-----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, GzRPh4e7n+NBcbV+tlo7NPpheDtWU+zcpUgGtvnu/boaxqrXtuStuTkL/HC9ohcd S2tEbW6DrAWQCOd4jPLuPA== 0000086346-98-000005.txt : 19980402 0000086346-98-000005.hdr.sgml : 19980402 ACCESSION NUMBER: 0000086346-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALANT CORP CENTRAL INDEX KEY: 0000086346 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 133402444 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06666 FILM NUMBER: 98585088 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 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 January 3, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6666 SALANT CORPORATION (Exact name of registrant as specified in its charter) 1114 Avenue of the Americas, New York, New York 10036 Telephone: (212) 221-7500 Incorporated in the State of Delaware Employer Identification No. 13-3402444 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1 per share, registered on the New York Stock Exchange. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No __ As of March 16, 1998, there were outstanding 14,964,608 shares of the Common Stock of the registrant. Based on the closing price of the Common Stock on the New York Stock Exchange on such date, the aggregate market value of the voting stock held by non-affiliates of the registrant on such date was $4,805,176. 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 PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Consolidated Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Consolidated Financial Statements and Supplementary Data Item 9. Disagreements on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K SIGNATURES PART I ITEM 1. BUSINESS Introduction. Salant Corporation ("Salant" 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. Salant designs, manufactures, imports and markets to retailers throughout the United States brand name and private label apparel products primarily in three product categories: (i) menswear; (ii) children's sleepwear and underwear; and (iii) retail outlet stores, as described below. Salant sells its products to department and specialty stores, national chains, major discounters and mass volume retailers throughout the United States. (As used herein, the "Company" includes Salant and its subsidiaries, but excludes Salant's Made in the Shade and Vera Scarf divisions.) Men's Apparel. The men's apparel business is comprised of the Perry Ellis division and Salant Menswear Group. The Perry Ellis division markets dress shirts, slacks and sportswear under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS AMERICA trademarks. Salant Menswear Group is comprised of the Accessories division, the Bottoms division and all dress shirt businesses other than those selling products bearing the PERRY ELLIS trademarks. The Accessories division markets neckwear, belts and suspenders under a number of different trademarks, including PORTFOLIO BY PERRY ELLIS, JOHN HENRY, SAVE THE CHILDREN and PEANUTS. The Bottoms division primarily manufactures men's and boys' jeans, principally under the Sears, Roebuck & Co. ("Sears") CANYON RIVER BLUES trademark, and men's casual slacks under Sears' CANYON RIVER BLUES KHAKIS trademark. The Salant Menswear Group also markets dress shirts, primarily under the JOHN HENRY and MANHATTAN trademarks. Children's Sleepwear and Underwear. The children's sleepwear and underwear business is conducted by the Salant Children's Apparel Group (the "Children's Group"). The Children's Group markets blanket sleepers primarily using a number of well-known licensed cartoon characters created by, among others, DISNEY and WARNER BROS. The Children's Group also markets pajamas under the OSHKOSH B'GOSH trademark, and sleepwear and underwear under the JOE BOXER trademark. At the end of the first quarter of 1998, the Company determined not to continue with its Joe Boxer sportswear line for Fall 1998. Instead, consistent with the approach that the Joe Boxer Corporation (Salant's licensor of the Joe Boxer trademark) has taken, the Company will focus on its core business of underwear and sleepwear. Retail Outlet Stores. The retail outlet stores business of the Company consists of a chain of factory outlet stores (the "Stores division"), through which it sells products manufactured by the Company and other apparel manufacturers. In December 1997, the Company announced the restructuring of the Stores division, pursuant to which the Company closed all stores other than its Perry Ellis outlet stores. This resulted in the closing of 42 outlet stores. At the end of 1997, Salant operated 17 Perry Ellis outlet stores. Commencing with the 1998 fiscal year, as a result of the restructuring of this division, the retail outlet stores will be reported as part of the men's apparel segment of Salant. Principal Product Lines. The following table sets forth, for fiscal years 1995 through 1997, the percentage of the Company's total net sales contributed by each category of product:
Fiscal Year 1995 1996 1997 Men's Apparel 86% 83% 82% Children's Sleepwear and Underwear 8% 11% 12% Retail Outlet Stores 6% 6% 6%
For more detailed information regarding the Company's product categories, see Note 11 to the Consolidated Financial Statements. In 1997, approximately 17% of the Company's net sales were made to Sears, approximately 11% of the Company's net sales were made to Federated Department Stores, Inc. ("Federated") and approximately 10% of the Company's net sales were made to TJX Corporation ("TJX"). In 1996, approximately 13% of the Company's net sales were made to Sears. In 1996 and 1995, net sales to Federated represented approximately 11% and 12% of the Company's net sales, respectively. In 1995, approximately 11% of the Company's net sales were made to TJX. In 1995, approximately 13% of the Children's Group's net sales were made to Dayton Hudson Corporation. No other customer accounted for more than 10% of the net sales of the Company or any of its business segments during 1995, 1996 or 1997. 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. A significant factor in the marketing of the Company's products is the consumer perception of the trademark or brand name under which those products are marketed. Approximately 76% of the Company's net sales for 1997 was attributable to products sold under Company owned or licensed designer trademarks and other internationally recognized brand names and the balance was attributable to products sold under retailers' private labels, including Sears' CANYON RIVER BLUES. The following table lists the principal owned or licensed trademarks under which the Company's products were sold in 1997 and the product lines associated with those trademarks. Trademarks used under license are indicated with an asterisk; all other listed trademarks are owned by the Company.
Trademark Product Lines DISNEY Characters * Children's sleepwear and underwear DR. DENTON Children's sleepwear and underwear GANT * Men's dress shirts, neckwear, belts and suspenders JOE BOXER * Children's sleepwear, underwear and sportswear; men's neckwear JOHN HENRY Men's dress shirts, neckwear, belts, suspenders and jeans LOONEY TUNES characters * Children's sleepwear MANHATTAN Men's dress shirts OSHKOSH B'GOSH * Children's sleepwear PEANUTS * Men's dress shirts and neckwear PERRY ELLIS * Men's sportswear, dress shirts, neckwear, belts and suspenders PERRY ELLIS AMERICA * Men's casual sportswear and jeans PORTFOLIO BY PERRY ELLIS * Men's dress slacks, dress shirts, neckwear, belts and suspenders SAVE THE CHILDREN * Men's neckwear and suspenders THOMSON Men's casual and dress slacks UNICEF * Men's neckwear
During 1997, 44% of the Company's net sales was attributable to products sold under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS AMERICA trademarks; these products are sold through leading department and specialty stores. Products sold to Sears under its exclusive brand CANYON RIVER BLUES accounted for 14% of the Company's net sales during 1997. No other line of products accounted for more than 10% of the Company's net sales during 1997. Trademarks Owned by the Company and Related Licensing Income. The Company owns the DR. DENTON, JOHN HENRY, LADY MANHATTAN, MANHATTAN and THOMSON trademarks, among others. All of the significant brand names owned by the Company have been registered or are pending registration with the United States Patent and Trademark Office. The Company has sought to capitalize on the consumer recognition of and interest in its trademarks by licensing various of those trademarks to others. As of the end of 1997, licenses were outstanding to approximately 18 licensees to make or sell apparel products and accessories in the United States and to 34 licensees in 30 other countries under the MANHATTAN, LADY MANHATTAN, JOHN HENRY, and VERA trademarks, which produced royalty income of approximately $5.6 million in 1997. Products under license include men's belts, dress shirts, leather accessories, neckwear, optical frames, outerwear, pajamas, robes, scarves, shorts, slacks, socks, sportcoats, sunglasses, suspenders and underwear, and women's blouses and tops, gloves, intimate apparel, lingerie, optical frames, scarves and shirts. Trademarks Licensed to the Company. The name Perry Ellis and related trademarks are licensed to the Company under a series of license agreements with Perry Ellis International, Inc. ("PEI"). The license agreements contain renewal options, which, subject to compliance with certain conditions contained therein, permit the Company to extend the terms of such license agreements. Assuming the exercise by the Company of all available renewal options, the license agreements covering men's apparel and accessories will expire on December 31, 2015. The Company also has rights of first refusal worldwide for certain new licenses granted by PEI for men's apparel and accessories. The Company is also a licensee of various trademarks, including certain DISNEY characters (including DISNEY BABIES, MICKEY FOR KIDS, WINNIE THE POOH and THE LION KING-SIMBA'S PRIDE), GANT, JOE BOXER, OSHKOSH B'GOSH, PEANUTS, SAVE THE CHILDREN, UNICEF and certain WARNER BROS. characters (including certain LOONEY TUNES characters, such as BUGS BUNNY, DAFFY DUCK and PORKY PIG), for various categories of products under license agreements expiring between 1998 and 2002. The agreements under which the Company is licensed to use trademarks owned by others typically provide for royalties at varying percentages of net sales under the licensed trademark, subject to a minimum annual royalty payable irrespective of the level of net sales. The Company anticipates that it should be able to extend, if it so desires, the term of any material licenses when they expire. Design and Manufacturing. Products sold by the Company's various divisions are manufactured to the designs and specifications (including fabric selections) of designers employed by those divisions. In limited cases, the Company's designers may receive input from one or more of the Company's licensors on general themes or color palettes. During 1997, approximately 12% of the products produced by the Company (measured in units) were manufactured in the United States, with the balance manufactured in foreign countries. Facilities operated by the Company accounted for approximately 75% of its domestic-made products and 37% of its foreign-made products; the balance in each case was attributable to unaffiliated contract manufacturers. In 1997, approximately 47% of the Company's foreign production was manufactured in Mexico, approximately 18% was manufactured in Guatemala and approximately 12% was manufactured in the Dominican Republic. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas and, in certain parts of the world, political instability. Although the Company's operations have not been materially adversely affected by any of such factors to date, any substantial disruption of its relationships with its foreign suppliers could adversely affect its operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas, which limit the amounts of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocations could adversely affect the Company's operations. Raw Materials. The raw materials used in the Company's manufacturing operations consist principally of finished fabrics made from natural, synthetic and blended fibers. These fabrics and other materials, such as leathers used in the manufacture of various accessories, are purchased from a variety of sources both within and outside the United States. The Company believes that adequate sources of supply at acceptable price levels are available for all such materials. Substantially all of the Company's foreign purchases are denominated in U.S. currency. No single supplier accounted for more than 10% of Salant's raw material purchases during 1997. In 1997, the Company entered into forward foreign exchange contracts, relating to 80% of its projected 1998 Mexican peso needs, to fix its cost of acquiring pesos and diminish the risk of foreign currency fluctuation. Employees. As of the end of 1997, the Company employed approximately 3,800 persons, of whom 3,200 were engaged in manufacturing and distribution operations and the remainder were employed in executive, marketing and sales, product design, engineering and purchasing activities and in the operation of the Company's retail outlet stores. Substantially all of the manufacturing employees are covered by collective bargaining agreements with various unions, which expire between 1998 and 2000. The Company believes that its relations with its employees are satisfactory. Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Company) and a larger number of specialty manufacturers. The Company faces substantial competition in its markets from manufacturers in both categories. Many of the Company's competitors have greater financial resources than the Company. The Company seeks to maintain its competitive position in the markets for its branded products on the basis of the strong brand recognition associated with those products and, with respect to all of its products, on the basis of styling, quality, fashion, price and customer service. Environmental Regulations. Current environmental regulations have not had, and in the opinion of the Company, assuming the continuation of present conditions, 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. Made in the Shade - Discontinued Operation. In June 1997, the Company discontinued the operations of the Made in the Shade division, which produced and marketed women's junior sportswear under the Company owned trademarks MADE IN THE SHADE and PRIME TIME. The financial statements of the Company included in this report treat the Made in the Shade division as a discontinued operation. Vera Scarf Division - Discontinued Operation. In February 1995, the Company discontinued its Vera Scarf division, which imported and marketed women's scarves under (i) the Company-owned trademarks VERA and ACUTE, (ii) trademarks licensed to the Company, including PERRY ELLIS, and (iii) retailers' private labels. The Company closed the Vera Scarf division in 1995. The financial statements of the Company included in this report treat the Vera Scarf division as a discontinued operation. Bankruptcy Court Cases. On June 27, 1990 (the "Filing Date"), Salant and its wholly owned subsidiary, Denton Mills, Inc. ("Denton Mills"), each filed with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") a separate voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") (Case Nos. 90-B-12037 (CB) and 90-B-12038 (CB)) (the "Chapter 11 Cases"). The Company's other United States subsidiaries on the Filing Date did not seek relief under the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills (the "Reorganization Plan"). The Reorganization Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Item 3. Legal Proceedings and in Note 18 to the financial statements. Recent Events. On March 3, 1998, the Company announced that it had reached an agreement in principle (the "Restructuring Agreement") with its major note and equity holders to restructure its existing indebtedness (the "Debt Restructuring") under its 10 1/2% Senior Secured Notes due December 31, 1998 (the "Senior Secured Notes"). Under the Restructuring Agreement, the Company will convert the entire $104.9 million outstanding aggregate principal amount of, and all accrued and unpaid interest on, its Senior Secured Notes into Salant Common Stock. The Restructuring Agreement was entered into by the Company and Magten Asset Management Corp., the beneficial owner of, or the representative of the beneficial owners of, approximately 67% of the aggregate principal amount of the Senior Secured Notes. Apollo Apparel Partners, L.P., the beneficial owner of approximately 39.6% of Salant Common Stock, is also a party to the Restructuring Agreement and has agreed to vote all of its shares of common stock in favor of the Debt Restructuring. The Restructuring Agreement provides, among other things, that (i) the entire principal amount of the Senior Secured Notes, plus all accrued and unpaid interest thereon, will be converted into 92.5% of the Company's issued and outstanding common stock, and (ii) the Company's existing stockholders will retain 7.5% of Salant Common Stock and will receive seven-year warrants to purchase up to 10% of Salant Common Stock on a fully diluted basis. Stockholder and noteholder approval will be required in order to consummate the Debt Restructuring. The Restructuring Agreement also provides for a reverse stock split, which will require the approval of the Company's stockholders. Because of the treatment of accrued interest on the Senior Secured Notes under the Restructuring Agreement, the Company did not pay the $5.5 million of interest on the Senior Secured Notes that became payable on March 2, 1998, subject to a 30 day grace period. Consummation of the Debt Restructuring is subject to the satisfaction of a number of conditions precedent, including stockholder and noteholder approval and the negotiation and execution of definitive documentation. However, there can be no assurances that the Debt Restructuring will be consummated. Implementation of the Debt Restructuring will result in the elimination of $11.0 million of annual interest expense to the Company. As part of the Debt Restructuring, the Company and The CIT Group/Commercial Services, Inc. ("CIT") executed the Twelfth Amendment and Forbearance Agreement (the "Amendment") to the Revolving Credit, Factoring and Security Agreement dated September 20, 1993, as amended (the "Credit Agreement"). The Amendment (i) waives as of January 3, 1998, the Company's failure to meet the financial covenants related to stockholders' equity and maximum loss, as set forth in the Credit Agreement, (ii) provides that CIT forbear from exercising any of its rights and remedies arising from the Company's decision not to pay interest on the Senior Secured Notes, payable on March 2, 1998, as further discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, (iii) provides that, subject to the terms and conditions of the Credit Agreement, as modified by the Amendment, CIT will continue making loans, advances and other financial accommodations to the Company, (iv) increases the borrowings allowed against eligible inventory to 60%, (v) provides the Company with a discretionary $3 million seasonal overadvance, (vi) reduces the Maximum Credit from $135 million to $120 million and (vii) modifies the financial covenants the Company is required to maintain. Under the Amendment, to the extent that the Company fails to maintain certain levels of borrowing availability under its asset-based borrowing formula, the Company is required to maintain a certain minimum interest coverage ratio and is subject to a covenant limiting the maximum loss the Company may incur over any twelve consecutive calendar months. ITEM 2. PROPERTIES The Company's principal executive offices are located at 1114 Avenue of the Americas, New York, New York 10036. The Company's principal properties consist of three domestic manufacturing facilities located in Alabama, New York and Tennessee, four manufacturing facilities located in Mexico, and five distribution centers; one in New York, two in South Carolina and two in Texas. At the end of 1997, the Company was in the process of closing one distribution facility in South Carolina. The Company owns approximately 1,067,000 square feet of space devoted to manufacturing and distribution and leases approximately 497,000 square feet of such space. The Company owns approximately 69,000 square feet of office space and leases approximately 210,000 square feet of combined office, design and showroom space. The Children's Group has exclusive use of the Tennessee manufacturing facility, shares one of the Mexican manufacturing facilities with the Salant Menswear Group Bottoms division and has its distribution center in a building in Texas. As of the end of 1997, the Company's Stores division operated 17 factory outlet stores, comprising approximately 45,000 square feet of selling space, all of which are leased. Except as noted above, substantially all of the owned and leased property of the Company is used in connection with its men's apparel business or general corporate administrative functions. The Company believes that its plant and equipment are adequately maintained, in good operating condition, and are adequate for the Company's present needs. ITEM 3. LEGAL PROCEEDINGS (a) Chapter 11 Cases. On June 27, 1990, Salant and Denton Mills each filed with the Bankruptcy Court a separate voluntary petition for relief under chapter 11 of the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order confirming the Reorganization Plan. The Reorganization Plan was consummated on September 20, 1993. From that date through January 3, 1998 (approximately 51 months), the Company made cash payments of $9.7 million, issued $111.9 million of Senior Secured Notes, and issued 11.1 million shares of common stock in settlement of certain undisputed and disputed claims in the chapter 11 proceedings. Salant anticipates that an additional $1.8 million in cash and an additional 206 thousand shares of common stock will ultimately be distributed in connection with the resolution of all remaining claims. Provisions for such distributions were made in the consolidated financial statements at the time of emergence from the bankruptcy during the year ended January 1, 1994. The process of resolving claims is continuing and, pursuant to the Reorganization Plan, remains under the jurisdiction of the Bankruptcy Court. (b) Other. The Company is a defendant in several other legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions 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 1997, 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 traded on the New York Stock Exchange (the "NYSE") under the trading symbol SLT. The high and low sale prices per share of Common Stock (based upon the NYSE composite tape as reported in published financial sources) for each quarter of 1996 and 1997 are set forth below. The Company did not declare or pay any dividends during such years. The indenture governing the Senior Secured Notes and the Credit Agreement requires the satisfaction of certain net worth tests prior to the payment of any cash dividends by Salant. As of January 3, 1998, Salant was prohibited from paying cash dividends under the most restrictive of these provisions. High and Low Sale Prices Per Share of the Common Stock
Quarter High Low 1997 Fourth $3 3/8 $1 9/16 Third 3 1 15/16 Second 4 1/4 2 7/8 First 5 3/8 3 1996 Fourth $3 7/8 $3 1/8 Third 4 2 3/4 Second 4 7/8 3 1/2 First 5 3/4 3 1/8
On March 24, 1998, there were 1,045 holders of record of shares of Common Stock, and the closing market price was $0.625. All of the outstanding voting securities of the Company's subsidiaries are owned beneficially and (except for shares of certain foreign subsidiaries of the Company owned of record by others to satisfy local laws) of record by the Company. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (Amounts in thousands except share, per share and ratio data) The following selected consolidated financial data presented for fiscal years 1995 through 1997 have been derived from the Consolidated Financial Statements of the Company, which has been audited by Deloitte & Touche LLP, whose report thereon appears under Item 8, "Financial Statements and Supplementary Data". The selected consolidated financial data for fiscal years 1993 and 1994 have been derived from audited consolidated financial data, 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.
Jan. 03, Dec. 28, Dec. 30, Dec. 31, Jan. 1, 1998 1996 1995 1994 1994 (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) For The Year Ended: Continuing Operations: Net sales $ 396,832 $ 417,711 $ 485,825 $ 398,990 $ 379,012 Restructuring costs (a) (2,066) (11,730) (3,550) - (5,500) Income/(loss) from continuing operations (10,722) (8,958) (362) 3,398 7,865 Discontinued Operations: Loss from operations, net of income taxes (8,136) (365) (136) (9,530) (638) Estimated loss on disposal, net of income taxes (1,330) - - (1,796) - Reversal of estimated loss on disposal, net of income taxes - - - - 11,772 Extraordinary gain (b) 2,100 - 1,000 63 24,707 Net income/(loss)(a) (18,088) (9,323) 502 (7,865) 43,706 Basic earnings/(loss) per share: Earnings/(loss) per share from continuing operations before extraordinary gain $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.18 Earnings/(loss) per share from discontinued operations (0.62) (0.02) (0.01) (0.76) 1.68 Earnings per share from extraordinary gain 0.14 - 0.06 - 3.72 Basic earnings/(loss) per share (a) (1.19) (0.62) 0.03 (0.53) 6.58 Diluted earnings/(loss) per share: Earnings/(loss) per share from continuing operations before extraordinary gain (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10 Earnings/(loss) per share from discontinued operations (0.62) (0.02) (0.01) (0.76) 1.57 Earnings per share from extraordinary gain 0.14 - 0.06 - 3.48 Diluted earnings/(loss) per share (a) (1.19) (0.62) 0.03 (0.53) 6.15 Cash dividends per share - - - - -
At Year End: Current assets $ 148,899 $ 150,986 $ 163,799 $172,234 $ 161,375 Total assets 233,377 235,251 253,970 266,157 251,946 Current liabilities (c) 185,692 59,566 61,704 71,104 44,427 Long-term debt (c) -- 106,231 110,040 109,908 111,851 Deferred liabilities 5,382 8,863 11,373 13,479 16,766 Working capital/(deficiency) (36,793) 91,420 102,095 101,130 116,948 Current ratio 0.8:1 2.5:1 2.7:1 2.4:1 3.6:1 Shareholders' equity $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902 Book value per share $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34 Number of shares outstanding 15,170 15,094 15,041 15,008 14,781
(a) Includes, for the year ended January 3, 1998, a provision of $2,066 (14 cents per share; tax benefit not available) for restructuring costs principally related to (i) $3,530 related to the decision in the fourth quarter to close all retail outlet stores other than Perry Ellis outlet stores and (ii) the reversal of previously recorded restructuring provisions of $1,464, primarily resulting from the settlement of liabilities for less than the carrying amount, resulting in the reversal of the excess portion of the provision; for the year ended December 28, 1996, a provision of $11,730 (78 cents per share; tax benefit not available) for restructuring costs principally related to (i) the write-off of goodwill and the write-down of other assets for a product line which has been put up for sale, (ii) the write-off of certain assets and accrual for future royalties for a licensed product line and (iii) employee costs related to closing certain facilities; for the year ended December 30, 1995, a provision of $3,550 (24 cents per share; tax benefit not available) for restructuring costs principally related to (i) fixed asset write-downs at locations to be closed and (ii) inventory markdowns for discontinued product lines; and for the year ended January 1, 1994, a provision of $5,500 (Basis loss per share of 83 cents; tax benefit not available) for restructuring costs principally related to the costs incurred in connection with the closure of certain unprofitable operations, including (i)inventory markdowns associated with those product lines and (ii) fixed asset write-downs at closed locations. (b) Includes, for the year ended January 3, 1998, a gain of $2,100 (14 cents per share) related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Chapter 11 proceeding; for the year ended December 30, 1995, a gain of $1,000 (6 cents per share) related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Chapter 11 proceeding; for the year ended December 31, 1994, a gain of $63 (no per share effect) related to the purchase and retirement of a portion of the Senior Secured Notes at a price below the principal amount thereof; and for the year ended January 1, 1994, a gain of $24,707 (basic earnings per share of $3.72) related to the settlement and anticipated settlement of claims arising from the Chapter 11 proceeding. (c) At January 3, 1998, long term debt of $104,879 has been classified as a current liability. See Note 1. Financial Restructuring to the Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview In 1997, the Company continued to implement and enhance its plan (i) to concentrate the Company's resources on a limited number of key menswear brand names (including continuing to emphasize and cohesively market the Company's leading Perry Ellis brand), (ii) to further expand the Company's private label business and (iii) to correct operational issues that have hampered the Company in the past. In accordance with these objectives, in 1997, the Company (i) discontinued its Made in the Shade women's junior sportswear business, (ii) closed all non-Perry Ellis retail outlet stores and (iii) made significant changes to management. In 1997, the Company hired a new Chairman and Chief Executive Officer, Chief Financial Officer, Senior Vice President of Human Resources, President of its Salant Menswear division, and Vice Presidents for Distribution, Manufacturing and Information Services. In March 1998, the Company announced that it had reached an agreement in principle with its major note and equity holders to restructure its existing indebtedness under Salant's 10 1/2% Senior Secured Notes due December 31, 1998 (the "Senior Secured Notes"). Under this restructuring, Salant will convert the entire $104.9 million outstanding aggregate principal amount of, and all accrued and unpaid interest on, its Senior Secured Notes into common stock of Salant ("Salant Common Stock"). See "Liquidity and Capital Resources" section of this Item 7 for a further description of the restructuring. Results of Operations Fiscal 1997 Compared with Fiscal 1996 Net Sales The following table sets forth the net sales of each of the Company's three principal business segments for the fiscal years ended January 3, 1998 ("Fiscal 1997") and December 28, 1996 ("Fiscal 1996") and the percentage contribution of each of those segments to total net sales:
Percentage Increase/ Fiscal 1997 Fiscal 1996 (Decrease) (dollars in millions) Men's $325.8 82% $344.7 83% (5.5%) Children's 49.2 12% 45.8 11% 7.5% Retail Outlet Stores 21.8 6% 27.2 6% (19.8%) Total $396.8 100% $417.7 100% (5.0%)
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal 1997. This decrease resulted from (a) a $12.4 million reduction in sales of men's slacks, of which $8.4 reflected the elimination of unprofitable programs and the balance was primarily due to operational difficulties experienced in the first quarter of 1997 related to the move of manufacturing and distribution out of the Company's facilities in Thomson, Georgia, (b) a $5.7 million reduction in sales of men's sportswear, which includes the elimination of $16.7 million of the Company's JJ. Farmer and Manhattan sportswear lines net sales, offset by an $11.0 million increase in sales of Perry Ellis sportswear products, (c) a $5.1 million decrease in sales of men's accessories, primarily due to the slow-down of the novelty neckwear business and (d) a $4.7 million reduction in sales of certain dress shirt lines, which reflected the elimination of unprofitable businesses. These sales decreases were partially offset by a $9.5 million increase in sales of Perry Ellis dress shirts due to the addition of new distribution and the continued strong acceptance of these products by consumers. The total sales reduction attributable to the elimination of unprofitable programs was $29.8 million. Sales of children's sleepwear and underwear increased by $3.4 million, or 7.5%, in Fiscal 1997. This increase was primarily a result of the continuing expansion of the Joe Boxer children's product lines in 1997. At the end of the first quarter of 1998, the Company determined not to continue with its Joe Boxer sportswear line for Fall 1998. Instead, consistent with the approach that the Joe Boxer Corporation (Salant's licensor of the Joe Boxer trademark) has taken, the Company will focus on its core business of underwear and sleepwear. Sales of the retail outlet stores division decreased by $5.4 million, or 19.8%, in Fiscal 1997. This decrease was due to (i) a decrease in the number of stores in the first 10 months of 1997 and (ii) the decision in November 1997 to close all non-Perry Ellis outlet stores. The Company ceased to operate the non-Perry Ellis outlet stores in November 1997. Gross Profit The following table sets forth the gross profit and gross profit margin (gross profit as a percentage of net sales) for each of the Company's business segments for each of Fiscal 1997 and Fiscal 1996:
Fiscal 1997 Fiscal 1996 (dollars in millions) Men's $69.5 21.3% $74.2 21.5% Children's 7.5 15.2% 11.5 25.1% Retail Outlet Stores 7.5 34.6% 9.2 33.9% Total $ 84.5 21.3% $ 94.9 22.7%
The decline in gross profit in the men's apparel segment was primarily attributable to the reduction in net sales discussed above. The gross profit margin of the children's sleepwear and underwear segment declined as a result of (i) a slowdown in sales of certain licensed products, requiring a greater percentage of off-price sales, as well as an increase in discounts and allowances, (ii) an increase in reserves for remaining inventory and (iii) higher distribution and product handling costs. The gross profit of the retail outlet stores decreased primarily as a result of inventory markdowns of $1.6 million (7.3% of net sales) related to the closing of the non-Perry Ellis stores. Excluding these inventory markdowns, the gross profit margin increased as a result of a decrease in the transfer prices (from a negotiated rate to standard cost) charged to the retail outlet stores for products made by other divisions of the Company. Selling, General and Administrative Expenses Selling, general and administrative ("S,G&A") expenses for Fiscal 1997 were $80.6 million (20.3% of net sales) compared with $83.1 million (19.9% of net sales) for Fiscal 1996. While implementation of the Company's strategic plan resulted in the elimination of certain S,G&A expenses in Fiscal 1997, such eliminations were partially offset by higher amortization costs attributable to the installation of new store fixtures for Perry Ellis sportswear shops in department stores which commenced in 1995. The amortization of these store fixtures accounted for approximately $2.5 million of the total S,G&A expenses in Fiscal 1997, compared with $1.6 million in Fiscal 1996. Other Income Other income for Fiscal 1996 included a gain of $2.7 million related to the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. Provision for Restructuring In Fiscal 1997, the Company recorded a provision for restructuring of $2.1 million, consisting of (i) $3.5 million related to the decision in the fourth quarter to close all retail outlet stores other than Perry Ellis outlet stores and (ii) the reversal of previously recorded restructuring provisions of $1.4 million, including $300 thousand in the fourth quarter, primarily resulting from the settlement of liabilities for less than the carrying amount, as a result of a settlement agreement and license arrangement with the former owners of the JJ. Farmer trademark, resulting in the reversal of the excess portion of the provision. The Company recorded a restructuring charge of $11.7 million in Fiscal 1996. Of this amount, (i) $5.7 million was primarily related to the write-off of goodwill and the write-down of other assets of the JJ. Farmer product line, (ii) $2.9 million was attributable to the write-off of certain assets related to the licensing of the Gant brand name for certain of the Company's dress shirt and accessories product lines and the accrual of a portion of future royalties payable under the Gant licenses that are not expected to be covered by future sales, (iii) $1.8 million was primarily related to employee costs associated with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $0.7 million was primarily related to employee costs associated with the closing of a manufacturing facility in Americus, Georgia and (v) $0.6 million related to other severance costs. The Fiscal 1997 restructuring charge related to the retail outlet store closings was comprised of $1.3 million of non-cash charges and $2.2 million requiring cash payments over a period of time. Of the cash portion, $0.6 million was expended during 1997 and the balance is expected to be expended in 1998. Income from Continuing Operations Before Interest, Income Taxes and Extraordinary Gain The following table sets forth income from continuing operations before interest, income taxes and extraordinary gain for each of the Company's three business segments, expressed both in dollars and as a percentage of net sales, for each of Fiscal 1997 and Fiscal 1996:
Fiscal 1997 Fiscal 1996 (dollars in millions) Men's (a) $ 19.5 6.0% $ 6.2 1.8% Children's (0.3) (0.6%) 5.4 11.8% Retail Outlet Stores (b) (8.4) (38.4%) (4.2) (15.4%) 10.8 2.7% 7.4 1.8% Corporate expenses (c) (9.3) (5.8) Licensing division income 4.6 5.0 Income from continuing operations before interest, income taxes and extraordinary gain $ 6.1 1.5% $ 6.6 1.6%
(a) Includes the reversal of restructuring charges of $1.5 million in Fiscal 1997 and restructuring charges of $11.7 million in Fiscal 1996. (b) Includes restructuring charges of $3.5 million in Fiscal 1997. (c) Includes other income of $2.7 million in Fiscal 1996 related to the sale of a leasehold interest. The $0.5 million decrease in income from continuing operations before interest, income taxes and extraordinary gain in Fiscal 1997 was primarily a result of the significant decline in profitability of the Children's segment. This decline was a result of (i) the decline in gross profit as previously noted and (ii) increased occupancy costs related to new office, design and showroom space acquired in 1997. The decline in retail outlet stores operating income is due to the restructuring and inventory markdown costs related to the closing of the non-Perry Ellis stores, offset by the higher gross profit related to the change in transfer pricing, as previously discussed. The increase in corporate expenses is primarily due to costs associated with the significant management changes previously discussed. Interest Expense, Net Net interest expense was $16.7 million for Fiscal 1997 compared with $15.5 million for Fiscal 1996. The $1.2 million increase is a result of higher average borrowings during Fiscal 1997 primarily due to the loss from operations and spending on capital expenditures and store fixtures. Loss from Continuing Operations In Fiscal 1997, the Company reported a loss from continuing operations before extraordinary gain of $10.7 million, or $0.71 per share, compared with a loss from continuing operations of $9.0 million, or $0.60 per share, in Fiscal 1996. Extraordinary Gain The extraordinary gain of $2.1 million recorded in Fiscal 1997, including $1.5 million in the fourth quarter, related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Company's prior chapter 11 cases. Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring Charges and Extraordinary Gain Earnings before interest, taxes, depreciation, amortization, restructuring charges and extraordinary gain was $17.1 million (4.3% of net sales) in Fiscal 1997, compared to $26.5 million (6.4% of net sales) in Fiscal 1996, a decrease of $9.4 million, or 35%. The Company believes this information is helpful in understanding cash flow from operations that is available for debt service and capital expenditures. This measure is not contained in Generally Accepted Accounting Principles and is not a substitute for operating income, net income or net cash flows from operating activities. Fiscal 1996 Compared with Fiscal 1995 Net Sales The following table sets forth the net sales of each of the Company's three principal business segments for the fiscal years ended December 28, 1996 ("Fiscal 1996") and December 30, 1995 ("Fiscal 1995") and the percentage contribution of each of those segments to total net sales:
Percentage Increase/ Fiscal 1996 Fiscal 1995 (Decrease) (dollars in millions) Men's $344.7 83% $416.7 86% (17.3%) Children's 45.8 11% 39.9 8% 14.8% Retail Outlet Stores 27.2 6% 29.2 6% (7.0%) Total $417.7 100% $485.8 100% (14.0%)
The decline in net sales in the men's apparel segment was $72.0 million. Of this amount, $58.8 million was attributable to the planned discontinuation of various product lines and the redirection of other product lines to different channels of distribution. Of the balance, $7.4 million resulted from a decision by Sears, Roebuck & Co. ("Sears") to source its knit and woven Canyon River Blues tops through its own internal sourcing operations and $3.6 million was due to reduced sales of Perry Ellis sportswear as a result of a reduction of $12.3 million in sales to off-price retailers, partially offset by an increase of $8.7 million in sales to department stores. Sales of children's sleepwear and underwear increased by $5.9 million, or 14.8%, in Fiscal 1996. This increase was primarily a result of the continuing expansion of the Joe Boxer children's product lines. Gross Profit The following table sets forth the gross profit and gross profit margin (gross profit as a percentage of net sales) for each of the Company's business segments for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995 (dollars in millions) Men's $74.2 21.5% $79.1 19.0% Children's 11.5 25.1% 10.8 26.9% Retail Outlet Stores 9.2 33.9% 10.7 36.7% Total $94.9 22.7% $100.6 20.7%
The decline in gross profit in the men's apparel segment and for the Company as a whole was primarily attributable to the reduction in net sales discussed above. The gross profit margin for the men's apparel segment and the Company as a whole, however, improved significantly, primarily as a result of (i) a greater percentage of sales of the Company's higher margin Perry Ellis product lines as a percentage of net sales, (ii) planned reductions in sales of lower-margin brands and products, (iii) increased efficiencies at the Company's manufacturing facilities in Mexico, and (iv) reduced markdowns of accessories due to improved consumer acceptance of the Company's neckwear product lines. The gross profit margin for the men's apparel segment was adversely affected, however, by charges of (i) $3.0 million (0.8% of men's apparel net sales) for markdowns related to the discontinuation of the JJ. Farmer and Manhattan sportswear product lines and a change in the primary channel of distribution for products sold under the John Henry label and (ii) $1.9 million (0.5% of men's apparel net sales) related to the closing of manufacturing and distribution facilities in Americus and Thomson, Georgia. The gross profit margin of the children's sleepwear and underwear segment declined as a result of an increased percentage of off-price sales of licensed character products in that segment's total sales mix. The gross profit margin of the Company's retail outlet stores business declined primarily as a result of margin pressures as well as charges of $0.3 million (1.0% of net sales) due to markdowns of discontinued product lines at the Company's outlet stores. Selling, General and Administrative Expenses Selling, general and administrative ("S,G&A") expenses for Fiscal 1996 were $83.1 million (19.9% of net sales) compared with $82.6 million (17.0% of net sales) for Fiscal 1995. While implementation of the Company's strategic plan resulted in the elimination of certain S,G&A expenses in Fiscal 1996, such eliminations were partially offset by higher amortization costs attributable to the installation of new store fixtures for Perry Ellis sportswear shops in department stores and Canyon River Blues shops in Sears stores, which installations commenced in 1995. The amortization of these store fixtures accounted for approximately $1.6 million of the total S,G&A expenses in Fiscal 1996 as compared with $0.4 million in Fiscal 1995. The Company's merchandise coordinator and retail specialist programs, which provide support for the presentation and coordination of the Company's products in retail stores was also enlarged in 1996, primarily to support the expansion of the Perry Ellis sportswear shop program; this increase accounted for a further $1.2 million of the S,G&A expense increase in Fiscal 1996. Total expenses related to these programs were $3.3 million in Fiscal 1996, as compared with $2.1 million in Fiscal 1995. Other Income Other income for Fiscal 1996 included a gain of $2.7 million related to the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. Provision for Restructuring The Company recorded a restructuring charge of $11.7 million in Fiscal 1996. Of this amount, (i) $5.7 million was primarily related to the write-off of goodwill and the write-down of other assets of the JJ. Farmer product line, (ii) $2.9 million was attributable to the write-off of certain assets related to the licensing of the Gant brand name for certain of the Company's dress shirt and accessories product lines and the accrual of a portion of future royalties payable under the Gant licenses that are not expected to be covered by future sales, (iii) $1.8 million was primarily related to employee costs associated with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $0.7 million was primarily related to employee costs associated with the closing of a manufacturing facility in Americus, Georgia and (v) $0.6 million related to other severance costs. Income from Continuing Operations Before Interest, Income Taxes and Extraordinary Gain The following table sets forth income from continuing operations before interest, income taxes and extraordinary gain for each of the Company's three business segments, expressed both in dollars and as a percentage of net sales, for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995 (dollars in million) Men's (a) $6.2 1.8% $19.6 4.7% Children's 5.4 11.8% 5.2 13.0% Retail Outlet Stores (4.2) (15.4%) (2.7) (9.2%) 7.4 1.8% 22.1 4.6% Corporate expenses (b) (5.8) (8.8) Licensing division income 5.0 5.6 Income from continuing operations before interest, income taxes and extraordinary gain $6.6 1.6% $18.9 3.9%
(a) Includes restructuring charges of $11.7 million in Fiscal 1996 and $3.6 million in Fiscal 1995. (b) Includes other income of $2.7 million in Fiscal 1996 related to the sale of a leasehold interest. The $12.3 million reduction in income from continuing operations before interest, income taxes and extraordinary gain in Fiscal 1996 was primarily a result of the $11.7 million restructuring charge (compared with $3.6 million in Fiscal 1995) and $6.3 million of other charges associated with the implementation of the strategic business plan, which was partially offset by a $2.7 million gain on the sale of a leasehold interest, as previously discussed. Interest Expense, Net Net interest expense was $15.5 million for Fiscal 1996 compared with $19.0 million for Fiscal 1995. The $3.5 million decrease is a result of lower average borrowings during Fiscal 1996 primarily due to reduced average levels of inventory. Loss from Continuing Operations In Fiscal 1996, the Company reported a loss from continuing operations of $9.0 million, or $0.60 per share, as compared with a loss from continuing operations before extraordinary gain of $0.4 million, or $0.02 per share, in Fiscal 1995. Extraordinary Gain The extraordinary gain of $1.0 million recorded in the fourth quarter of Fiscal 1995 related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Company's prior chapter 11 cases. Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring Charges and Extraordinary Gain Earnings before interest, taxes, depreciation, amortization, restructuring charges and extraordinary gain was $26.5 million (6.4% of net sales) in Fiscal 1996, compared to $30.4 million (6.3% of net sales) in Fiscal 1995, a decrease of $3.9 million, or 12.8%. The Fiscal 1996 amount was negatively affected by $6.3 million of charges primarily associated with the implementation of the Company's strategic business plan. The Company believes this information is helpful in understanding cash flow from operations that is available for debt service and capital expenditures. This measure is not contained in Generally Accepted Accounting Principles and is not a substitute for operating income, net income or net cash flows from operating activities. Liquidity and Capital Resources The Company is a party to the Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended (the "Credit Agreement"), with The CIT Group/Commercial Services, Inc. ("CIT"). The Credit Agreement provides the Company with working capital financing, in the form of direct borrowings and letters of credit, up to an aggregate of $120 million (the "Maximum Credit"), subject to an asset-based borrowing formula. As collateral for borrowings under the Credit Agreement, Salant has granted to CIT a security interest in substantially all of the assets of the Company. On March 3, 1998, the Company announced that it had reached an agreement in principle (the "Restructuring Agreement") with its major note and equity holders to restructure its existing indebtedness (the "Debt Restructuring") under its Senior Secured Notes. Under the Restructuring Agreement, the Company will convert the entire $104.9 million outstanding aggregate principal amount of, and all accrued and unpaid interest on, its Senior Secured Notes into Salant Common Stock. The Restructuring Agreement was entered into by the Company and Magten Asset Management Corp. ("Magten"), the beneficial owner of, or the representative of the beneficial owners of, approximately 67% of the aggregate principal amount of the Senior Secured Notes. Apollo Apparel Partners, L.P., the beneficial owner of approximately 39.6% of Salant Common Stock, is also a party to the Restructuring Agreement and has agreed to vote all of its shares of common stock in favor of the Debt Restructuring. The Restructuring Agreement provides that, among other things, (i) the entire principal amount of the Senior Secured Notes, plus all accrued and unpaid interest thereon, will be converted into 92.5% of the Company's issued and outstanding common stock, and (ii) the Company's existing stockholders will retain 7.5% of Salant Common Stock and will receive seven-year warrants to purchase up to 10% of Salant Common Stock on a fully diluted basis. Stockholder and noteholder approval will be required in order to consummate the Debt Restructuring. The Restructuring Agreement also provides for a reverse stock split, which will require the approval of the Company's stockholders. Because of the treatment of accrued interest on the Senior Secured Notes under the Restructuring Agreement, the Company did not pay the $5.5 million of interest on the Senior Secured Notes that became payable on March 2, 1998, subject to a 30 day grace period. Consummation of the Debt Restructuring is subject to the satisfaction of a number of conditions precedent, including stockholder and noteholder approval and the negotiation and execution of definitive documentation. However, there can be no assurances that the Debt Restructuring will be consummated. Implementation of the Debt Restructuring will result in the elimination of $11.0 million of annual interest expense to the Company. As part of the Debt Restructuring, the Company and CIT executed the Twelfth Amendment and Forbearance Agreement (the "Amendment") to the Credit Agreement. The Amendment (i) waives, as of January 3, 1998, the Company's failure to meet the financial covenants related to stockholders' equity and maximum loss, as set forth in the Credit Agreement, (ii) provides that CIT forbear from exercising any of its rights and remedies arising from the Company's decision not to pay interest on the Senior Secured Notes, payable on March 2, 1998, as further discussed below, (iii) provides that, subject to the terms and conditions of the Credit Agreement, as modified by the Amendment, CIT will continue making loans, advances and other financial accommodations to the Company, (iv) increases the borrowings allowed against eligible inventory to 60%, (v) provides the Company with a discretionary $3 million seasonal overadvance, (vi) reduces the Maximum Credit from $135 million to $120 million and (vii) modifies the financial covenants the Company is required to maintain. Under the Amendment, to the extent that the Company fails to maintain certain levels of borrowing availability under its asset-based borrowing formula, the Company is required to maintain a certain minimum interest coverage ratio and is subject to a covenant limiting the maximum loss the Company may incur over any twelve consecutive calendar months. At the end of Fiscal 1997, direct borrowings and letters of credit outstanding under the Credit Agreement were $33.8 million and $23.2 million, respectively, and the Company had unused availability of $17.5 million. At the end of Fiscal 1996, direct borrowings and letters of credit outstanding under the Credit Agreement were $7.7 million and $33.6 million, respectively, and the Company had unused availability of $23.6 million. During Fiscal 1997, the maximum aggregate amount of direct borrowings and letters of credit outstanding at any one time under the Credit Agreement was $112.9 million, at which time the Company had unused availability of $10.5 million. During Fiscal 1996, the maximum aggregate amount of direct borrowings and letters of credit outstanding at any one time under the Credit Agreement was $101.0 million, at which time the Company had unused availability of $19.6 million. On October 28, 1996, the Company completed the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. Pursuant to the indenture governing the Senior Secured Notes, the $3,372,000 net cash proceeds of that sale were applied to the repurchase of a like principal amount of the Senior Secured Notes immediately following the end of the 1996 fiscal year. The instruments governing the Company's outstanding debt contain numerous financial and operating covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock or all or a substantial part of the assets of another person, selling property and paying cash dividends. In addition, under the Credit Agreement, the Company is required, during the year, to maintain a minimum level of stockholders' equity and to satisfy a maximum cumulative net loss test. As previously discussed, at January 3, 1998, the Company was not in compliance with the two financial covenants contained in the Credit Agreement, and has obtained a waiver from CIT, as of January 3, 1998, as provided by the Amendment to the Credit Agreement. The indenture governing the Company's outstanding Senior Secured Notes (the "Indenture") requires the Company to reduce its outstanding indebtedness (excluding outstanding letters of credit) to $20 million or less for fifteen consecutive days during each twelve month period commencing on the first day of February. This covenant has been satisfied for the balance of the term of the Senior Secured Notes. The Company's cash used in operating activities for Fiscal 1997 was $9.8 million, which primarily reflects the operating loss of $10.7 million and an increase in accounts receivable of $5.7 million, offset by non-cash charges, such as depreciation and amortization, of $8.9 million. Cash used in Fiscal 1997 for investing activities was $10.2 million, of which $7.1 million was related to capital expenditures and $3.1 million to the installation of store fixtures in department stores. During Fiscal 1998, the Company plans to make capital expenditures of approximately $6.4 million and to spend an additional $2.0 million for the installation of store fixtures in department stores. Cash provided by financing activities in Fiscal 1997 was $22.9 million, which represented short-term borrowings under the Credit Agreement of $26.1 million, offset by the retirement of long-term debt of $3.4 million. In contemplation of the Debt Restructuring, the Company elected not to pay the interest payment of approximately $5.5 million that was due and payable under the Senior Secured Notes on March 2, 1998, subject to a 30 day grace period. Because the Company does not plan on paying the interest due on the Senior Secured Notes by the expiration of the applicable grace period, an event of default will occur with respect to the Senior Secured Notes, entitling the holders to accelerate the maturity thereof. If holders of at least 25% in aggregate principal face amount of the Senior Secured Notes accelerate all outstanding indebtedness under the Senior Secured Notes pursuant to the terms of the Indenture and, in the event that the Debt Restructuring is not consummated, such an acceleration of the outstanding indebtedness under the Senior Secured Notes could result in the Company becoming subject to a proceeding under the Federal bankruptcy laws. In accordance with the terms of the Restructuring Agreement, Magten has provided a written direction to Bankers Trust Company, as trustee under the Indenture, to forbear during the term of the Restructuring Agreement from taking any action in connection with the failure by the Company to make the interest payment on the Senior Secured Notes that was due and payable on March 2, 1998. However, there is no assurance that the holders of 25% or more of the Senior Secured Notes will not decide to accelerate the outstanding indebtedness under the Senior Secured Notes prior to consummation of the Debt Restructuring. In addition, the Company's working capital lender, CIT, agreed to forbear until July 1, 1998, subject to certain conditions, from exercising any of its rights or remedies under the Credit Agreement, arising by virtue of the Company's failure to pay such interest on the Senior Secured Notes. Failure to consummate the Debt Restructuring could result in the acceleration of all of the indebtedness under the Senior Secured Notes and/or the Credit Agreement. The Company's principal sources of liquidity, both on a short-term and a long-term basis, are cash flow from operations and borrowings under the Credit Agreement. Based upon its analysis of its consolidated financial position, its cash flow during the past twelve months and the cash flow anticipated from its future operations, the Company believes that its future cash flows together with funds available under the Credit Agreement, will be adequate to meet the financing requirements it anticipates during the next twelve months, provided that the Company consummates the Debt Restructuring and secures an extension of the Credit Agreement or a new working capital facility. There can be no assurance, however, (i) that the Company will consummate the Debt Restructuring, or (ii) that future developments and general economic trends will not adversely affect the Company's operations and, hence, its anticipated cash flow. The Company is required to adopt Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", during the year ending January 2, 1999. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. This Statement requires that an enterprise (i) classify items of other comprehensive income by their nature in a financial statements, and (ii) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Adoption of this Statement will require the Company to report changes in the excess of additional pension liability over unrecognized prior service cost and foreign currency translation adjustment accounts, currently shown in the stockholders' equity section of the balance sheet, as an increase or decrease to reported net income in arriving at comprehensive income. The Company is required to adopt SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" during the year ending January 2, 1999. The Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries", to remove the special disclosure requirements for previously unconsolidated subsidiaries. The Company is currently considering what effect adoption of this statement will have on the Company. The Company is required to adopt SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", for the period ended January 2, 1999. This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful. The statement is effective for fiscal year ending January 2, 1999. Restatement of disclosures for earlier periods provided for comparative purposes is required. The Company has not yet determined the impact the adoption of this statement will have on the Company's financial statements. Year 2000 Compliance The Company has completed an assessment of its information systems ("IS"), including its computer software and hardware, and the impact that the year 2000 will have on such systems and Salant's overall operations. The Company's current software systems, without modification, will be adversely affected by the inability of the systems to appropriately interpret date information after 1999. As part of the process of improving the Company's IS to provide enhanced support to all operating areas, the Company has entered into an interim working agreement with Electronic Data Systems Corporation ("EDS"), which constitutes the initial phase of a long-term contract to outsource its IS. Such long-term outsourcing contract will provide for or eliminate any issues involving year 2000 compliance because all software provided under the outsourcing contract will be year 2000 compliant. The Company anticipates that its cost for such outsourcing will be approximately $9.0 million annually, which is consistent with Salant's current IS expenditures. The Company anticipates that it will complete its outsourcing and systems conversion in time to accommodate year 2000 issues. If the Company fails to complete such conversion in a timely manner, such failure will have a material adverse effect on the business, financial condition and results of operations of the Company. Seasonality Although the Company typically introduces and withdraws various individual products throughout the year, its principal products are organized into the customary retail Spring, Fall and Holiday 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 7, 1998, the Company's backlog of orders was approximately $94.9 million, 2.3% less than the backlog of orders of approximately $97.1 million that existed at March 1, 1997. Factors that May Affect Future Results and Financial Condition. This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, there can be no assurance that the statement of the expectation or belief will result or be achieved or accomplished. The words "believe", "expect", "estimate", "project", "seek", "anticipate" and similar expressions may identify forward-looking statements. The Company's future operating results and financial condition are dependent upon the Company's ability to successfully design, manufacture, import and market apparel. Taking into account the foregoing, the following are identified as important factors that could cause results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: Substantial Level of Indebtedness and the Ability to Restructure Debt. The Company had current indebtedness of $138.7 million as of January 3, 1998. Of this amount, $104.9 million represents the principal amount of the Senior Secured Notes. The Company will not generate sufficient cash flow from operations to repay this amount at maturity. Accordingly, the Company has entered into the Debt Restructuring as described above. Given the Company's past inconsistent operating performance, together with the reluctance of investors to invest in companies suffering from high debt-to-equity ratios and the Company's inability to raise funds in the capital markets to recapitalize the Company, absent the Debt Restructuring, the Company does not believe it will be able to refinance its indebtedness under the Senior Secured Notes. Failure by the Company to consummate the Debt Restructuring as contemplated could result in the acceleration of all of the indebtedness under the Senior Secured Notes and/or the Credit Agreement, and, thus, would be likely to have a material adverse effect on the Company. Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Company) and a large number of specialty manufacturers. The Company faces substantial competition in its markets from manufacturers in both categories. Many of the Company's competitors have greater financial resources than the Company. The Company also competes for private label programs with the internal sourcing organizations of many of its own customers. Apparel Industry Cycles and other Economic Factors. The apparel industry historically has been subject to substantial cyclical variation, with consumer spending on apparel tending to decline during recessionary periods. A decline in the general economy or uncertainties regarding future economic prospects may affect consumer spending habits, which, in turn, could have a material adverse effect on the Company's results of operations and financial condition. Retail Environment. Various retailers, including some of the Company's customers, have experienced declines in revenue and profits in recent periods and some have been forced to file for bankruptcy protection. To the extent that these financial difficulties continue, there can be no assurance that the Company's financial condition and results of operations would not be adversely affected. Seasonality of Business and Fashion Risk. The Company's principal products are organized into seasonal lines for resale at the retail level during the Spring, Fall and Holiday Seasons. Typically, the Company's products are designed as much as one year in advance and manufactured approximately one season in advance of the related retail selling season. Accordingly, the success of the Company's products is often dependent on the ability of the Company to successfully anticipate the needs of the Company's retail customers and the tastes of the ultimate consumer up to a year prior to the relevant selling season. Foreign Operations. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas and, in certain parts of the world, political instability. Any substantial disruption of its relationship with its foreign suppliers could adversely affect the Company's operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas, which limit the amount of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocation could adversely affect the Company's operations. The Company's operations in Asia, including those of its licensees, are subject to certain political and economic risks including, but not limited to, political instability, changing tax and trade regulations and currency devaluations and controls. The Company's risks associated with the Company's Asian operations may be higher in 1998 than has historically been the case, due to the fact that financial markets in East and Southeast Asia have recently experienced and continue to experience difficult conditions, including a currency crisis. As a result of recent economic volatility, the currencies of many countries in this region have lost value relative to the U.S. dollar. Although the Company has experienced no material foreign currency transaction losses since the beginning of this crisis, its operations in the region are subject to an increased level of economic instability. The impact of these events on the Company's business, and in particular its sources of supply and royalty income cannot be determined at this time. Dependence on Contract Manufacturing. The Company currently produces 59% of all of its products (in units) through arrangements with independent contract manufacturers. The use of such contractors and the resulting lack of direct control could subject the Company to difficulty in obtaining timely delivery of products of acceptable quality. In addition, as is customary in the industry, the Company does not have any long-term contracts with its fabric suppliers or product manufacturers. While the Company is not dependent on one particular product manufacturer or raw material supplier, the loss of several such product manufacturers and/or raw material suppliers in a given season could have a material adverse effect on the Company's performance. Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors are cautioned not to use historical trends to anticipate results or trends in the future. In addition, the Company's participation in the highly competitive apparel industry often results in significant volatility in the Company's common stock price. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report To the Board of Directors and Stockholders of Salant Corporation: We have audited the accompanying consolidated balance sheets of Salant Corporation and subsidiaries as of January 3, 1998 and December 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended January 3, 1998, December 28, 1996 and December 30, 1995. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Salant Corporation and subsidiaries as of January 3, 1998 and December 28, 1996, the results of their operations and their cash flows for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, as of January 3, 1998, the Company had a working capital deficiency of approximately $37 million, resulting from the classification of the Company's $104.9 million of 10 1/2 % Senior Secured Notes, due December 31, 1998, as a current liability. This matter raises substantial doubt about the Company's ability to continue as a going concern. See Note 1 to the consolidated financial statements for a discussion of the Company's agreement with the largest holders of its Senior Secured Notes and its 39.6% shareholder, whereby such holders of the Senior Secured Notes will convert their Senior Secured Notes to common equity, subject to, among other things, the remaining noteholders agreeing to convert their holdings to common equity and the approval by the holders of a majority of common equity. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Deloitte & Touche LLP March 6, 1998 New York, New York SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data)
Year Ended January 3, December 28, December 30, 1998 1996 1995 Net sales $ 396,832 $ 417,711 $ 485,825 Cost of goods sold 312,358 322,798 385,196 Gross profit 84,474 94,913 100,629 Selling, general and administrative expenses (80,593) (83,148) (82,578) Royalty income 5,596 6,154 6,606 Goodwill amortization (1,881) (2,227) (2,430) Other income, net 575 2,642 244 Division restructuring costs (Note 3) (2,066) (11,730) (3,550) Income from continuing operations before interest, income taxes and extraordinary gain 6,105 6,604 18,921 Interest expense, net (Notes 9 and 10) 16,660 15,459 18,965 Income/(loss) from continuing operations before income taxes and extraordinary gain (10,555) (8,855) (44) Income taxes (Note 12) 167 103 318 Income/(loss) from continuing operations before extraordinary gain (10,722) (8,958) (362) Discontinued operations (Note 17): Loss from operations (8,136) (365) (136) Estimated loss on disposal (1,330) -- -- Extraordinary gain (Note 4) 2,100 -- 1,000 Net income/(loss) $ (18,088) $ (9,323) $ 502 Basic earnings/(loss) per share: Earnings/(loss) per share from continuing operations before extraordinary gain $ (0.71) $ (0.60) $ (0.02) Loss per share from discontinued operations (0.62) (0.02) (0.01) Extraordinary gain 0.14 -- 0.06 Basic earnings/(loss) per share $ (1.19) $ (0.62) $ 0.03 Weighted average common stock outstanding 15,139 15,078 15,008
See Notes to Consolidated Financial Statements SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data)
January 3, December 28, 1998 1996 ASSETS Current assets: Cash and cash equivalents $ 2,215 $ 1,498 Accounts receivable - net of allowance for doubtful accounts of $2,094 in 1997 and $2,806 in 1996 (Notes 9 and 10) 45,828 40,133 Inventories (Notes 5 and 9) 96,638 98,497 Prepaid expenses and other current assets 4,218 3,869 Net assets of discontinued operations (Note 17) -- 6,989 Total current assets 148,899 150,986 Property, plant and equipment, net (Notes 6 and 9) 26,439 25,173 Other assets (Notes 7, 10 and 12) 58,039 59,092 $ 233,377 $ 235,251 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable (Note 9) $ 33,800 $ 7,677 Accounts payable 27,746 27,562 Reserve for business restructuring (Note 3) 2,764 2,969 Accrued salaries, wages and other liabilities (Note 8) 16,503 17,986 Current portion of long term debt (Note 10) 104,879 3,372 Total current liabilities 185,692 59,566 Long term debt (Note 10) -- 106,231 Deferred liabilities (Note 15) 5,382 8,863 Commitments and contingencies (Notes 9, 10, 13, 14 and 16) 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 30,000 shares; 15,405 15,328 issued and issuable - 15,405 shares in 1997; issued and issuable - 15,328 shares in 1996 Additional paid-in capital 107,249 107,130 Deficit (75,235) (57,147) Excess of additional pension liability over unrecognized prior service cost adjustment (Note 13) (3,508) (3,182) Accumulated foreign currency translation adjustment 6 76 Less - treasury stock, at cost - 234 shares (1,614) (1,614) Total shareholders' equity 42,303 60,591 $ 233,377 $ 235,251
See Notes to Consolidated Financial Statements SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in thousands)
Excess of Additional Pension Liability Over Unrecog- Cumulative nized Foreign Total Common Stock Add'l Prior Currency Treasury Stock Share- Number Paid-In Service Translation Number of holders' of Shares Amount Capital Deficit Cost Adjustment Shares Amount Equity Balance at December 31, 1994 15,242 $15,242 $107,017$(48,326) $(773) $120 234 $(1,614) $71,666 Stock options exercised 33 33 54 87 Net income 502 502 Excess of additional pension liability over unrecognized prior service cost adjustment (1,412) (1,412) Foreign currency translation adjustments 10 10 Balance at December 30, 1995 15,275 15,275 107,071 (47,824) (2,185) 130 234 (1,614) 70,853 Stock options exercised 53 53 59 112 Net loss (9,323) (9,323) Excess of additional pension liability over unrecognized prior service cost adjustment (997) (997) Foreign currency translation adjustments (54) (54) Balance at December 28, 1996 15,328 15,328 107,130 (57,147) (3,182) 76 234 (1,614) 60,591 Stock options exercised 77 77 119 196 Net loss (18,088) (18,088) Excess of additional pension liability over unrecognized prior service cost adjustment (326) (326) Foreign currency translation adjustments (70) (70) Balance at January 3, 1998 15,405 $15,405 $107,249$(75,235) $(3,508) $ 6 234 $(1,614) $42,303
See Notes to Consolidated Financial Statements SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) Year Ended January 3, December 28, December 30, 1998 1996 1995 Cash Flows from Operating Activities Income/(loss) from continuing operations $ (10,722) $ (8,958) $ (362) Adjustments to reconcile income from continuing operations to net cash (used in)/provided by operating activities: Depreciation 6,402 5,975 5,528 Amortization of intangibles 2,512 2,228 2,430 Write-down of fixed assets 1,274 263 1,850 Write-down of other assets - 6,264 -- Loss on sale of fixed assets - 17 132 Changes in operating assets and liabilities: Accounts receivable (5,695) (5,256) 1,364 Inventories 1,859 16,868 6,747 Prepaid expenses and other current assets 539 1,038 257 Other assets (242) (760) 916 Accounts payable 184 2,529 (2,653) Accrued salaries, wages and other liabilities (3,463) (2,403) (66) Reserve for business restructuring (205) 1,400 1,569 Deferred liabilities (2,203) (2,148) (598) Net cash (used in)/provided by continuing operating activities(9,760) 17,057 17,114 Cash used in discontinued operations (2,217) (469) (1,138) Net cash (used in)/provided by operations (11,977) 16,588 15,976 Cash Flows from Investing Activities Capital expenditures, net of disposals (7,061) (7,103) (4,286) Store fixture expenditures (3,122) (3,855) (2,988) Acquisition - (694) -- Proceeds from sale of assets - 1,854 122 Net cash used in investing activities (10,183) (9,798) (7,152) Cash Flows from Financing Activities Net short-term borrowings/(repayments) 26,123 (6,745) (9,484) Retirement of long-term debt (3,372) -- -- Exercise of stock options 196 112 87 Other, net (70) (54) 10 Net cash provided by/(used in) financing activities 22,877 (6,687) (9,387) Net increase/(decrease) in cash and cash equivalents 717 103 (563) Cash and cash equivalents - beginning of year 1,498 1,395 1,958 Cash and cash equivalents - end of year $ 2,215 $ 1,498 $ 1,395 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 16,479 $ 16,307 $ 20,280 Income taxes $ 201 $ 189 $ 331
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 Restructuring The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At January 3, 1998, the 10 1/2% Senior Secured Notes due December 31, 1998 (the "Senior Secured Notes") in the amount of $104,879 have been classified as a current liability and the Company's current liabilities exceeded its current assets by $36,793. This factor may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. On March 3, 1998, the Company announced that it had reached an agreement in principle (the "Restructuring Agreement") with its major note and equity holders to convert its existing indebtedness under the Senior Secured Notes into common equity (the "Debt Restructuring"), as further described in Note 10. This agreement is subject to the approval of the remaining noteholders and stockholders. However, there can be no assurance that such transaction will be consummated. If the Company is not able to consummate this transaction, it will be unable to continue its normal operations without pursuing alternative financing or restructuring strategies. In contemplation of the Debt Restructuring, the Company elected not to pay the interest payment of approximately $5,500 that was due and payable under the Senior Secured Notes on March 2, 1998, subject to a 30 day grace period. Because the Company does not plan on paying the interest due on the Senior Secured Notes by the expiration of the applicable grace period, an event of default will occur with respect to the Senior Secured Notes entitling the holders to accelerate the maturity thereof. If holders of at least 25% in aggregate principal face amount of the Senior Secured Notes accelerate all outstanding indebtedness under the Senior Secured Notes pursuant to the terms of the indenture governing the Senior Secured Notes (the "Indenture") and, in the event that the Debt Restructuring is not consummated, such an acceleration of the outstanding indebtedness under the Senior Secured Notes could result in the Company becoming subject to a proceeding under the Federal bankruptcy laws. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The Consolidated Financial Statements include the accounts of Salant Corporation ("Salant") and subsidiaries. (As used herein, the "Company" includes Salant and its subsidiaries but excludes Salant's Made in the Shade and Vera Scarf divisions.) In June 1997, the Company discontinued the operations of the Made in the Shade division, which produced and marketed women's junior sportswear. In February 1995, Salant discontinued its Vera Scarf division. As further described in Note 17, the Consolidated Financial Statements and the Notes thereto reflect the Made in the Shade and Vera Scarf divisions as discontinued operations. Significant intercompany balances and transactions are eliminated in consolidation. The Company's principal business is the designing, manufacturing, importing and marketing of apparel. The Company sells its products to retailers, including department and specialty stores, national chains, major discounters and mass volume retailers, throughout the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (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. On June 27, 1990 (the "Filing Date"), Salant and one of its subsidiaries, Denton Mills, Inc. ("Denton Mills"), filed separate voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills, Inc. (the "Reorganization Plan"). The Reorganization Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Note 18. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. The 1997 fiscal year was comprised of 53 weeks. The 1995 and 1996 fiscal years were each comprised of 52 weeks. Reclassifications Certain reclassifications were made to the 1995 and 1996 Consolidated Financial Statements to conform with the 1997 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. Accounts Receivable The Company is a party to an agreement with a factor, as further described in Note 9, whereby it sells, without recourse, certain eligible accounts receivable. The credit risk for such accounts is thereby transferred to the factor. The amounts due from the factor have been offset against advances from the factor in the accompanying balance sheets. The amounts which have been offset were $12,827 at January 3, 1998 and $16,355 at December 28, 1996. Inventories Inventories are stated at the lower of cost (principally determined on a first-in, first-out basis for apparel operations and the retail inventory method on a first-in, first-out basis for outlet store operations) or market. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated or amortized over their estimated useful lives, or for leasehold improvements, the lease term, if shorter. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. The annual depreciation rates used are as follows:
Buildings and improvements 2.5% - 10.0% Machinery, equipment and autos 6.7% - 33.3% Furniture and fixtures 10.0% - 50.0% Leasehold improvements Over the life of the asset or the term of the lease, whichever is shorter
Other Assets Intangible assets are being amortized on a straight-line basis over their respective useful lives, ranging from 25 to 40 years. Costs in excess of fair value of net assets acquired, which relate to the acquisition of the net assets of Manhattan Industries, Inc. ("Manhattan") 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. 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 Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". Fair Value of Financial Instruments For financial instruments, including cash and cash equivalents, accounts receivable and payable, and accruals, the carrying amounts approximated fair value because of their short maturity. Long-term debt, which was issued at a market rate of interest, currently trades at approximately 80% of principal amount. In addition, deferred liabilities have carrying amounts approximating fair value. Earnings/(Loss) Per Share The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", for the period ended January 3, 1998, which establishes standards for computing and presenting earnings per share ("EPS") and simplifies the standards for computing EPS currently found in Accounting Principles Board ("APB") Opinion No. 15 ("Earnings Per Share"). Common stock equivalents under APB No. 15 are no longer included in the calculation of primary, or basic, EPS. Under SFAS No. 128, contingently issuable shares (shares issuable for little or no cash consideration) are still included in the calculation of basic EPS. Earnings/(loss) per share is based on the weighted average number of common shares (including, as of January 3, 1998 and December 28, 1996, 205,854 and 324,810 shares, respectively, anticipated to be issued pursuant to the Reorganization Plan) and common stock equivalents outstanding, if applicable. Loss per share for 1997 and 1996 did not include common stock equivalents, inasmuch as their effect would have been anti-dilutive. In 1997, 1996 and 1995, earnings per share did not include 1,343,393, 837,240 and 969,073 stock options, respectively, which would not have had a dilutive effect. Foreign Currency The Company entered into forward foreign exchange contracts, relating to 80% of its projected 1998 Mexican peso needs, to fix its cost of acquiring pesos and diminish the risk of currency fluctuations. Gains and losses on foreign currency contracts are included in income and offset the gains and losses on the underlying transactions. On January 3, 1998, the outstanding foreign currency contracts had a cost of approximately $8,900 and a year end market value of approximately $10,000. Revenue Recognition Revenue is recognized at the time the merchandise is shipped. Retail outlet store revenues are recognized at the time of sale. New Accounting Standards The Company is required to adopt SFAS No. 130, "Reporting Comprehensive Income", during the year ending January 2, 1999. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. This Statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statements, and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Adoption of this statement will require the Company to report changes in the excess of additional pension liability over unrecognized prior service cost and foreign currency translation adjustment accounts, currently shown in the stockholder's equity section of the balance sheet, as an increase or decrease to reported net income in arriving at comprehensive income. The Company is required to adopt SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" during the year ending January 2, 1999. The Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise", but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries", to remove the special disclosure requirements for previously unconsolidated subsidiaries. The Company is currently considering what effect adoption of this statement will have on the Company. The Company is required to adopt SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", for the period ended January 2, 1999. This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful. The statement is effective for fiscal year ending January 2, 1999. Restatement of disclosures for earlier periods provided for comparative purposes is required. The Company has not yet determined the impact the adoption of this statement will have on the Company's financial statements. Note 3. Restructuring Costs In 1997, the Company recorded a provision for restructuring of $2,066, consisting of (i) $3,530 related to the decision in the fourth quarter to close all retail outlet stores other than Perry Ellis outlet stores consisting primarily of asset write-offs and future payments related to non-cancelable operating leases, offset by a $1,464 reversal of previously recorded restructuring reserves, including $300 in the fourth quarter, primarily resulting from the settlement of liabilities for less than the carrying amount. As of January 3, 1998, $1,579 remained in the restructuring reserve, all related to the retail outlet store closings. In 1996, the Company recorded a provision for restructuring of $11,730, consisting of (i) $5,718 in connection with the decision to sell or license the JJ. Farmer sportswear product line, which charge is primarily related to the write-off of goodwill and write-down of other assets, (ii) $2,858 related to the write-off of certain assets related to the licensing of the Gant dress shirt and accessories product lines, and the accrual of a portion of the future minimum royalties under the Gant licenses, which are not expected to be covered by future sales, (iii) $1,837 primarily related to employee costs in connection with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $714 primarily related to employee costs in connection with the closing of a manufacturing facility in Americus, Georgia and (v) $603 related primarily to other severance costs. As of January 3, 1998, $1,185 of the above amounts remained in the restructuring reserves related to future minimum royalties and future carrying costs for a closed facility. In the fourth quarter of 1995, the Company recorded a $3,550 restructuring provision, which included (i) $2,400 related to fixed asset write-downs at locations to be closed and (ii) $1,150 related to inventory markdowns for discontinued product lines. Note 4. Extraordinary Gains In 1997, the Company recorded an extraordinary gain of $2,100, including $1,500 in the fourth quarter. In the fourth quarter of 1995, the Company recorded an extraordinary gain of $1,000. These gains related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the chapter 11 proceeding. Note 5. Inventories
January 3, December 28, 1998 1996 Finished goods $ 52,010 $ 57,826 Work-in-process 21,405 14,801 Raw materials and supplies 23,223 25,870 $ 96,638 $ 98,497
Finished goods inventory includes in transit merchandise of $4,428 and $5,400 at January 3, 1998 and December 28, 1996, respectively. Note 6. Property, Plant and Equipment
January 3, December 28, 1998 1996 Land and buildings $16,574 $14,975 Machinery, equipment, furniture and fixtures 32,197 30,551 Leasehold improvements 7,505 6,852 Property held under capital leases 583 117 56,859 52,495 Less accumulated depreciation and amortization 30,420 27,322 $26,439 $25,173
Note 7. Other Assets
January 3, December 28, 1998 1996 Excess of cost over net assets acquired, net of accumulated amortization of $13,240 in 1997 and $11,805 in 1996 $39,042 $40,477 Trademarks and license agreements, net of accumulated amortization of $4,064 in 1997 and $3,619 in 1996 13,498 13,943 Other 5,499 4,672 $58,039 $59,092
In June 1996, the company wrote-off other assets of $4,325 which consisted of $4,075 for the unamortized portion of the excess of cost over net assets acquired related to the JJ. Farmer division and $250 related to the license agreements for the Gant product lines. In November 1996, the Company sold its leasehold interest in a closed facility in Glen Rock, New Jersey, resulting in a gain of $2,712, which is included in other income. Note 8. Accrued Salaries, Wages and Other Liabilities
January 3, December 28, 1998 1996 Accrued salaries and wages $ 4,002 $ 1,765 Accrued pension and retirement benefits 2,757 4,080 Accrued royalties 482 1,959 Accrued interest 3,897 3,716 Other accrued liabilities 5,365 6,466 $16,503 $17,986
Note 9. Financing and Factoring Agreements The Company is a party to a Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended (the "Credit Agreement"), with The CIT Group/Commercial Services, Inc. ("CIT") which provides the Company with seasonal working capital financing, consisting of direct borrowings and letters of credit, of up to $120,000 (the "Maximum Credit"), subject to an asset based borrowing formula. As collateral for borrowings under the Credit Agreement, the Company has granted to CIT a security interest in substantially all of the assets of the Company. On March 2, 1998, in connection with the Debt Restructuring (as defined in Note 10), the Company and CIT executed the Twelfth Amendment and Forbearance Agreement (the "Amendment") to the Credit Agreement. The Amendment (i) provides a waiver, as of January 3, 1998, to the Company for not meeting the financial covenants for stockholders equity and maximum loss as set forth in the Credit Agreement, (ii) provides for CIT to forbear from exercising any of its rights and remedies arising from the Company's decision not to pay interest on the Senior Secured Notes, payable on March 2, 1998, as further discussed in Note 10, (iii) provides that, subject to the terms and conditions of the Credit Agreement, as modified by the Amendment, CIT will continue making loans, advances and other financial accommodations to the Company, (iv) increases the borrowings allowed against eligible inventory to 60%, (v) provides the Company with a discretionary $3,000 seasonal overadvance, (vi) reduces the Maximum Credit from $135,000 to $120,000 and (vii) modifies the financial covenants the Company is required to maintain. Under the Amendment, to the extent that the Company fails to maintain certain levels of borrowing availability under its asset-based borrowing formula, the Company is required to maintain a certain minimum interest coverage ratio and is subject to a covenant limiting the maximum loss the Company may incur over any twelve consecutive calendar months. On January 3, 1998, direct borrowings and letters of credit outstanding under the Credit Agreement were $33,800 and $23,239, respectively, and the Company had unused availability of $17,486. On December 28, 1996, direct borrowings and letters of credit outstanding under the Credit Agreement were $7,677 and $33,640, and the Company had unused availability of $23,561. The weighted average interest rate on borrowings under the Credit Agreement for the years ended January 3, 1998 and December 28, 1996 was 9.3% and 9.4%, 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. Long-Term Debt On September 20, 1993, Salant issued $111,851 principal amount of Senior Secured Notes. The Senior Secured Notes may be redeemed at any time prior to maturity, in whole or in part, at the option of the Company, at a premium to the principal amount thereof plus accrued interest. The Senior Secured Notes are secured by a first lien (subordinated to the lien securing borrowings under the Credit Agreement to the extent of $15,000) on certain accounts receivable, certain intangible assets, the capital stock of Salant's subsidiaries and certain real property of the Company, and by a second lien on substantially all of the other assets of the Company. Under the Restructuring Agreement, as discussed in Note 1, the Company will convert the entire $104,879 outstanding aggregate principal amount of, and all accrued and unpaid interest on, its Senior Secured Notes into the Company's common stock. The Restructuring Agreement was entered into by the Company and Magten Asset Management Corp. ("Magten"), the beneficial owner of, or the representative of the beneficial owners of, approximately 67% of the aggregate principal amount of the Senior Secured Notes. Apollo Apparel Partners, L.P. ("Apollo"), the beneficial owner of approximately 39.6% of the Company's issued and outstanding common stock, is also a party to the Restructuring Agreement and has agreed to vote all of its shares of common stock in favor of the Debt Restructuring. The Restructuring Agreement provides, among other things, that (i) the entire principal amount of the Senior Secured Notes, plus all accrued and unpaid interest thereon, will be converted into 92.5% of the Company's common stock, and (ii) the Company's existing stockholders will retain 7.5% of the Company's common stock and will receive seven-year warrants to purchase up to 10% of the Company's common stock on a fully diluted basis. Stockholder and noteholder approval will be required in order to consummate the Debt Restructuring. The Restructuring Agreement also provides for a reverse stock split, which will require the approval of the Company's stockholders. Because of the treatment of accrued interest on the Senior Secured Notes under the proposed restructuring agreement, the Company did not pay the $5,500 of interest on the Senior Secured Notes that became payable on March 2, 1998, subject to a 30 day grace period. Consummation of the Debt Restructuring is subject to the satisfaction of a number of conditions precedent, including stockholder and noteholder approval and the negotiation and execution of definitive documentation. However, there can be no assurances that the Debt Restructuring will be consummated. Implementation of the Debt Restructuring will result in the elimination of $11,000 of annual interest expense to the Company. The Indenture contains various restrictions pertaining to the incurrence of indebtedness, the purchase of capital stock and the payment of dividends. Under the most restrictive of these provisions, the Company currently may not purchase or redeem any shares of its capital stock, or declare or pay cash dividends. In contemplation of the Debt Restructuring, the Company elected not to pay the interest payment of approximately $5,500 that was due and payable under the Senior Secured Notes on March 2, 1998, subject to a 30 day grace period. Because the Company does not plan on paying the interest due on the Senior Secured Notes by the expiration of the applicable grace period, an event of default will occur with respect to the Senior Secured Notes, entitling the holders to accelerate the maturity thereof. In accordance with the terms of the Restructuring Agreement, Magten has provided a written direction to Bankers Trust Company, as trustee under the Indenture, to forbear during the term of the Restructuring Agreement from taking any action in connection with the failure by the Company to make the interest payment on the Senior Secured Notes that was due and payable on March 2, 1998. However, there is no assurance that the holders of 25% or more of the Senior Secured Notes will not decide to accelerate the outstanding indebtedness under the Senior Secured Notes prior to consummation of the Debt Restructuring. In addition, the Company's working capital lender, CIT, agreed to forbear until July 1, 1998, subject to certain conditions, from exercising any of its rights or remedies under the Credit Agreement, arising by virtue of the Company's failure to pay such interest on the Senior Secured Notes. Failure to consummate the Debt Restructuring could result in the acceleration of all of the indebtedness under the Senior Secured Notes and/or the Credit Agreement. On October 28, 1996, the Company completed the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. The cash proceeds, net of certain expenses, of such sale were $3,372. Such amount was included in current liabilities at December 28, 1996. Pursuant to the Indenture, on December 30, 1996, the Company repurchased Senior Secured Notes in a principal amount equal to the net cash proceeds at 100% of the principal amount thereof. Note 11. Segment Information and Significant Customers The Company's principal business is the designing, manufacturing, importing and marketing of apparel. The Company sells its products to retailers, including department and specialty stores, national chains, major discounters and mass volume retailers, throughout the United States. As an adjunct to its apparel manufacturing operations, the Company operates 17 factory outlet stores in various parts of the United States. Foreign operations, other than sourcing, are not significant. The Company's products have been classified in the following industry segments: (i) men's apparel, (ii) children's sleepwear and underwear and (iii) retail factory outlet store operations. Information concerning the Company's business segments in 1997, 1996 and 1995 is as follows:
1997 1996 1995 NET SALES Men's $325,845 $344,763 $416,659 Children's 49,165 45,754 39,936 Retail Outlet Stores 21,822 27,194 29,230 Total net sales $396,832 $417,711 $485,825
OPERATING INCOME Men's $ 19,483 $ 6,197 $ 19,596 Children's (278) 5,401 5,177 Retail Outlet Stores (8,381) (4,195) (2,674) 10,824 7,403 22,099 Corporate expenses (9,269) (5,790) (8,801) Licensing division income 4,550 4,991 5,623 Interest expense, net (16,660) (15,459) (18,965) Income/(loss) from continuing operations before income taxes and extraordinary gain $ (10,555) $ (8,855) $ (44)
IDENTIFIABLE ASSETS Men's $150,177 $137,968 $170,203 Children's 22,284 20,709 16,349 Retail Outlet Stores 3,694 10,176 11,991 Corporate 57,222 66,398 55,427 Total identifiable assets $233,377 $235,251 $253,970
CAPITAL EXPENDITURES Men's $ 2,972 $ 4,046 $ 1,389 Children's 1,959 546 492 Retail Outlet Stores 252 439 584 Corporate 1,878 2,072 1,821 Total capital expenditures $ 7,061 $ 7,103 $ 4,286
DEPRECIATION AND AMORTIZATION Men's $ 4,640 $ 3,669 $ 2,961 Children's 455 399 345 Retail Outlet Stores 321 478 459 Corporate 3,498 3,657 4,193 Total depreciation and amortization $ 8,914 $ 8,203 $ 7,958
In 1997, approximately 17% of the Company's net sales were made to Sears, approximately 11% of the Company's net sales were made to Federated Department Stores, Inc. ("Federated") and approximately 10% of the Company's net sales were made to TJX Corporation ("TJX"). In 1996, approximately 13% of the Company's net sales were made to Sears. In 1996 and 1995, net sales to Federated represented approximately 11% and 12% of the Company's net sales, respectively. In 1995, approximately 11% of the Company's net sales were made to TJX. In 1995, approximately 13% of the Children's Group's net sales were made to Dayton Hudson Corporation. No other customer accounted for more than 10% of the net sales of the Company or any of its business segments during 1997, 1996 or 1995. Note 12. Income Taxes
The provision for income taxes consists of the following: January 3, December 28, December 30, 1998 1996 1995 Current: Federal $ (34) $(106) $100 State -- -- -- Foreign 201 209 218 $ 167 $ 103 $318
The following is a reconciliation of the tax provision/(benefit) at the statutory Federal income tax rate to the actual income tax provision:
1997 1996 1995 Income tax benefit, at 34% $(3,589) $(3,135) $ (61) Loss producing no current tax benefit 3,589 3,135 61 Alternative minimum tax 100 Tax refunds from prior years (34) (106) Foreign taxes 201 209 218 Income tax provision $ 167 $ 103 $ 318
The following are the tax effects of significant items comprising the Company's net deferred tax asset:
January 3, December 28, 1998 1996 Deferred tax liabilities: Differences between book and tax basis of property $ (3,575) $ (3,659) Deferred tax assets: Reserves not currently deductible 12,700 13,983 Operating loss carryforwards 51,844 45,041 Tax credit carryforwards 2,958 2,958 Expenses capitalized into inventory 4,925 4,657 72,427 66,639 Net deferred asset 68,852 62,980 Valuation allowance (68,852) (62,980) Net deferred tax asset $ -- $ --
At January 3, 1998, the Company had net operating loss carryforwards ("NOLs") for income tax purposes of approximately $133,000, expiring from 1999 to the year 2012, which can be used to offset future taxable income. Approximately $51,000 of these NOLs arose from the acquisition of Manhattan in April 1988, and will offset goodwill when utilized. The implementation of the Reorganization Plan and transactions that have occurred within the three-year period preceding the Consummation Date have caused an "ownership change" for federal income tax purposes as of the Consummation Date. As a result of such ownership change, the use of the NOLs to offset future taxable income is limited by the requirements of section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). The $133,000 of NOLs reflected above is the maximum the Company may use to offset future taxable income. Of the $133,000 of NOLs, $102,000 is subject to annual usage limitations under Section 382 of approximately $7,200. In addition, at January 3, 1998, the Company had available tax credit carryforwards of $2,958 which expire between 1998 and 1999. Of these tax credits, $1,986 will reduce goodwill and the balance will reduce income tax expense when utilized. Utilization of these credits may be limited in the same manner as the NOLs, as described above. Additionally, if the Debt Restructuring, as outlined in the Restructuring Agreement, is consummated, a second ownership change under Section 382 will occur. As a result, the utilization of the NOLs and tax credit carryforwards would likely be subject to additional limitations, which could significantly reduce their use. Note 13. Employee Benefit Plans Pension and Retirement Plans The Company has several defined benefit plans for virtually all full-time salaried employees and certain nonunion hourly employees. The Company's funding policy for its plans is to fund the minimum annual contribution required by applicable regulations. The Company also has a nonqualified supplemental retirement and death benefit plan covering certain employees. The funding for this plan is based on premium costs of related insurance contracts. Pension expense includes the following components:
1997 1996 1995 Service cost-benefit earned during the period $1,050 $1,270 $1,029 Interest cost on projected benefit obligation 3,272 2,912 2,714 Loss/(return) on assets (4,435) (4,126) (4,697) Net amortization 1,602 1,564 2,286 Net periodic pension cost $1,489 $1,620 $1,332
The reconciliation of the funded status of the plans at January 3, 1998 and December 28, 1996 is as follows:
January 3, December 28, 1998 1996 Accumulated Accumulated Plan Plan Benefits Benefits Exceed Exceed Plan Assets Plan Assets Actuarial present value of benefit obligation Vested benefit obligation $ (45,503) $ (41,578) Nonvested benefit obligation (539) (661) Accumulated benefit obligation $ (46,042) $ (42,239) Projected benefit obligation $ (49,862) $ (46,811) Plan assets at fair value 42,295 35,980 Projected benefit obligation in excess of plan assets (7,567) (10,831) Unrecognized net obligation at date of initial application, amortized over 15 years 552 624 Unrecognized net loss 7,307 7,188 Unrecognized prior service cost (1,111) (1,222) Recognition of minimum liability under SFAS No. 87 (3,633) (3,332) Accrued pension cost $ (4,452) $ (7,573)
Assumptions used in accounting for defined benefit pension plans are as follows:
1997 1997 1996 1996 1995 1995 Non- Qualified Non- Qualified Non- Qualified Qualified Plans Qualified Plans Qualified Plans Plan Plan Plan Discount rate 7.0% 7.0% 7.25% 7.25% 7.0% 7.0% Rate of increase in compensation levels N/A 5.0% N/A 5.0% N/A 5.0% Expected long-term rate of return on assets 8.0% 8.5% 8.0% 8.5% 8.0% 8.5%
Assets of the Company's qualified plans are invested in directed trusts. Assets in the directed trusts are invested in common and preferred stocks, corporate bonds, money market funds and U.S. government obligations. The nonqualified supplemental plan assets consist of the cash surrender value of certain insurance contracts. The Company also contributes to certain union retirement and insurance funds established to provide retirement benefits and group life, health and accident insurance for eligible employees. The total cost of these contributions was $3,839, $4,095 and $4,263 in 1997, 1996 and 1995, respectively. The actuarial present value of accumulated plan benefits and net assets available for benefits for employees in the union administered plans are not determinable from information available to the Company. Long Term Savings and Investment Plan Salant sponsors the Long Term Savings and Investment Plan, under which eligible salaried employees may contribute up to 15% of their annual compensation, subject to certain limitations, to a money market mutual fund, a fixed income fund and/or three equity mutual funds. Salant contributes a minimum matching amount of 20% of the first 6% of a participant's annual compensation and may contribute an additional discretionary amount in cash or in the Company's common stock. In 1997, 1996 and 1995 Salant's aggregate contributions to the Long Term Savings and Investment Plan amounted to $218, $229 and $239, respectively. Note 14. Stock Options and Shareholder Rights The Company's stock plans provide for grants of stock options or stock awards aggregating 2,400,000 shares of Salant common stock to officers, key employees and, in certain cases, to directors. The Company's stock plans authorized such grants (subject to certain restrictions applicable to certain stock options granted to directors) at such prices and pursuant to such other terms and conditions as the Stock Plan Committee may determine. Options may be nonqualified stock options or incentive stock options and may include stock appreciation rights. Exercise prices of options are equal to 100% of the fair market value of the Company's shares on the date of grant of the options. Options expire no later than ten years from the date of grant and become exercisable in varying amounts over periods ranging from the date of grant to five years from the date of grant. The Restructuring Agreement provides that Salant will reserve 10% of the outstanding common stock, on a fully diluted basis, as of the consummation of the Debt Restructuring, (the "Effective Date"), in order to create new employee stock and stock option plans for the benefit of the members of management and the other employees of Salant. In addition, the Restructuring Agreement provides that, on the Effective Date, a management stock option plan will be authorized pursuant to which options to acquire a certain percentage of such 10% reserve will be granted to (i) the directors of Salant and (ii) those members of management of Salant selected by management and approved by the non-management members of the board of directors of Salant. The Restructuring Agreement also provides that the decision to grant any additional stock options from the balance of the 10% reserve referred to above, and the administration of the stock plans, will be at the discretion of the non-management members of the board of directors of Salant. In addition, the Restructuring Agreement provides that by agreement between Salant and its employees, all existing employee stock options and other equity based plans will be adjusted so that such options and equity based plans will be part of the above-referenced new employee stock and/or stock option plans (i.e., subsumed within the 10%) as agreed upon between Apollo and Salant, subject to consultation with Magten.
The following table summarizes stock option transactions during 1995, 1996 and 1997: Weighted Average Exercise Shares Price Range Price Options outstanding at December 31, 1994 1,157,208 $1.00-15.125 Options granted during 1995 205,300 $3.3125-5.1875 Options exercised during 1995 (33,334) $2.625 Options surrendered or canceled during 1995 (65,601) $3.00-12.00 Options outstanding at December 30, 1995 1,263,573 $1.00-15.125 $6.50 Options granted during 1996 51,600 $3.32-3.94 $3.42 Options exercised during 1996 (53,000) $1.00-2.00 $1.94 Options surrendered or canceled during 1996 (228,433) $2.75-12.00 $6.63 Options outstanding at December 28, 1996 1,033,740 $1.625-15.125 $6.56 Options granted during 1997 1,316,900 $2.0625-4.125 $3.65 Options exercised during 1997 (76,500) $1.625-2.625 $2.56 Options surrendered or cancelled during 1997 (930,747) $2.625-15.125 $6.54 Options outstanding at January 3, 1998 1,343,393 $2.0625-12.875 $3.95 Options exercisable at January 3, 1998 191,392 $2.41-12.875 $6.02 Options exercisable at December 28, 1996 910,028 $1.625-15.125 $6.88
The following tables summarize information about outstanding stock options as of January 3, 1998 and December 28, 1996:
Options Outstanding Options Exercisable Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Exercisable at Average Range of Exercise Price 1/3/98 Contractual Life Exercise Price 1/3/98 Exercise Price $2.0625 -$2.75 305,300 9.55 $2.508 5,300 $2.731 $2.813 - $4.00 492,900 9.13 3.861 40,899 3.588 $4.125 400,000 9.22 4.125 0 0 $4.25 - $8.19 131,567 5.43 6.346 131,567 6.346 $9.82 - $12.875 13,626 2.33 11.393 13,626 11.393 $2.0625 - $12.875 1,343,393 8.82 3.952 191,392 6.016
Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Exercisable at Average Range of Exercise Price 12/28/96 Contractual Life Exercise Price 12/28/96 Exercise Price $1.625 - $2.625 191,500 4.43 2.598 191,500 2.598 $2.75 - $4.94 129,150 8.77 3.923 45,064 4.159 $5.125 - $5.875 279,884 6.96 5.370 243,592 5.397 $6.32 - $8.82 232,113 6.57 7.615 228,779 7.634 $9.82 - $15.125 201,093 1.90 12.484 201,093 12.484 $1.625 - $15.125 1,033,740 5.65 6.564 910,028 6.875
The Company has a shareholder rights plan (the "Rights Plan"), which provides for a dividend distribution of one right for each share of Salant common stock to holders of record of the Company's common stock at the close of business on December 23, 1987. The rights will expire on December 23, 2002. With certain exceptions, the rights will become exercisable only in the event that an acquiring party accumulates 20 percent or more of the Company's voting stock, or if a party announces an offer to acquire 30 percent or more of such voting stock. Each right, when exercisable, will entitle the holder to buy one one-hundredth of a share of a new series of cumulative preferred stock at a price of $30 per right or, upon the occurrence of certain events, to purchase either Salant common stock or shares in an "acquiring entity" at half the market value thereof. The Company will generally be entitled to redeem the rights at three cents per right at any time until the 10th day following the acquisition of a 20 percent position in its voting stock. In July 1993, the Rights Plan was amended to provide that an acquisition or offer by Apollo, or any of its subsidiaries will not cause the rights to become exercisable. The Restructuring Agreement provides that Salant's Rights Plan will be amended to permit the consummation of the Debt Restructuring without causing any of the Rights to become exercisable. In summary, as of January 3, 1998, there were 1,343,392 shares of Common Stock reserved for the exercise of stock options and 567,022 shares of Common Stock reserved 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 value of the stock options granted during 1997 and 1996 was $3.65 and $3.42, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1997: risk-free interest rate of 5.75%; expected dividend yield of 0%; expected life of 4.46 years; and expected volatility of 211%. The outstanding stock options at January 3, 1998 have a weighted average contractual life of 8.82 years. The Company accounts for the stock plans 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 Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company's pro forma net income/(loss) for 1997, 1996 and 1995 would have been $(19,951), $(9,692) and $192, respectively. The Company's pro forma net income/(loss) per share for 1997, 1996 and 1995 would have been $(1.32), $(0.64) and $0.01, respectively. Because the SFAS 123 method of accounting has not been applied to options granted prior to 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Note 15. Deferred Liabilities
January 3, December 28, 1998 1996 Lease obligations $ 196 $ 93 Deferred pension obligations 3,634 4,865 Liability for settlement of chapter 11 claims 1,552 3,905 $5,382 $8,863
Note 16. Commitments and Contingencies (a) Lease Commitments The Company conducts a portion of its operations in premises occupied under leases expiring at various dates through 2012. Certain of the leases contain renewal options. Rental payments under certain leases may be adjusted for increases in taxes and operating expenses above specified amounts. In addition, certain of the leases for outlet stores contain provisions for additional rent based upon sales. In 1997, 1996 and 1995, rental expense was $7,689, $7,563 and $7,265, respectively. As of January 3, 1998, 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 1998 $ 5,144 1999 4,210 2000 3,759 2001 3,475 2002 2,805 Thereafter 27,967 Total $47,360
(b) Employment Agreements The Company has employment agreements with certain executives, which provide for the payment of compensation aggregating approximately $2,500 in 1998, $2,300 in 1999 and $400 in 2000. In addition, such employment agreements provide for incentive compensation based on various performance criteria. Note 17. Discontinued Operations In June 1997, the Company discontinued the operations of the Made in the Shade division, which produced and marketed women's junior sportswear. The loss from operations of the division in 1997 was $8,136, which included a charge of $4,459 for the write-off of goodwill. Net sales of the division were $2,822, $20,408 and $15,696 in 1997, 1996 and 1995, respectively. Additionally, in 1997, the Company recorded a charge of $1,330 to accrue for expected operating losses during the phase-out period. No income tax benefits have been allocated to the division's 1997, 1996 and 1995 losses. In February 1995, the Company discontinued the operations of the Vera Scarf division, which imported and marketed women's scarves. The loss from operations of the division in 1994 was $9,639, which included a fourth quarter charge of $9,004 for the write-off of goodwill and other intangible assets. Net sales of the division were $1,673 and $5,087 in 1995 and 1994, respectively. Additionally, in 1994 the Company recorded a fourth quarter charge of $1,796 to accrue for expected operating losses during the phase-out period through June 1995. No income tax benefits have been allocated to the division's 1994 loss. In 1997, the net liabilities of discontinued operations have been included in accrued liabilities. In 1996, the net assets of the discontinued operations consist principally of accounts receivable, inventory, goodwill and accounts payable. Note 18. Consummation of the Plan of Reorganization From the Consummation Date through January 3, 1998, pursuant to the Reorganization Plan, the Company made cash payments of $9,656, issued $111,851 of new 10-1/2% senior secured notes and issued 11.1 million shares of common stock to creditors in settlement of certain claims in the chapter 11 proceedings. Salant anticipates that an additional $1,805 in cash and an additional 206 thousand shares of common stock ultimately will have been distributed to creditors upon the final resolution of all remaining claims. Provisions for such distributions had previously been made in the consolidated financial statements. Note 18. Quarterly Financial Information (Unaudited)
Fiscal year ended January 3, 1998 Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $396,832 $116,360 $110,871 $81,391 $88,210 Gross profit 84,474 20,886 27,236 16,567 19,785 Net income/(loss) (18,088) (5,646) 5,212 (14,144) (3,510) Basic earnings/(loss) per share (a) $(1.19) $(0.37) $0.34 $(0.94) $(0.23)
Fiscal year ended December 28, 1996
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $417,711 $115,117 $117,159 $91,889 $93,546 Gross profit 94,913 27,048 29,059 17,164 21,642 Net income/(loss) (9,323) 6,116 6,335 (18,862) (2,912) Basic earnings/(loss) per share (a) $(0.62) $0.40 $0.42 $(1.25) $(0.19)
Reference is made to Notes 3, 4 and 5 concerning fourth quarter adjustments during the years ended January 3, 1998 and December 28, 1996. (a) Income/(loss) per share of common stock is computed separately for each period. The sum of the amounts of income/(loss) per share reported in each period differs from the total for the year due to the issuance of shares and, when appropriate, the inclusion of common stock equivalents. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Board of Directors (the "Board") consists of ten members divided into three classes, the first class consisting of three members, the second class consisting of two members and the third class consisting of four members. Presently there is one vacancy on the Board. The term of office of the first class ("Class One") expires at the Annual Meeting of Stockholders (the "Annual Meeting") scheduled for the year 2000; the term of the second class ("Class Two") expires at the 1999 Annual Meeting; and the term of the third class ("Class Three") expires at the 1998 Annual Meeting. The following table sets forth certain information with respect to the persons who are members of the Board or executive officers of Salant. - ---------------------------------------------
Director/Officer Name Age Positions and Offices of Salant Since - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Jerald S. Politzer....... 52 Director - Class One; Chairman of the Board April 1997 and Chief Executive Officer - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Harold Leppo............. 61 Director - Class One September 1993 Edward M. Yorke.......... 39 Director - Class One September 1993 Bruce F. Roberts......... 74 Director - Class Two September 1993 Marvin Schiller.......... 64 Director - Class Two May 1983 Robert H. Falk........... 59 Director - Class Three May 1996 Ann Dibble Jordan........ 63 Director - Class Three September 1993 Robert Katz.............. 31 Director - Class Three August 1995 John S. Rodgers.......... 68 Director - Class Three March 1973 Philip A. Franzel........ 50 Executive Vice President August 1997 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- and Chief Financial Officer - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Todd Kahn................ 33 Executive Vice President, General Counsel June 1993 and Secretary
- ----------------------------------------------------------------- The business experience of each of the directors and executive officers during the past five years is as follows: Jerald S. Politzer joined the Company as a director on March 24, 1997, Chief Executive Officer on April 1, 1997 and Chairman of the Board on May 13, 1997. From July 1989 to November 1996 he had been Executive Vice President of Melville Corporation, a diversified retailer. Mr. Politzer is a director of Norton McNaughton, Inc., a manufacturer of women's apparel. Harold Leppo has been an independent retail consultant for more than the past five years. Mr. Leppo is a director of Filene's Basement, an operator of retail clothing stores; J. Baker, Inc., an operator of retail clothing stores; Napier Co., a jewelry manufacturer; and Royce Hosiery Mills, Inc., a hosiery manufacturer. Edward M. Yorke has been an officer, since 1992, of Apollo Advisors, L.P., which, together with an affiliate, serves as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds. AIF II, L.P. is the general partner of Apollo Apparel Partners, L.P. ("Apollo Apparel"), the largest stockholder of Salant. From 1990 to 1992, Mr. Yorke was a vice president in the high yield capital markets group of BT Securities Corp. Mr. Yorke is a director of Aris Industries, Inc., an apparel manufacturer; and Telemundo Group, Inc., an operator of television stations. Bruce F. Roberts is Executive Director of the Textile Distributors Association, a trade association, from September 1990. Prior to that time, Mr. Roberts was most recently Senior Vice President - Corporate Relations at Spring Industries, a textile manufacturer. Marvin Schiller was Managing Director of A. T. Kearney, Inc., a management consulting firm, from May 1983 until his retirement as of January 1995. Dr. Schiller is a director of LePercq-Istel Fund, Inc., a mutual fund; Strategic Agricultural Management Corp., a software developer and marketer; and Tutor Time Learning Systems Inc., a childcare and educational company. Robert H. Falk has been a principal, since April 1992, of Apollo Advisors, L.P., which, together with an affiliate, serves as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds. AIF II, L.P. is the general partner of Apollo Apparel, the largest stockholder of Salant. Mr. Falk is a director of Converse, Inc., a manufacturer of athletic and leisure footwear; Culligan Water Technologies, Inc., a manufacturer of water purification and treatment products; and Samsonite Corporation, a luggage manufacturer. Ann Dibble Jordan has been an independent consultant for the last five years. Ms. Dibble Jordan is a director of Johnson & Johnson Corporation, a manufacturer and marketer of consumer healthcare products; The Travelers Corporation, a financial services and insurance firm; The Hechinger Company, a retailer of home improvement products; and Automatic Data Processing, Inc., a computer services company. Robert Katz has been associated since 1990 with and is an officer of Apollo Advisors, L.P., which, together with an affiliate, serves as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment funds. AIF II, L.P. is the general partner of Apollo Apparel, the largest stockholder of Salant. Mr. Katz is a director of Alliance Imaging Inc., a medical imaging company; Aris Industries, Inc., an apparel manufacturer and Vail Resorts Inc., a resort operator. John S. Rodgers is an independent consultant. From September 1993 until July 1995, Mr. Rodgers was Executive Vice President, Secretary and Senior Counsel of Salant. Prior to that time, Mr. Rodgers was Chairman of the Board of Directors of the Company since March 1991. Prior to June 1993, Mr. Rodgers had been General Counsel for more than the previous five years and prior to August 1995 he had been Secretary for more than the previous five years. Mr. Franzel joined the Company as Executive Vice President and Chief Financial Officer on August 18, 1997. From 1993 until joining Salant Mr. Franzel was Executive Vice President and Chief Financial Officer of Ermenegildo Zegna Corp., a leading international manufacturer and marketer of men's apparel. Mr. Kahn was elected Executive Vice President on May 13, 1997, Vice President and General Counsel on June 1, 1993, Assistant Secretary on September 22, 1993 and Secretary on August 15, 1995. He had been an attorney with the law firm of Fried, Frank, Harris, Shriver & Jacobson, outside counsel to the Company, since September 1988. Each of the executive officers of Salant was elected at a meeting of the Board and will serve until the next Annual Meeting of the Board or until his successor has been duly elected and qualified. Section 16(a) of the Securities Exchange Act of 1934 (the "Securities Exchange Act") requires the Company's directors and executive officers and holders of more than 10% of the Common Stock to file with the Securities and Exchange Commission 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 written representations of the reporting persons, the Company believes that during the fiscal year ended January 3, 1998, such persons complied with all applicable Section 16(a) filing requirements. Post-Debt Restructuring Board The Restructuring Agreement provides that, if the Debt Restructuring is consummated, the existing members of the Board will resign and between five and seven new Board members will be elected by the shareholders. As provided for in the Restructuring Agreement, the nominees for the new Board will consist of: (i) Jerald S. Politzer, as the Chairman of the Board; (ii) between three and five members nominated by Magten, subject to consultation with the Company and other holders of the Senior Secured Notes, and (iii) one member designated by the current Board. Payments to Management in Connection with Debt Restructuring The Restructuring Agreement provides that no payments will be made to the members of management under existing severance, employment and/or change-in-control agreements or any other arrangements solely as result of the consummation of the Debt Restructuring. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all compensation paid or accrued by Salant for fiscal years 1995 through 1997 for services in all capacities to the Company by all individuals serving as the Chief Executive Officer during the last completed fiscal year and each of the four most highly compensated other executive officers of Salant who were either (i) serving as executive officers at the end of the last completed fiscal year or (ii) served as executive officers for a portion of the last completed fiscal year but were not serving at year end (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE - -------------------------------------------------------------------------------------------------------- Annual Compensation (a) Long-Term Compensation - -------------------------------------------------------------------------------
Number of Securities Other Restricted Underlying Long-Term All Other Principal Annual Stock Options Incentive Compen- Name Positions Year Salary($) Bonus($) Compensation Awards Granted Payouts sation($) Jerald S. Politzer Chief Executive Officer (b) 1997 487,500 650,000(c) 0 0 400,000 0 29,644(d) Philip A. Franzel Executive Vice President and Chief Financial 1997 109,615 150,000(c) 0 0 75,000 0 0 Officer (e) Todd Kahn Executive Vice President, General Counsel 1,900 and Secretary(f) 1997 258,077 75,000 0 0 65,000 0 (g) Vice President, General Counsel and Secretary 1996 201,923 0 0 0 0 0 792 Vice President, General Counsel and Secretary 1995 167,827 0 0 0 15,000 0 762 Nicholas P. DiPaolo Chairman, President and Chief Executive 1997 632,211 0 0 0 0 0 22,339 Officer (h) (i) Chairman, President and 1996 625,000 0 0 0 0 0 22,239 Chief Executive Officer Chairman, 1995 602,885 0 0 0 0 0 22,239 President and Chief Executive Officer Michael A. Lubin Executive Vice President and Chief Operating 1997 236,923(k) 0 0 0 162,500 0 1,900 Officer (j) (g) Executive Vice President and 1996 400,000 0 0 0 0 0 0 Chief Operating Officer Executive Vice 1995 90,769 0 0 0 0 0 0 President and Chief Operating Officer Richard P. Randall Senior Vice President and Chief Financial 1,900 Officer (l) 1997 240,000 0 0 0 0 0 (g) Senior Vice President and Chief Financial Officer 1996 320,000 0 0 0 0 0 1,800 Senior Vice President, Treasurer and Chief Financial Officer 1995 283,077 0 0 0 0 0 1,800
- ------------------------------------------------------------------------------- (a) Includes amounts earned in fiscal year, whether or not deferred. (b) Mr. Politzer joined the Company and was elected Chief Executive Officer on April 1, 1997. (c) Reflects a one-time minimum cash bonus for 1997 agreed to in lieu of a sign-up bonus. (d) Housing allowance of $21,000 and pre-employment expense reimbursement of $8,644. (e) Mr. Franzel joined the Company and was elected Executive Vice President and Chief Financial Officer on August 18, 1997. (f) Mr. Kahn was elected Executive Vice President on May 13, 1997. (g) Matching contributions under the Company's Long Term Savings and Investment Plans (the "Savings Plan"). (h) Effective May 13, 1997, Mr. DiPaolo resigned from his positions at Salant. (i) Consists of (i) premiums of $20,439 under a life insurance/salary continuation plan and (ii) matching contributions of $1,900 under the Savings Plan. (j) Effective July 31, 1997, Mr. Lubin resigned from his positions at Salant. (k) Excludes monthly retainer to Lubin Delano of $8,333.33 and one-time lump sum payment of $368,149 to Lubin Delano, pursuant to a letter agreement dated July 18, 1997 (the "Lubin Agreement"). For a summary of the Lubin Delano Consulting Agreement with Salant, see Item 13. "Certain Relationships, and Related Transactions" herein. (l) Effective April 1, 1997, Mr. Randall resigned from his positions at Salant. Option Grants for Fiscal Year 1997 The following table sets forth information with respect to grants to the Named Executive Officers of options to purchase Common Stock in the last fiscal year.
% of Total Number of Options Potential Realizable Value at Securities Granted to Assumed Annual Rates of Stock Underlying Employees Price Appreciation for Option Options in Fiscal Option Expiration Term Name Granted Year Price Date 5% 10% Jerald Politzer 400,000 30.4298 $4.125 3/24/07 $1,037,676 $2,629,675 Philip A. Franzel 75,000 5.7056 $2.34 8/18/07 $110,829 $280,431 Todd Kahn 65,000 4.9448 $4.00 4/14/07 $163,671 $414,625 Nicholas P. DiPaolo 0 0 0 - 0 0 Michael Lubin 162,500 12.3621 $4.00 2/11/07* $408,781 $1,035,932 Richard P. Randall 0 0 0 - 0 0
* Pursuant to the Lubin Agreement all such options expired on December 31, 1997. Option Exercises and Values for Fiscal Year 1997 The following table sets forth as of January 3, 1998 for each of the Named Executive Officers (i) the total number of shares of Common Stock received upon exercise of options during fiscal year 1997, (ii) the value realized upon such exercise, (iii) the total number of unexercised options to purchase Common Stock (exercisable and unexercisable) held at January 3, 1998 and (iv) the value of such options which were in-the-money at January 3, 1998 (based on the difference between the closing price of Common Stock on January 2, 1998, the last trading day of the fiscal year ended January 3, 1998, and the exercise price of the option). The Company has not issued any stock appreciation rights. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Total Value of Number of Securities Unexercised Underlying Unexercised In-the-Money Options Options Held at Fiscal at Fiscal Year-End Year-End(a) - ------------------------------------------------------------------------------------------------------------------ Name Number of Shares Acquired on Value Exercisable Unexercisable Exercisable Unexercisable Exercise Realized - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Jerald S. Politzer 0 0 0 400,000 0 0 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Philip A. Franzel 0 0 0 75,000 0 0 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Todd Kahn 0 0 30,000 70,000 0 0 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Nicholas P. DiPaolo 65,000 $38,750 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Michael A. Lubin 0 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Richard P. Randall 0 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------- (a) The closing price of the Common Stock on January 2, 1998, the last trading day of the fiscal year ended January 3, 1998, was $1.75 per share. Performance Graph The following table compares the cumulative total shareholder return on Salant Common Stock with the cumulative total shareholder returns of (x) the S&P 500 Textile-Apparel Manufacturers index and (y) the Wilshire 5000 index from December 1992 to December 1997. The return on the indices is calculated assuming the investment of $100 on December 31, 1992 and the reinvestment of dividends. Cumulative Total Shareholder Return December 1991 to December 1996 Comparison of Five Year Cumulative Total Shareholder Return* Salant Corporation, Wilshire 5000, and S&P Textile Industry Index
Date Salant Wilshire 5000 S&P Textile December 1992 $100.00 $100.00 $100.00 December 1993 80.78 111.29 75.61 December 1994 62.98 111.22 74.08 December 1995 42.45 151.77 83.15 December 1996 34.23 183.97 114.23 December 1997 19.17 241.53 123.17
*Total return assumes reinvestment of dividends on a quarterly basis. Employment Agreements Mr. Politzer is a party to an agreement (the "Politzer Agreement"), dated as of March 24, 1997, which provides for his employment as Chief Executive Officer of Salant effective April 1, 1997 through March 31, 2000. The Politzer Agreement provides for the payment of a base salary in the amount of $650,000 per annum for the first twelve months of his employment, $700,000 per annum for the second twelve months of his employment and $750,000 for the third twelve months of his employment. Under the terms of the Politzer Agreement, Mr. Politzer is paid a cash bonus equal to 50% of his then current base salary if the Company generates actual pre-tax income for a year equal to at least 90% of the pre-tax income provided in the Company's annual business plan for such year. If the Company's actual pre-tax income for a year equals 100% of its annual business plan for such year, then he receives a cash bonus equal to 100% of his then current base salary. Actual pre-tax income in excess of the annual business plan for a year increases Mr. Politzer's incentive bonus by 1% of his then current base salary for each 1% increment of increased actual pre-tax income for the year. Pursuant to the Politzer Agreement, Mr. Politzer will receive a minimum cash bonus for the 1997 fiscal year, and no other fiscal year thereafter, in the amount of $650,000. If Mr. Politzer's employment is terminated by him for "good reason" (as defined in the Politzer Agreement) or by the Company without cause, Mr. Politzer will receive (i) his base salary at the annualized rate on the date his employment ends for a period ending on the later of (x) the Employment Period (as defined in the Politzer Agreement) or (y) twelve months following termination, (ii) any pro-rata bonus earned in the year his employment ends and (iii) the right to exercise any stock options (whether or not then vested) for six months from the date his employment ends. If Mr. Politzer's employment ends as a result of death or Disability (as defined in the Politzer Agreement) he will receive (i) his base salary through the date of death or Disability and any bonus for any fiscal year earned but not yet paid, (ii) any pro-rata bonus earned in the year his employment ends, (iii) in the case of death only, a lump sum payment equal to three months base salary and (iv) the right to exercise any stock option (whether or not then vested) for a one year period. Mr. Franzel is a party to an agreement (the Franzel Agreement), dated as of August 18, 1997, which provides for his employment as Executive Vice President, and Chief Financial Officer of Salant effective August 18, 1997 through December 31, 1999. The Franzel Agreement provides for the payment of a base salary in the amount of $300,000 per year. Commencing in August of 1998, Mr. Franzel's base salary will be reviewed for increase, and in no event shall the base salary be less than $300,000 per year. Under the terms of the Franzel Agreement, Mr. Franzel shall receive a minimum cash bonus of $150,000 for the 1997 fiscal year only, payable to Mr. Franzel within ninety (90) days after the end of the fiscal year. Under the terms of the Franzel Agreement, Mr. Franzel is entitled to receive a cash bonus equal to 40% of his then current base salary if the Company generates actual pre-tax income for a year equal to or greater than 90% and less than 100% of the pre-tax income provided in the Company's annual business plan for such year. If the Company's actual pre-tax income for a year is equal to or greater than 100% of its annual business plan for such year, then he receives a cash bonus equal to 50% of his then current base salary. Actual pre-tax income in excess of the annual business plan for a year increases Mr. Franzel's incentive bonus by 5% of his then current base salary for each 5% increment of increased actual pre-tax income for the year. If Mr. Franzel's employment is terminated by him for good reason (as defined in the Franzel Agreement) or by the Company without cause, Mr. Franzel will receive (i) his base salary at the annualized rate on the date his employment ends for a period ending on the later of (x) the Employment Period (as defined in the Franzel Agreement) or (y) twelve months following termination, (ii) any pro-rata bonus earned in the year his employment ends and (iii) the right to exercise any stock options (whether or not then vested) for six months from the date his employment ends. If Mr. Franzel's employment ends as a result of death or Disability ( as defined in the Franzel Agreement) he will receive (i) his base salary through the date of death or Disability and any bonus for any fiscal year earned but not yet paid, (ii) any pro-rata bonus earned through the date of death or Disability, (iii) in the case of death only, a lump sum payment equal to three months base salary and (iv) the right to exercise any stock option (whether or not vested) for a one year period. Pursuant to the Franzel Agreement, all stock options outstanding will immediately vest upon a "Change of Control" (as defined in the Franzel Agreement). Mr. Kahn is a party to an agreement (the "Kahn Agreement"), dated as of May 1, 1997, which provides for his employment as Executive Vice President, General Counsel and Secretary of Salant, effective May 1, 1997 through December 31, 1999. The Kahn Agreement provides for the payment of a base salary in the amount of $275,000 per year. Commencing in March of 1998, Mr. Kahn's base salary will be reviewed for increase, and in no event shall his base salary be less than $275,000 per year. Under the terms of the Kahn Agreement, Mr. Kahn is entitled to receive a cash bonus equal to 40% of his then current base salary if the Company generates actual pre-tax income for a year equal to or greater than 90% and less than 100% of the pre-tax income provided in the Company's annual business plan for such year. If the Company's actual pre-tax income for a year is equal to or greater than 100% of its annual business plan for such year, then he receives a cash bonus equal to 50% of his then current base salary. Actual pre-tax income in excess of the annual business plan for a year increases Mr. Kahn's incentive bonus by 5% of his then current base salary for each 5% increment of increased actual pre-tax income for the year. If Mr. Kahn's employment is terminated by him for "good reason" (as defined in the Kahn Agreement) or by the Company without cause, Mr. Kahn will receive (i) his base salary at the annualized rate on the date his employment ends for a period ending on the later of (x) the Employment Period (as defined in the Kahn Agreement) or (y) twelve months following termination, (ii) any pro-rata bonus earned in the year his employment ends and (iii) the right to exercise any stock options (whether or not then vested) for six months from the date his employment ends. If Mr. Kahn's employment ends as a result of death or Disability (as defined in the Kahn Agreement) he will receive (i) his base salary through the date of death or Disability and any bonus for any fiscal year earned but not yet paid, (ii) any pro-rata bonus earned through the date of death or Disability, (iii) in the case of death only, a lump sum payment equal to three months salary and (iv) the right to exercise any stock option (whether or not vested) for a one year period. Pursuant to the Kahn Agreement, all stock options outstanding will immediately vest upon a "Change of Control" (as defined in the Kahn Agreement). Mr. DiPaolo is party to an agreement (the "DiPaolo Agreement"), dated as of January 1, 1997, which provided for his employment as Chairman of the Board, President and Chief Executive Officer of Salant through December 31, 1997. The DiPaolo Agreement provided for the payment of a base salary in the amount of $625,000 from January 1, 1997 to December 31, 1997. On May 13, 1997 (the "Termination Date"), Mr. DiPaolo exercised his right to terminate the agreement for "good reason" (as defined in the DiPaolo Agreement). Pursuant to the DiPaolo Agreement, Mr. DiPaolo was entitled to his base salary for the balance of 1997. Of such amount, and pursuant to the DiPaolo Agreement, $312,500 was paid as a lump-sum within ten days of the Termination Date, and the balance was paid in bi-weekly installments commencing six months after the Termination Date. In addition to the foregoing, pursuant to the DiPaolo Agreement, Salant assigned to Mr. DiPaolo three insurance policies on his life owned by Salant, with an aggregate current cash surrender value of approximately $228,253. Mr. Lubin is party to an agreement (the "Lubin Agreement"), dated as of July 18, 1997. Pursuant to the Lubin Agreement, effective as of July 31, 1997, Mr. Lubin resigned as President and Chief Operating Officer of Salant, and his employment with Salant ended as of that date. The Lubin Agreement provided for the continuation of Mr. Lubin's salary and the payment to Lubin Delano of its consulting fee pursuant to the Lubin Delano Agreement through July 31, 1997 (For a discussion of the Lubin Delano Agreement, see Item 13-Certain Relationships and Related Transactions below). Additionally, the Lubin Agreement provided for a one-time lump sum payment of $368,149.00 to Lubin Delano. Mr. Randall is party to an agreement (the "Randall Agreement"), dated as of February 24, 1997. Pursuant to the Randall Agreement, effective as of April 1, 1997, Mr. Randall resigned as Senior Vice President and Chief Financial Officer of Salant and his employment with Salant ended as of that date. The Randall Agreement provided for a severance period beginning April 1, 1997 and ending on the earlier of (i) the day Mr. Randall commences Full Time Employment (as defined in the Randall Agreement) and (ii) six (6) months from April 1, 1997. Compensation Committee Interlocks and Insider Participation The members of the Company's Compensation and Stock Plan Committees are Messrs. Leppo, Schiller and Yorke, none of whom were (i) during the 1997 fiscal year, an officer of the Company or any of its subsidiaries or (ii) formerly an officer of the Company or any of its subsidiaries. Joint Report of the Compensation and Stock Plan Committees on Executive Compensation This report sets forth the compensation policies that guide decisions of the Compensation and Stock Plan Committees with respect to the compensation of the Company's executive officers. This report also reviews the rationale for pay decisions that affected Mr. Politzer during the 1997 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 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. The Stock Plan Committees administer the Company's 1987, 1988, 1993 and 1996 Stock Plans and, in this role, are responsible for granting stock options to all of the Company's eligible employees, including its officers. Statement of Compensation Policy. In the context of their oversight roles, the Compensation and Stock Plan Committees are 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) correlate with share price appreciation, thereby coordinating the interests of management and shareholders. Percentile objectives are not specified in setting executive compensation. The members of the Compensation and Stock Plan Committees 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 pay system that is comprised of a market driven base salary, variable incentive compensation and options to purchase the Company's Common Stock. 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 compensation. 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. 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. Mr. Politzer's base salary for 1997 was established pursuant to an agreement, dated as of March 24, 1997. Mr. Politzer's compensation represents a negotiated rate that reflects market prices for executives of his caliber and experience. Incentive Compensation.Incentive compensation payments to executive officers are based on the Company's performance and are intended to motivate the Company's executive officers to maximize their efforts to meet and exceed key earnings goals. The specific terms of each incentive arrangement are individually negotiated, but, in general, executive officers can earn incremental cash compensation based on the extent to which the Company achieves and exceeds annual earnings targets. Ordinarily, executive officers are paid a fixed cash award in years when actual pre-tax income (before amortization of intangibles and after any reserve for contingencies) equals 100% of the annual business plan. Smaller awards are paid when earnings fall below plan levels, and greater payments are made when results exceed plan. There is no limit on the overall incentive opportunity; however, in a year in which operating income falls below 90% of the annual business plan, no incentive compensation payments are made. Mr. Politzer's incentive compensation is designed to align the bonus, if any, with the performance of the Company. Stock Plans. The Company reinforces the importance of producing attractive returns to shareholders over the long term through the operation of its 1987, 1988, 1993 and 1996 Stock Plans. Stock options granted pursuant to the Stock Plans provide 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 as 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 first, second and third anniversaries of the date of grant. Stock options granted to executive officers typically are considered when employment agreements are initiated or renewed. In recent years, the Stock Plan Committees have based their decisions to grant stock options on competitive factors, their understanding of current industry compensation practices and their assessment of individual potential and performance. By granting stock options, the Committees are not only addressing market demands with respect to total compensation opportunities, but are also effectively reinforcing the Company's policy of encouraging executive stock ownership in support of building shareholder value. Mr. Politzer has been granted stock options which vest at the rate of 25% on the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date to incentivize Mr. Politzer to promote long-term shareholder value. Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code ("Section 162(m)") generally disallows a federal income tax deduction to any publicly-held corporation for compensation paid in excess of $1 million in any taxable year to the chief executive officer or any of the four other most highly compensated executive officers who are employed by the Company on the last day of the taxable year. In 1997, Section 162(m) will only affect the tax deductibility of a portion of the compensation paid to Mr. Politzer. Summary. The Compensation and Stock Plan Committees are responsible for a variety of compensation recommendations and decisions affecting the Company's executive officers. By conducting their decision-making within the context of a highly integrated, multicomponent framework, the Committees ensure 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 mission. The Compensation and Stock Plan Committees 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. Marvin Schiller, Chairman Harold Leppo Edward M. Yorke Other Information Regarding the Directors During the 1997 fiscal year, there were eight meetings of the Board of Directors. 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 or of a committee of the Board (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 Chairman of each Committee is paid an annual fee of $1,000. During the 1997 fiscal year, none of the directors attended fewer than 75 percent of the aggregate number of meetings held by (i) the Board during the period that he or she served as a director, with the exception of Messrs. Cogut and Falk and (ii) the Committees of which he or she was a member during the period that he or she served on these Committees. The Board has established five standing committees to assist it in the discharge of its responsibilities. The Executive Committee met three times during the 1997 fiscal year. The members of the Committee are to Messrs. Politzer, Schiller, and Yorke and prior to May 13, 1997, Mr. DiPaolo. The Committee, to the extent permitted by law, may exercise all the power of the Board during intervals between meetings of the Board. The Audit Committee met two times during the 1997 fiscal year. The members of the Committee are Messrs. Katz, Leppo and Roberts. The Committee meets independently with the Director of the Internal Audit Department, representatives of Salant's independent auditors and the Company's Chief Financial Officer and reviews the general scope of the audit, the annual financial statements of the Company and the related audit report, the fees charged by the independent auditors and matters relating to internal control systems. The Committee is responsible for reviewing and monitoring the performance of non-audit services by Salant's independent auditors and for recommending to the Board the selection of Salant's independent auditors. The Compensation and Stock Plan Committees met eight times during the 1997 fiscal year. The members of the Committees are Messrs. Leppo, Schiller and Yorke. The Committees are responsible for reviewing and recommending to the Board compensation for officers and certain other management employees and for administering and granting awards under the stock plans. The Nominating Committee met once during the 1997 fiscal year. The members of the Committee were Ms. Dibble Jordan and Mr. Roberts and, prior to November 24, 1997, Mr. Cogut. 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. The Qualified Plan Committee met twice during the 1997 fiscal year. The members of the Committee are Ms. Dibble Jordan and Messrs. Roberts, Rodgers and Kahn. The Committee is responsible for overseeing the administration of the Company's pension and savings plans. 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. At normal retirement, a member receives an annual pension benefit for life equal to the greater of (a) the sum of 0.65% of his/her average final annual compensation for the highest 5 consecutive years of the last 15 years preceding retirement ("final average compensation") not in excess of 140% of the average Social Security wage base for the 35-year period ending with retirement ("covered compensation") plus 1.25% of final average compensation in excess of covered compensation multiplied by the number of years of his/her credited service not in excess of 35, or (b) $96 multiplied by the number of years of his/her credited service, but not to exceed $2,880. A participant may elect an actuarially reduced benefit at his/her early retirement. The benefit formula of the Retirement Plan was amended in October 1991 effective as of December 1, 1989. A participant's benefit under the Retirement Plan will never be less than the greater of his/her accrued benefit under the terms of such plan prior to (a) the effective date of the amendment or (b) January 1, 1994. The benefit formula prior to amendment was 1 1/4 % of a participant's average final annual compensation for the highest 5 consecutive years of the last 15 years preceding retirement multiplied by the number of years of his/her credited service not in excess of 30, minus up to 50% of primary social security, prorated for fewer than 30 years of service. The following table shows the annual pension benefits which would be payable to members 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 Member Upon Retirement at Age 65 Number of Years of Service (b) - ----------------------------------------------------------------------------------------------------------------- Average Annual Compensation in 10 20 25 30 35 Highest Five Consecutive Years of the Last 15 Years Preceding Retirement(a) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- $60,000................................... $5,038 $10,077 $12,596 $15,115 $17,635 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 80,000.................................. 7,538 15,077 18,846 22,615 26,385 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 100,000................................... 10,038 20,077 25,096 30,115 35,135 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 120,000................................... 12,538 25,077 31,346 37,615 43,885 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 150,000................................... 16,288 32,577 40,721 48,865 57,010 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 180,000................................... 17,538 35,077 43,846 52,615 61,385 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 200,000................................... 17,538 35,077 43,846 52,615 61,385 - -----------------------------------------------------------------------------------------------------------------
- ------- (a) 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. Subsequent to 1993, no more than $150,000 of compensation (adjusted for inflation) may be recognized for such purpose. (b) Messrs. Kahn, DiPaolo, Lubin and Randall have, respectively, 4 years, 12 years, 1 year and 6 years of credited service under the Retirement Plan. Mr. DiPaolo was a participant in the Manhattan Industries, Inc. Employees Benefit Plan (the "Manhattan Plan"), which was merged into the Retirement Plan as of March 1, 1992. His years of service as a participant in the Manhattan Plan will be considered in determining his benefits under the Retirement Plan. Furthermore, his benefits under the Retirement Plan will never be less than his accrued benefits under the terms of the Manhattan Plan determined as of January 31, 1989. The benefit formula of the Manhattan Plan was the product of (a) the sum of (i) 0.50% of the participant's average annual compensation for any 36-consecutive month period of his employment ("final average compensation") in excess of his covered compensation plus (ii) 1.00% of his final average compensation in excess of covered compensation multiplied by (b) the number of his years of service. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to each person who is known to Salant to be the "beneficial owner" (as defined in regulations of the Securities and Exchange Commission) of more than 5% of the outstanding shares of 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(a) - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Apollo Apparel Partners, L.P........................... 5,924,352 39.6% - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- c/o Apollo Advisors, L.P. Two Manhattanville Road Purchase, New York 10577 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- DDJ Capital Management, LLC............................ 1,809,100 12.1% - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 141 Linden Street, Suite 4 Wellesley, MA 02181 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- ------- - -------------------------------------------------------------------------------------------------------------------- (a) This percentage is calculated on the basis of 14,964,608 shares outstanding as of March 16, 1998, excluding those shares held by or for the account of Salant. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth certain information as of March 16, 1998 with respect to the beneficial ownership of Common Stock by each of the directors of Salant, the Named Executive Officers and all directors and executive officers of Salant as a group.
Beneficial Ownership of Salant Common Stock by Directors and Executive Officers of Salant
Name of Beneficial Owner Amount and Nature of Percent of Beneficial Ownership(a) Class(b) Nicholas P. DiPaolo........................................ 0 * Robert H. Falk............................................. 5,925,652(c) 39.6% Philip A. Franzel.......................................... 1,000(d) * Ann Dibble Jordan.......................................... 2,200(e) * Todd Kahn ................................................. 71,500(f) * Robert Katz................................................ 5,925,952(g) 39.6% Harold Leppo............................................... 2,200(h) * Michael A. Lubin........................................... 0 * Jerald S. Politzer......................................... 145,000(i) 1.0% Richard P. Randall......................................... 0 * Bruce F. Roberts........................................... 6,200(j) * John S. Rodgers............................................ 433,787(k) 2.9% Marvin Schiller............................................ 16,434(l) * Edward M. Yorke............................................ 5,926,552(m) 39.6% All directors and executive officers as a group (14 6,607,773(n) 43.6% persons)................................................ _
- ----- - ------------------------------- - ------------------------------------------------------------------------- * Represents less than one percent. (a) 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 has the right to acquire within 60 days following March 16, 1998. (b) As of March 16, 1998, there were 14,964,608 shares outstanding, excluding those shares held by or for the account of Salant. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or persons has the right to acquire within 60 days following March 16, 1998 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (c) This amount includes 5,924,352 shares beneficially owned by Apollo Apparel and 1,300 shares issuable upon the exercise of stock options. The general partner of Apollo Apparel is AIF II, L.P., the managing general partner of which is Apollo Advisors, L.P. Mr. Falk is a principal of Apollo Advisors, L.P. He disclaims beneficial ownership of any shares of Common Stock held by Apollo Apparel. (d) This amount represents 1,000 shares held directly by Mr. Franzel. (e) This amount represents 2,200 issuable upon the exercise of stock options. (f) This amount includes 4,000 shares held directly and 67,500 shares issuable upon the exercise of stock options. (g) This amount includes 5,924,352 shares beneficially owned by Apollo Apparel and 1,600 shares issuable upon the exercise of stock options. The general partner of Apollo Apparel is AIF II, L.P., the managing general partner of which is Apollo Advisors, L.P. Mr. Katz is an officer of Apollo Advisor, L.P. He disclaims beneficial ownership of any shares of Common Stock held by Apollo Apparel. (h) This amount represents 2,200 issuable upon the exercise of stock options. (i) This amount includes 45,000 shares held directly and 100,000 shares issuable upon the exercise of stock options. (j) This amount includes 4,000 shares held directly and 2,200 shares issuable upon the exercise of stock options. (k) This amount includes 424,280 shares held directly by Mr. Rodgers, 1,300 shares issuable upon the exercise of stock options, 2,284 shares held through the Company's Long Term Savings and Investment Plan (the "Savings Plan") and 5,923 shares held by the Margaret S. Vickery Trust, of which Mr. Rodgers is a co-trustee. As to the shares held by the Margaret S. Vickery Trust, Mr. Rodgers shares voting and investment power with a co-trustee. He disclaims beneficial ownership with respect to the shares held by the Trust. (l) This amount includes 11,234 shares held directly and 5,200 shares issuable upon the exercise of stock options. (m) This amount includes 5,924,352 shares beneficially owned by Apollo Apparel and 2,200 shares issuable upon the exercise of stock options. The general partner of Apollo Apparel is AIF II, L.P., the managing partner of which is Apollo Advisors, L.P. Mr. Yorke is an officer of Apollo Advisors, L.P. He disclaims beneficial ownership of any shares of Common Stock held by Apollo Apparel. (n) The 6,607,773 shares held by all directors and executive officers of Salant as a group counts the 5,924,352 shares held by Apollo Apparel (discussed in notes (c), (g) and (m) above) once. Such 6,607,773 shares include (i) 6,419,789 shares held directly by, or attributable to, directors and executive officers, (ii) 2,284 shares held through the Savings Plan by an executive officer, and (iii) 185,700 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 of, March 16, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except as described below, no transactions have occurred since December 31, 1996 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. Pursuant to an agreement, dated December 1, 1995 (the "Lubin Delano Consulting Agreement"), the Company has retained Lubin Delano to render certain financial advisory and investment banking services to the Company for a monthly retainer of $8,333.33. Under the Lubin Delano Consulting Agreement, Lubin Delano may receive a bonus equal to 100% of its annual retainer if the company's pre-tax income for the year equals 100% of the pre-tax income provided in the Company's annual business plan. Actual pre-tax income in excess of the annual business plan increases Lubin Delano's bonus by 20% of its retainer for each full five percentage point increment of increased pre-tax income for the year. The term of Lubin Delano's engagement is coterminous with the employment of Michael A. Lubin by the Company. Effective with Mr. Lubin's resignation on July 31, 1997 the Lubin Delano Consulting Agreement was terminated, and pursuant to the Lubin Agreement, a one-time lump sum payment of $368,149 was made to Lubin Delano (for a discussion of the Lubin Agreement, see Item 11. Executive Compensation). PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K Financial Statements The following financial statements are included in Item 8 of this Annual Report: Independent Auditors' Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Financial Statement Schedule The following Financial Statement Schedule for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 is filed as part of this Annual Report: Schedule II - Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are inapplicable or not required, or the information is included elsewhere in the financial statements or notes thereto. SALANT CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (1) (2) Balance at Charged to Charged to Balance Beginning Costs and Other Accounts Deductions at End Description of Period Expenses -- Describe -- Describe of Period YEAR ENDED JANUARY 3, 1998: Accounts receivable allowance for doubtful accounts $2,806 $195 $-- $907 (A) $2,094 Reserve for business restructuring $2,969 $2,066 $-- $ 2,271 (B) $2,764 YEAR ENDED DECEMBER 28, 1996: Accounts receivable allowance for doubtful accounts $3,007 $(112) $-- $89 (A) $2,806 Reserve for business restructuring $1,569 $11,730 $-- $10,330 (B) $2,969 YEAR ENDED DECEMBER 30, 1995: Accounts receivable - allowance for doubtful accounts $2,565 $1,510 $ -- $1,068 (A) $3,007 Reserve for business restructuring $ -- $3,550 $ -- $1,981 (B) $1,569
NOTES: (A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in plant closings and business restructuring. Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended January 3, 1998. Exhibits
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated July 28, 1993. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. July 28, 1993. 3.2 Form of Bylaws, as amended, of Salant Corporation, effective September 21, 1994. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior October 2, 1993. Secured Notes due December 31, 1998. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of June 13, Registration Statement filed 1988, between Nicholas P. DiPaolo June 17, 1988. and Salant Corporation. 10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.5 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. ended September 30, 1989. 10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.7 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.8 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.9 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.10 Employment Agreement, dated Exhibit 10.36 to as of September 20, 1993, between Quarterly Report on Nicholas P. DiPaolo and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.11 Employment Agreement, dated Exhibit 10.38 to as of July 30, 1993, between Quarterly Report on Richard P. Randall and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.12 Agreement, dated as of Exhibit 10.33 to Annual Report on September 22, 1993, between Nicholas Form 10-K for Fiscal Year 1993. P. DiPaolo and Salant Corporation. * 10.13 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.14 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.15 Letter Agreement, dated Exhibit 10.47 to October 25, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the July 30, 1993, between Richard quarter ended October 1, 1994. Randall and Salant Corporation. * 10.16 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. 10.17 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.18 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.19 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. * 10.20 Letter Agreement, dated Exhibit 10.26 to Annual Report on February 15, 1995, amending the Form 10-K for Fiscal Year 1994. Employment Agreement, dated July 30, 1993, between Richard Randall and Salant Corporation. * 10.21 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.22 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.23 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.24 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.25 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.26 Letter Agreement, dated as of Exhibit 10.33 to August 31, 1995, amending the Quarterly Report Employment Agreement, dated on Form l0-Q for September 20, 1993, between the quarter Nicholas P. DiPaolo and ended September Salant Corporation. * 30, 1995. 10.27 Letter Agreement, dated Exhibit 10.33 to December 1, 1995, between Annual Report on Lubin, Delano & Company and Form 10-K for Salant Corporation. fiscal year 1995. 10.28 Seventh Amendment to Credit Exhibit 10.34 to Agreement, dated as of Annual Report on March 27, 1996, to the Form 10-K for Revolving Credit, Factoring fiscal year 1995. and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.29 First Amendment to the Salant Exhibit 10.35 to Corporation Retirement Plan, dated Quarterly Report on as of January 31, 1996. Form 10-Q for the quarter ended March 30, 1996. 10.30 First Amendment to the Salant Exhibit 10.36 to Corporation Long Term Savings and Quarterly Report on Investment Plan, effective as of Form 10-Q for the January 1, 1994. quarter ended March 30, 1996. 10.31 Eighth Amendment to Credit Agreement, Exhibit 10.37 to dated as of June 1, 1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.32 Ninth Amendment to Credit Agreement, Exhibit 10.38 to dated as of August 16,1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.33 Employment Agreement, dated as Exhibit 10.39 to Annual Report on of January 1, 1997, between Form 10-K for Fiscal Year 1996. Nicholas P. DiPaolo and Salant Corporation. * 10.34 Salant Corporation 1996 Stock Plan Exhibit 10.40 to Annual Report on Form 10-K for Fiscal Year 1996. 10.35 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. 10.36 Employment Agreement, dated as Exhibit 10.42 to Annual Report on of February 11, 1997, between Form 10-K for Fiscal Year 1996. Michael A. Lubin and Salant Corporation. * 10.37 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. * 10.38 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. 10.39 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. 10.40 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. 10.41 Letter Agreement, dated as of Exhibit 10.47 to Quarterly Report on July 18, 1997, between Form 10-Q for the quarter ended Michael A. Lubin, June 28, 1997. Lubin Delano & Company and Salant Corporation. 10.42 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. 10.43 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. 21 List of Subsidiaries of the Company 27 Financial Data Schedule
* constitutes a management contract or compensatory plan or arrangement. 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 31, 1998 By:/s/ Philip A. Franzel Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on March 31, 1998. Signature Title /s/ Jerald S. Politzer Chairman of the Board, Jerald S. Politzer President and Chief Executive Officer (Principal Executive Officer); Director /s/ Philip A. Franzel Executive Vice President Philip A. Franzel and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Robert Falk /s/ Bruce F. Roberts Robert Falk Director Bruce F. Roberts Director /s/ Ann Dibble Jordan /s/ John S. Rodgers Ann Dibble Jordan Director John S. Rodgers Director /s/ Robert Katz /s/ Marvin Schiller Robert Katz Director Marvin Schiller Director /s/ Harold Leppo /s/ Edward M. Yorke Harold Leppo Director Edward M. Yorke Director SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS to FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
SALANT CORPORATION EXHIBIT INDEX Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated July 28, 1993. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. July 28, 1993. 3.2 Form of Bylaws, as amended, of Salant Corporation, effective September 21, 1994. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior October 2, 1993. Secured Notes due December 31, 1998. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of June 13, Registration Statement filed 1988, between Nicholas P. DiPaolo June 17, 1988. and Salant Corporation. 10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.5 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. ended September 30, 1989. 10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.7 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.8 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.9 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.10 Employment Agreement, dated Exhibit 10.36 to as of September 20, 1993, between Quarterly Report on Nicholas P. DiPaolo and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.11 Employment Agreement, dated Exhibit 10.38 to as of July 30, 1993, between Quarterly Report on Richard P. Randall and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.12 Agreement, dated as of Exhibit 10.33 to Annual Report on September 22, 1993, between Nicholas Form 10-K for Fiscal Year 1993. P. DiPaolo and Salant Corporation. * 10.13 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.14 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.15 Letter Agreement, dated Exhibit 10.47 to October 25, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the July 30, 1993, between Richard quarter ended October 1, 1994. Randall and Salant Corporation. * 10.16 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. 10.17 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.18 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.19 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. * 10.20 Letter Agreement, dated Exhibit 10.26 to Annual Report on February 15, 1995, amending the Form 10-K for Fiscal Year 1994. Employment Agreement, dated July 30, 1993, between Richard Randall and Salant Corporation. * 10.21 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.22 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.23 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.24 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.25 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.26 Letter Agreement, dated as of Exhibit 10.33 to August 31, 1995, amending the Quarterly Report Employment Agreement, dated on Form l0-Q for September 20, 1993, between the quarter Nicholas P. DiPaolo and ended September Salant Corporation. * 30, 1995. 10.27 Letter Agreement, dated Exhibit 10.33 to December 1, 1995, between Annual Report on Lubin, Delano & Company and Form 10-K for Salant Corporation. fiscal year 1995. 10.28 Seventh Amendment to Credit Exhibit 10.34 to Agreement, dated as of Annual Report on March 27, 1996, to the Form 10-K for Revolving Credit, Factoring fiscal year 1995. and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.29 First Amendment to the Salant Exhibit 10.35 to Corporation Retirement Plan, dated Quarterly Report on as of January 31, 1996. Form 10-Q for the quarter ended March 30, 1996. 10.30 First Amendment to the Salant Exhibit 10.36 to Corporation Long Term Savings and Quarterly Report on Investment Plan, effective as of Form 10-Q for the January 1, 1994. quarter ended March 30, 1996. 10.31 Eighth Amendment to Credit Agreement, Exhibit 10.37 to dated as of June 1, 1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.32 Ninth Amendment to Credit Agreement, Exhibit 10.38 to dated as of August 16,1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.33 Employment Agreement, dated as Exhibit 10.39 to Annual Report on of January 1, 1997, between Form 10-K for Fiscal Year 1996. Nicholas P. DiPaolo and Salant Corporation. * 10.34 Salant Corporation 1996 Stock Plan Exhibit 10.40 to Annual Report on Form 10-K for Fiscal Year 1996. 10.35 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. 10.36 Employment Agreement, dated as Exhibit 10.42 to Annual Report on of February 11, 1997, between Form 10-K for Fiscal Year 1996. Michael A. Lubin and Salant Corporation. * 10.37 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. * 10.38 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. 10.39 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. 10.40 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. 10.41 Letter Agreement, dated as of Exhibit 10.47 to Quarterly Report on July 18, 1997, between Form 10-Q for the quarter ended Michael A. Lubin, June 28, 1997. Lubin Delano & Company and Salant Corporation. 10.42 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. 10.43 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. 21 List of Subsidiaries of the Company 27 Financial Data Schedule
* constitutes a management contract or compensatory plan or arrangement. EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Birdhill, Limited, a Hong Kong corporation Carrizo Manufacturing Co., S.A. de C.V., a Mexican corporation Clantexport, Inc., a New York corporation Denton Mills, Inc., a Delaware corporation JJ. Farmer Clothing, Inc., a Canadian corporation Frost Bros. Enterprises, Inc., a Texas corporation Manhattan Industries, Inc., a Delaware corporation Manhattan Industries, Inc., a New York corporation Manhattan Industries (Far East) Limited, a Hong Kong corporation Maquiladora Sur S.A. de C.V., a Mexican corporation Salant Canada, Inc., a Canadian corporation SLT Sourcing, Inc., a New York corporation Vera Licensing, Inc., a Nevada corporation Vera Linen Manufacturing, Inc., a Delaware corporation Salant Caribbean, S.A., a Guatemalan Corporation EX-27 2
5 1000 12-MOS JAN-03-1998 JAN-03-1998 2,215 0 47,922 2,094 96,638 148,899 26,439 0 233,377 185,692 0 0 0 15,405 26,898 233,377 396,832 403,003 312,358 396,898 0 0 16,660 (10,555) 167 (10,722) (9,466) 2,100 0 (18,088) (1.19) (1.19)
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