number of specialty suppliers. The Company faces substantial competition in its markets from manufacturers in both categories. Many of the Company's competitors have greater financial resources than the Company. The Company also competes for private label programs with the internal sourcing organizations of many of its own customers. Trademarks Licensed to the Company. Approximately two-thirds of the Company's net sales are attributable to trademarked products licensed by the Company. The principal trademarks licensed by the Company are PERRY ELLIS, PORTFOLIO BY PERRY ELLIS, OCEAN PACIFIC and JNCO. The licenses contain provisions related to, among other things, products which may be sold, territories where products may be sold, restrictions on sales to certain levels of distribution, minimum sales and royalty requirements, advertising and promotion requirements, sales reporting, design and product standards, renewal options, assignment and change of control provisions, defaults, cures and termination provisions. The change of control provisions and their potential effects vary with each licensing agreement. The license arrangements with Perry Ellis grant the licensor the right to terminate the licenses (subject to the payment of certain royalties) if any person or group acquires 40% or more of the equity interests or voting control of the Company. Assuming the exercise of all renewal options by the Company, The Perry Ellis licenses will expire on December 31, 2015, the Ocean Pacific license will expire on December 31, 2008 and the JNCO license will expire on December 31, 2011. Should any of the Company's material licenses be terminated, outside the normal course of business, there can be no assurance that the Company's financial condition and results of operations would not be adversely affected. Strategic Initiatives. In the first quarter of 2002, the Company purchased the assets and trademarks of Axis which designs, produces, and markets men's sportswear. Management of the Company is continuing to consider various strategic opportunities, including but not limited to, new menswear licenses and/or acquisitions. Management is also exploring ways to increase productivity and efficiency, and to reduce the cost structures of its respective businesses. Through this process management expects to increase its distribution channels and achieve effective economies of scale. No assurance may be given that any transactions resulting from this process will be announced or completed. Apparel Industry Cycles and other Economic Factors. The apparel industry historically has been subject to substantial cyclical variation, with consumer spending on apparel tending to decline during recessionary periods. A decline in the general economy or uncertainties regarding future economic prospects may affect consumer spending habits, which, in turn, could have a material adverse effect on the Company's results of operations and financial condition. Retail Environment. Various retailers, including some of the Company's customers, have experienced declines in revenue and profits in recent periods and some have been forced to file for bankruptcy protection. To the extent that these financial difficulties continue, there can be no assurance that the Company's financial condition and results of operations would not be adversely affected. Seasonality of Business and Fashion Risk. The Company's principal products are organized into seasonal lines for resale at the retail level during the Spring, Transition, Fall and Holiday seasons. Typically, the Company's products are designed as much as one year in advance, and manufactured approximately one season in advance of the related retail-selling season. Accordingly, the success of the Company's products is often dependent on the ability of the Company to successfully anticipate the needs of the Company's retail customers, and the tastes of the ultimate consumer, up to a year prior to the relevant selling season. Foreign Operations. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas and, in certain parts of the world, political instability. Any substantial disruption of its relationship with its foreign suppliers could adversely affect the Company's operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas, which limit the amount of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocation could adversely affect the Company's operations. The Company's operations in Asia are subject to certain political and economic risks including, but not limited to, political instability, changing tax and trade regulations and currency devaluations and controls. Although the Company has experienced no material foreign currency transaction losses, its operations in the region are subject to an increased level of economic instability. The impact of these events on the Company's business, and in particular its sources of supply, could have a materially adverse effect on the Company's performance. Dependence on Contract Manufacturing. The Company produces substantially all of its products through arrangements with independent contract manufacturers. The use of such contractors and the resulting lack of direct control could subject the Company to difficulty in obtaining timely delivery of products of acceptable quality. In addition, as is customary in the industry, the Company does not have any long-term contracts with its fabric suppliers or product manufacturers. While the Company is not dependent on one particular product manufacturer or raw material supplier, the loss of several such product manufacturers and/or raw material suppliers in a given season could have a material adverse effect on the Company's performance. Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors are cautioned not to use historical trends to anticipate results or trends in the future. In addition, the Company's participation in the highly competitive apparel industry often results in significant volatility in the Company's common stock price. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in the trading of market risk sensitive instruments in the normal course of business. Financing arrangements for the Company are subject to variable interest rates including rates primarily based on the Reference Rate (as defined in the Credit Agreement), with a LIBOR option. An analysis of the Credit Agreement can be found in Note 9 - "Financing Agreements" to the Consolidated Financial Statements, included in this report on Form 10-K. On December 28, 2002 and December 29, 2001 there were no direct borrowings outstanding under the Credit Agreement. 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 (the "Company") as of December 28, 2002 and December 29, 2001, and the related consolidated statements of operations, comprehensive income/(loss), shareholders' equity and cash flows for each of the three years in the period ended December 28, 2002. Our audits also included the financial statement schedule listed in the index at Item 15. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial statements present fairly, in all material respects, the financial position of Salant Corporation and subsidiaries at December 28, 2002 and December 29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2002 in conformity with accounting principles generally accepted in the United States of America. 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 6, 2003 New York, New York Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data)
Year Ended December 28, December 29, December 30, 2002 2001 2000 Net sales $ 251,903 $ 207,773 $ 208,303 Cost of goods sold 177,819 162,348 152,708 Gross profit 74,084 45,425 55,595 Selling, general and administrative expenses (59,681) (47,804) (45,188) Royalty income 506 194 750 Intangible amortization (Notes 2 and 4) (953) (627) (519) Other income/(expense), net 294 (91) 213 Restructuring reversal/(costs) (Note 3) -- 100 629 Reorganization reversal/(costs) (Note 1) -- 302 -- Income/(loss) from continuing operations before interest, income taxes and discontinued operations 14,250 (2,501) 11,480 Interest income, net (Note 9) (203) (306) (1,244) Income/(loss) from continuing operations before income taxes and discontinued operations 14,453 (2,195) 12,724 Income tax (benefit)/expense (Note 12) (5,069) (46) 13 Income/(loss) from continuing operations before discontinued operations 19,522 (2,149) 12,711 Income from discontinued operations (Note 17) 31 273 569 Net income/(loss) $ 19,553 $ (1,876) $ 13,280 Basic income/(loss) per share: Income/(loss) per share from continuing operations before discontinued operations $ 2.08 $ (0.22) $ 1.28 Income per share from discontinued operations .00 0.03 .06 Basic income/(loss) per share $ 2.08 $ (0.19) $ 1.34 Weighted average common stock outstanding - Basic 9,388 9,901 9,901 Diluted income/(loss) per share: Income/(loss) per share from continuing operations before discontinued operations $ 2.06 $ (0.22) $ 1.28 Income per share from discontinued operations .00 0.03 .06 Diluted income/(loss) per share $ 2.06 $ (0.19) $ 1.34 Weighted average common stock outstanding - Diluted 9,468 9,901 9,901
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (Amounts in thousands)
December 28, December 29, December 30, 2002 2001 2000 Net income/(loss) $ 19,553 $ (1,876) $ 13,280 Other comprehensive (loss)/income, net of tax: Foreign currency translation adjustments (4) 5 25 Minimum pension liability adjustments (10,770) (419) (1,533) Comprehensive income/(loss) $ 8,779 $ (2,290) $ 11,772
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data)
December 28, December 29, 2002 2001 ASSETS Current assets: Cash and cash equivalents $ 21,226 $ 19,820 Accounts receivable - net of allowance for doubtful accounts of $3,580 in 2002 and $2,942 in 2001 36,718 28,544 Inventories (Notes 5 and 9) 39,972 34,735 Prepaid expenses and other current assets 1,581 3,658 Deferred tax asset (Note 12) 5,000 -- Total current assets 104,497 86,757 Property, plant and equipment, net (Notes 6 and 9) 11,528 12,179 License agreements - net of accumulated amortization of $5,476 in 2002 and $5,039 in 2001 5,685 6,122 Goodwill (Note 4) 2,318 -- Trademarks - net of accumulated amortization of $1,896 in 2002 and $1,680 in 2001 14,579 5,095 Other assets (Notes 7, 12 and 13) 3,913 7,579 Total assets $ 142,520 $ 117,732 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 18,605 $ 10,576 Reserve for business restructuring (Note 3) 561 584 Accrued salaries, wages and other liabilities (Note 8) 11,738 6,619 Net liabilities of discontinued operations (Note 17) 446 493 Total current liabilities 31,350 18,272 Deferred liabilities (Note 15) 10,105 4,377 Commitments and contingencies (Notes 9, 13, 14, 16, 20 and 21) Shareholders' equity (Note 14): Preferred stock, par value $2 per share: Authorized 5,000 shares; none issued -- -- Common stock, par value $1 per share: Authorized 45,000 shares; Issued - 10,000 in 2002 and 2001 10,000 10,000 Additional paid-in capital 206,040 206,040 Deficit (96,340) (115,893) Accumulated other comprehensive loss (Note 18) (15,640) (4,866) Less - treasury stock, at cost - 1,218 shares in 2002 and 99 shares in 2001 (2,995) (198) Total shareholders' equity 101,065 95,083 Total liabilities and shareholders' equity $ 142,520 $ 117,732
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in thousands)
Accum- ulated Other Compre- Total Common Stock Add'l hensive Treasury Stock Share- Number Paid-In Income/ Number holders' of Shares Amount Capital Deficit (Loss) of Shares Amount Equity Balance at January 1, 2000 10,000 $10,000 $206,040 $(127,297)$(2,944) 99 $(198) $85,601 Net Income 13,280 13,280 Other Comprehensive Loss (1,508) (1,508) Balance at December 30, 2000 10,000 $10,000 $206,040 $(114,017)$(4,452) 99 $(198) $97,373 Net Loss (1,876) (1,876) Other Comprehensive Loss (414) (414) Balance at December 29, 2001 10,000 $10,000 $206,040 $(115,893)$(4,866) 99 $(198) $95,083 Net Income 19,553 19,553 Other Comprehensive Loss (10,774) (10,774) Purchase of Treasury Stock 1,119 (2,797) (2,797) Balance at December 28, 2002 10,000 $10,000 $206,040 $(96,340)$(15,640) 1,218 $(2,995) $101,065
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended December 28, December 29, December 30, 2002 2001 2000 Cash Flows from Operating Activities Income/(loss) from continuing operations before discontinued operations $ 19,553 $ (2,149) $ 12,711 Adjustments to reconcile income/(loss) from continuing operations before discontinued operations to net cash provided by/(used in) operating activities: Depreciation 4,811 4,632 4,101 Amortization of intangibles 953 627 519 Deferred tax benefit (5,000) -- -- 953 627 519 Changes in operating assets and liabilities: Accounts receivable (8,174) (11,956) (632) Inventories (4,676) 12,495 (3,614) Prepaid expenses and other current assets 1,753 (2,370) (815) Assets held for sale -- -- 100 Other assets (97) (27) (14) Accounts payable 8,043 (4,222) 2,701 Accrued salaries, wages and other liabilities 4,470 (2,941) (2,441) Liabilities subject to compromise -- (1,611) (2,993) Reserve for business restructuring (23) (486) (1,238) Deferred liabilities (608) 171 (24) Net cash provided by/(used in) continuing operations 21,005 (7,837) 8,361 Cash (used in)/provided by discontinued operations (47) 22 4 Net cash provided by/(used in) operating activities 20,958 (7,815) 8,365 Cash Flows from Investing Activities Capital expenditures, net of disposals (2,705) (2,292) (1,959) Store fixture expenditures (877) (722) (1,864) Purchase of a business (13,169) (4,039) - Net cash used in investing activities (16,751) (7,053) (3,823) Cash Flows from Financing Activities Treasury stock purchase (2,797) -- -- Other, net (4) 5 25 Net cash (used in)/provided by financing activities (2,801) 5 25 Net increase/(decrease) in cash and cash equivalents 1,406 (14,863) 4,567 Cash and cash equivalents - beginning of year 19,820 34,683 30,116 Cash and cash equivalents - end of year $ 21,226 $ 19,820 $ 34,683 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 56 $ 23 $ 93 Income taxes $ 13 $ 64 $ 179 Supplemental investing and financing non-cash transactions: Change in minimum pension liability $ (10,770) $ (419) $ (1,533) Guaranteed future purchase price payments $ -- $ 250 $ --
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. Financial Reorganization On December 29, 1998 (the "Filing Date"), Salant Corporation filed a voluntary petition under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (the "1998 Case") in order to implement a restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998 (the "Senior Notes"). Salant also filed its plan of reorganization (the "Plan") with the Bankruptcy Court on the Filing Date in order to implement its restructuring. On April 16, 1999, the Bankruptcy Court issued an order confirming the Plan. The effective date of the Plan occurred on May 11, 1999. On November 30, 2001, the Bankruptcy Court approved the closing of the Company's 1998 Case. Note 2. 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 its Children's Group.) In December 1998, the Company decided to discontinue the operations of the Children's Group, which produced and marketed children's blanket sleepers, pajamas, sleepwear and underwear primarily using a number of well-known licensed characters and trademarks. As further described in Note 17, the consolidated financial statements and the notes thereto reflect the Children's Group as a discontinued operation. Intercompany balances and transactions are eliminated in consolidation. During the first quarter of 2001, the Company purchased certain assets of Tricots St. Raphael, Inc.. The purchase price, including inventory, was approximately $4.3 million, with additional contingent payments due upon achieving future defined benchmarks. The acquisition was accounted for using the purchase method. The pro forma effect of the asset purchase on the results of operations is not presented, as it is not material. In addition, on January 4, 2002, the Company through its wholly owned subsidiary, Salant Holding Corporation ("SHC"), acquired from Axis Clothing Corporation ("Axis") certain of Axis' assets. See Note 4 for additional information related to such acquisition, including pro forma financial information. 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 (such as accounts receivable, inventories, restructuring reserves and valuation allowances for income taxes), 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. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. The 2002, 2001 and 2000 fiscal years were comprised of 52 weeks. Reclassifications Certain reclassifications were made to the 2000 and 2001 consolidated financial statements to conform to the 2002 presentation. Cash and Cash Equivalents The Company treats cash on hand, deposits in banks and certificates of deposit with original maturities of less than 3 months as cash and cash equivalents for the purposes of the statements of cash flows. Inventories Inventories are stated at the lower of cost (principally determined on a first-in, first-out basis) or market for wholesale apparel operations. Reserves for slow moving and aged merchandise are provided based on historical experience and current product demand. The Company evaluates the adequacy of the reserves quarterly. Effective December 31, 2000, due to a change in systems, the Company changed its method of valuing its retail inventories from the retail method to the lower of cost or market for outlet store operations. There was no impact resulting from this change in the accompanying consolidated financial statements. 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 range of annual depreciation rates used for financial reporting are as follows: Buildings and improvements 2.5% - 10.0% Machinery, equipment and autos 6.7% - 33.3% Furniture and fixtures 10.0% - 33.3% Leasehold improvements Shorter of the life of the asset or the lease term Other Assets Identified intangibles relating to licensed Perry Ellis brands are being amortized on a straight-line basis over the license period of 25 years. Goodwill and trademarks relating to owned brands have been determined to have indefinite lives and are not being amortized and are assessed for recoverability on a periodic 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. Goodwill with a value of $2,318 is not amortized and tested for impairment on at least an annual basis or when certain conditions indicate that impairment may be likely. Valuation of Long-Lived Assets The Company periodically reviews the carrying value of the Company's long-lived assets for recoverability. The review is based upon the Company's projections of anticipated future cash flows. While the Company believes that the estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect the Company's valuations. Income Taxes Deferred income taxes are provided to reflect the tax effect of temporary differences between financial statement income and taxable income in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes". Fair Value of Financial Instruments For financial instruments, including cash and cash equivalents, accounts receivable and payable, and accrued expenses, the carrying amounts approximate fair value because of their short maturity. Retirement-Related Benefits The Company accounts for its defined benefit pension plans and its nonpension post retirement benefit plans using actuarial models required by SFAS No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," respectively. These models use an attribution approach that generally spreads individual events over the service lives of the employees in the plan. The principle underlying the required attribution approach is that employees render service over their service lives on a relatively smooth basis and, therefore, the income statement effects of pensions or nonpension postretirement benefit plans are earned in, and should follow, the same pattern. The principal components of the net periodic pension calculation are the expected long-term rate of return on plan assets, discount rate and the rate of compensation increases. The Company uses long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns by reference to external sources to develop its expected return on plan assets. The discount rate assumptions used for pension and nonpension postretirement benefit plan accounting reflects the rates available on high-quality fixed-income debt instruments at the Company's fiscal year end. The rate of compensation increase is another significant assumption used in the actuarial model for pension accounting and is determined by the Company based upon its long-term plans for such increases. Revenue Recognition Revenue is recognized upon shipment of products to customers since title passes upon shipment and, in the case of sales by the Company's retail outlet stores, when goods are sold to consumers. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded based upon historical experience and current trends. Accounting for Stock Options The Company accounts for the stock option plan in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost is recognized for stock option awards. Had compensation cost been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's pro forma net income/(loss) for 2002, 2001 and 2000 would have been $19,405, $(2,175) and $12,338, respectively. The Company's pro forma net income/(loss) per basic share for fiscal 2002, 2001 and 2000 would have been $2.07, $(0.22) and $1.25, respectively. New Accounting Standards Effective December 30, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position and no longer be amortized, but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle. The Company did not recognize any impairment after completion of the transitional impairment test. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective December 30, 2001. Previously reported net loss for the fiscal year ended December 29, 2001 would have decreased by $110 due to the amount adjusted for the exclusion of goodwill amortization. In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" and was effective for the first quarter in the fiscal year ending December 28, 2002. The adoption of this Statement did not have an impact on the consolidated financial statements. In April 2002, the FASB issued SFAS No.145, "Recession of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections". In addition to amending and rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS No. 145 precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS No. 145 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for the year ended December 31, 2002 and for interim financial statements for the first quarter ending after December 31, 2002. The adoption of this Statement did not have an impact on the consolidated financial statements, as the Company has not decided to adopt the fair value method of accounting for stock-based compensation. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others- an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. However, the disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is not a party to any agreement in which it is a guarantor of indebtedness of others. Accordingly, this pronouncement is currently not applicable to the Company. In January 2003, the FASB issued FASB Interpretation No. 46, " Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or SPEs). In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The objective of FIN 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. However, certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities as defined in FIN 46. Accordingly, this pronouncement is currently not applicable to the Company. Note 3. Restructuring Costs During 2002, the Company used approximately $23 of its restructuring reserve related to employee costs of $4 and the remaining balance for other restructuring costs. At the end of fiscal 2002, $561 remained in the reserve of which $471 related to severance and other employee costs, and $90 for other restructuring items. The Company expects to utilize the remaining reserves during fiscal 2003. Activity in the accrued reserve for business restructuring for fiscal 2002 was as follows: Balance Accrual/ Balance 12/29/01 Uses (Reversal) 12/28/02 Lease payments and other property costs $ 48 $ 0 $ -- $ 48 Severance 475 (4) 0 471 Other 61 (19) 42 $ 584 $ (23) $ 0 $ 561 In the fourth quarter of fiscal 2001, the Company recorded a net reversal of $100 due to the favorable recovery of assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to medical benefits. During 2001, the Company used approximately $386 of its restructuring reserve related to consulting and employee costs of $290, lease payments and operating expenses of $52 and the remaining balance for other restructuring costs. At the end of fiscal 2001, $584 remained in the reserve of which $475 related to severance and other employee costs, $48 for lease buyouts and $61 for other restructuring items. Activity in the accrued reserve for business restructuring for fiscal 2001 was as follows: Balance Accrual/ Balance 12/30/00 Uses (Reversal) 12/29/01 Lease payments and other property costs $ 200 $ (52) $ (100) $ 48 Severance 550 (290) 215 475 Other 320 (44) (215) 61 $ 1,070 $ (386) $ (100) $ 584 In the fourth quarter of fiscal 2000, the Company recorded a net reversal of $629 due to favorable recovery on the sale of its Andalusia, Alabama facility and the recovery of other assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to the closure of the Company's Mexican manufacturing operations. During 2000, the Company used approximately $908 of its restructuring reserve related to severance and employee costs of $498, lease payments of $89 and the remaining balance for other restructuring costs. The Company also recognized gains from the sale of fixed assets of $299. At the end of fiscal 2000, $1,070 remained in the reserve of which $550 related to severance and other employee costs, $200 for lease buyouts and $320 for other restructuring items. Activity in the accrued reserve for business restructuring for fiscal 2000 was as follows: Balance Gains from Accrual/ Balance 1/1/00 Uses Sales (Reversal) 12/30/00 Lease payments and other property costs $ 600 $ (89) $ 264 $ (575) $ 200 Severance 850 (498) -- 198 550 Other 858 (321) 35 (252) 320 $2,308 $ (908) $ 299 $ (629) $1,070 Note 4. Acquisition of Axis On January 4, 2002, Salant Corporation, through its wholly owned subsidiary, SHC, acquired from Axis , certain of Axis' assets pursuant to an Asset Purchase Agreement dated as of October 15, 2001 by and between SHC, Axis and Richard Solomon ("Solomon") an individual. The assets acquired from Axis consisted of, among other things, trademarks, inventory, contract rights, fixed assets and certain office equipment primarily located in California (collectively, the "Axis Assets"). As a result of the acquisition, Salant diversified its operations for men's designer sportswear by expanding its channels of distribution, including better department and specialty stores. The results of Axis's operations have been included in the statement of operations as of the acquisition date. The Company did not assume any accounts payable, accrued liabilities or debt, however it did assume several leases and contracts. In conjunction with the Asset Purchase Agreement, a three-year employment contract was signed between Solomon and SHC, along with SHC signing an agreement to lease office space (at current market rates) from Solomon. Of the total intangibles acquired, $9,700 has been allocated to trademarks and $2,318 has been allocated to goodwill. Neither the trademarks nor goodwill will be subject to amortization, but will be tested for impairment on a periodic basis. The remaining $300 of miscellaneous intangibles have been amortized over the first six months of 2002. The following table summarizes the fair values of the assets acquired at the date of acquisition: Current assets $ 751 Property, plant, and equipment 100 Intangible assets 300 Trademarks 9,700 Goodwill 2,318 Total assets acquired $13,169 The aggregate purchase price for the Axis Assets was approximately $12,433, plus direct acquisition costs of $736. Of the total purchase price, $10,633 was paid at closing and $1,800 has been placed in escrow and is payable in two annual and equal payments on the next 2 anniversary dates of the closing. The purchase price was based upon arms-length negotiations considering (i) the value of the Axis brand, (ii) the quality of the Axis Assets and (iii) the estimated cash flow from the Axis Assets. The principal source of funds for the acquisition of the Axis Assets was from working capital. As the acquisition was consummated as of the beginning of Fiscal 2002, pro forma results for fiscal 2002 are not presented. The following unaudited consolidated pro forma results of operations of the Company for the years ended December 29, 2001 and December 30, 2000 give effect to the acquisition as if it occurred on January 2, 2000: December 29, December 30, 2001 2000 (Unaudited) (Unaudited) Net Sales $ 242,615 $ 237,737 Income from continuing operations $ 1,716 $ 15,187 Basic & diluted earnings per share from continuing operations $ 0.17 $ 1.53 The unaudited pro forma information above has been prepared for comparative purposes only and includes certain adjustments to the Company's historical statements of income, such as the recording of goodwill and increased interest expense or reduction of interest income due to the cost of the acquisition. The results do not purport to be indicative of the results of operations that would have resulted had the acquisition occurred at the beginning of the period, or of future results of operations of the consolidated entities. Note 5. Inventories December 28, December 29, 2002 2001 Finished goods $ 21,680 $ 21,378 Work-in-process 16,269 9,310 Raw materials and supplies 2,023 4,047 $ 39,972 $ 34,735 Markdown reserves were $1,751 at December 28, 2002 and $1,887 at December 29, 2001. Finished goods inventory includes in transit merchandise of $1,825 and $356 at December 28, 2002 and December 29, 2001, respectively. Note 6. Property, Plant and Equipment December 28, December 29, 2002 2001 Land and buildings $ 7,792 $ 7,392 Machinery, equipment, furniture and fixtures 21,467 19,540 Leasehold improvements 5,670 5,465 34,929 32,397 Less accumulated depreciation and amortization 23,401 20,218 $ 11,528 $ 12,179 Note 7. Other Assets December 28, December 29, 2002 2001 Prepaid pension asset $ -- $ 3,285 Other (net) 3,913 4,294 $ 3,913 $ 7,579 Note 8. Accrued Salaries, Wages and Other Liabilities December 28, December 29, 2002 2001 Accrued salaries, wages and incentives $ 7,154 $ 1,006 Accrued pension, retirement and benefits 1,111 1,139 Accrued workers compensation 908 1,181 Other accrued liabilities 2,565 3,293 $ 11,738 $ 6,619 Note 9. Financing Agreements On May 11, 1999, the Company entered into a three year syndicated revolving credit facility, (the "Credit Agreement"), as amended and restated on November 30, 2001, with The CIT Group/Commercial Services, Inc. ("CIT"). Effective May 11, 2002, the Company signed an amendment with CIT to extend the Credit Agreement for an additional three years. The Credit Agreement provides for a general working capital facility, in the form of direct borrowings and letters of credit, up to $85,000 subject to an asset-based borrowing formula. The Credit Agreement consists of an $85,000 revolving credit facility, with a $45,000 letter of credit sub-facility. As collateral for borrowings under the Credit Agreement, the Company granted to CIT a first priority lien on, and security interest in, substantially all of the assets of the Company. The Credit Agreement also provides, among other things, that (i) the Company will be charged an interest rate on direct borrowings at the Prime Rate or, at the Company's request, 2.25% in excess of LIBOR (as defined in the Credit Agreement), and (ii) CIT may, in their sole discretion, make loans to the Company in excess of the borrowing formula but within the $85,000 limit of the revolving credit facility. The Company is required under the agreement to comply with certain financial covenants including, but not limited to, consolidated tangible net worth, consolidated working capital, capital expenditures, minimum pre-tax income, minimum interest coverage ratio and an annual provision to reduce cash borrowings to zero for 30 consecutive days. The Company was in compliance with all applicable covenants at December 28, 2002. On December 28, 2002, there were no direct borrowings outstanding under the Credit Agreement. Letters of credit outstanding were $38,000 and the Company had unused availability, based on outstanding letters of credit and existing collateral, of $35,915. In addition to the unused availability, the Company had $21,226 of cash available to fund its operations. On December 29, 2001, there were no direct borrowings and letters of credit outstanding under the Credit Agreement were $19,616 and the Company had unused availability of $38,560. In addition to the unused availability, the Company had $19,820 of cash available to fund its operations. The weighted average interest rate on borrowings under the Credit Agreement for the years ended December 28, 2002 and December 29, 2001 was 4.8% and 7.9%, respectively. In addition to the financial covenants discussed above, the Credit Agreement contains a number of other covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock, or all or a substantial part of the assets of another person, selling property and paying cash dividends. Note 10. Segment Information The Company's principal business is the designing, producing, importing and marketing of men's apparel. The Company currently sells its products throughout the United States to retailers, including department and specialty stores. As an adjunct to its apparel operations the Company operated 40 retail outlet stores, at the end of fiscal 2002, in various parts of the United States. The Company operates in the following business segments: (i) men's wholesale apparel and (ii) retail outlet operations. Information concerning the Company's business segments in fiscal 2002, 2001 and 2000 is as follows: 2002 2001 2000 Net Sales Wholesale $ 224,692 $ 181,637 $ 182,891 Retail 27,211 26,136 25,412 $ 251,903 $ 207,773 $ 208,303 Gross Profit Wholesale $ 61,662 $ 33,966 $ 43,850 Retail 12,442 11,459 11,745 $ 74,084 $ 45,425 $ 55,595 Income/(Loss) from Continuing Operations before Interest, Taxes and Discontinued Operations Wholesale $ 15,151 $ (1,748) $ 9,982 Retail (901) (753) 1,498 $ 14,250 $ (2,501) $ 11,480 Capital Expenditures Wholesale $ 2,523 $ 2,251 $ 5,003 Retail 483 760 1,144 $ 3,006 $ 3,011 $ 6,147 Total Assets Wholesale $ 133,442 $ 108,457 $ 121,709 Retail 9,078 9,185 8,839 $ 142,520 $ 117,732 $ 130,548 Note 11. Significant Customers Approximately 16%, 12% and 17% of the Company's sales were made to The May Department Stores Company in 2002, 2001 and 2000, respectively. Approximately 14%, 15% and 19% of the Company's sales were made to Federated Department Stores, Inc. in 2002, 2001 and 2000, respectively. In addition, approximately 12%, 18% and 18% of the Company's sales in 2002, 2001 and 2000, respectively were made to Dillard's Inc. Also in 2002, approximately 10% of the Company's sales were made to J.C. Penney Company, Inc. In 2001 and 2000, approximately 12% and 13% of the Company's sales were made to The TJX Companies, Inc., respectively. Note 12. Income Taxes The provision for income taxes consists of the following: December 28, December 29, December 30, 2002 2001 2000 Current: Federal $ -- $ -- $ -- Foreign (69) (46) 13 $ (69) $ (46) $ 13 Deferred: Federal $(5,000) $ -- $ -- $(5,000) $ -- $ -- The following is a reconciliation of the income tax provision/(benefit) at the statutory Federal and State income tax rates to the actual income tax provision: 2002 2001 2000 Income tax provision/(benefit) at 34% $ 4,925 $ (638) $ 4,520 State tax provision/(benefit) 724 (94) 665 Reversal of valuation allowance (12,092) 920 (6,060) Other 1,443 (189) 875 Foreign taxes (69) (46) 13 Income tax (benefit)/provision $ (5,069) $ (46) $ 13 The following are the tax effects of significant items comprising the Company's net deferred tax asset: December 28, December 29, 2002 2001 Deferred tax asset: Reserves not currently deductible $ 8,623 $ 8,260 Operating loss carryforwards 43,079 50,605 Tax credit carryforwards 18 18 Expenses capitalized into inventory 1,269 1,115 Differences between book and tax basis of property 754 837 $ 53,743 $ 60,835 December 28, December 29, 2002 2001 Deferred tax asset $ 53,743 $ 60,835 Valuation allowance (48,743) (60,835) Net deferred tax asset $ 5,000 $ -- During the year ended December 28, 2002 the Company realized approximately $12,092 of its deferred tax asset through the reversal of the existing valuation allowance. Of this amount, approximately $7,092 related to expected utilization of net operating loss carry-forwards to offset taxes payable on 2002 income. The Company recorded in the fourth quarter, the balance of $5,000 related to future utilization of net operating loss carry-forwards which, in the judgment of management, was more likely than not to occur. At December 28, 2002, the Company had net operating loss carryforwards ("NOLs") for income tax purposes of approximately $110,461, expiring from 2003 to the year 2021, which can be used to offset future taxable income. The following table reflects the expiration of the NOLs in 5-year increments: Expiration of NOLs Year Amount 2003-2007 $ 55,170 2008-2012 31,520 2013-2017 0 2018-2022 23,771 $110,461 The 1988 acquisition of Manhattan Industries and the Company's 1990 bankruptcy and subsequent consummation caused an "ownership change" for federal income tax purposes. As a result, the use of any NOLs existing at the date of the ownership change to offset future taxable income is limited by section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). The $110,461 of NOLs reflected above is the maximum the Company may use to offset future taxable income. Of the $110,461 of NOLs, $67,732 is subject to annual usage limitations under Section 382 of approximately $7,200. In addition, at December 28, 2002, the Company had available tax credit carryforwards of approximately $18, which expire between 2003 and 2012. Utilization of these credits may be limited in the same manner as the NOLs, as described above. Note 13. Employee Benefit Plans Pension and Retirement Plans The Company has a defined benefit plan for virtually all full-time salaried employees and certain non-union hourly employees. The Company's funding policy for its plans is to fund the minimum annual contribution required by applicable regulations. The reconciliation of the funded status of the plans at December 28, 2002 and December 29, 2001 is as follows: 2002 2001 Change in Projected Benefit Obligation ("PBO") During Measurement Period PBO, November 30 of previous year $ 45,604 $ 47,750 Service Cost 280 217 Interest Cost 3,128 3,106 Actuarial (Gain)/Loss 1,567 (2,678) Benefits Paid (3,019) (2,791) PBO, November 30 $ 47,560 $ 45,604 Change in Plan Assets During the Measurement Period Plan Assets at Fair Value, November 30 of previous year $ 43,724 $ 47,944 Actual Return on Plan Assets (3,946) (2,286) Employer Contributions 486 857 Benefits Paid (3,019) (2,791) Plan Assets at Fair Value, November 30 $ 37,245 $ 43,724 The reconciliation of the Prepaid/(Accrued) for the plans at December 28, 2002 and December 29, 2001 is as follows: 2002 2001 Reconciliation of Prepaid/(Accrued) Funded Status of the Plan $ (10,315) $(1,880) Unrecognized Net (Gain)/Loss 16,804 4,878 Unrecognized Prior Service Cost (312) (357) Unrecognized Net Transition (Asset)/Obligation 97 3,161 Net Amount Recognized $ 6,274 $ 5,802 Prepaid Benefit Cost $ -- $ 3,785 Accrued Benefit Liability (9,249) (2,736) Accumulated Other Comprehensive Income 15,523 4,753 Net Amount Recognized $ 6,274 $ 5,802 Components of Net Periodic Benefit Cost for Fiscal Year 2002 2001 2000 Service Cost $ 280 $ 217 $ 569 Interest Cost 3,128 3,106 3,311 Expected Return of Plan Assets (3,594) (3,987) (4,026) Amortization of Unrecognized: Net Loss 218 86 110 Prior Service Cost (45) (45) (59) Net Transition (Asset)/Obligation 27 27 27 Net Periodic Pension (Income)/Cost $ 14 $ (596) $ (68) Other Comprehensive (Loss)/Income $(10,770) $ (419) $ (1,533) Accrued Benefit Obligation, November 30 $ 46,494 $ 44,456 $ 46,715 Assumptions used in accounting for defined benefit pension plans are as follows: 2002 2001 2000 Qualified Qualified Qualified Plans Plans Plans Discount rate 6.75% 7.00% 7.50% Rate of increase in compensation levels 4.00% 5.00% 5.00% Expected long-term rate of return on assets 8.50% 8.50% 8.50% 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 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 $2,751, $2,112 and $2,330 in 2002, 2001 and 2000, 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 The Company sponsors the Salant Corporation Long Term Savings and Investment Plan, under which eligible employees may contribute up to 50% of their annual compensation, subject to certain limitations, to a fixed income fund and/or selected mutual funds. The Company contributes a minimum matching amount of 20% of the first 6% of a participant's annual compensation that the participant elects to contribute under the plan, and may contribute an additional discretionary amount. In 2002, 2001 and 2000 Salant's aggregate contributions to the Long Term Savings and Investment Plan amounted to $92, $115 and $111, respectively. Note 14. Stock Options and Shareholder Rights The Salant Corporation 1999 Stock Award and Incentive Plan (the "Incentive Plan") provides for the issuance of stock options to employees, executive officers and directors to purchase common stock. The Incentive Plan also provides that the decision to grant any additional stock options and the administration of the Incentive Plan will be at the discretion of the non-management members of the board of directors of Salant. The following table summarizes stock option transactions during 2000, 2001 and 2002: Weighted Average Exercise Shares Price Range Price Options outstanding at January 1, 2000 914,945 $4.125-5.875 $4.13 Options granted during 2000 33,000 $2.50-2.87 $2.64 Options exercised during 2000 0 Options surrendered or cancelled during 2000 (134,001) $4.125-5.875 $4.16 Options outstanding at December 30, 2000 813,944 $2.50-4.125 $4.07 Options granted during 2001 217,500 $1.64 $1.64 Options exercised during 2001 0 Options surrendered or canceled during 2001 (76,667) $1.64-4.125 $3.53 Options outstanding at December 29, 2001 954,777 $1.64-4.125 $3.56 Options granted during 2002 25,000 $2.35 $2.35 Options exercised during 2002 0 Options surrendered or cancelled during 2002 (49,166) $1.64-4.125 $3.39 Options outstanding at December 28, 2002 930,611 $1.64-4.125 $3.53 Options exercisable at December 28, 2002 848,956 $1.64-4.125 $3.70 Options exercisable at December 29, 2001 814,291 $1.64-4.125 $3.88 The following tables summarize information about outstanding stock options as of December 28, 2002 and December 29, 2001:
Options Outstanding Options Exercisable Weighted Average Number Remaining Weighted Number Weighted Outstanding at Contractual Life Average Exercisable at Average Range of Exercise Price 12/28/02 Exercise Price 12/28/02 Exercise Price $1.64 195,834 8.92 $1.64 130,844 $1.64 $2.35-$2.87 40,500 8.89 $2.51 23,835 $2.62 $4.125 694,277 6.78 $4.13 694,277 $4.13 $1.64-$4.125 930,611 7.32 $3.53 848,956 $3.70 Weighted Average Number Remaining Weighted Number Weighted Outstanding at Contractual Life Average Exercisable at Average Range of Exercise Price 12/29/01 Exercise Price 12/29/01 Exercise Price $1.64 202,500 9.92 $1.64 67,513 $1.64 $2.50-$2.87 28,000 8.37 $2.67 22,501 $2.65 $4.125 724,277 7.78 $4.13 724,277 $4.13 $1.64-$4.125 954,777 8.25 $3.56 814,291 $3.88
In summary, as of December 28, 2002, there were 1,111,111 shares of common stock reserved for the issuance of stock options of which 180,500 shares of common stock were available for future grants of stock options or awards. All stock options are granted at fair market value of the common stock at the grant date. The weighted average fair market value of the common stock for which stock options were granted during 2002, 2001 and 2000 was $2.35, $1.64 and $2.64, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes multiple option pricing model with the following weighted average assumptions used for grants in 2002, 2001 and 2000, respectively: risk-free interest rate of 3.00%, 4.00% and 6.00%; expected dividend yield of 0% for all years; expected life of 5.50, 5.75 and 5.25 years; and expected volatility of 145%, 98% and 316%. The outstanding stock options at December 28, 2002 have a weighted average contractual life of 7.32 years. The Company accounts for the stock option plan in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost is recognized for stock option awards. Had compensation cost been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's pro forma net income/(loss) for 2002, 2001 and 2000 would have been $19,405, $(2,175) and $12,338, respectively. The Company's pro forma net income/(loss) per basic share for fiscal 2002, 2001 and 2000 would have been $2.07, $(0.22) and $1.25, respectively. Note 15. Deferred Liabilities December 28, December 29, 2002 2001 Deferred pension obligations $ 8,564 $ 2,898 Deferred rent 1,541 1,479 $10,105 $ 4,377 Note 16. Commitments and Contingencies Lease Commitments -- The Company conducts a portion of its operations in premises occupied under leases expiring at various dates through 2013. 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 retail outlet stores contain provisions for additional rent based upon sales. In 2002, 2001 and 2000, rental expense was $5,588, $5,653 and $3,891, respectively. As of December 28, 2002, 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 2003 5,925 2004 5,780 2005 5,214 2006 4,286 2007 3,878 Thereafter 18,031 Total (Not reduced by minimum $ 43,114 sublease rentals of $15,909) Employment Agreements -- The Company has employment agreements with certain executives, which provide for the payment of compensation aggregating approximately $2,496 in 2003 and $475 in 2004. In addition, such employment agreements provide for incentive compensation based on various performance criteria. Note 17. Discontinued Operations In December 1998, the Company discontinued the operations of its Children's Group, which produced and marketed children's blanket sleepers, pajamas, sleepwear and underwear primarily using a number of well-known licensed characters and trademarks. In fiscal 2002 the Company recorded $31 of income related to favorable settlement of liabilities related to the Children's Group. At the end of fiscal 2002, $446 remained in the reserve, all of which related to severance and the other miscellaneous closing costs which, the Company expects to utilize during fiscal 2003. For the fourth quarter of fiscal 2001, the Company recorded income of $273 related to better than anticipated recovery on the settlement of liabilities related to the Children's Group. At the end of fiscal 2001, $461 remained in the reserve of which approximately $350 was for severance and the remaining balance related to the settlement of liabilities and other closing costs. As of December 29, 2001, the Children's Group had assets of $9, accrued liabilities of $41 and a reserve of $461, resulting in net liabilities of discontinued operations of $493. For the fourth quarter of fiscal 2000, the Company recorded income of $569 related to better than anticipated recovery on the sale of assets (primarily real estate holdings) related to the Children's Group. At the end of fiscal 2000, $550 remained in the reserve of which approximately $350 was for severance and the remaining balance related to the disposal of assets and other costs. As of December 30, 2000, the Children's Group had assets of $30, accrued liabilities of $224 and a reserve of $550, resulting in net liabilities of discontinued operations of $744. Note 18. Accumulated Other Comprehensive Income/(Loss) Accum- Foreign Minimum ulated Currency Pension other Translation Liability Compre- Adjust- Adjust- hensive ments ments Income/ (Loss) 2002 Beginning of the year balance $ (113) $ (4,753) $ (4,866) 12 month change (4) (10,770) (10,774) End of the year balance $ (117) $ (15,523) $ (15,640) Accum- Foreign Minimum ulated Currency Pension other Translation Liability Compre- Adjust- Adjust- hensive ments ments Income/ (Loss) 2001 Beginning of the year balance $ (118) $(4,334) $(4,452) 12 month change 5 (419) (414) End of the year balance $ (113) $(4,753) $(4,866) 2000 Beginning of the year balance $ (143) $ (2,801) $ (2,944) 12 month change 25 (1,533) (1,508) End of the year balance $ (118) $ (4,334) $ (4,452) Note 19. Quarterly Financial Information (Unaudited)
Fiscal year ended December 28, 2002 Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $251,903 $78,169 $63,811 $49,648 $60,275 Gross profit 74,084 24,977 18,756 14,270 16,081 Net income 19,553 13,608 4,282 1,200 463 Diluted earnings per share $2.06 $1.55 $0.47 $0.12 $0.05 Fiscal year ended December 29, 2001 Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $207,773 $59,199 $55,098 $44,028 $49,448 Gross profit 45,425 10,410 12,858 11,644 10,513 Net (loss)/income (1,876) (1,193) 1,409 307 (2,399) Diluted (loss)/earnings per share $(0.19) $(0.12) $0.14 $0.03 $(0.24)
Reference is made to Notes 3, 12 and 17 concerning fourth quarter adjustments during the years ended December 28, 2002 and December 29, 2001. Note 20. Legal Proceedings The Company is a defendant in several legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flow. Note 21. Subsequent Events On February 3, 2003, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Perry Ellis International, Inc., a Florida corporation ("PEI") and Connor Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of PEI. Under the terms of the Merger Agreement, PEI will acquire the Company in a stock/cash transaction with a total merger consideration of approximately $91,000,000, comprised of approximately $52,000,000 in cash and approximately $39,000,000 worth of newly issued shares of PEI common stock (the "Merger"). Each holder of outstanding common stock of the Company will receive approximately $9.3691 per share comprised of at least $5.3538 per share of cash and up to $4.0153 per share of PEI common stock. The Merger Agreement provides that the maximum number of shares of PEI common stock to be issued in the Merger is limited to 3,250,000, in which case the remaining merger consideration will be paid in cash. The exact fraction of a share of PEI common stock that the Company stockholders will receive for each of their shares will be determined based on the Nasdaq average closing sale price of the PEI common stock for the 20-consecutive trading day period ending three trading days prior to the closing date. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of PEI. The Merger has been approved by all of the members of the Board of Directors of the Company. The Merger requires that a majority of the stockholders of the Company approve the Merger and that a majority of the stockholders of PEI approve the issuance of up to 3,250,000 shares of PEI's common stock in connection with the Merger Agreement, and is subject to SEC approval, Hart-Scott-Rodino regulatory review, the absence of material adverse changes, and certain other customary closing conditions. Stone Ridge Partners LLC is serving as financial advisor to the Company and has delivered a fairness opinion to the Company's board of directors. In addition, George Feldenkreis, PEI's Chairman and CEO, and Oscar Feldenkreis, PEI's President and COO, have each agreed to vote the PEI shares they control in favor of the issuance of the PEI common stock in the transaction. Pursuant to the Merger Agreement, PEI also agreed to file and maintain in effect a registration statement for the Company's affiliates to enable them to resell shares of PEI common stock they receive in the Merger without legal restriction. The Company has amended the Rights Agreement dated May 17, 2002, between the Company and Mellon Investor Services LLC to provide that the Merger will not trigger any rights or events thereunder. It is anticipated that the Merger will be consummated in June 2003. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information, as of March 6, 2003 with respect to the members of the Board of Directors (the "Board of Directors"), the Chief Executive Officer and each of the four most highly compensated other executive officers of the Company (the "Named Executive Officers"):
First Term Name Age Positions and Offices Elected Expires Michael J. Setola 44 Chairman of the Board and 1998 2005 Chief Executive officer G. Raymond Empson 65 Director 1999 2004 Ben Evans 73 Director 1999 2004 Rose Peabody Lynch 53 Director 1999 2005 Awadhesh K. Sinha 57 Chief Operating Officer and Chief Financial Officer William O. Manzer 50 President of Perry Ellis Menswear Division Jerry J. Kwiatkowski 41 Executive Vice President of Design Howard Posner 47 Executive Vice President of Global Sourcing
Biographical information concerning the directors and Named Executive Officers is set forth below: Michael J. Setola was appointed as a member of the Board of Directors and its Chairman on December 29, 1998, at which time he was also appointed Chief Executive Officer of the Company. Prior to that time, Mr. Setola served as President of Salant's Perry Ellis Division since January 1994 and President of Salant's Children's Division from October 1991 to January 1994. G. Raymond Empson was appointed as a member of the Board of Directors on May 11, 1999. Mr. Empson has served as the Chief Executive Officer, President and director of Keep America Beautiful, Inc., a non-profit, public education organization dedicated to the enhancement of American communities through beautification, litter prevention, recycling and neighborhood improvement programs since 1997. Prior to that, from 1994 to early 1997, Mr. Empson was an independent business consultant to institutional investors, boards of directors and corporate management with respect to strategic and operational issues. From 1991 to 1994, he was President and Chief Executive Officer of Collection Clothing Corp. Prior to that, until 1990, Mr. Empson was President and Chief Executive Officer of Gerber Childrenswear, Inc. From 1976 to 1986, he was Executive Vice President of Buster Brown Apparel, Inc. Ben Evans was appointed as a member of the Board of Directors on May 11, 1999. From 1989 until his retirement in 1999, Mr. Evans was a consultant for Ernst & Young in its corporate financial services group, concentrating in the bankruptcy area. He became a partner at that firm in 1968. From 1978 through 1989, Mr. Evans was a member of the corporate financial service group of Ernst & Whinney, a predecessor firm to Ernst & Young, concentrating on bankruptcy assignments, generally on behalf of unsecured creditors' committees, with special emphasis in the apparel, retailing, food, drug and pharmaceutical industries. Mr. Evans joined S.D. Leidesdorf & Company, a predecessor firm to Ernst & Young, in 1954 as a junior accountant. Mr. Evans is also a director of Hampton Industries, Inc. and Factory Card and Party Outlet Corporation. Rose Peabody Lynch was appointed as a member of the Board of Directors on May 11, 1999. Ms. Lynch has served as the President of Market Strategies, LLC, a marketing strategy consulting firm based in New York City since 1999 when she founded the firm. From 1996 to 1999 Ms. Lynch was an independent consultant. From 1993 to 1996 Ms. Lynch was the Vice President and General Merchandise Manager of Victoria's Secret Bath and Fragrance in Columbus, Ohio. Prior to that, Ms. Lynch was President of Trowbridge Gallery, from 1989 to 1993. From 1987 to 1989 Ms. Lynch was President of Danskin, Inc. From 1982 to 1987 Ms. Lynch held marketing director positions at Elizabeth Arden and Charles of the Ritz. Awadhesh K. Sinha was elected Chief Financial Officer of Salant in February 1999 and to the additional office of Chief Operating Officer in July 1999. Prior to this time, Mr. Sinha was Executive Vice President of Operations and Chief Financial Officer of the Perry Ellis Division since 1998, Executive Vice President and Chief Financial Officer of the Perry Ellis Division since 1992, and Vice President of Finance of the Manhattan Industries Group since 1983. Mr. Sinha joined the Company as a Division Controller in 1981. William O. Manzer was appointed President of the Perry Ellis Menswear Division in May, 2000. Prior to this time, Mr. Manzer was Executive Vice President of Merchandising for the Company as of May, 1999 and Executive Vice President of Merchandising of the Perry Ellis Division since January, 1995. Jerry J. Kwiatkowski was appointed Executive Vice President of Design for the Company in May, 1999. Prior to this, Mr. Kwiatkowski was Vice President of Design for the Perry Ellis Division since June 1994. Howard Posner was appointed Executive Vice President of Sourcing for the Company in May, 1999. Prior to this, Mr. Posner was Executive Vice President of Global Sourcing for the Company since 1996. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers and holders of more than 10% of the common stock to file with the SEC reports of ownership and changes in beneficial ownership of common stock and other equity securities of the Company on Forms 3, 4 and 5. Based on the Company's review of the copies of such reports received by the Company, the Company believes that for the 2002 fiscal year, all Section 16(a) filing requirements applicable to its officers, directors and 10% stockholders were complied with. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all compensation awarded or earned for fiscal years 2000 through 2002 for services in all capacities to the Company by the Named Executive Officers.
Summary Compensation Table Annual Long Term Compensation(1) Compensation Number of Securities Underlying Options All Other Name and Principal Position Year Salary ($) Bonus ($) Granted Compensation ($) Michael J. Setola 2002 850,000 1,147,500 0 46,360 (2) Chairman of the Board of Directors 2001 773,558 0 37,500 46,260 (2) and Chief Executive Officer 2000 699,038 700,000 0 46,260 (2) Awadhesh K. Sinha 2002 420,000 399,000 0 10,360 (3) Chief Operating Officer 2001 400,000 0 20,000 10,260 (3) and Chief Financial Officer 2000 349,520 210,000 0 10,260 (3) William O. Manzer 2002 442,917 379,525 0 4,800 (3) President of Perry Ellis Menswear(4) 2001 425,000 0 20,000 4,800 (3) 2000 310,962 175,000 0 4,150 (3) Howard Posner 2002 325,000 231,000 0 8,920 (3) Executive Vice President of Sourcing 2001 296,923 0 10,000 8,820 (3) 2000 277,692 98,000 0 8,720 (3) Jerry J. Kwiatkowski 2002 336,250 236,250 0 6,000 (3) Executive Vice President of Design 2001 326,923 0 5,000 6,000 (3) 2000 308,462 108,500 0 8,054 (3)
(1) Includes amounts earned in fiscal year, whether or not deferred. (2) Consists of (i) housing allowance of $36,000, (ii) auto allowance and (iii) matching contributions under the Company's Long Term Savings and Investment Plan (the "Savings Plan"). (3) Consists of (i) auto allowance and (ii) matching contributions under the Savings Plan. (4) Mr. Manzer was appointed President of Perry Ellis Menswear in May, 2000. Option Grants for Fiscal Year 2002 None of the members of the Board of Directors and Named Executive Officers received any option grants during the last completed fiscal year. Option Exercises and Values for Fiscal Year 2002 None of the Named Executive Officers exercised any stock options during fiscal year 2002. The following table sets forth, as of December 28, 2002, for each of the Named Executive Officers, (i) the total number of unexercised options to purchase common stock (exercisable and unexercisable) held at December 28, 2002 and (ii) the value of such options which were in-the-money at December 28, 2002 (based on the difference between the closing price of the common stock on December 27, 2002, the last trading day of the fiscal year ended December 28, 2002 and the exercise price of the option). The Company has not issued any stock appreciation rights. Aggregated Fiscal Year-End 2002 Option Values
Value of Unexercised Number of Securities Underlying In-the-Money Options Unexercised Options at Fiscal Year-End(1) at Fiscal Year-End Name Exercisable Unexercisable(2) Exercisable Unexercisable(2) Michael J. Setola 302,777 12,500 $ 205,944 $ 37,000 Awadhesh K. Sinha 113,334 6,666 $ 86,969 $ 19,731 William O. Manzer 63,334 6,666 $ 63,219 $ 19,731 Howard Posner 56,667 3,333 $ 43,484 $ 9,866 Jerry J. Kwiatkowski 53,334 1,666 $ 33,619 $ 4,931
(1) The closing price of the common stock on December 27, 2002, the last trading day of the 2002 fiscal year, was $4.60 per share. (2) On the occurrence of a change of control (as defined in the Incentive Plan), these shares will become fully exercisable. Salant Corporation Retirement Plan Salant sponsors the Salant Corporation Retirement Plan (the "Retirement Plan"), a noncontributory, final average pay, defined benefit plan. A participant becomes vested upon completion of 5 years of service. The Retirement Plan provides pension benefits and benefits to surviving spouses of participants who die prior to retirement. The following table shows the annual pension benefits which would be payable to participants of the Retirement Plan at normal retirement after specific periods of service at selected salary levels, assuming the continuance of the Retirement Plan.
ESTIMATED ANNUAL PENSION PAYABLE TO PARTICIPANTS UPON RETIREMENT AT AGE 65 Average Annual Compensation in Number of Years of Service (2) Highest Five Consecutive Years of the Last 15 Years Preceding Retirement(1) 10 20 25 30 35 $ 60,000................................... $4,187 $8,375 $10,467 $12,560 $14,653 80,000................................... 6,687 13,373 16,717 20,060 23,403 100,000................................... 9,187 18,373 22,967 27,560 32,152 120,000................................... 11,687 23,373 29,217 35,060 40,903 150,000................................... 15,437 30,873 38,592 46,310 54,028 180,000................................... 19,187 38,373 47,967 57,560 67,153 200,000................................... 21,687 43,373 54,217 65,060 75,903
(1) Effective from 1989 through 1993, no more than $200,000 of compensation (adjusted for inflation) may be recognized for the purpose of computing average annual compensation. Effective 1994 through 2001, no more than $200,000 of compensation may be recognized for such purpose and subsequent to 2001, no more than $200,000 of compensation (adjusted for inflation) may be recognized for such purpose. (2) Messrs. Setola, Sinha, Posner, Kwiatkowski and Manzer have, respectively, 11 years, 21 years, 24 years, 9 years, and 8 years of credited service under the Retirement Plan. (3) The estimated pension amounts payable to members upon retirement are computed based on a life annuity payable at age 65 and are not subject to any deduction for social security amounts due the employee. Directors Compensation Directors who are not employees of Salant are paid an annual retainer of $13,000 and an additional fee of $600 for attendance at each meeting of the Board of Directors or of a committee of the Board of Directors (other than the Executive Committee) as well as $5,000 per year for service on the Executive Committee, $3,000 per year for service on the Audit Committee, $2,000 per year for service on the Compensation Committee, $2,000 per year for service on the Qualified Plan Committee, and $1,000 per year for service on the Nominating Committee. In addition, the Chairperson of each Committee is paid an annual fee of $1,000. Meetings of the Board of Directors and the Committees During the 2002 fiscal year, there were six meetings of the Board of Directors. During the 2002 fiscal year, none of the directors attended fewer than 75 percent of the aggregate number of meetings held by (i) the Board of Directors during the period that he or she served as a director, and (ii) the committees of which he or she was a member during the period that he or she served on these committees. In addition, during the 2002 fiscal year, there were six informal meetings of the non-management directors for the purpose of retaining a financial advisor to provide a valuation of the Company and to assist the Company in exploring strategic alternatives. The Board of Directors has established five standing committees to assist it in the discharge of its responsibilities. The Executive Committee did not formally meet during the 2002 fiscal year. The members of this Committee are Mr. Setola (Chairperson) and Mr. Empson. The Committee, to the extent permitted by law, may exercise all the power of the Board of Directors during intervals between meetings of the Board of Directors. The Audit Committee met six times during the 2002 fiscal year. The members of the Committee are Mr. Evans (Chairperson), Mr. Empson and Ms. Lynch. The Committee meets independently with representatives of the Company's independent auditors and reviews the general scope of their work and the results thereof. In addition, the Committee reviews the Company's financial statements and other documents submitted to stockholders and regulators, and affirms the independence of the independent auditors. The Committee also reviews the fees charged by the independent auditors and matters relating to internal control systems, and meets periodically with the Company's Chief Financial Officer. The Committee is responsible for reviewing and monitoring the performance of non-audit services by the Company's independent auditors and for recommending to the Board of Directors the selection of Salant's independent auditors. The Compensation Committee met four times during the 2002 fiscal year. The members of the Committee are Ms. Lynch (Chairperson), Mr. Empson and Mr. Evans. Until November 2002, when Talton R. Embry resigned from the Board of Directors, the members of the Committee were Mr. Embry (Chairperson), Mr. Empson and Ms. Lynch. The Committee is responsible for reviewing and recommending to the Board of Directors compensation for officers and certain other management employees and for administering and granting awards under the Company's Stock Award and Incentive Plan. The Nominating Committee did not formally meet during the 2002 fiscal year. The members of the Committee are Ms. Lynch (Chairperson) and Mr. Evans. The Committee is responsible for proposing nominees for director for election by the stockholders at each Annual Meeting and proposing candidates to fill any vacancies on the Board of Directors. Although there are no formal procedures for stockholders to make recommendations for committee appointments or recommendations for nominees to the Board of Directors, the Board of Directors will consider recommendations from stockholders. The Qualified Plan Committee met four times during the 2002 fiscal year. The members of the Committee are Mr. Empson (Chairperson) and Ms. Lynch. The Committee is responsible for overseeing the administration of the Company's pension and savings plans. Employment Contracts; Termination of Employment and Change-of-Control Arrangements Michael J. Setola Employment Agreement. The Company entered into an employment agreement dated May 17, 1999 with Michael J. Setola (the "Original Setola Agreement") which was amended pursuant to an amendment dated November 25, 2002 (the "Setola Amendment" and collectively with the Original Setola Agreement, the "Setola Agreement") pursuant to which Mr. Setola serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. The Original Setola Agreement provides for an initial term that ended on December 31, 2000, subject to automatic one year extensions thereafter, unless either party notifies the other, at least 180 days prior to the expiration of the then existing term, of such party's intention not to extend the then existing term, in which case the term will end at the expiration of the then existing term. The Setola Agreement was automatically extended through December 31, 2003. The annual rate of Mr. Setola's base salary for the 2003 calendar year is $925,000. Pursuant to the Setola Amendment, Mr. Setola is no longer entitled to automatic increases in his base salary and Mr. Setola's base salary for each calendar year after the 2003 calendar year shall be paid at an annual rate equal to the rate in effect for the preceding calendar year with increases within the discretion of the Board of Directors. Mr. Setola, pursuant to the Original Setola Agreement, is also eligible to receive an annual incentive bonus for each fiscal year based upon the attainment of targeted pre-tax income set forth in the Company's annual business plan for such fiscal year ("Targeted Income"). The amount of Mr. Setola's annual incentive bonus for the 2000 fiscal year and each fiscal year thereafter is determined as follows: (i) if the Company's actual pre-tax income equals 100% of Targeted Income ("Targeted Income is Attained"), the annual incentive bonus amount is 100% of his base salary for such fiscal year; (ii) if the Company's actual pre-tax income exceeds 100% of Targeted Income ("Targeted Income is Exceeded"), the annual incentive bonus amount is (A) 100% of his base salary for such fiscal year, plus (B) 1% of his base salary for each full 1% by which the Company's actual pre-tax income exceeded the Targeted Income; (iii) if the Company's actual pre-tax income exceeds 90% of Targeted Income but is less than 100% of Targeted Income ("More than 90% of Targeted Income is Attained"), the annual incentive bonus amount is (A) 100% of his base salary for such fiscal year, minus (B) 2% of his base salary for such fiscal year for each full 1% by which the Company's actual pre-tax income is less than Targeted Income; and (iv) if the Company's actual pre-tax income equal 90% of Targeted Income ("90% of Targeted Income is Attained"), the annual incentive bonus amount is 80% of his base salary for such fiscal year. No annual incentive bonus is payable if the Company's actual pre-tax income is less than 90% of Targeted Income. Mr. Setola's annual incentive bonus, if any, is payable within 90 days of the last day of the fiscal year for which it is being paid. In accordance with the foregoing, Mr. Setola's annual incentive bonus in respect of the 2002 fiscal year was $1,147,500. In 1999 Mr. Setola received a grant of non-qualified options (pursuant to the Original Setola Agreement and the Company's Stock Award and Incentive Plan) to purchase 2.5% of then issued and outstanding shares of the Company's common stock on a fully diluted basis, exercisable at a per share exercise price of $4.125 (the "Guaranteed Options"). The Guaranteed Options were fully vested as of December 31, 2000. Additional options may be granted to Mr. Setola in the Board of Director's discretion. Mr. Setola is required, pursuant to the Original Setola Agreement, to devote substantially all of his business time to the affairs of the Company and, subject to certain excluded activities, generally is restricted during the term of his employment and in the event his employment is terminated until the later of the last day of the then existing employment term (without giving effect to any termination of employment) or the Severance Period (as defined below) (the period of restriction is collectively referred to as, the "Restricted Period"), from being engaged in the design, manufacture and/or wholesale or retail sale of designer men's apparel (and or such other additional business in which the Company or its subsidiaries becomes engaged) and for the Restricted Period plus an additional year following the Restricted Period, from hiring or soliciting any person who is employed by the Company on the termination date and whose annual salary is equal to or greater than $100,000. Mr. Setola may reduce the length of the Restricted Period by waiving any payments or benefits otherwise payable during any applicable Severance Period. Mr. Setola is also bound by standard confidentiality obligations and has the right to indemnification on the same terms as the Company's other directors and officers. The Original Setola Agreement provides that if Mr. Setola's employment is terminated by the Company other than for cause (as defined in the Setola Agreement) or other than as a result of his death or disability (as defined in the Setola Agreement) or by Mr. Setola for good reason (as defined in the Setola Agreement), Mr. Setola is entitled to: (i) base salary through the date of termination ("Accrued Salary"); (ii) base salary at the annualized rate then in effect for (A) a 12-month period commencing on the date of termination if such termination occurs prior to a change of control or (B) the period beginning upon such termination and ending on the earlier of the 12-month anniversary of such termination or December 31, 2000 if such termination occurs after a change of control ("Severance Period"); (iii) pro-rated annual incentive bonus ("Pro-Rated Bonus"); (iv) continued participation in the Company's benefit plans (to the extent permissible under such benefit plans and applicable law) until the earlier of the last day of the Severance Period and the day Mr. Setola receives equivalent coverage from a subsequent employer (determined on a benefit plan by benefit plan basis); (v) the right to exercise all vested and unvested stock options then held by Mr. Setola ("Exercise of All Options") until the earlier of the 6-month anniversary of the date of termination and the last day of the exercise period of each such stock option (the "Expiration Date"); and (vi) any other amounts earned, accrued or owing to Mr. Setola through the date of termination but not yet paid ("Other Amounts Accrued"). If Mr. Setola's employment is terminated at the end of the term following notification by the Company of its intention not to extend the term, the Original Setola Agreement provides that Mr. Setola is entitled to the same payments and benefits as upon a termination by the Company without cause, except that the Severance Period is twelve months and that with respect to any stock options then held by Mr. Setola, Mr. Setola shall have the right to exercise only vested stock options until the earlier of the 60th day following the date of such termination or the Expiration Date. Should Mr. Setola's employment terminate due to his death or disability, the Original Setola Agreement provides that Mr. Setola is entitled to receive: (i) Accrued Salary; (ii) Pro-Rated Bonus; (iii) in the case of death, a lump sum cash payment equal 3 months base salary at the then current rate; (iv) Exercise of All Options until the earlier of the first anniversary of the date of such termination or the Expiration Date; (v) Other Amounts Accrued; and (vi) in the case of disability, benefits equal to the benefits provided under the Company's long term disability insurance plan. If Mr. Setola's employment is terminated by him other than for good reason or by the Company for cause, the Original Setola Agreement provides that Mr. Setola is entitled to receive: (i) Accrued Salary; and (ii) Other Accrued Amounts, and all options then held by Mr. Setola (other than the Guaranteed Options) shall be forfeited. Pursuant to the Original Setola Agreement, the Company shall pay all legal fees incurred by Mr. Setola as a result of a breach by the Company of its obligations under the Setola Agreement following a termination of Mr. Setola's employment or if Mr. Setola is the prevailing party in any proceeding to enforce the terms of the Setola Agreement. A termination by Mr. Setola of his employment, upon not less than sixty days notice, at any time following a change of control (as defined in the Original Setola Agreement) will be treated as a termination for good reason. Pursuant to the Setola Amendment, the sixty-day notice period was eliminated, entitling Mr. Setola to terminate his employment for good reason upon written notice to the Company at any time on or following the occurrence of a change of control. Additionally, pursuant to the Setola Amendment, upon a change of control and irrespective of whether Mr. Setola's employment is terminated, Mr. Setola will receive (i) in lieu of any severance payments, a lump sum cash payment in an amount equal to 216% of the annual rate of his base salary for the 2003 calendar year, plus an additional payment in an amount equal to 54.27% of the annual rate of his base salary for the 2003 calendar year if the change of control is negotiated by and approved by the Board of Directors (which is approximately $2,5000,000 collectively) and (ii) his annual incentive bonus pro-rated through the date of the change of control, payable upon the change of control. The cash payment made in lieu of severance shall not affect Mr. Setola's right to continued benefits upon termination of his employment. The Setola Amendment also provides that the Restricted Period will end on the date of the change of control. In addition, the Original Setola Agreement provides that if the aggregate value derived by Mr. Setola from the Guaranteed Options is less than an amount equal to the greater of (A) 0.8% of the aggregate value of the consideration received by the Company or its shareholders in connection with the change of control and (B) $675,000, Mr. Setola will receive a lump sum cash payment equal to the difference, subject to adjustment to account for the disposal of any shares acquired by Mr. Setola upon exercise of any Guaranteed Options. Awadhesh K. Sinha Employment Agreement. On February 1, 1999 the Company entered into an employment agreement with Awadhesh K. Sinha which was amended by agreements dated July 1, 1999 and March 28, 2001 (collectively, the "Original Sinha Agreement") and was further amended by agreements dated December 27, 2002 and January 31, 2003 (the December 27, 2002 and the January 31, 2003 agreements collectively referred to as the "Sinha Amendment," and collectively with the Original Sinha Agreement, the "Sinha Agreement") pursuant to which Mr. Sinha serves as Chief Operating Officer and Chief Financial Officer of the Company. Except as set forth below the terms and conditions of the Original Sinha Agreement are generally similar to those of the Original Setola Agreement. The initial term of the Original Sinha Agreement ended on December 31, 2001. The Original Sinha Agreement was automatically extended through December 31, 2003. The annual rate of Mr. Sinha's base salary for the 2003 calendar year is $420,000. The amount of Mr. Sinha's annual incentive bonus is determined in the same manner as Mr. Setola's annual incentive bonus except that: (i) if Targeted Income is Attained, the bonus amount is 60% of his base salary for such fiscal year; (ii) if Targeted Income is Exceeded, the annual incentive bonus amount is (A) 60% of his base salary for such fiscal year, plus (B) 1% of his base salary for each full 1% by which the Company's actual pre-tax income exceeded the Targeted Income; (iii) if More Than 90% of Targeted Income is Attained, the annual incentive bonus amount is (A) 100% of his base salary for such fiscal year, minus (B) 1.2% of his base salary for such fiscal year for each full 1% by which the Company's actual pre-tax income is less than Targeted Income; and (iv) if 90% of Targeted Income is Attained, the annual incentive bonus amount is 48% of his base salary for such fiscal year. In accordance with the foregoing, Mr. Sinha's annual incentive bonus in respect of the 2002 fiscal year was $399,000. Pursuant to the Original Sinha Agreement, the Severance Period upon a termination of Mr. Sinha's employment by the Company without cause or by him for good reason is the longer of twelve months from the date of termination or the remainder of the then existing employment term. In 1999, Mr. Sinha received (pursuant to the Original Sinha Agreement and the Stock Award and Incentive Plan) a grant of non-qualified options to purchase 100,000 shares of the Company's common stock. Pursuant to the Original Sinha Agreement, a termination by Mr. Sinha of his employment upon a change of control (as defined in Original Sinha Agreement and amended by the Sinha Amendment) will be treated as a termination for good reason (as defined in the Original Sinha Agreement). The Sinha Amendment requires that Mr. Sinha exercise such right within six months of the date of the change of control. Pursuant to the Sinha Amendment, upon a change of control and irrespective of whether Mr. Sinha's employment is terminated at the time of such change of control, Mr. Sinha will receive a lump sum cash payment (which payment is lieu of any severance payments only if Mr. Sinha's employment is terminated upon a change of control) in an amount equal to 150% of the annual rate of his base salary then in effect which amount based upon his current base salary would be $630,000. The cash payment made in lieu of severance shall not affect Mr. Sinha's right to continued benefits upon termination of his employment. In addition, the Sinha Amendment provides that Mr. Sinha will receive an additional lump sum cash payment equal to 60% of the annual rate of his base salary then in effect on the earlier of the six-month anniversary of the change of control, or, if earlier, the termination of Mr. Sinha's employment on or after the change of control by the Company other than for cause (as defined in the Original Sinha Agreement) or other than due to Mr. Sinha's death or disability (as defined in the Original Sinha Agreement) or by Mr. Sinha for good reason, which amount based upon his current base salary would be $252,000. The Sinha Amendment enables Mr. Sinha, either six months following a change of control or upon a termination of his employment by the Company without cause, to reduce the length of the applicable Restricted Period by waiving any payments or benefits otherwise payable during any applicable Severance Period. The Sinha Amendment also contains a change of control definition that consolidates several definitions of change of control which were part of the Original Sinha Agreement, and a provision that provides for a reduction of the payments and/or benefits payable to Mr. Sinha if such payments or benefits constitute excess parachute payments under the Internal Revenue Code of 1986, as amended. William O. Manzer Employment Agreement. On March 13, 2000 the Company entered into an employment agreement with William O. Manzer which was amended by an agreement dated July 27, 2001 (the "Original Manzer Agreement"), and further amended by an agreement dated January 31, 2003 (the "Manzer Amendment" and collectively with the Original Manzer Agreement, the "Manzer Agreement") pursuant to which Mr. Manzer serves as President, Perry Ellis Menswear. Except as set forth below the terms and conditions of the Original Manzer Agreement are generally similar to those of the Original Sinha Agreement. The Original Manzer Agreement has an initial term that ended on March 12, 2002, subject to automatic renewal annually. The Manzer Agreement was automatically extended through March 12, 2004. The annual rate of Mr. Manzer's base salary for the 2003 calendar year is $446,500. The amount of Mr. Manzer's annual incentive bonus is determined in the same manner as Mr. Sinha's annual incentive bonus except that: (i) if Targeted Income is Attained, the annual incentive bonus amount is 50% of his base salary for such fiscal year; (ii) if Targeted Income is Exceeded, the annual incentive bonus amount is (A) 50% of his base salary for such fiscal year, plus (B) 1% of his base salary for each full 1% by which the Company's actual pre-tax income exceeded the Targeted Income; (iii) if More Than 90% of Targeted Income is Attained, the annual incentive bonus amount is (A) 100% of his base salary for such fiscal year, minus (B) 1% of his base salary for such fiscal year for each full 1% by which the Company's actual pre-tax income is less than Targeted Income; and (iv) if 90% of Targeted Income is Attained, the annual incentive bonus amount is 40% of his base salary for such fiscal year. In accordance with the foregoing, Mr. Manzer's annual incentive bonus in respect of the 2002 fiscal year was $379,525. Pursuant to the Original Manzer Agreement, Mr. Manzer's Severance Period is 6 months (subject to discontinuation if Mr. Manzer becomes subsequently employed), plus severance in accordance with the Company's severance policy and Mr. Manzer is not entitled to continued participation in the Company's benefit plans following a termination of employment (other than as required pursuant to Company's severance policy or applicable law). Pursuant to the Manzer Amendment, a termination by Mr. Manzer of his employment following a change of control (as defined in the Manzer Amendment) based upon the successor company's failure to offer Mr. Manzer continuing employment on specific terms set forth in the Manzer Amendment (the "New Terms") will be treated as a termination for good reason (as defined in the Manzer Amendment) and the ninety day notice period otherwise applicable upon a termination by Mr. Manzer for good reason shall not apply in such case. Following a change of control, Mr. Manzer is entitled, pursuant to the Manzer Amendment, to receive a lump sum cash payment equal to 100% of the annual rate of his base salary then in effect (the "Retention Payment") on the six-month anniversary of the change of control, or, if earlier, upon termination of Mr. Manzer's employment on or after the change of control by the Company other than for cause (as defined in the Manzer Agreement) or other than due to Mr. Manzer's death or disability (as defined in the Manzer Agreement) or by Mr. Manzer for good reason, which amount based upon his current base salary would be $446,500. In addition to the Retention Payment and any other severance and benefits payable to Mr. Manzer, Mr. Manzer shall receive, pursuant to the Manzer Amendment, a lump sum payment equal to 50% of his severance entitlement (the "Enhanced Severance Payment") if Mr. Manzer's employment is terminated on or after the change of control and on or prior to the six-month anniversary of the change of control by the Company other than for cause or other than due to Mr. Manzer's death or disability, or by Mr. Manzer for good reason, which amount based upon his current base salary and entitlements would be $128,798. The Enhanced Severance Payment shall not be payable if Mr. Manzer accepts employment with the successor company on the New Terms. Both the Retention Payment and the Enhanced Severance Payment are payable to Mr. Manzer in addition to (and not in lieu of) any other payments and benefits, including any continuation of salary payments following termination of his employment. The Manzer Amendment also entitles Mr. Manzer to continued participation in the Company's benefit plans (to the extent permissible under such benefit plans and applicable law) until the earlier of the last day of the Severance Period and the day Mr. Manzer receives equivalent coverage from a subsequent employer (determined on a benefit plan by benefit plan basis). Jerry Kwiatkowski and Howard Posner Compensation Agreements. On August 24, 1999 the Company entered into an employment agreement with Jerry Kwiatkowski (the "Original Kwiatkowski Agreement") as amended by two letter agreements each dated February 4, 2003 (collectively the "Kwiatkowski Amendment" and the Kwiatkowski Amendment collectively with the Original Kwiatkowski Agreement, the "Kwiatkowski Agreement") pursuant to which Mr. Kwiatkowski serves as Executive Vice President Design. Similarly, on August 24, 1999 the Company entered into an employment agreement with Howard Posner (the "Original Posner Agreement") as amended by two letter agreements each dated December 16, 2002 and two letter agreements each dated January 31, 2003 (collectively, the "Posner Amendment" and the Posner Amendment collectively with the Original Posner Agreement, the "Posner Agreement") pursuant to which Mr. Posner serves as Executive Vice President of Global Sourcing. Except as set forth below, the terms and conditions of the Original Kwiatkowski Agreement and Original Posner Agreement are generally similar to the Original Manzer Agreement. The Original Kwiatkowski Agreement and the Original Posner Agreement have no specified term. The annual rate of Messrs. Kwiatkowski and Posner's base salary for the 2003 calendar year are $352,500 and $345,000, respectively. The salary of each of Messrs. Kwiatkowski and Posner will be reviewed annually for increases. Pursuant to the Original Kwiatkowski Agreement and the Original Posner Agreement, the amount of Messrs. Kwiatkowski's and Posner's annual incentive bonus is determined in the same manner as Mr. Manzer's annual incentive bonus except that: (i) if Targeted Income is Attained, the annual incentive bonus amount is 35% of his base salary for such fiscal year; (ii) if Targeted Income is Exceeded, the annual incentive bonus amount is (A) 35% of his base salary for such fiscal year, plus (B) 1% of his base salary for each full 1% by which the Company's actual pre-tax income exceeded the Targeted Income; (iii) if More Than 90% of Targeted Income is Attained, the annual incentive bonus amount is (A) 100% of his base salary for such fiscal year, minus (B) 0.7% of his base salary for such fiscal year for each full 1% by which the Company's actual pre-tax income is less than Targeted Income; and (iv) if 90% of Targeted Income is Attained, the annual incentive bonus amount is 28% of his base salary for such fiscal year. In accordance with the foregoing, Messrs. Kwiatkowski's and Posner's annual incentive bonuses in respect of the 2002 fiscal year were $236,250 and $231,000, respectively. Messrs. Kwiatkowski and Posner are not entitled to continuation of benefits upon termination of employment (other than as provided under the Company's severance policy or applicable law). Pursuant to the Kwiatkowski and Posner Amendments, each of Messrs. Kwiatkowski and Posner are entitled to a Retention Payment in an amount equal to 35% of the annual rate of such executive officer's then current base salary, which amounts based on each executive officer's current base salary would be $123,375 and $120,750 respectively. The Kwiatkowski and Posner Amendments also entitles each of Messrs. Kwiatkowski and Posner to an Enhanced Severance Payment, which amounts based on each executive officer's current base salary would be $203,365 and $252,115, respectively. Compensation Committee Interlocks and Insider Participation There are no interlocking relationships involving the Company's Compensation Committee which require disclosure under the executive compensation rules of the SEC. Report of the Compensation Committee on Executive Compensation This report sets forth the compensation policies that guide decisions of the Compensation Committee with respect to the compensation of the Company's Named Executive Officers. This report also reviews the specific rationale for decisions that affected compensation of the Named Executive Officers including the Chief Executive Officer during the fiscal year, and, in that regard, offers additional insight into the figures that appear in the compensation tables which are an integral part of the overall disclosure of executive compensation. Any consideration of pay-related actions that may become effective in future fiscal years are not reported in this statement. Committee Responsibility. The central responsibility of the Compensation Committee is to oversee executive compensation practices for the Company's executive officers. In this capacity, it reviews salaries, benefits, and other compensation paid to the Company's executive officers and recommends actions to the full Board of Directors with respect to these matters. In addition, in light of the Board of Director's decision in 2002 to explore potential strategic financial alternatives for the Company and hire Stone Ridge Partners LLC as a financial advisor to help management and the Board of Directors identify such alternatives, the Compensation Committee reviewed the compensation arrangements for the Company's officers, managers and other key employees whose ongoing contributions to the Company are highly valued in order to ensure that such employees were properly incentivized to remain in the employ of the Company and focus on their duties during the exploration, and potential implementation, of such alternatives, and in the event of a sale of the Company to remain in the employ of the buyer which would be an important consideration in attracting such buyer. Mr. Setola reported management's recommendations to the Compensation Committee at its September 17, 2002 meeting. The Compensation Committee authorized, in principle, various arrangements with senior management and other non-executive personnel, including the change of control payments, the retention (or so called "stay put") bonuses and other severance payments that would be payable if certain events occurred following a change of control of Salant. The Compensation Committee also administers the Company's 1999 Stock Award and Incentive Plan and, in this role, is responsible for granting stock options to all of the Company's eligible employees, including its executive officers. Executive Compensation Philosophy. In the context of its oversight roles, the Compensation Committee is dedicated to ensuring that the Company's financial resources are used effectively to support the achievement of its short-term and long-term business objectives. In general, it is the policy of the Company that executive compensation: (a) reflect relevant market standards for individuals with superior capabilities so as to ensure that the Company is effectively positioned to recruit and retain high-performing management talent; (b) be driven substantially by the Company's performance as measured by the achievement of internally generated earnings targets; and (c) provide incentives to create share price appreciation, thereby coordinating the interests of management and shareholders. In addition, the members of the Compensation Committee believe that the Company's current management should be properly incentivized to remain in the employ of the Company during the exploration of strategic financial alternatives, and possible implementation, of any such alternatives, and that keeping current management intact was critical to preserving the value of the Company. The members of the Compensation Committee believe that the Company's executive compensation program is well structured to achieve its objectives. These objectives are satisfied within the context of an overall executive compensation system that is comprised of a market driven base salary, performance based incentive bonus compensation, options to purchase the Company's common stock, retention bonus compensation and other severance arrangements. Description of Compensation Practices. It is the Company's practice to enter into employment agreements with its executive officers. These agreements specify the various components of compensation, including, among others, base salary and incentive bonus compensation. In addition, it is the Company's practice to enter into severance and other compensation agreements with certain other officers, managers and key employees consistent with industry practice. Base Salary. Base salaries for the Company's executive officers are defined in their respective employment agreements, and, in the view of the Compensation Committee, reflect base pay levels that generally are being commanded by high-quality management in the marketplace and are competitive in relation to comparable apparel companies. The Compensation Committee's normal practice is to review each executive officer's salary at the time of contract renewal, at which point adjustments are recommended to ensure consistency with pay expectations in the apparel industry and to reflect the extent of the executive's contribution to corporate performance over time. Annual Incentive Bonus. Annual incentive bonus payments to the Company's executive officers are based on the achievement of annual targeted earnings for the Company as set forth in the Company's annual business plan and are intended to motivate the Company's executive officers to maximize their efforts to meet and exceed annual earnings targets. The annual incentive bonuses payable to the Company's executive officers are formula based, as opposed to discretionary. The formulas used to determine the annual incentive bonuses for the Company's executive officers are set forth in the executive officers respective employment agreements. In general, the executive officers earn incremental cash compensation payable as annual incentive bonuses based on the extent to which the Company achieves and exceeds annual earnings targets. The Company's executive officers are paid a fixed percentage of their annual base salary in years when the Company's actual pre-tax income equals 100% of targeted pre-tax income set forth in the Company's annual business plan. The fixed percentage of annual base salary payable as an annual incentive bonus upon achievement of targeted earnings is reduced when the Company's actual earnings fall below targeted earnings, and is increased when the Company's earnings exceed targeted earnings. There is no limit on the overall bonus opportunity; however, in years in which the Company's actual pre-tax income falls below 90% of targeted pre-tax income set forth in the Company's annual business plan, no annual incentive bonus payments are payable. The fixed percentage of annual base payable as an annual incentive bonus upon achievement of targeted earnings, and the percentage reductions and increases when earnings fall below or exceed targeted earnings, are individually negotiated with each executive officer at the time the Company enters into his employment agreement, and as such are reflected in, such executive officer's employment agreement. See "Employment Contracts; Termination of Employment and Change-of-Control Arrangements". Severance Arrangements. Severance arrangements, which provide for the continuation of salary (and in certain cases continuation of benefits) following termination of employment for specified reasons, for the Company's executive officers are defined in their respective employment agreements. In the view of the Compensation Committee, the severance arrangements for the executive officers reflect severance arrangements that generally are being commanded by high-quality management in the marketplace and are competitive in relation to comparable apparel companies. Severance is typically provided upon a termination by the Company "without cause" (as defined in the applicable agreement) or by the employee for "good reason" (as defined in the applicable agreement). In certain cases, severance terminates upon, or is subject to offset by earning from, subsequent employment. The Compensation Committee's normal practice is to review each executive officer's severance arrangements at the time of contract renewal, at which point adjustments are recommended to ensure consistency with severance arrangements in the apparel industry and the executive officer's contributions and value to the Company. In addition to the Company's executive officers, certain other officers, managers, and key employees have severance arrangements which are defined in such employee's respective severance or employment letters. While many of the severance or employment letters were entered into in conjunction with the Company's bankruptcy in 1999, the severance or employment letters are generally entered into at the time the employee becomes employed by the Company. As a result of its review the Compensation Committee authorized, in principle, at its September 17, 2002 meeting, severance arrangements for certain employees. The continuation of salary payments for the non-executive officers, managers and key employees generally range from three to six months. Continuation of salary payments are typically paid in lieu of severance that would otherwise be payable under Salant's severance policy. Retention Bonuses. The Compensation Committee, as part of it review of the compensation arrangements for management and other key employees in the context of the exploration of strategic financial alternatives, determined that retention bonuses which would be payable on the six month anniversary of a change of control or, if earlier, upon termination of an employee's employment on or after the change of control by the Company "without cause" (as defined in the applicable agreement) or by the employee for "good reason" (as defined in the applicable agreement) would provide select employees with an adequate incentive to remain in the employ of the Company through the exploration process, the potential implementation of a strategic transaction and in the event of a change of control, through the initial transition phase. The Compensation Committee believes that preservation of its management team was essential to maintaining the value and future success of the Company. Each retention bonus is a lump sum cash payment equal to a specified percentage of each eligible employee's base salary which percentage is generally the same as the percentage of base salary payable to such employee as an annual bonus in the event the Company achieves targeted earnings. The Compensation Committee authorized, in principle, retention bonuses to certain executive and non-executive management personnel at its September 17, 2002 meeting and directed Mr. Setola to enter into such agreements with such employees as the employees became aware of the Company's exploration of strategic financial alternatives. Accordingly, on December 16, 2002 the Company entered into retention bonus letters with certain employees who were involved in the exploration of such alternatives (the terms of which were clarified to reflect the full intentions of the Compensation Committee in subsequent amendatory letter agreements entered into on January 31, 2003). The Board of Directors approved the terms of the amendatory letter agreements and ratified all past actions with respect to the retention bonuses at its meeting on January 24, 2003. The remainder of the employees eligible to receive retention bonuses entered into retention bonus letters in early February 2003 following the announcement and public disclosure that the Company had entered into a merger agreement with Perry Ellis International, Inc. ("PEI"). Enhanced Severance. The Compensation Committee, as part of it review of the compensation arrangements for management and other key employees in the context of the exploration of strategic financial alternatives, determined that in addition to retention bonuses, enhanced severance payments which would be payable if an employee's employment was terminated by the Company "without cause" (as defined in the applicable agreement) or by the employee for "good reason" (as defined in the applicable agreement) during the six month period following a change of control would provide the select employees with an adequate incentive to remain in the employ of the Company through the exploration process, the potential implementation of a strategic transaction and in the event of a change of control, through the initial transition phase. The Compensation Committee believes that preservation of its management team was essential to maintaining the value and future success of the Company. Each enhanced severance payment is a lump sum cash payment equal to 50% of the employee's severance entitlement. The Compensation Committee authorized, in principle, enhanced severance payments to certain executive and non-executive management personnel at its September 17, 2002 meeting and directed Mr. Setola to enter into such agreements with such employees as such employees became aware of the Company's exploration of strategic financial alternatives. Accordingly, on December 16, 2002 the Company entered into enhanced severance letters with certain employees who were involved in the exploration of such alternatives (the terms of which were clarified to reflect the full intentions of the Compensation Committee in subsequent amendatory letter agreements entered into on January 31, 2003). The Board of Directors approved the terms of the amendatory letter agreements and ratified all past actions with respect to the enhanced severance payments at its meeting on January 24, 2003. The remainder of the employees eligible to receive enhanced severance payments entered into enhanced severance letters in early February 2003, following the announcement and public disclosure that the Company had entered into a merger agreement with PEI. Stock Award and Incentive Plan. The Company reinforces the importance of producing attractive returns to shareholders over the long term through the operation of its Stock Award and Incentive Plan which provides recipients with the opportunity to acquire an equity interest in the Company and to participate in the increase in shareholder value reflected in an increase in the price of Company shares. 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 option. This ensures that executives will derive benefits while shareholders realize corresponding gains. To encourage a long-term perspective, options are assigned a 10-year term, and most options become exercisable in equal installments on the grant date and the first and second anniversaries of the date of grant. Stock options grants to executive officers typically are considered when employment agreements are initiated or renewed. The Compensation Committee bases its decision to grant stock options on (i) competitive factors, (ii) its understanding of current compensation practices in the apparel industry and (iii) its assessment of individual potential and performance. By granting stock options, the Committee is not only addressing market demands with respect to total compensation opportunities, but is also effectively reinforcing the Company's policy of encouraging executive stock ownership in support of building shareholder value. The Compensation Committee made recommendations for option grants of 25,000 shares to management personnel (other than the Company's executive officers) in 2002. Compensation of the Chief Executive Officer. Mr. Setola's compensation for 2002 represents a negotiated rate that reflects market prices for executives of his caliber and experience. Mr. Setola's base salary for fiscal year 2002 was $850,000. Unlike 2001 when Mr. Setola did not earn an annual incentive bonus, Mr. Setola was paid an annual incentive bonus of $1,147,500 in respect of fiscal year 2002, the amount of which was determined in accordance with the bonus formula set forth in Mr. Setola's employment agreement and reflects the Company's attainment of actual pre-tax income in fiscal year 2002 in excess of the targeted pre-tax income for such year as reflected in the Company's annual business plan. Mr. Setola received no fees for his service as Chairman of the Board of Directors and no additional stock options to acquire shares of the Company's common stock in 2002. The Compensation Committee deemed the annual incentive bonus and Mr. Setola's total compensation for fiscal year 2002 appropriate in light of Mr. Setola's contributions to the Company. In light of the Board of Director's decision in 2002 to explore potential strategic financial alternatives for the Company and hire Stone Ridge Partners LLC as a financial advisor to help management and the Board of Directors identify such alternatives, members of the Compensation Committee began informally reviewing Mr. Setola's compensation arrangements in late August 2002. The Compensation Committee concluded that Mr. Setola's employment agreement, entered into several years earlier in connection with the Company's bankruptcy, did not provide for any payments to Mr. Setola upon a change of control (including continuation of base salary for the remainder of the renewable one year term in the event of a termination of Mr. Setola's employment following a change of control), was not typical of similar employment agreements for chief executive officers in similar companies, and did not properly reflect Mr. Setola's role in working with Stone Ridge Partners LLC to explore potential strategic financial alternatives as well as in ensuring the viability and success of the Company as an ongoing concern in the event none of the alternatives were found to be beneficial. As part of the process of evaluating potential changes to Mr. Setola's compensation arrangements, the Compensation Committee analyzed, with the advice of Stone Ridge Partners LLC and legal counsel to the Company, comparable compensation arrangements and market standards. Accordingly, following various discussions with Mr. Setola regarding possible amendments to Mr. Setola's employment agreement between November 4, 2002 and November 8, 2002, the Compensation Committee authorized on November 8, 2002 certain amendments to Mr. Setola's employment agreement to provide Mr. Setola with appropriate incentives and to properly compensate him for his role in the exploration of potential strategic financial alternatives for the Company and, in the event of a potential sale of the Company, the marketing of the Company to obtain a premium purchase price for the Company thereby maximizing shareholder value and directed legal counsel to prepare the appropriate amendment to Mr. Setola's employment agreement. The amendment to Mr. Setola's employment agreement which was ultimately entered into on November 25, 2002, consistent with the Compensation Committee's directive of November 8, 2002, provides, among other things, for a cash payment of approximately $2,500,000 to Mr. Setola upon a change of control (in lieu of any continuation of salary payments which would otherwise be payable upon a termination of Mr. Setola's employment on or following a change of control) which the Compensation Committee deemed appropriate in light of Mr. Setola's role in maximizing shareholder value. See "Employment Contracts; Termination of Employment and Change-of-control Arrangements". Compensation of the Other Executive Officers. The Compensation Committee undertook a review process with respect to each of the other executive officer's compensation arrangements which was substantially similar to the process it undertook with respect to Mr. Setola. The Compensation Committee approved, in principle, in early November 2002 certain amendments to Mr. Sinha's and Mr. Manzer's employment agreements and directed Mr. Setola to negotiate and have such amendments prepared. Following various discussions in November 2002 and early December 2002 between Mr. Setola and Mr. Manzer, Mr. Manzer ultimately executed the amendment to his employment agreement on December 5, 2002 (the terms of which were clarified to reflect the full intentions of the Compensation Committee in a subsequent amendment entered into on January 31, 2003). Following various discussions in November 2002 and December 2002 between Mr. Setola and Mr. Sinha, and Mr. Setola and members of the Compensation Committee, Mr. Sinha ultimately executed the amendment to his employment agreement on December 27, 2002 (the terms of which were clarified to reflect the full intentions of the Compensation Committee in a subsequent amendment entered into on January 31, 2003). Following the Compensation Committee's approval, in principle, of the retention bonuses and other severance arrangements on September 17, 2002, Mr. Posner and Mr. Kwiatkowski entered into certain letter agreements on December 16, 2002 (the terms of which were clarified to reflect the full intentions of the Compensation Committee in a subsequent amendment entered into on January 31, 2003). The Board of Directors approved all of the above January 31, 2003 clarifications and ratified all past actions with respect to such amendments and letters at its January 24, 2003 meeting. See "Employment Contracts; Termination of Employment and Change-of-Control Arrangements". Summary. The Compensation Committee is responsible for a variety of compensation recommendations and decisions affecting the Company's executive officers. By conducting its decision-making within the context of a highly integrated, multicomponent framework, the Committee ensures that the overall compensation offered to executive officers is consistent with the Company's interest in providing competitive pay opportunities which reflect its pay-for-performance orientation and support its short-term and long-term business missions. The Compensation Committee will continue to actively monitor the effectiveness of the Company's executive compensation plans and assess the appropriateness of executive pay levels to assure prudent application of the Company's resources. COMPENSATION COMMITTEE Rose Peabody Lynch, Chairperson G. Raymond Empson Ben Evans Report of the Audit Committee of the Board of Directors The Audit Committee of the Board of Directors serves as an independent and objective party, on behalf of the Board of Directors, for general oversight of the Company's financial accounting and reporting process, system of internal controls, audit process for monitoring compliance with laws and regulations and the Company's standards of business conduct. The Audit Committee performs these oversight responsibilities in accordance with its Audit Committee Charter, which was approved by the Board of Directors on May 9, 2000. The Company's management has primary responsibility for preparing the Company's financial statements and the Company's reporting process. The Company's independent accountants and auditors, Deloitte & Touche LLP, are responsible for expressing an opinion as to whether the audited financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America. The Audit Committee met six times during 2002. The Audit Committee discussed with the Company's independent auditors the overall scope and plans for their audits. The Audit Committee met with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluation of the Company's internal controls, and the overall quality of the Company's financial reporting. In this context, the Audit Committee hereby reports as follows: 1. The Audit Committee has reviewed and discussed the audited financial statements with the Company's management, including the quality, not just the acceptability, of the Company's accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements; 2. The Audit Committee has discussed with the independent auditors their judgments as to the quality, not just the acceptability, of the Company's accounting principles and such other matters as are required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU Section 380), as may be modified or supplemented; 3. The Audit Committee has received the written disclosures and the letter from its independent accountants required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees", as may be modified or supplemented, and has discussed with the independent accountants the independent accountant's independence from management and the Company, and considered the compatibility of non-audit services with the accountant's independence; and 4. Based on the review and discussions referred to in paragraphs 1 through 3 above, the Audit Committee recommended to the Board of Directors (and the Board of Directors has approved) that the audited financial statements be included in this Annual Report on Form 10-K, for the fiscal year ended December 28, 2002, for filing with the Securities and Exchange Commission. The foregoing Audit Committee Report does not constitute soliciting material and shall not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates this Audit Committee Report by reference therein. Each of the members of the Audit Committee is independent as defined under the listing standards of the New York Stock Exchange. AUDIT COMMITTEE Ben Evans, Chairperson G. Raymond Empson Rose Peabody Lynch PERFORMANCE GRAPH The following graph and table compares the cumulative total shareholder return on Salant common stock with the cumulative total shareholder returns of (i) the S&P Apparel and Accessories Index and (ii) the Wilshire 5000 index, from December 1997 to December 2002. The return on the indices is calculated assuming the investment of $100 on December 31, 1997 and the reinvestment of dividends. Effective January 1, 2002, S&P replaced its S&P 500 Textile-Apparel Manufacturers index with the S&P Apparel and Accessories index. As noted earlier, on December 29, 1998 the Company filed for Chapter 11 bankruptcy protection and on April 16, 1999 the Bankruptcy Court issued an order confirming the Company's Plan. Base Period Company/Index Name Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 SALANT $100 $ 2.68 $ 5.24 $ 4.77 $ 3.43 $ 8.92 WILSHIRE 5000 $100 $123.43 $152.51 $135.89 $120.99 $ 95.75 S&P APPAREL & ACCESSORIES $100 $ 88.65 $ 67.85 $ 80.51 $ 91.16 $ 95.95 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT VOTING SECURITIES AND PRINCIPAL HOLDERS The following table sets forth certain information as of March 6, 2003 with respect to each person or group who is known to Salant Corporation (the "Company"), in reliance on Schedule 13D and 13G filings with the Securities and Exchange Commission (the "SEC") and other written documentation provided to the Company, to be the "beneficial owner" (as defined in regulations of the SEC) of more than 5% of the outstanding shares of the Company's common stock. BENEFICIAL OWNERS OF MORE THAN 5% OF THE OUTSTANDING SHARES OF SALANT COMMON STOCK
Name and Address Amount and Nature of Percent of of Beneficial Owner Beneficial Ownership Class(1) General Motors Investment Management Corp 2,545,042 (2) 28.98% (2) 767 Fifth Avenue New York, NY 10153 General Motors Trust Company (2) (2) 767 Fifth Avenue New York, NY 10153 High River Limited Partnership 100 South Bedford Road 1,807,898 (3) 20.59% (3) Mount Kisco, NY 10549 Riverdale LLC 100 South Bedford Road (3) (3) Mount Kisco, NY 10549 Carl C. Icahn C/O Icahn Associates Corporation 767 Fifth Avenue, 47th Floor (3) (3) New York, NY 10153 Board of Fire and Police Pension Commissioners of the City of Los Angeles 1,692,068(4) 19.30%(4) 360 East Second Street, Suite 600 Los Angeles, California 90012
(1) This percentage is calculated on the basis of 8,782,198 shares outstanding as of March 6, 2003. (2) General Motors Trust Company, as trustee for General Motors Employees Global Group Pension Trust (the "GM Trust") was formed under and for the benefit of the GM Plans (as defined below). General Motors Investment Management Corporation ("GMIMCo") is a registered investment adviser, and has the responsibility to select and terminate investment managers with respect to one or more employee benefit plans of General Motors Corporation (the "GM Plans"). GMIMCo has discretionary authority over the assets of the GM Plans which they manage including voting and investment power with respect to the Company's shares. Pursuant to SEC Rule 13(d)-4 under the Securities Exchange Act of 1934, the GM Trust and GMIMCo have declared that filings made thereunder shall not be construed as an admission that each is the beneficial owner of the common stock. Share information, relating to the GM Trust and GMIMCO, is furnished in reliance on the Schedule 13G dated February 14, 2003 filed with the SEC, which represents holdings as of December 31, 2002. (3) High River Limited Partnership ("High River") has the sole power to vote and dispose of the 1,807,898 shares of common stock beneficially owned by it. High River does not share the power to vote or to direct the vote of, or the power to dispose or to direct the disposition of, the common stock owned by it. Riverdale LLC ("Riverdale") as general partner of High River, may be deemed, for purposes of determining beneficial ownership pursuant to SEC Rule 13(d)-3, to have the shared power with High River to dispose or direct the disposition of, the 1,807,898 shares of common stock owned by High River. Mr. Carl C. Icahn, as the sole member of Riverdale, may be deemed, for the purpose of determining beneficial ownership pursuant to SEC Rule 13(d)-3, to have the shared power with High River to dispose or direct the disposition of the 1,807,898 shares of common stock owned by High River. Share information is furnished in reliance on the Schedule 13G dated July 26, 1999 of High River filed with the SEC, which represents holdings as of July 26, 1999. (4) Share information is furnished in reliance on Schedule 13G of the Board of Fire and Police Pension Commissioners of the City of Los Angeles dated February 10, 2003, filed with the SEC, which represents holdings as of December 31, 2002. Security Ownership of Directors and Named Executive Officers The following table sets forth certain information as of March 6, 2003 with respect to the beneficial ownership of common stock by each of the directors of the Company and Named Executive Officers, and all directors and Named Executive Officers of the Company as a group. Beneficial Ownership of Salant Common Stock by Directors and Named Executive Officers of Salant Amount and Nature of Percent of Name of Beneficial Owner Beneficial Ownership(1) Class(2) Michael J. Setola 324,368 (3) 3.6% Awadhesh K. Sinha 135,515(4) 1.5% William O. Manzer 63,334(5) * Howard Posner 56,667(5) * Jerry J. Kwiatkowski 53,334(5) * G. Raymond Empson 4,000(5) * Ben Evans 4,000(5) * Rose Peabody Lynch 4,000(5) * All directors and Named Executive Officers as a group (8 persons) 645,218(6) 6.9% * Represents less than one percent. (1) For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock which such person currently has the right to acquire, or will have the right to acquire, within 60 days following March 6, 2003. Stock Options expire ten years from the date of grant or earlier, due to the separation of the grantee from the Company, as defined in the Salant Corporation 1999 Stock Award and Incentive Plan. (2) As of March 6, 2003, there were 8,782,198 shares outstanding. For purposes of computing the percentage of outstanding shares of common stock held by each person named above, any security which such person or persons has the right to acquire within 60 days following March 6, 2003 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage of ownership of any other person. (3) This amount includes 21,591 shares held directly and 302,777 shares issuable upon the exercise of stock options which Mr. Setola has the right to acquire within 60 days following March 6, 2003. (4) This amount includes 22,181 shares held directly and 113,334 shares issuable upon the exercise of stock options which Mr. Sinha has the right to acquire within 60 days following March 6, 2003. (5) This amount represents shares issuable upon the exercise of stock options which such person has the right to acquire within 60 days following March 6, 2003. (6) The 645,218 shares held by all directors and executive officers of Salant include (i) 43,772 shares held directly by, or attributable to, directors and executive officers and (ii) 601,446 shares issuable upon the exercise of stock options held by all directors and executive officers that are exercisable on, or may become exercisable within sixty days following March 6, 2003. Securities Authorized For Issuance Under Equity Compensation Plans The following table provides information as of December 28, 2002 with respect to the Company's compensation plans under which shares of our common stock are authorized for issuance: Equity Compensation Plan Information
Number of securities remaining available for Number of securities to Weighted-average future issuance under be issued upon exercise exercise price of quity compensation plans of outstanding options, outstanding options, (excluding securities warrants and rights warrants and rights ereflected in column (A) Plan category (A) (B) (C) Equity compensation plans approved by security holders 930,611 $3.53 180,500 Equity compensation plans not approved by security holders n/a n/a n/a Total 930,611 $3.53 180,500
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS No transactions have occurred since December 30, 2001 (the first day of Salant's 2002 fiscal year) to which Salant was, or is to be, a party and in which directors, executive officers or control persons of Salant, or their associates, had or are to have a direct or indirect material interest. ITEM 14. CONTROLS AND PROCEDURES (a) Within the 90 days prior to the date of this report on Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings with the Securities and Exchange Commission. (b) There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date the Company carried out this evaluation. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are included in Item 8 of this Annual Report: Independent Auditors' Report Consolidated Statements of Operations Consolidated Statements of Comprehensive (Loss)/Income Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedule The following Financial Statement Schedule for the years ended December 28, 2002, December 29, 2001 and December 30, 2000 is filed as part of this Annual Report: Schedule II - Valuation and Qualifying Accounts and Reserves All other financial statement 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 28, 2002: Accounts receivable allowance for doubtful accounts $2,942 $ 759 $ -- $ 121 (A) $3,580 Reserve for business restructuring $ 584 $ -- $ -- $ 23 (B) $ 561 YEAR ENDED DECEMBER 29, 2001: Accounts receivable allowance for doubtful accounts $2,625 $ 763 $ -- $ 446(A) $2,942 Reserve for business restructuring $1,070 $ (100) $ -- $ 386(B) $ 584 YEAR ENDED DECEMBER 30, 2000: Accounts receivable allowance for doubtful accounts $2,419 $ 526 $ -- $320(A) $2,625 Reserve for business restructuring $2,308 $ (629) $ -- $609(B) $1,070
NOTES: (A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in plant closings and business restructuring. (a)(3) Exhibits
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Statement Exhibit 1 to Form 8-A dated of Salant Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Chapter 11 Included as Exhibit D-1 to Plan of Reorganization of Salant Exhibit 1 to Form 8-A dated Corporation and Denton Mills, Inc. dated July 28, 1993. 2.3 Chapter 11 Plan of Reorganization Exhibit 2.3 to Form 8-K dated for Salant Corporation, dated December 29, 1998. December 29, 1998. 2.4 Disclosure Statement for Chapter 11 Exhibit 2.4 to Form 8-K dated Plan of Reorganization, dated December 29, 1998. December 29, 1998. 2.5 First Amended Chapter 11 Plan of Exhibit 2.5 to Form 8-K dated Reorganization for Salant April 30, 1999. Corporation, dated February 3, 1999. 2.6 First Amended Disclosure Exhibit 2.7 to Annual Report on Statement for Chapter 11 Plan Form 10-K for Fiscal Year 1999. of Reorganization for Salant Corporation, dated February 3, 1999. 2.7 Order Pursuant to Section 1129 Exhibit 99.3 to Salant of the Bankruptcy Code Confirming Corporation's Current Report on the First Amended Plan of Form 8-K dated April 30, 1999. Reorganization of Salant Corporation, dated April 16, 1999. 2.8 Agreement and Plan of Merger, Exhibit 2.1 to Current Report Dated, February 3, 2003, by and on Form 8-K dated February 3, Among Salant Corporation, Perry 2003. Ellis International, Inc. and Connor Acquisition Corp. (With exhibits) 3.1 Form of Amended and Restated Included as Exhibit D-1 to Exhibit 2 Certificate of Incorporation of to Form 8-A dated July 28, 1993. of Salant Corporation. 3.2 Form of Bylaws, as amended, of Exhibit 3.2 to Form 10-K dated Salant Corporation, effective March 24, 1995. September 21, 1994. 3.3 Amended and Restated Exhibit 1.1 to Form 8-A dated Certificate of Incorporation of May 12, 1999. Salant Corporation, effective May 11, 1999. 3.4 Amended and Restated By-laws of Exhibit 1.2 to Form 8-A dated Salant Corporation, effective May 12, 1999. May 11, 1999. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report on December 8, 1987 between Salant 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 to the Exhibit 3 to Amendment No. 1 to Rights Agreement between Salant Form 8-A dated July 29, 1993. Corporation and Mellon Securities. 4.3 Indenture, dated as of Exhibit 10.34 to Quarterly Report September 20, 1993, between Salant on Form 10-Q for the quarter ended Corporation and Bankers Trust October 2, 1993. Company, as trustee, for the 10-1/2% Senior Secured Notes due December 31, 1998. 4.4 Rights Agreement, dated as of Exhibit 4 to the Company's May 17, 2002, between Salant Registration Statement on Corporation and Mellon Investor Form 8-A filed with the Services LLC, as Rights Agent. Securities and Exchange Commission on May 17, 2002. 4.5 Amendment No. 1, dated as of Exhibit 4.1 to Current Report on February 3, 2003, to the Rights Form 8-K dated February 3, 2003. Agreement dated as of May 19, 2002 between Salant Corporation and Mellon Investment Services LLC. 10.1 Revolving Credit, Factoring and Exhibit 10.33 to Quarterly Report Security Agreement dated on Form 10-Q for the quarter ended September 29, 1993, between Salant October 2, 1993. Corporation and The CIT Group/Commercial 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 1988 Stock Plan.* Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.4 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. 10.5 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. * Form 10-K for fiscal year 1988. 10.6 Form of Salant Corporation 1988 Exhibit 19.8 to Annual Report on Stock Plan Director Agreement. * Form 10-K for fiscal year 1988. 10.7 License Agreement, dated Exhibit 19.1 to Annual Report on January 1, 1991, by and between Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.8 License Agreement, dated Exhibit 19.2 to Annual Report on January 1, 1991, by and between Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's dress shirts. 10.9 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Report on Stock Plan Directors' Option Form 10-K for Fiscal Year 1993. Agreement. * 10.10 Letter Agreement, dated as of Exhibit 10.45 to Quarterly Report on August 24, 1994, amending the Revolving Credit, Factoring and Form 10-Q for the quarter ended Security Agreement, dated October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.11 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. 10.12 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.13 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.14 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. * 10.15 Fourth Amendment to Credit Exhibit 10.27 to Quarterly Report on Agreement, dated as of March 1, Form 10-Q for the quarter ended 1995, to the Revolving Credit, April 1, 1995. Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/ Commercial Services, Inc. 10.16 Fifth Amendment to Credit Exhibit 10.29 to Quarterly Report on Agreement, dated as of Form l0-Q for the quarter ended June 28, 1995, to the July 1, 1995. Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.17 Sixth Amendment to Credit Exhibit 10.30 to Quarterly Report on Agreement, dated as of Form l0-Q for the quarter ended August 15, 1995, to the July 1, 1995. Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.18 Letter from The CIT Group/ Exhibit 10.31 to Quarterly Report on Commercial Services, Inc., Form l0-Q for the quarter ended dated as of July 11, 1995, July 1, 1995. regarding the waiver of a default. 10.19 Letter Agreement between Exhibit 10.31 to Quarterly Report on Salant Corporation and The Form l0-Q for the quarter ended CIT Group/Commercial Services, July 1, 1995. Inc. dated as of July 11, 1995, regarding the Seasonal Overadvance Subfacility. 10.20 Seventh Amendment to Credit Exhibit 10.34 to Annual Report on Agreement, dated as of Form 10-K for fiscal year 1995. 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. 10.21 First Amendment to the Salant Exhibit 10.35 to Quarterly Report on Corporation Retirement Plan, dated Form 10-Q for the quarter ended as of January 31, 1996. * March 30, 1996. 10.22 First Amendment to the Salant Exhibit 10.36 to Quarterly Report on Corporation Long Term Savings and Form 10-Q for the quarter ended Investment Plan, effective as of March 30, 1996. January 1, 1994. * 10.23 Eighth Amendment to Credit Agreement, Exhibit 10.37 to Quarterly Report on dated as of June 1, 1996, to the Form 10-Q for the quarter ended Revolving Credit, Factoring and June 29, 1996. Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.24 Ninth Amendment to Credit Agreement, Exhibit 10.38 to Quarterly Report on dated as of August 16,1996, to the Form 10-Q for the quarter ended Revolving Credit, Factoring and June 29, 1996. Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.25 Salant Corporation 1996 Stock Plan.* Exhibit 10.40 to Annual Report on Form 10-K for Fiscal Year 1996. 10.26 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report on dated as of February 20, 1997, to Form 10-K for Fiscal Year 1996. 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. 10.27 Employment Agreement, dated as Exhibit 10.43 to Annual Report on of March 24, 1997, between Form 10-K for Fiscal Year 1996. Jerald S. Politzer and Salant Corporation. * 10.28 Employment Agreement, dated as of Exhibit 10.44 to Quarterly Report on May 1, 1997, between Todd Kahn and Form 10-Q for the quarter ended Salant Corporation. * June 28, 1997. 10.29 Employment Agreement, dated as of Exhibit 10.45 to Quarterly Report on August 18, 1997 between Philip A. Form 10-Q for the quarter ended Franzel and Salant Corporation. * June 28, 1997. 10.30 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly Report on Agreement, dated as of Form 10-Q for the quarter ended August 8, 1997, to the Revolving June 28, 1997. Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.31 Letter Agreement, dated Exhibit 10.48 to Current Report on March 2, 1998, by and among Salant Form 8-K dated March 4, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.32 Twelfth Amendment and Forbearance Exhibit 10.49 to Current Report on Agreement to Credit Agreement, dated Form 8-K dated March 4, 1998. as of March 2, 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.33 Thirteenth Amendment and Forbearance Exhibit 10.53 to Current Report on Agreement, dated as of June 1, 1998, Form 8-K dated June 1, 1998. By and between Salant Corporation And The CIT Group/Commercial Services, Inc. 10.34 Commitment Letter, dated June 1, Exhibit 10.54 to Current Report on 1998, by and between Salant Form 8-K dated June 1, 1998. Corporation and The CIT Group/Commercial Services, Inc. 10.35 Letter Agreement, dated June 1, Exhibit 10.55 to Current Report on 1998, by and among Salant Form 8-K dated June 1, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.36 Letter Agreement, dated July 8, Exhibit 10.44 to Quarterly Report on 1998, amending the Letter Agreement, Form 10-Q for the quarter ended dated March 2, 1998, as amended, July 4, 1998. By and among Salant Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.37 Letter Agreement, dated July 20, Exhibit 10.45 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated August 18, 1997, October 3, 1998. between Philip A. Franzel and Salant Corporation. * 10.38 Letter Agreement, dated July 20, Exhibit 10.46 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated May 1, 1997, October 3, 1998. between Todd Kahn and Salant Corporation. * 10.39 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated March 20, 1997, October 3, 1998. between Jerald s. Politzer and Salant Corporation. * 10.40 Letter Agreement, dated Exhibit 10.48 to Current Report on November 30, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.41 Letter Agreement, dated Exhibit 10.49 to Current Report on December 4, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.42 Ratification and Amendment Exhibit 10.50 to Current Report on Agreement, dated as of December 29, Form 8-K dated December 29, 1998. 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.43 Agreement between Salant Exhibit 99.4 to Current Report on Corporation and Pension Benefit Form 8-K dated April 30, 1999. Guaranty Corporation, dated March 24, 1999. 10.44 Amended and Restated Revolving Exhibit 10.43 to Form 10-Q, dated Credit and Security Agreement, May 17, 1999. dated May 11, 1999. 10.45 Employment Agreement, dated Exhibit 10.45 to Annual Report on February 1, 1999, between Form 10-K for fiscal year 1999. Awadhesh Sinha and Salant Corporation. * 10.46 Employment Agreement, dated as Exhibit 10.46 to Annual Report on of May 17, 1999, between Michael Form 10-K for fiscal year 1999. Setola and Salant Corporation. * 10.47 Letter Agreement, dated July 1, 1999, Exhibit 10.47 to Annual Report on amending the Employment Agreement, Form 10-K for fiscal year 1999. dated February 1, 1999, between Awadhesh Sinha and Salant Corporation. * 10.48 Salant Corporation 1999 Stock Award Exhibit A to Salant Corporation Incentive Plan. Definitive Proxy Statement on Schedule 14(a)dated April 14, 2000. 10.49 Letter Agreement, dated Exhibit 10.29 to Quarterly Report on March 28, 2001, amending the Form 10-Q for the quarter ended Employment Agreement, dated March 31, 2001. February 1, 1999, as amended July 1, 1999, between Awadhesh K. Sinha and Salant Corporation. * 10.50 Asset Purchase Agreement dated as Exhibit 10.1 to Current Report on of October 15, 2001 by and between Form 8-K dated January 4, 2002. Salant Holding Corporation, Axis Clothing Corporation and Richard Solomon. 10.51 Second Amended and Restated Exhibit 10.51 to Annual Report on Revolving Credit and Security Form 10-K for fiscal year 2001. Agreement, dated November 30, 2001. 10.52 Employment Agreement, dated Exhibit 10.52 to Annual Report on August 24, 1999, between Form 10-K for fiscal year 2001. Howard Posner and Salant Corporation. * 10.53 Employment Agreement, dated Exhibit 10.53 to Annual Report on March 13, 2000, between Form 10-K for fiscal year 2001. William O. Manzer and Salant Corporation. * 10.54 Employment Agreement, dated Exhibit 10.54 to Annual Report on August 24, 1999, between Form 10-K for fiscal year 2001. Jerry Kwiatkowski and Salant Corporation. * 10.55 Amendment No. 1 dated May 11, 2002 Exhibit 10.55 to Quarterly Report to the Second Amended and Restated on Form 10-Q for the quarter ended Revolving Credit and Security on March 30, 2002. Agreement between The Company and The CIT Group/Commercial Services, Inc. 10.56 Stock Purchase Agreement dated as Exhibit 10.1 to Current Report on of July 11, 2002 by and among Salant Form 8-K dated July 15, 2002. Corporation, Deutsche Bank Trust Company Americas, as Master Trustee of the Hughes Investment Management Company. 10.57 Amendment to Employment Agreement Exhibit 10.1 to Current Report on of Michael J. Setola, dated as of Form 8-k dated February 3, 2003. November 25, 2002, amending the Employment Agreement, dated May 17, 2000, between Michael J. Setola and Salant Corporation.* 10.58 Amendment to Employment Agreement Exhibit 10.2 to Current Report on of William O. Manzer, dated as of Form 8-k dated February 3, 2003. January 31, 2003, amending the Employment Agreement, dated March 13, 2000, between William O. Manzer and Salant Corporation.* 10.59 Amendment to Employment Agreement Exhibit 10.3 to Current Report on of Awadhesh K. Sinha, dated as of Form 8-k dated February 3, 2003. December 27, 2002 and January 31, 2003, amending the Employment Agreement, dated February 1,1999 As amended by the Letter Agreements Dated July 1, 1999 and March 28, 2001.* 10.60 Letter Agreement, dated Exhibit 10.4 to Current Report on February 3, 2003, among Michael J. Form 8-k dated February 3, 2003. Setola, Salant Corporation and Perry Ellis International, Inc.* 10.61 Letter Agreement, dated Exhibit 10.5 to Current Report on February 3, 2003, among Awadhesh K. Form 8-k dated February 3, 2003. Sinha, Salant Corporation and Perry Ellis International, Inc.* 99.1 Voting Agreement dated Exhibit 99.3 to Current Report on February 3, 2003 among Salant Form 8-k dated February 3, 2003. Corporation, George Feldenkreis, Oscar Feldenkreis, GFX, Inc., a Florida Corporation, and The Oscar Feldenkreis Family Partnership, Ltd., a Florida limited partnership. 21 List of Subsidiaries of the Company
* constitutes a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K During the fourth quarter of 2002, the Company filed an 8-K dated November 12, 2002 furnishing under Items 7 and 9 the transmittal letter and certifications by the Company's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that accompanied the Company's Quarterly Report on Form 10-Q dated September 28, 2002. 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 13, 2003 By: /s/ Awadhesh K. Sinha Awadhesh K. Sinha Chief Financial Officer and Chief Operating 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 13, 2003. Signature Title /s/ Michael J. Setola Chairman of the Board Michael J. Setola and Chief Executive Officer (Principal Executive Officer); Director /s/ Awadhesh K. Sinha Chief Financial Officer Awadhesh K. Sinha and Chief Operating Officer (Principal Financial and Accounting Officer) /s/ G. Raymond Empson Director G. Raymond Empson /s/ Ben Evans Director Ben Evans /s/ Rose P. Lynch Director Rose P. Lynch CERTIFICATION I, Michael J. Setola, Chief Executive Officer of Salant Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Salant Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 13, 2003 /s/ Michael J. Setola Michael J. Setola Chief Executive Officer CERTIFICATION I, Awadhesh K. Sinha, Chief Financial Officer of Salant Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Salant Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 13, 2003 /s/ Awadhesh K. Sinha Awadhesh K. Sinha Chief Financial Officer SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS to FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002 SALANT CORPORATION EXHIBIT INDEX
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Statement Exhibit 1 to Form 8-A dated of Salant Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Chapter 11 Included as Exhibit D-1 to Plan of Reorganization of Salant Exhibit 1 to Form 8-A dated Corporation and Denton Mills, Inc. dated July 28, 1993. 2.3 Chapter 11 Plan of Reorganization Exhibit 2.3 to Form 8-K dated for Salant Corporation, dated December 29, 1998. December 29, 1998. 2.4 Disclosure Statement for Chapter 11 Exhibit 2.4 to Form 8-K dated Plan of Reorganization, dated December 29, 1998. December 29, 1998. 2.5 First Amended Chapter 11 Plan of Exhibit 2.5 to Form 8-K dated Reorganization for Salant April 30, 1999. Corporation, dated February 3, 1999. 2.6 First Amended Disclosure Exhibit 2.7 to Annual Report on Statement for Chapter 11 Plan Form 10-K for Fiscal Year 1999. of Reorganization for Salant Corporation, dated February 3, 1999. 2.7 Order Pursuant to Section 1129 Exhibit 99.3 to Salant of the Bankruptcy Code Confirming Corporation's Current Report on the First Amended Plan of Form 8-K dated April 30, 1999. Reorganization of Salant Corporation, dated April 16, 1999. 2.8 Agreement and Plan of Merger, Exhibit 2.1 to Current Report Dated, February 3, 2003, by and on Form 8-K dated February 3, 2003. Among Salant Corporation, Perry Ellis International, Inc. and Connor Acquisition Corp. (With exhibits) 3.1 Form of Amended and Restated Included as Exhibit D-1 to Exhibit 2 Certificate of Incorporation of to Form 8-A dated July 28, 1993. of Salant Corporation. 3.2 Form of Bylaws, as amended, of Exhibit 3.2 to Form 10-K dated Salant Corporation, effective March 24, 1995. September 21, 1994. 3.3 Amended and Restated Exhibit 1.1 to Form 8-A dated Certificate of Incorporation of May 12, 1999. Salant Corporation, effective May 11, 1999. 3.4 Amended and Restated By-laws of Exhibit 1.2 to Form 8-A dated Salant Corporation, effective May 12, 1999. May 11, 1999. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report on December 8, 1987 between Salant 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 to the Exhibit 3 to Amendment No. 1 to Rights Agreement between Salant Form 8-A dated July 29, 1993. Corporation and Mellon Securities. 4.3 Indenture, dated as of Exhibit 10.34 to Quarterly Report September 20, 1993, between Salant on Form 10-Q for the quarter ended Corporation and Bankers Trust October 2, 1993. Company, as trustee, for the 10-1/2% Senior Secured Notes due December 31, 1998. 4.4 Rights Agreement, dated as of Exhibit 4 to the Company's May 17, 2002, between Salant Registration Statement on Corporation and Mellon Investor Form 8-A filed with the Services LLC, as Rights Agent. Securities and Exchange Commission on May 17, 2002. 4.5 Amendment No. 1, dated as of Exhibit 4.1 to Current Report on February 3, 2003, to the Rights Form 8-K dated February 3, 2003. Agreement dated as of May 19, 2002 between Salant Corporation and Mellon Investment Services LLC. 10.1 Revolving Credit, Factoring and Exhibit 10.33 to Quarterly Report Security Agreement dated on Form 10-Q for the quarter ended September 29, 1993, between Salant October 2, 1993. Corporation and The CIT Group/Commercial 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 1988 Stock Plan.* Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.4 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. 10.5 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. * Form 10-K for fiscal year 1988. 10.6 Form of Salant Corporation 1988 Exhibit 19.8 to Annual Report on Stock Plan Director Agreement. * Form 10-K for fiscal year 1988. 10.7 License Agreement, dated Exhibit 19.1 to Annual Report on January 1, 1991, by and between Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.8 License Agreement, dated Exhibit 19.2 to Annual Report on January 1, 1991, by and between Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's dress shirts. 10.9 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Report on Stock Plan Directors' Option Form 10-K for Fiscal Year 1993. Agreement. * 10.10 Letter Agreement, dated as of Exhibit 10.45 to Quarterly Report on August 24, 1994, amending the Revolving Credit, Factoring and Form 10-Q for the quarter ended Security Agreement, dated October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.11 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. 10.12 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.13 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.14 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. * 10.15 Fourth Amendment to Credit Exhibit 10.27 to Quarterly Report on Agreement, dated as of March 1, Form 10-Q for the quarter ended 1995, to the Revolving Credit, April 1, 1995. Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/ Commercial Services, Inc. 10.16 Fifth Amendment to Credit Exhibit 10.29 to Quarterly Report on Agreement, dated as of Form l0-Q for the quarter ended June 28, 1995, to the July 1, 1995. Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.17 Sixth Amendment to Credit Exhibit 10.30 to Quarterly Report on Agreement, dated as of Form l0-Q for the quarter ended August 15, 1995, to the July 1, 1995. Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.18 Letter from The CIT Group/ Exhibit 10.31 to Quarterly Report on Commercial Services, Inc., Form l0-Q for the quarter ended dated as of July 11, 1995, July 1, 1995. regarding the waiver of a default. 10.19 Letter Agreement between Exhibit 10.31 to Quarterly Report on Salant Corporation and The Form l0-Q for the quarter ended CIT Group/Commercial Services, July 1, 1995. Inc. dated as of July 11, 1995, regarding the Seasonal Overadvance Subfacility. 10.20 Seventh Amendment to Credit Exhibit 10.34 to Annual Report on Agreement, dated as of Form 10-K for fiscal year 1995. 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. 10.21 First Amendment to the Salant Exhibit 10.35 to Quarterly Report on Corporation Retirement Plan, dated Form 10-Q for the quarter ended as of January 31, 1996. * March 30, 1996. 10.22 First Amendment to the Salant Exhibit 10.36 to Quarterly Report on Corporation Long Term Savings and Form 10-Q for the quarter ended Investment Plan, effective as of March 30, 1996. January 1, 1994. * 10.23 Eighth Amendment to Credit Agreement, Exhibit 10.37 to Quarterly Report on dated as of June 1, 1996, to the Form 10-Q for the quarter ended Revolving Credit, Factoring and June 29, 1996. Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.24 Ninth Amendment to Credit Agreement, Exhibit 10.38 to Quarterly Report on dated as of August 16,1996, to the Form 10-Q for the quarter ended Revolving Credit, Factoring and June 29, 1996. Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.25 Salant Corporation 1996 Stock Plan.* Exhibit 10.40 to Annual Report on Form 10-K for Fiscal Year 1996. 10.26 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report on dated as of February 20, 1997, to Form 10-K for Fiscal Year 1996. 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. 10.27 Employment Agreement, dated as Exhibit 10.43 to Annual Report on of March 24, 1997, between Form 10-K for Fiscal Year 1996. Jerald S. Politzer and Salant Corporation. * 10.28 Employment Agreement, dated as of Exhibit 10.44 to Quarterly Report on May 1, 1997, between Todd Kahn and Form 10-Q for the quarter ended Salant Corporation. * June 28, 1997. 10.29 Employment Agreement, dated as of Exhibit 10.45 to Quarterly Report on August 18, 1997 between Philip A. Form 10-Q for the quarter ended Franzel and Salant Corporation. * June 28, 1997. 10.30 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly Report on Agreement, dated as of Form 10-Q for the quarter ended August 8, 1997, to the Revolving June 28, 1997. Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.31 Letter Agreement, dated Exhibit 10.48 to Current Report on March 2, 1998, by and among Salant Form 8-K dated March 4, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.32 Twelfth Amendment and Forbearance Exhibit 10.49 to Current Report on Agreement to Credit Agreement, dated Form 8-K dated March 4, 1998. as of March 2, 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.33 Thirteenth Amendment and Forbearance Exhibit 10.53 to Current Report on Agreement, dated as of June 1, 1998, Form 8-K dated June 1, 1998. By and between Salant Corporation And The CIT Group/Commercial Services, Inc. 10.34 Commitment Letter, dated June 1, Exhibit 10.54 to Current Report on 1998, by and between Salant Form 8-K dated June 1, 1998. Corporation and The CIT Group/Commercial Services, Inc. 10.35 Letter Agreement, dated June 1, Exhibit 10.55 to Current Report on 1998, by and among Salant Form 8-K dated June 1, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.36 Letter Agreement, dated July 8, Exhibit 10.44 to Quarterly Report on 1998, amending the Letter Agreement, Form 10-Q for the quarter ended dated March 2, 1998, as amended, July 4, 1998. By and among Salant Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.37 Letter Agreement, dated July 20, Exhibit 10.45 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated August 18, 1997, October 3, 1998. between Philip A. Franzel and Salant Corporation. * 10.38 Letter Agreement, dated July 20, Exhibit 10.46 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated May 1, 1997, October 3, 1998. between Todd Kahn and Salant Corporation. * 10.39 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated March 20, 1997, October 3, 1998. between Jerald s. Politzer and Salant Corporation. * 10.40 Letter Agreement, dated Exhibit 10.48 to Current Report on November 30, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.41 Letter Agreement, dated Exhibit 10.49 to Current Report on December 4, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.42 Ratification and Amendment Exhibit 10.50 to Current Report on Agreement, dated as of December 29, Form 8-K dated December 29, 1998. 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.43 Agreement between Salant Exhibit 99.4 to Current Report on Corporation and Pension Benefit Form 8-K dated April 30, 1999. Guaranty Corporation, dated March 24, 1999. 10.44 Amended and Restated Revolving Exhibit 10.43 to Form 10-Q, dated Credit and Security Agreement, May 17, 1999. dated May 11, 1999. 10.45 Employment Agreement, dated Exhibit 10.45 to Annual Report on February 1, 1999, between Form 10-K for fiscal year 1999. Awadhesh Sinha and Salant Corporation. * 10.46 Employment Agreement, dated as Exhibit 10.46 to Annual Report on of May 17, 1999, between Michael Form 10-K for fiscal year 1999. Setola and Salant Corporation. * 10.47 Letter Agreement, dated July 1, 1999, Exhibit 10.47 to Annual Report on amending the Employment Agreement, Form 10-K for fiscal year 1999. dated February 1, 1999, between Awadhesh Sinha and Salant Corporation. * 10.48 Salant Corporation 1999 Stock Award Exhibit A to Salant Corporation Incentive Plan. Definitive Proxy Statement on Schedule 14(a)dated April 14, 2000. 10.49 Letter Agreement, dated Exhibit 10.29 to Quarterly Report on March 28, 2001, amending the Form 10-Q for the quarter ended Employment Agreement, dated March 31, 2001. February 1, 1999, as amended July 1, 1999, between Awadhesh K. Sinha and Salant Corporation. * 10.50 Asset Purchase Agreement dated as Exhibit 10.1 to Current Report on of October 15, 2001 by and between Form 8-K dated January 4, 2002. Salant Holding Corporation, Axis Clothing Corporation and Richard Solomon. 10.51 Second Amended and Restated Exhibit 10.51 to Annual Report on Revolving Credit and Security Form 10-K for fiscal year 2001. Agreement, dated November 30, 2001. 10.52 Employment Agreement, dated Exhibit 10.52 to Annual Report on August 24, 1999, between Form 10-K for fiscal year 2001. Howard Posner and Salant Corporation. * 10.53 Employment Agreement, dated Exhibit 10.53 to Annual Report on March 13, 2000, between Form 10-K for fiscal year 2001. William O. Manzer and Salant Corporation. * 10.54 Employment Agreement, dated Exhibit 10.54 to Annual Report on August 24, 1999, between Form 10-K for fiscal year 2001. Jerry Kwiatkowski and Salant Corporation. * 10.55 Amendment No. 1 dated May 11, 2002 Exhibit 10.55 to Quarterly Report to the Second Amended and Restated on Form 10-Q for the quarter ended Revolving Credit and Security on March 30, 2002. Agreement between The Company and The CIT Group/Commercial Services, Inc. 10.56 Stock Purchase Agreement dated as Exhibit 10.1 to Current Report on of July 11, 2002 by and among Salant Form 8-K dated July 15, 2002. Corporation, Deutsche Bank Trust Company Americas, as Master Trustee of the Hughes Investment Management Company. 10.57 Amendment to Employment Agreement Exhibit 10.1 to Current Report on of Michael J. Setola, dated as of Form 8-k dated February 3, 2003. November 25, 2002, amending the Employment Agreement, dated May 17, 2000, between Michael J. Setola and Salant Corporation.* 10.58 Amendment to Employment Agreement Exhibit 10.2 to Current Report on of William O. Manzer, dated as of Form 8-k dated February 3, 2003. January 31, 2003, amending the Employment Agreement, dated March 13, 2000, between William O. Manzer and Salant Corporation.* 10.59 Amendment to Employment Agreement Exhibit 10.3 to Current Report on of Awadhesh K. Sinha, dated as of Form 8-k dated February 3, 2003. December 27, 2002 and January 31, 2003, amending the Employment Agreement, dated February 1,1999 As amended by the Letter Agreements Dated July 1, 1999 and March 28, 2001.* 10.60 Letter Agreement, dated Exhibit 10.4 to Current Report on February 3, 2003, among Michael J. Form 8-k dated February 3, 2003. Setola, Salant Corporation and Perry Ellis International, Inc.* 10.61 Letter Agreement, dated Exhibit 10.5 to Current Report on February 3, 2003, among Awadhesh K. Form 8-k dated February 3, 2003. Sinha, Salant Corporation and Perry Ellis International, Inc.* 99.1 Voting Agreement dated Exhibit 99.3 to Current Report on February 3, 2003 among Salant Form 8-k dated February 3, 2003. Corporation, George Feldenkreis, Oscar Feldenkreis, GFX, Inc., a Florida Corporation, and The Oscar Feldenkreis Family Partnership, Ltd., a Florida limited partnership. 21 List of Subsidiaries of the Company
* 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 Frost Bros. Enterprises, Inc., a Texas corporation Manhattan Industries, Inc., a Delaware corporation Manhattan Industries, Inc., a New York corporation Salant (Far East) Limited, a Hong Kong corporation Maquiladora Sur S.A. de C.V., a Mexican corporation Salant Caribbean, S.A., a Guatemalan Corporation Salant Holding Corporation, a Delaware corporation SLT Sourcing, Inc., a New York corporation Vera Licensing, Inc., a Nevada corporation Vera Linen Manufacturing, Inc., a Delaware corporation -----END PRIVACY-ENHANCED MESSAGE-----