UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 3,
1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6666
SALANT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3402444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 221-7500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of November 13, 1998, there were outstanding 14,984,608 shares of the Common
Stock of the registrant.
<PAGE>
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statements of Comprehensive Income 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 24
<PAGE>
3
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $99,715 $110,871 $259,058 $280,472
Cost of goods sold 75,444 _83,635 201,371 216,881
-------- -------- -------- --------
Gross profit 24,271 27,236 57,687 63,591
Selling, general and
administrative expenses (18,471) (17,712) (52,802) (59,072)
Royalty income 1,097 1,297 3,774 3,833
Goodwill amortization (470) (470) (1,411) (1,411)
Reversal of provision
for restructuring (Note 6) -- -- 158 1,164
Other income 4 171 175 359
-------- --------- -------- --------
Income from continuing operations
before interest, income taxes and
extraordinary gain 6,431 10,522 7,581 8,464
Interest expense, net 4,295 4,490 12,337 11,867
------- -------- --------- --------
Income/(Loss) from continuing operations
before income taxes and extraordinary gain 2,136 6,032 (4,756) (3,403)
Income taxes 46 70 20 174
-------- -------- -------- -------
Income/(loss) from continuing operations
before extraordinary gain 2,090 5,962 (4,776) (3,577)
Discontinued operations (Note 7):
Loss from discontinued operations -- -- -- (8,136)
Estimated loss on disposal -- (750) -- (1,330)
Extraordinary gain (Note 8) -- -- -- 600
-------- ------- -------- --------
Net income/(loss) $ 2,090 $ 5,212 $ (4,776) $(12,443)
======== ========= ========= ========
Basic and diluted income/(loss) per share:
From continuing operations $ 0.14 $ 0.39 $ (0.31) $ (0.24)
From discontinued operations -- (0.05) -- (0.62)
From extraordinary gain -- -- -- 0.04
-------- -------- -------- ---------
Basic and diluted loss per share $ 0.14 $ 0.34 $ (0.31) $ (0.82)
========= ========= ========= ==========
Weighted average common stock outstanding 15,170 15,173 15,170 15,128
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
Three Months Ended Nine Months Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Net Income/(loss) $2,090 $5,212 $(4,776) $ (12,443)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (292) 2 (262) 12
-------- -------- -------- ---------
Comprehensive income $ 1,798 $ 5,214 $(5,038) $(12,431)
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
1
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
Oct. 3, January 3, Sept. 27,
1998 1998 1997
(Unaudited) (*) (Unaudited)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,953 $ 2,215 $ 1,862
Accounts receivable, net 71,633 45,828 65,207
Inventories (Note 3) 101,394 96,638 120,225
Prepaid expenses and other
current assets (Note 4) 10,021 4,218 2,798
---------- ---------- ---------
Total current assets 185,001 148,899 190,092
Property, plant and equipment, net 28,996 26,439 28,660
Other assets 55,185 58,039 58,290
---------- ---------- ---------
Total assets $ 269,182 $ 233,377 $ 277,042
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 76,277 $ 33,800 $ 73,021
Accounts payable 20,821 27,746 27,939
Accrued liabilities 23,096 16,503 13,072
Current portion of long term debt 104,879 104,879 --
Reserve for business restructuring (Note 6) _ 1,495 2,764 1,642
---------- ---------- ---------
Total current liabilities 226,568 185,692 115,674
Long term debt -- -- 104,879
Deferred liabilities 5,351 5,382 8,133
Shareholders' equity:
Common stock 15,405 15,405 15,405
Additional paid-in capital 107,249 107,249 107,249
Deficit (80,013) (75,235) (69,590)
Accumulated other comprehensive income (Note 5) (3,764) (3,502) (3,094)
Less - treasury stock, at cost (1,614) (1,614) (1,614)
---------- ---------- ---------
Total shareholders' equity 37,263 42,303 48,356
---------- ---------- ---------
Total liabilities and shareholders' equity $ 269,182 $ 233,377 $ 277,042
========== ========== ==========
</TABLE>
(*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
1
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months Ended
Oct. 3, Sept. 27,
1998 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Loss from continuing operations $ (4,776) $ (3,577)
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation 3,383 3,344
Amortization 2,295 1,768
Amortization of intangibles 1,410 1,410
Change in operating assets and liabilities:
Accounts receivable (12,978) (25,074)
Inventories (4,756) (21,728)
Prepaid expenses and other current assets (5,805) 1,071
Other assets -- (206)
Accounts payable (6,926) 377
Accrued liabilities and reserve for
business restructuring 5,406 7,029)
Deferred liabilities (31) (1,482)
-------- ----------
Net cash used in operating activities (22,778) (51,126)
-------- ----------
Cash Flows from Investing Activities:
Capital expenditures (5,940) (6,875)
Store fixture expenditures (849) (2,169)
-------- ----------
Net cash used in investing activities (6,789) (9,044)
-------- ---------
Cash Flows from Financing Activities:
Net short-term borrowings 29,651 65,344
Retirement of long-term debt -- (3,372)
Exercise of stock options -- 196
Other, net (262) _ 12
-------- ---------
Net cash provided by financing activities 29,389 62,180
------- ---------
Net cash (used in) provided by continuing operations (178) 2,010
Cash used in discontinued operations ____(84) ___(1,646)
Net decrease in cash and cash equivalents (262) 364
Cash and cash equivalents - beginning of year 2,215 1,498
------- ---------
Cash and cash equivalents - end of quarter $ 1,953 $ 1,862
======== =========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 3,621 $ 14,152
======== =========
Income taxes $ 82 $ 174
======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
1
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands of Dollars, Except Share Data)
(Unaudited)
Note 1. Financial Restructuring
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Salant Corporation ("Salant") and subsidiaries (collectively,
the "Company"). 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 October 3, 1998 and 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. At October 3, 1998, the Company's
current liabilities exceeded its current assets by $41,567. 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 with its major note and equity holders to convert its existing
indebtedness under the Senior Secured Notes into common equity of the Company
(the "March Restructuring Proposal"), as further described in the Company's 1997
Annual Report on Form 10-K and the Registration Statement on Form S-4, filed
with the Securities and Exchange Commission on April 22, 1998, as amended.
Subsequent thereto, the Company and its major note and equity holders have
determined to review their continued pursuit of the March Restructuring Proposal
in light of, among other things, the significant additional time required in
order to consummate the March Restructuring Proposal and the occurrence of
certain events (including, but not limited to, a reduction in the value of
certain of the Company's business units) that have caused various assumptions
upon which the March Restructuring Proposal was premised to no longer be true.
The Company is engaged in ongoing and active discussions with The CIT
Group/Commercial Services, Inc. ("CIT"), the Company's working capital lender,
in order to ensure CIT's continued support of the Company's restructuring
efforts and to obtain an extension of, or other acceptable arrangement with
respect to, the CIT facility. Although the Company, together with its major note
and equity holders, is currently exploring all restructuring options available,
unless an agreement is reached with CIT, the CIT facility will terminate on
November 30, 1998. The Company is currently in discussions with CIT to obtain
sufficient liquidity from and after November 30, 1998. The Company will not be
able to continue its normal operations if it is unable to obtain additional
financing or consummate a restructuring transaction in the near term.
<PAGE>
In contemplation of the March Restructuring Proposal, the Company elected not to
pay the interest payment of approximately $5,500 each that were due and payable
under the Senior Secured Notes on March 2 and August 31, 1998. As of October 3,
1998, interest accrued on the Senior Secured Notes was $12,071, which is
included in accrued liabilities. Because the Company elected not to pay the
interest due on the Senior Secured Notes by the expiration of the applicable
grace period, an event of default has occurred with respect to the Senior
Secured Notes, entitling the holders to accelerate the maturity thereof. On
April 8, 1998, the Trustee under the indenture governing the Senior Secured
Notes (the "Indenture") issued a Notice of Default stating that as a result of
the Company's failure to make the interest payment due on the Senior Secured
Notes, an event of default under the Indenture had occurred on April 1, 1998. 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, such acceleration 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.
<PAGE>
Note 2. Basis of Presentation and 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 and Canada.
The results of operations for the three and nine months ended October 3, 1998
and September 27, 1997 are not necessarily indicative of a full year's
operations. In the opinion of management, the accompanying financial statements
include all adjustments of a normal recurring nature which are necessary to
present fairly such financial statements. Significant intercompany balances and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report to shareholders for the year ended January 3, 1998.
Basic and diluted income/(loss) per share is based on the weighted average
number of common shares (including, as of October 3, 1998 and September 27,
1997, 205,854 and 320,609 shares, respectively, anticipated to be issued
pursuant to the Company's 1993 bankruptcy plan of reorganization). Basic and
diluted income/(loss) per share does not include common stock equivalents,
including, for the three and nine months ended October 3, 1998, 1,278,167 stock
options, and for the three and nine months ended September 27, 1997, 1,493,935
stock options, inasmuch as their effect would have been anti-dilutive.
<TABLE>
<CAPTION>
Note 3. Inventories
October 3, January 3, September 27,
1998 1998 1997
<S> <C> <C> <C>
Finished goods $ 65,920 $ 52,010 $ 78,049
Work-in-Process 17,604 21,405 17,146
Raw materials and supplies 17,870 23,223 25,030
------------ ---------- ----------
$ 101,394 $ 96,638 $ 120,225
========== ========= =========
</TABLE>
Note 4. Prepaid Expenses and Other Current Assets
As of October 3, 1998, prepaid expenses and other current assets included $6,888
of capitalized costs related to the March Restructuring Proposal.
<PAGE>
Note 5. Accumulated Other Comprehensive Income
<TABLE>
<CAPTION>
Foreign Currency Minimum Pension Accumulated Other
Translation Liability Comprehensive Income
Adjustments Adjustment
1998
<S> <C> <C> <C>
Beginning of year balance $ 6 $(3,508) $(3,502)
Nine month change (262) -- (262)
-------- -------- --------
End of quarter balance $(256) $(3,508) $(3,764)
======== ======== ========
1997
Beginning of year balance $ 76 $(3,182) $(3,106)
Nine month change 12 -- 12
----- -------- --------
$ 88 $(3,182) $(3,094)
===== ======== ========
</TABLE>
Note 6. Reserve for Business Restructuring
In the first nine months of 1997, the Company reversed previously recorded
restructuring provisions of $1,164, primarily resulting from the settlement of
liabilities for less than the carrying amount.
As of October 3, 1998, $1,495 remained in the restructuring reserve, primarily
related to guaranteed minimum royalty payments for discontinued product lines
and the closing of the Thomson facility.
Note 7. 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. Net sales of
the division were $623 and $2,822 for the three and nine months ended September
27, 1997, respectively. The loss from operations of the division for the three
and nine months ended September 27, 1997 was $8,136 which included a 1997 Second
Quarter charge of $4,459 for the write off of goodwill. No income tax benefits
have been allocated to the division's 1997 losses. The net liabilities of the
discontinued operations have been included in accrued liabilities.
Note 8. Extraordinary Gain
In the second quarter of 1997, the Company recorded an extraordinary gain of
$600 related to the reversal of excess liabilities previously provided for the
anticipated settlement of claims arising from the prior chapter 11 proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Third Quarter of 1998 Compared with Third Quarter of 1997
Net Sales
The following table sets forth the net sales of each of the Company's principal
business segments for the three months ended October 3, 1998 and September 27,
1997 and the percentage contribution of each of those segments to total net
sales:
<TABLE>
<CAPTION>
Percentage
Three Months EndedIncrease/
Oct. 3, 1998 Sept. 27, 1997 (Decrease)
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Men's Apparel $80.3 81% $88.9 80% (10%)
Children's Sleepwear and Underwear 19.4 19% 22.0 20% (12%)
---- --- ---- ---
Total $99.7 100% $110.9 100% (10%)
===== ==== ====== ====
</TABLE>
Sales of men's apparel decreased by $8.6 million, or 10%, in the third quarter
of 1998, as compared to the third quarter of 1997. This decrease primarily
resulted from (i) a $2.8 million decrease related to lower off price sales of
dress shirts, (ii) a $2.5 million decrease that reflects a softening in the
Company's basic denim business and the discontinuance of the Thomson pant
business in 1997 and (iii) a $2.7 million decrease that is attributable to the
previously announced closing of all non-Perry Ellis Stores in the fourth quarter
of 1997.
Sales of children's sleepwear and underwear decreased by $2.6 million, or 12%,
in the third quarter of 1998, as compared to the third quarter of 1997. This
decrease was primarily a result of late deliveries of finished goods inventory
and the elimination of the Joe Boxer sportswear product line. As previously
announced, the Company determined not to continue with its Joe Boxer sportswear
line for Fall 1998. This line accounted for net sales of $1.1 million in the
third quarter of 1998 and $1.5 million in the third quarter of 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 the three months ended October 3, 1998 and September 27, 1997:
<TABLE>
<CAPTION>
Three Months Ended
Oct. 3, 1998 Sept. 27, 1997
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel $21.2 26.4% $21.6 24.3%
Children's Sleepwear and Underwear 3.1 16.0% 5.6 25.4%
--- ---
Total $24.3 24.4% $27.2 24.5%
===== =====
</TABLE>
The increase in gross profit margin (gross profit as a percentage of net sales)
in the men's apparel segment was primarily attributable to improved product mix.
The decline in gross profit and gross profit margin in children's sleepwear and
underwear was primarily attributable to closing of Joe Boxer Sportswear and
increased selling off-price goods.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the third quarter of
1998 increased to $18.5 million (18.5% of net sales) from $17.7 million (16.0%
of net sales) for the third quarter of 1997. The increase primarily resulted
from an increase of $1.5 million in employee costs related to the restructuring
and $400,000 in additional expense resulting from system conversion for year
2000 compliance requirements.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) from operations before interest and
income taxes for each of the Company's business segments, expressed both in
dollars and as a percentage of net sales, for the three months ended October 3,
1998 and September 27, 1997:
<TABLE>
<CAPTION>
Three Months Ended
Oct. 3, 1998 Sept. 27, 1997
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel $9.0 11.2% $7.3 8.2%
Children's Sleepwear and Underwear 1.2 6.2% 3.7 16.8%
--- ---
10.2 10.2% 11.0 9.9%
Corporate expenses (4.6) (1.5)
Licensing division income 0.8 1.0
---- ----
Income from operations before
interest and income taxes $6.4 6.4% $10.5 9.5%
==== =====
</TABLE>
The $3.1 million increase of corporate expenses relate primarily to (i) $1.5
million of additional employee costs associated with the Company's
restructuring, (ii) $700,000 of additional corporate expenses that were not
allocated to the operating divisions and (iii) $400,000 relating to system
conversion issues for year 2000 compliance.
Interest Expense, Net
Net interest expense was $4.3 million for the third quarter of 1998, compared
with $4.5 million for the third quarter of 1997. The decrease in interest
expense resulted from lower average interest rates during the third quarter of
1998.
Discontinued Operations
In the third quarter of 1997, the Company recognized a charge of $750,000, or
$(0.05) per diluted share, related to the discontinuance of the Made in the
Shade division. Net sales of the division for the three months ended September
27, 1997 were $600,000.
Net Income
In the third quarter of 1998, the Company reported net income of $2.1 million,
or $0.14 per diluted share, as compared with a net income of $5.2 million, or
$0.34 per diluted share, in the third quarter of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges, Discontinued Operations and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, discontinued operations and extraordinary gain was $8.7 million (8.7%
of net sales) in the third quarter of 1998, compared to $12.6 million (11.4% of
net sales) in the third quarter of 1997, a decrease of $3.9 million. 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.
Year to Date 1998 Compared with Year to Date 1997
Net Sales
The following table sets forth the net sales of each of the Company's principal
business segments for the nine months ended October 3, 1998 and September 27,
1997 and the percentage contribution of each of those segments to total net
sales:
<TABLE>
<CAPTION>
Percentage
Nine Months Ended Increase/
Oct. 3, 1998 Sept. 27, 1997 (Decrease)
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Men's Apparel $226.7 87% $248.6 89% (9%)
Children's Sleepwear and Underwear 32.4 13% $31.9 11% 2%
---- --- ----- ---
Total $259.1 100% $280.5 100% (8%)
====== ==== ====== ====
</TABLE>
Sales of men's apparel decreased by $21.9 million, or 9%, in the first nine
months of 1998, as compared to the first nine months of 1997. This decrease
primarily resulted from (i) a $10.4 million reduction men's bottoms mostly due
to a softness in basic denim and the phase out of the discontinued Thomson
brand, (ii) a $7.0 million decrease is related to the closure of all non-Perry
Ellis retail outlet stores and (iii) a $5.0 million decrease in the dress shirt
business due to a general decline at retail for such classification.
Sales of children's sleepwear and underwear increased by $500,000, or 2%, in the
first nine months of 1998, as compared to the first nine months of 1997. This
increase was primarily a result of the volume increases in off-price and close
out inventory sales. As previously announced, the Company determined not to
continue with its Joe Boxer sportswear line for Fall 1998. This line accounted
for net sales of $3.4 million in the first nine months of 1998, as compared to
$1.8 million in the first nine months of 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 the nine months ended October 3, 1998 and September 27, 1997:
<TABLE>
<CAPTION>
Nine Months Ended
Oct. 3, 1998 Sept. 27, 1997
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel $54.5 24.0% $56.6 22.8%
Children's Sleepwear and Underwear 3.2 9.9% 7.0 21.9%
--- ---
Total $57.7 22.3% $63.6 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 increase in
gross profit margin was primarily due to the elimination of unprofitable
programs, improved product mix, and reducing the amount of close out inventory.
The decline in gross profit and gross profit margin in children's sleepwear and
underwear was primarily attributable to closing Joe Boxer Sportswear and the
increase of off-price sales due to late deliveries of finished goods.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and administrative
("SG&A") expenses for the first nine months of 1998 decreased to $52.8 million
(20.4% of net sales) from $59.1 million (21.1% of net sales) for the first nine
months of 1997. The decrease primarily resulted from (a) a $5.9 million decrease
related to the closure of all non-Perry Ellis retail stores in the fourth
quarter of 1997 and (b) a continuing focus by the Company on cost saving
opportunities.
Reversal of Provision for Restructuring
In the first nine months of 1997, the Company reversed previously recorded
restructuring provisions of $1.2 million, primarily resulting from the
settlement of liabilities for less than the carrying amount.
Income from Operations Before Interest and Income Taxes
The following table sets forth income from operations before interest and income
taxes for each of the Company's business segments, expressed both in dollars and
as a percentage of net sales, for the nine months ended October 3, 1998 and
September 27, 1997:
<TABLE>
<CAPTION>
Nine Months Ended
Oct. 3, 1998 Sept. 27, 1997
(dollars in millions)
<S> <C> <C> <C> <C>
Men's Apparel (a) $16.8 7.4% $10.3 4.1%
Children's Sleepwear and Underwear (2.4) (7.4%) 1.4 4.4%
----- ---
14.4 5.6% 11.7 4.2%
Corporate expenses (9.9) (6.2)
Licensing division income 3.1 3.0
---- ----
Income from operations before
interest and income taxes $7.6 2.9% $8.5 3.0%
==== ====
</TABLE>
(a) Includes the reversal of restructuring charges of $1.2 million in 1997.
Interest Expense, Net
Net interest expense was $12.3 million for the first nine months of 1998,
compared with $11.9 million for the first nine months of 1997. The increase in
interest expense resulted from higher average borrowings during the first nine
months of 1998, primarily due to the loss from operations over the past year.
Discontinued Operations
In the first nine months of 1997, the Company recognized a charge of $9.5
million, or $(0.62) per diluted share, related to the discontinuance of the Made
in the Shade division. This charge included a write-off of goodwill of $4.5
million and an accrual of $1.3 million for estimated operating losses during the
phase-out period. Net sales of the division for the nine months ended September
27, 1997 were $2.8 million.
Extraordinary Gain
In the first nine months of 1997, the Company recorded an extraordinary gain of
$600,000 related to the reversal of excess liabilities previously provided for
the anticipated settlement of claims arising from the Company's prior chapter 11
cases.
Net Loss
In the first nine months of 1998, the Company reported a net loss of ($4.8)
million, or $0.31 per diluted share, as compared with a net loss of ($12.4)
million, or ($0.82) per diluted share, in the first nine months of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges, Discontinued Operations and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, discontinued operations and extraordinary gain was $14.5 million (5.6%
of net sales) in the first nine months of 1998, compared to $13.8 million (4.9%
of net sales) in the first nine months of 1997, an increase of $700,000. 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 a revolving credit, factoring and security agreement,
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, the
Company 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 with its major note and equity holders to convert its existing
indebtedness under the 10 1/2% Senior Secured Notes due December 31, 1998 (the
"Senior Secured Notes") into common equity of the Company (the "March
Restructuring Proposal"), as further described in the Company's 1997 Annual
Report on Form 10-K and the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on April 22, 1998, as amended. Subsequent
thereto, the Company and its major note and equity holders have determined to
review their continued pursuit of the March Restructuring Proposal in light of,
among other things, the significant additional time required in order to
consummate the March Restructuring Proposal and the occurrence of certain events
(including, but not limited to, a reduction in the value of certain of the
Company's business units) that have caused various assumptions upon which the
March Restructuring Proposal was premised to no longer be true. The Company is
engaged in ongoing and active discussions with The CIT Group/Commercial
Services, Inc. ("CIT"), the Company's working capital lender, in order to ensure
CIT's continued support of the Company's restructuring efforts and to obtain an
extension of, or other acceptable arrangement with respect to, the CIT facility.
Although the Company, together with its major note and equity holders, is
currently exploring all restructuring options available, unless an agreement is
reached with CIT, the CIT facility will terminate on November 30, 1998. The
Company is currently in discussions with CIT to obtain sufficient liquidity from
and after November 30, 1998. The Company will not be able to continue its normal
operations if it is unable to obtain additional financing or consummate a
restructuring transaction in the near term.
In contemplation of the March Restructuring Proposal, the Company elected not to
pay the interest payments of approximately $5.5 million each that were due and
payable under the Senior Secured Notes on March 2 and August 31, 1998. As of
October 3, 1998, interest accrued on the Senior Secured Notes was $12.1 million.
Because the Company elected not to pay the interest due on the Senior Secured
Notes by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Secured Notes, entitling the holders to
accelerate the maturity thereof. On April 8, 1998, the Trustee under the
indenture governing the Senior Secured Notes (the "Indenture") issued a Notice
of Default stating that, as a result of the Company's failure to make the
interest payment due on the Senior Secured Notes, an event of default under the
Indenture had occurred on April 1, 1998. 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, such acceleration could result in the Company becoming subject to a
proceeding under the Federal bankruptcy laws. In accordance with the terms of
the March Restructuring Proposal, Magten Asset Management Corp. ("Magten"), the
beneficial owner of, or the representative of the beneficial owners of,
approximately 70% of the aggregate principal amount of the Senior Secured Notes
has provided written direction to the Trustee under the Indenture to forbear
from taking any action through November 30, 1998 in connection with the failure
by the Company to make the interest payments on the Senior Secured Notes that
were due and payable on March 2, 1998 and August 31, 1998. As noted above, in
connection with the Company's evaluation of its restructuring options, the
Company is currently in discussions with Magten regarding an alternative
transaction. However, there is no assurance that the parties will reach an
agreement. In addition, 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 any
restructuring transaction. There can be no assurances, however, that a
restructuring of the Company's indebtedness will be consummated. Failure to
consummate a restructuring of the Company's indebtedness could result in the
acceleration of all of the indebtedness under the Senior Secured Notes and/or
the Credit Agreement.
On June 1, 1998, the Company and CIT executed the Thirteenth Amendment to the
Credit Agreement. The Thirteenth Amendment reduced the interest rate on direct
borrowings, increased borrowings allowed against eligible inventory, eliminated
factoring of accounts receivable and modified the covenant related to maximum
net loss. Under the Thirteenth Amendment, CIT also agreed to continue to forbear
until November 30, 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 interest on its Senior Secured Notes. As noted above,
the Company is currently in discussions with CIT in order to obtain sufficient
liquidaty from CIT from and after November 30, 1998.
On June 1, 1998, the Company also received a commitment from CIT for a new $140
million secured credit facility to become effective upon completion of the March
Restructuring Proposal. The new credit facility would provide financing through
December 31, 2001, and was comprised of a $125 million revolving credit facility
and a $15 million term loan facility, and included terms consistent with the
Thirteenth Amendment. Given the decision of the parties to review their
continued pursuit of the March Restructuring Proposal, the Company has engaged
in active discussions with CIT to obtain sufficient liquidity from CIT until a
restructuring transaction is implemented. In connection with the Company's
efforts to implement a restructuring, the Company will attempt to conclude an
agreement with CIT on long-term financing for the post- restructured Company.
Pursuant to the Credit Agreement, the interest rate charged on direct borrowings
is 0.25 percent in excess of the base rate of The Chase Manhattan Bank, N.A.
(the "Prime Rate", which was 8.5% at October 3, 1998) or 2.25% above the London
Late Eurodollar rate (the "Eurodollar Rate", which was 5.375% at October 3,
1998). Prior to the Thirteenth Amendment to the Credit Agreement, the Company
sold to CIT, without recourse, certain eligible accounts receivable. The credit
risk for such accounts was thereby transferred to CIT. Pursuant to the
Thirteenth Amendment, new accounts receivable are no longer sold to CIT. The
credit risk for accounts receivable previously sold to CIT remains with CIT.
On October 3, 1998, direct borrowings (including borrowings under the Eurodollar
option) and letters of credit outstanding under the Credit Agreement were $77.6
million and $18.5 million, respectively, and the Company had unused availability
of $11.0 million. On September 27, 1997, direct borrowings and letters of credit
outstanding under the credit Agreement were $73.0 million and $24.0 million,
respectively, and the Company had unused availability of $12.6 million. During
the first nine months of 1998, the maximum aggregate amount of direct borrowings
and letters of credit outstanding under the Credit Agreement was $100.9 million
at which time the Company had unused availability of $8.3 million. During the
first nine months of 1997, the maximum aggregate amount of direct borrowings and
letters of credit outstanding under the Credit Agreement was $112.9 million at
which time the Company had unused availability of $10.5 million.
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
to maintain a minimum level of unused availability. As of October 3, 1998, the
Company was in compliance with this covenant.
The indenture governing the Company's outstanding Senior Secured Notes 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 the first nine months of
1998 was $22.8 million, which primarily reflects a $5.8 million increase in
other current assets for restructuring costs and the loss from continuing
operations of $4.8 million.
Cash used for investing activities in the first nine months of 1998 was $6.8
million, which represented capital expenditures of $5.9 million and the
installation of store fixtures in department stores of $0.8 million. During
1998, the Company plans to make capital expenditures of approximately $11.6
million and to spend an additional $1.7 million for the installation of store
fixtures in department stores.
Cash provided by financing activities in the first nine months of 1998 was $29.6
million, which represented short-term borrowings under 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 a restructuring of its indebtedness and secure a
the new credit facility. There can be no assurance, however, (i) that the
Company will consummate a restructuring of its indebtedness and secure a new
credit facility or (ii) that future developments and general economic trends
will not adversely affect the Company's operations and, hence, its anticipated
cash flow.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999; however, it may be adopted earlier. It cannot be applied
retroactively to financial statements of prior periods. The Company has not yet
quantified the impact of adopting SFAS No. 133 on their financial statements and
has not determined the timing of or method of adoption.
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 $226.6 million as of October 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. As noted above, the Company
together with its major note and equity holders have determined to review their
continued pursuit of the March Restructuring Proposal, and the Company is
directing its efforts in connection therewith. Given the Company's past
inconsistent operating performance, together with the reluctance of investors to
invest in apparel companies suffering from high debt-to-equity ratios and the
Company's inability to raise funds in the capital markets to re-capitalize the
Company, absent the a restructuring of the Company's indebtedness, the Company
does not believe it will be able to refinance its indebtedness under the Senior
Secured Notes. Failure by the Company to consummate a restructuring of its
indebtedness 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. In 1997, the Company produced 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.
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. As
of November 17, 1998, the Company has completed the implementation of new
financial systems that are year 2000 compliant ("Y2K"). In addition, the Company
has completed all testing of software modifications to correct the Y2K problems
on certain existing software programs, including its primary enterprise systems
(the "AMS System") at a total cost of $3.5 million. The Company anticipates that
any business units that are using software that is not Y2K compliant will be
converted to the modified software by the end of the first quarter of 1999, at
an estimated cost of $500,000. The Company has also identified certain third
party software and hardware that is not Y2K compliant. The Company expects that
these systems will be converted by the end of the second quarter of 1999 to
systems that will be Y2K compliant at an estimated cost of $2.0 million. The
funding for these activities has or will come from internally generated cash
flow and/or borrowings under the Company's working capital facility. As a result
of the Company's (i) successful implementation of its new financial systems,
(ii) completed testing of the modifications to the AMS System, and (iii)
expectation that all non Y2K systems will be converted by the end of the second
quarter of 1999, the Company has not developed a contingency plan to address Y2K
issues. If, however, the Company fails to complete such conversion in a timely
manner, such failure will have a material adverse effect on the business,
financial condition and results of operations of the Company.
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>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In contemplation of the March Restructuring Proposal, 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 elected not to pay the interest due by the
expiration of the applicable grace period, an event of default has occurred,
entitling the holders to accelerate the maturity thereof. On April 8, 1998, the
Trustee under the Indenture issued a Notice of Default stating that as a result
of the Company's failure to make the interest payment, an event of default under
the Indenture had occurred on April 1, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the third quarter of 1998, the Company did not file any reports on Form
8-K.
Exhibits
<TABLE>
<CAPTION>
Number Description
<S><C> <C>
10.45 Letter Agreement, dated July 20, 1998, amending the Employment
Agreement, dated August 18, 1997, between Philip A. Franzel and
Salant Corporation.
10.46 Letter Agreement dated July 20, 1998, amending the Employment
Agreement, dated May 1, 1997, between Todd Kahn and Salant
Corporation
10.47 Letter Agreement, dated July 20, 1998, amending the Employment
Agreement, dated March 20, 1997, between Jerald S. Politzer and
Salant Corporation.
27 Financial Data Schedule
</TABLE>
<PAGE>
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SALANT CORPORATION
Date: November 17, 1998 /s/ Philip A. Franzel
------------------- -----------------------
Philip A. Franzel
Executive Vice President
And Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 1,953
<SECURITIES> 0
<RECEIVABLES> 71,633
<ALLOWANCES> 0
<INVENTORY> 101,394
<CURRENT-ASSETS> 185,001
<PP&E> 28,996
<DEPRECIATION> 0
<TOTAL-ASSETS> 269,182
<CURRENT-LIABILITIES> 226,568
<BONDS> 0
0
0
<COMMON> 15,405
<OTHER-SE> 21,858
<TOTAL-LIABILITY-AND-EQUITY> 269,182
<SALES> 259,058
<TOTAL-REVENUES> 262,832
<CGS> 201,371
<TOTAL-COSTS> 147,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (158)
<INTEREST-EXPENSE> 12,337
<INCOME-PRETAX> (4,756)
<INCOME-TAX> 20
<INCOME-CONTINUING> (4,776)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,776)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
July 20, 1998
Mr. Philip A. Franzel
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Dear Phil:
Reference is hereby made to the Employment Agreement ("Employment
Agreement"), dated August 18, 1997 between yourself as the employee and Salant
Corporation ("Salant").
We have mutually agreed to amend the Employment Agreement effective as
of the date of this letter as follows:
1. The third sentence of Section 3(b) of the Employment Agreement is
hereby deleted in its entirety and substituted with the following therefore:
"For the 1997 Fiscal Year, the Employee shall receive as a
minimum the bonus amount provided in Paragraph A of Exhibit 1. In
addition, as part of the Management Retention Program established in
1998 (the "1998 MRP"), for the 1998 Fiscal Year, and no other fiscal
year thereafter, the Employee shall receive as a minimum, the bonus
amount provided in Paragraph A of Exhibit 1, provided that the Employee
maintains his employment with the Corporation until February 15, 1999,
other than pursuant to a termination of the Employment Period as
described in Sections 6(d) or 6(e).
2. Section 6(d) (iii) is hereby deleted in its entirety and substituted
with the following therefore:
"pro-rated Bonus for the Fiscal Year in which termination
occurs, payable in accordance with Section 3(b), and any Bonus for the
Fiscal Year earned but not yet paid, including without limitation the
entire 1998 MRP, payable in a lump sum within fifteen (15) days after
the Termination Date."
Except as specifically set forth herein, the Employment Agreement
remains in full force and effect and is hereby ratified, confirmed and approved.
The Employment Agreement as modified by this letter is the only agreement that
governs the term of your employment. All other Letter Agreements and memorandums
are hereby null and void.
If the foregoing correctly sets forth our mutual agreement, please sign
and return to me the three attached copies of this letter.
Very truly yours,
SALANT CORPORATION
By__________________________
Jerald S. Politzer
Chairman of the Board and
Chief Executive Officer
Accepted and Agreed to
By______________________
Philip A. Franzel
July 20, 1998
Todd Kahn, Esq.
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Dear Todd:
Reference is hereby made to the Employment Agreement ("Employment
Agreement"), dated May 1, 1997 between yourself as the employee and Salant
Corporation ("Salant").
We have mutually agreed to amend the Employment Agreement effective as
of the date of this letter as follows:
1. A new third sentence of Section 3(b) of the Employment Agreement is
hereby added with the following:
"As part of the Management Retention Program established in 1998
(the "1998 MRP"), for the 1998 Fiscal Year, and no other fiscal year
thereafter, the Employee shall receive as a minimum, the bonus amount
provided in Paragraph A of Exhibit 1, provided that the Employee
maintains his employment with the Corporation until February 15, 1999,
other than pursuant to a termination of the Employment Period as
described in Sections 6(d) or 6(e).
2. Section 6(d) (iii) is hereby deleted in its entirety and substituted
with the following therefore:
"pro-rated Bonus for the Fiscal Year in which termination
occurs, payable in accordance with Section 3(b), and any Bonus for the
Fiscal Year earned but not yet paid, including without limitation the
entire 1998 MRP, payable in a lump sum within fifteen (15) days after
the Termination Date."
Except as specifically set forth herein, the Employment Agreement
remains in full force and effect and is hereby ratified, confirmed and approved.
The Employment Agreement as modified by this letter is the only agreement that
governs the term of your employment. All other Letter Agreements and memorandums
are hereby null and void.
If the foregoing correctly sets forth our mutual agreement, please sign
and return to me the three attached copies of this letter.
Very truly yours,
SALANT CORPORATION
By__________________________
Jerald S. Politzer
Chairman of the Board and
Chief Executive Officer
Accepted and Agreed to
By______________________
Todd Kahn
July 20, 1998
Mr. Jerald S. Politzer
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Dear Jerry:
Reference is hereby made to the Employment Agreement ("Employment
Agreement"), dated March 20, 1997 between yourself as the employee and Salant
Corporation ("Salant").
We have mutually agreed to amend the Employment Agreement effective as
of the date of this letter as follows:
1. The third sentence of Section 3(b) of the Employment Agreement is
hereby deleted in its entirety and substituted with the following therefore:
"For the 1997 Fiscal Year, the Employee shall receive as a
minimum the bonus amount provided in Paragraph A of Exhibit 1. In
addition, as part of the Management Retention Program established in
1998 (the "1998 MRP"), for the 1998 Fiscal Year, and no other fiscal
year thereafter, the Employee shall receive as a minimum, the bonus
amount provided in Paragraph A of Exhibit 1, provided that the Employee
maintains his employment with the Corporation until February 15, 1999,
other than pursuant to a termination of the Employment Period as
described in Sections 6(d) or 6(e).
2. Section 6(d) (iii) is hereby deleted in its entirety and substituted
with the following therefore:
"pro-rated Bonus for the Fiscal Year in which termination
occurs, payable in accordance with Section 3(b), and any Bonus for the
Fiscal Year earned but not yet paid, including without limitation the
entire 1998 MRP, payable in a lump sum within fifteen (15) days after
the Termination Date."
Except as specifically set forth herein, the Employment Agreement
remains in full force and effect and is hereby ratified, confirmed and approved.
The Employment Agreement as modified by this letter is the only agreement that
governs the term of your employment. All other Letter Agreements and memorandums
are hereby null and void.
If the foregoing correctly sets forth our mutual agreement, please sign
and return to me the three attached copies of this letter.
Very truly yours,
SALANT CORPORATION
By_________________________
Todd Kahn
Executive Vice President,
General Counsel and
Secretary
Accepted and Agreed to
By______________________
Jerald S. Politzer
