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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Fiscal Year
1995 1996 1997
<S> <C> <C> <C>
Men's Apparel 86% 83% 82%
Children's Sleepwear and Underwear 8% 11% 12%
Retail Outlet Stores 6% 6% 6%
</TABLE>
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.
<TABLE>
<CAPTION>
Trademark Product Lines
<S> <C>
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
</TABLE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
Quarter High Low
1997
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C> <C>
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 - - - - -
</TABLE>
<TABLE>
<CAPTION>
At Year End:
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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.
<PAGE>
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:
<TABLE>
<CAPTION>
Percentage
Increase/
Fiscal 1997 Fiscal 1996 (Decrease)
(dollars in millions)
<S> <C> <C> <C> <C> <C>
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%)
</TABLE>
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:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
(dollars in millions)
<S> <C> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
(dollars in millions)
<S> <C> <C> <C> <C>
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%
</TABLE>
(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.
<PAGE>
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:
<TABLE>
<CAPTION>
Percentage
Increase/
Fiscal 1996 Fiscal 1995 (Decrease)
(dollars in millions)
<S> <C> <C> <C> <C> <C>
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%)
</TABLE>
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:
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
(dollars in millions)
<S> <C> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
(dollars in million)
<S> <C> <C> <C> <C>
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%
</TABLE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
January 3, December 28, December 30,
1998 1996 1995
<S> <C> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
ASSETS
Current assets:
<S> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Amounts in thousands)
Year Ended
January 3, December 28, December 30,
1998 1996 1995
Cash Flows from Operating Activities
<S> <C> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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.
<PAGE>
Note 5. Inventories
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
<S> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
<S> <C> <C>
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
</TABLE>
Note 7. Other Assets
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
Excess of cost over net assets acquired,
net of accumulated amortization of
<S> <C> <C>
$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
</TABLE>
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.
<PAGE>
Note 8. Accrued Salaries, Wages and Other Liabilities
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
NET SALES
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME
<S> <C> <C> <C>
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION AND AMORTIZATION
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
The provision for income taxes consists of the following:
January 3, December 28, December 30,
1998 1996 1995
Current:
<S> <C> <C> <C>
Federal $ (34) $(106) $100
State -- -- --
Foreign 201 209 218
$ 167 $ 103 $318
</TABLE>
<PAGE>
The following is a reconciliation of the tax provision/(benefit) at the
statutory Federal income tax rate to the actual income tax provision:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
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
</TABLE>
The following are the tax effects of significant items comprising the Company's
net deferred tax asset:
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
Deferred tax liabilities:
<S> <C> <C>
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 $ -- $ --
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
Service cost-benefit earned
<S> <C> <C> <C>
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
</TABLE>
The reconciliation of the funded status of the plans at January 3, 1998 and
December 28, 1996 is as follows:
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
Accumulated Accumulated
Plan Plan
Benefits Benefits
Exceed Exceed
Plan Assets Plan Assets
Actuarial present value of benefit obligation
<S> <C> <C>
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)
</TABLE>
<PAGE>
Assumptions used in accounting for defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1995
Non- Qualified Non- Qualified Non- Qualified
Qualified Plans Qualified Plans Qualified Plans
Plan Plan Plan
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
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. <TABLE> <CAPTION>
The following table summarizes stock option transactions during 1995, 1996 and
1997:
Weighted
Average
Exercise
Shares Price Range Price
<S> <C> <C> <C>
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
</TABLE>
The following tables summarize information about outstanding stock options as
of January 3, 1998 and December 28, 1996:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C>
$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
</TABLE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C>
$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
</TABLE>
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
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C> <C>
1998 $ 5,144
1999 4,210
2000 3,759
2001 3,475
2002 2,805
Thereafter 27,967
Total $47,360
</TABLE>
(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)
<TABLE>
<CAPTION>
Fiscal year ended January 3, 1998
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
Fiscal year ended December 28, 1996
<TABLE>
<CAPTION>
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
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.
<PAGE>
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.
- ---------------------------------------------
<TABLE>
<CAPTION>
Director/Officer
Name Age Positions and Offices of Salant Since
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------------------------------------------
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").
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
- --------------------------------------------------------------------------------------------------------
Annual Compensation (a) Long-Term Compensation
- -------------------------------------------------------------------------------
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<PAGE>
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
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
(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.
<TABLE>
<CAPTION>
% 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%
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* 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
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------
(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
<TABLE>
<CAPTION>
Date Salant Wilshire 5000 S&P Textile
<S> <C> <C> <C> <C>
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
</TABLE>
*Total return assumes reinvestment of dividends on a quarterly basis.
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
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)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$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
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- -------
(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.
<PAGE>
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..
<TABLE>
<CAPTION>
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)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
<PAGE>
Beneficial Ownership of Salant Common Stock by
Directors and Executive Officers of Salant
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount and Nature of Percent of
Beneficial Ownership(a) Class(b)
<S> <C> <C>
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)................................................
_</TABLE>
- -----
- -------------------------------
- -------------------------------------------------------------------------
* 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).
<PAGE>
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.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
</TABLE>
NOTES:
(A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in
plant closings and business restructuring.
<PAGE>
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
January 3, 1998.
<PAGE>
Exhibits
<TABLE>
<CAPTION>
Incorporation
Number Description By Reference To
<S> <C> <C>
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
</TABLE>
* constitutes a management contract or compensatory plan or arrangement.
<PAGE>
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
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
EXHIBIT INDEX
Incorporation
Number Description By Reference To
<S> <C> <C>
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
</TABLE>
* constitutes a management contract or compensatory plan or arrangement.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 2,215
<SECURITIES> 0
<RECEIVABLES> 47,922
<ALLOWANCES> 2,094
<INVENTORY> 96,638
<CURRENT-ASSETS> 148,899
<PP&E> 26,439
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,377
<CURRENT-LIABILITIES> 185,692
<BONDS> 0
0
0
<COMMON> 15,405
<OTHER-SE> 26,898
<TOTAL-LIABILITY-AND-EQUITY> 233,377
<SALES> 396,832
<TOTAL-REVENUES> 403,003
<CGS> 312,358
<TOTAL-COSTS> 396,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,660
<INCOME-PRETAX> (10,555)
<INCOME-TAX> 167
<INCOME-CONTINUING> (10,722)
<DISCONTINUED> (9,466)
<EXTRAORDINARY> 2,100
<CHANGES> 0
<NET-INCOME> (18,088)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
