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 2, 1999
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 April 7, 1999, there were outstanding 14,984,608 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
$1,067,704. 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>
<CAPTION>
TABLE OF CONTENTS
PART I Page
<S> <C>
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. 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
</TABLE>
<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
menswear apparel products. Salant sells its products to department and specialty
stores, national chains, major discounters and mass volume retailers throughout
the United States. In June 1997, the Company discontinued the operations of the
Made in the Shade division, which produced and marketed women's junior
sportswear. In December 1998, the Company determined to discontinue and sell its
Salant Children's Apparel Group (the "Children's Group"), which manufactures and
markets blanket sleepers, pajamas and underwear. (As used herein, the "Company"
includes Salant and its subsidiaries, but excludes the Children's Group and the
Made in the Shade divisions.)
Bankruptcy Court Cases.
On June 27, 1990, Salant and 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"). On July 30, 1993, the Bankruptcy
Court issued an order confirming the Company's reorganization plan.
On December 29, 1998 (the "Filing Date"), Salant filed a petition under chapter
11 of the Bankruptcy Code in the Bankruptcy Court (the "Chapter 11 Case") in
order to implement a restructuring of its 10-1/2 % Senior Notes due December 31,
1998 (the "Senior Notes"). Salant also filed its plan of reorganization (the
"Plan") with the Bankruptcy Court in order to implement its restructuring.
Pursuant to the Plan, Salant intends to focus primarily on its Perry Ellis men's
apparel business and, as a result, intends to exit its other businesses,
including its Children's Group and non-Perry Ellis menswear divisions. To that
end, Salant has sold its John Henry and Manhattan businesses. These businesses
include the John Henry, Manhattan and Lady Manhattan trade names, the John Henry
and Manhattan dress shirt inventory, the leasehold interest in a dress shirt
facility located in Valle Hermosa, Mexico, and the equipment located at the
Valle Hermosa facility and at Salant's facility located in Andalusia, Alabama.
Salant has also sold its Children's Group business. This sale was primarily for
inventory related to the Children's Group business and the Dr. Denton Trademark.
The Plan provides that (i) all of the outstanding principal amount of Senior
Notes, plus all accrued and unpaid interest thereon, will be converted into 95%
of Salant's new common stock, subject to dilution, and (ii) all of Salant's
existing common stock will be converted into 5% of Salant's new common stock,
subject to dilution. Salant's general unsecured creditors (including trade
creditors) are unimpaired and upon consummation of the Plan will be paid in
full. The Plan has been approved by all of the holders of Senior Notes that
voted and over 96% of the holders of Salant common stock that voted.
On March 25, 1999, the Bankruptcy Court held a hearing on the confirmation of
the Plan. At that hearing, the Bankruptcy Court advised that it would take the
objection to confirmation under advisement and that it expected to rule on the
objection. Prior to the Bankruptcy Court's announcement of its ruling on the
objection, Salant and Supreme International, Inc. ("Supreme") (in its own
capacity and on behalf of Perry Ellis International, Inc. ("PEI", and together
with Supreme "Supreme-PEI")), which had filed an objection to confirmation,
settled and resolved their differences, and the economic terms of their
settlement were set forth in a term sheet (the "Term Sheet") which was attached
to and incorporated into the confirmation order (the "PEI Settlement").
Thereafter, at the April 16, 1999 hearing, the Bankruptcy Court entered an order
confirming the Plan (the "Confirmation Order").
The PEI Settlement. The following is a summary of the material provisions
of the Term Sheet setting forth the terms of the PEI Settlement. The
following description is qualified in its entirety by the provisions of the
Term Sheet, which is attached as Exhibit A to the Comfirmation Order. The
PEI Settlement provides that (i) Salant will return to PEI the license to
sell Perry Ellis products in Puerto Rico, the U.S. Virgin Islands, Guam and
Canada (Salant will retain the right to sell its existing inventory in
Canada through January 31, 2000); (ii) the royalty rate due PEI under
Salant's Perry Ellis Portfolio pants license with respect to regular price
sales in excess of $15.0 million annually will be increased to 5%; (iii)
Salant will provide Supreme-PEI with the option to take over any real
estate lease for a retail store that Salant intends to close; (iv) Salant
will assign to Supreme-PEI its sublicense with Aris Industries, Inc. for
the manufacture, sale and distribution of the Perry Ellis America brand
sportswear and, depending on certain circumstances, receive certain royalty
payments from Supreme-PEI through the year 2005; (v) Salant will pay PEI
its prepetition invoices of $616,844 and post-petition invoices of $56,954
on the later of (a) the Effective Date (as defined in the Plan) of the Plan
and (b) the due date with respect to such amounts; (vi) Supreme-PEI (a)
agrees and acknowledges that the sales of businesses made by Salant during
its Chapter 11 case do not violate the terms of Salant's license agreements
with PEI (the "Perry Ellis Licenses") and do not give rise to the
termination of the Perry Ellis Licenses and (b) consents to the change of
control arising from the conversion of debt into equity under the Plan and
acknowledges that such change of control does not give rise to any right to
terminate the Perry Ellis Licenses; and (vii) Supreme-PEI withdraws with
prejudice its objection to confirmation of the Plan, and supports
confirmation of the Plan.
Men's Apparel. In fiscal 1998, the men's apparel business was 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 was 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 (collectively "Canyon River Blues Product"). Pursuant to an Agreement
dated March 10, 1999, between the Company and Sears, the Company has agreed to
continue to deliver, in the ordinary course, Canyon River Blues Product to Sears
until the middle of May 1999. During the end of May and early June 1999, the
Company will deliver to Sears the remaining Canyon River Blues Product at a
discount to Sears. The Agreement by its terms is subject to Bankruptcy Court
approval. A motion seeking approval of the Agreement is currently pending before
the Bankruptcy Court. If no objections to the motion are filed, the Company will
present an order for signature to the Bankruptcy Court approving the motion on
April 26, 1999. To date, no objections to the motion have been filed.
The Salant Menswear Group also marketed dress shirts, primarily under the JOHN
HENRY and MANHATTAN trademarks. Pursuant to the Plan, the Company has sold or is
in the processes of selling or otherwise disposing of substantially all of its
businesses other than the businesses conducted under the Perry Ellis Trademarks.
In that connection, the Company sold its dress shirt business and its John
Henry, Manhattan and related trademarks to Supreme pursuant to a Purchase and
Sale Agreement, dated December 28, 1998 (subject to and subsequently approved by
the Bankruptcy Court on February 26, 1999).
Children's Sleepwear and Underwear. In 1998, the children's sleepwear and
underwear business was conducted by the Children's Group . The Children's Group
marketed 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 marketed 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) had taken,
the Company focused on its core business of underwear and sleepwear. In
connection with the Plan, the Company adopted a formal plan to discontinue the
Children's Group. Pursuant to a Purchase and Sale Agreement dated January 14,
1999, the Company sold to the Wormser Company ("Wormser"), all of Salant's right
to, title and interest in, certain assets of the Children's Group. All assets of
the Children's Group not sold to Wormser have been or will be disposed.
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
1998, Salant operated 19 Perry Ellis outlet stores and 1 close-out store.
Significant Customers. In 1998, approximately 20% of the Company's sales were
made to Sears and approximately 14% of the Company's sales were made to
Federated Department Stores, Inc. ("Federated"). Also in 1998, approximately 11%
of the Company's sales were made to Dillard's Corporation ("Dillard's") and
approximately 10% of the Company's sales were made to Marmaxx Corporation
("Marmaxx"). In 1997 approximately 10% of the Company's sales were made to
Dillards. In 1997 and 1996, approximately 11% and 10% of the Company's sales
were made to Marmaxx, respectively and approximately 19% and 15% of the
Company's sales were made to Sears for 1997 and 1996, respectively. In both 1997
and 1996, approximately 12% of the Company's sales were made to Federated.
No other customer accounted for more than 10% of the sales during 1996, 1997 or
1998.
Trademarks. 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.
Approximately 76% of the Company's net sales for 1998 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.
Pursuant to the Plan, substantially all of the Company's business will be
conducted under the Perry Ellis Trademarks. During 1998, 55% of the Company's
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. Approximately 11% of the Company's
sales were attributable to products sold under the MANHATTAN trademark. Products
sold to Sears under its exclusive brand CANYON RIVER BLUES accounted for 15% of
the Company's sales during 1998. No other line of products accounted for more
than 10% of the Company's sales during 1998.
Trademarks Licensed to the Company. The Perry Ellis Trademarks are licensed to
the Company under the Perry Ellis Licenses with 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. On January 28, 1999, PEI and Supreme announced that they had
entered into a definitive agreement under which Supreme will acquire for cash
all of the stock of PEI for $75 million. On April 7, 1999, Supreme completed the
acquisition of PEI and became Salant's licensor under the Perry Ellis Licenses.
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 1998, approximately 10% 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 90% of its domestic-made products and 30% of its foreign-made
products; the balance in each case was attributable to unaffiliated contract
manufacturers. In 1998, approximately 37% of the Company's foreign production
was manufactured in Mexico, and approximately 23% was manufactured in Guatemala.
The Company's foreign sourcing operations are subject to various risks of doing
business abroad, including currency fluctuations (although the predominant
currency used is the U.S. dollar), quotas and, in certain parts of the world,
political instability. Although the Company's operations have not been
materially adversely affected by any of such factors to date, any substantial
disruption of its relationships with its foreign suppliers could adversely
affect its operations. Some of the Company's imported merchandise is subject to
United States Customs duties. In addition, bilateral agreements between the
major exporting countries and the United States impose quotas, which limit the
amounts of certain categories of merchandise that may be imported into the
United States. Any material increase in duty levels, material decrease in quota
levels or material decrease in available quota allocations could adversely
affect the Company's operations.
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 1998.
Employees. As of the end of 1998, the Company employed approximately 3,200
persons, of whom 2,700 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. The Company
believes that its relations with its employees are satisfactory. Pursuant to the
business plan being implemented by means of the Plan, the Company will no longer
engage in manufacturing and will close all of its distribution facilities,
except for its Winnsboro, South Carolina facility. Accordingly, the Company
anticipates employing approximately 500 persons following the disposition of
those facilities used in the non-Perry Ellis business.
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 companies in both categories. Many
of the Company's competitors have greater financial resources than the Company.
The Company seeks to maintain its competitive position in the markets for its
branded products on the basis of the strong brand recognition associated with
those products and, with respect to all of its products, on the basis of
styling, quality, fashion, price and customer service.
Environmental Regulations. Current environmental regulations have not had, and
in the opinion of the Company, assuming the continuation of present conditions,
are not expected to have a material effect on the business, capital
expenditures, earnings or competitive position of the Company.
Seasonality of Business and Backlog of Orders. This information is included
under Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Salant Children's Group - Discontinued Operation. In December 1998, the Company
determined to restructure and sell its Children's Group, which manufactured and
marketed blanket sleepers primarily using a number of well-known cartoon
characters created by, among others, DISNEY and WARNER BROTHERS. The Children's
Group also marketed pajamas under the OSHGOSH B'GOSH trademark and sleepwear and
underwear under the JOE BOXER trademark. The financial statements of the Company
included in this report treat Salant's Children's Group as a discontinued
operation.
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.
Events Leading to the Chapter 11 Filing
Since emerging from bankruptcy in September 1993, Salant had from time to time
explored various strategies regarding its overall business operations and, in
particular, various possible transactions that would result in a refinancing of
its long-term debt obligations. In this connection, during the period from the
beginning of the fiscal year ending January 3, 1998 ("Fiscal 1997") through the
Filing Date, Salant from time to time received indications of interest from
various third parties to purchase all or a portion of its businesses or assets.
During this period, Salant's refinancing efforts were significantly hampered by
its inconsistent operating results and the fact that investors in the
marketplace generally did not look favorably upon investing in highly-leveraged
apparel companies.
In the latter half of Fiscal 1997, Salant, working with its various investment
banking firms, its Board of Directors (the "Board") and management, analyzed and
assessed its financial situation and explored the availability of capital in
both the private and public debt and equity markets for the purpose of
recapitalizing. The investment banking firms advised Salant that they did not
believe that it could recapitalize by use of the capital markets, in light of
Salant's past inconsistent operating performance, together with the reluctance
of investors to invest in apparel companies suffering from high debt-to-equity
ratios.
Salant's unfavorable operating results continued throughout the fourth quarter
of Fiscal 1997. Net sales (prior to discontinued operations adjustments for
Salant Children's Group) for the fourth quarter of Fiscal 1997 were $116.4
million, a 1.1% increase from the comparable quarter in 1996. However, net
losses amounted to $5.6 million (as compared to a net income of $6.1 million in
1996), and the loss from continuing operations before interest, income taxes and
extraordinary gain was $2.4 million (as compared to $10.6 million of income from
continuing operations before interest and income taxes for the same quarter of
1996). These results heightened Salant's concern that absent a restructuring or
other extraordinary transaction, it would be difficult for Salant to make the
principal payment under its Senior Notes due on December 31, 1998 of $104.9
million.
Moreover, during the fourth quarter of Fiscal 1997, Salant closed 42 of its
retail outlets (representing all retail outlets other than the Perry Ellis
outlet stores), determined to close one of its distribution centers, and changed
the sourcing of a portion of its Perry Ellis product line. While these changes
were essential to streamline Salant by eliminating non-core businesses and
correcting operational issues, these actions had a detrimental effect on
Salant's earnings in Fiscal 1997.
As a result, heading into fiscal year 1998, Salant was concerned that, in light
of its inconsistent operating performance and inability to access the capital
markets to refinance or retire its indebtedness under the Senior Notes, Salant's
ability to maintain the support and confidence of its trade vendors was at risk.
In that connection, Salant, in consultation with its financial advisors, decided
that it needed to immediately address its high level of indebtedness in order to
avoid any permanent adverse effects on its business operations, future
productivity and growth potential.
In addition, as a result of Salant's performance during Fiscal 1997, as of
January 3, 1998, Salant failed to meet certain of the financial covenants (the
"CIT Financial Covenants") contained in the Revolving Credit, Factoring and
Security Agreement, dated as of September 20, 1993, as amended (the "Credit
Agreement") between Salant and The CIT Group/Commercial Services, Inc. ("CIT"),
its working capital lender. In this connection, Salant reviewed the advisability
of making the $5.5 million interest payment on the Senior Notes due and payable
on March 2, 1998 with a view towards maximizing liquidity in order to
appropriately fund operations during the pendency of the restructuring
transactions. Commencing in December 1997, Salant began discussions with CIT,
regarding a possible restructuring of Salant's indebtedness under the Senior
Notes (including various issues relating to its future ability to meet the CIT
Financial Covenants and the March 1998 interest payment on the Senior Notes).
Salant believed that, given the potential instability that is associated with
any restructuring process, it would be most productive to adopt a strategy to
maximize liquidity and thereby protect the total enterprise value of Salant.
Salant also concluded that holders of Senior Notes (the "Noteholders") and its
equity security holders (the "Shareholders") would best be served by converting
the Senior Notes into equity, thus allowing Salant to eliminate a significant
portion of its debt and substantially improve its balance sheet.
The March 2 Letter Agreement
In furtherance of its continuing efforts to deleverage, Salant approached Magten
Asset Management Corp. ("Magten"), the beneficial owner, or the investment
manager on behalf of the beneficial owners of, approximately $74 million in
aggregate principal face amount of the Senior Notes, representing approximately
71% of the aggregate principal amount of all Senior Notes, to discuss the
possible terms and conditions of a restructuring of the indebtedness under the
Senior Notes, including the Senior Notes held by Magten. In connection with a
possible restructuring, Salant agreed to finance the retention of Hebb & Gitlin,
a Professional Corporation ("H&G"), as special counsel to Magten, and Allen and
Company Incorporated, as financial advisor to H&G. During the months of January
and February 1998, Salant continued to actively discuss a restructuring with
Magten and Apollo Apparel Partners, L.P. ("Apollo"), the beneficial owner of
5,924,352 shares of Salant common stock, representing approximately 39.5% of the
issued and outstanding shares. During this period, Salant continued its
negotiations with CIT to ensure its support of a restructuring. These efforts
culminated in the execution of a letter agreement dated March 2, 1998, as
amended by and among Salant, Magten and Apollo (the "March 2 Letter Agreement").
Pursuant to the March 2 Letter Agreement, the parties agreed, among other
things, to support a restructuring on the following terms: (i) the entire $104.9
million outstanding aggregate principal amount of, and all accrued and unpaid
interest on, the Senior Notes would be converted into 92.5% of Salant's issued
and outstanding new common stock, subject to dilution, and (ii) the Old Common
Stock would be converted into 7.5% of Salant's issued and outstanding new common
stock, subject to dilution; additionally, Stockholders would receive seven year
warrants to purchase up to 10% of Salant's issued and outstanding new common
stock, on a fully diluted basis. CIT agreed to support Salant's restructuring
efforts under the March 2 Letter Agreement. In furtherance of Salant's
restructuring effort, in order to facilitate the consummation of the terms of
the March 2 Letter Agreement, on April 22, 1998, Salant filed its Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") to register the securities to be issued
in accordance with the March 2 Letter Agreement. Thereafter, Salant filed
amendments to the Registration Statement on May 18, 1998, May 26, 1998 and
August 31, 1998.
In furtherance of the March 2 Letter Agreement, during the period of March 1998
through the Filing Date, Salant obtained various extensions and forbearance
agreements from Magten and CIT related to Salant's failure to pay interest due
on the Senior Notes that was due and payable on March 2, 1998 and August 31,
1998.
After Salant entered into the March 2 Letter Agreement and while it continued to
pursue implementation of such agreement, Salant received various proposals from
third parties to purchase all or a part of Salant's businesses or assets which
if consummated would have provided significantly more value to Noteholders and
Stockholders than would otherwise have been achieved under the March 2 Letter
Agreement.
For several months following the execution of the March 2 Letter Agreement,
Salant engaged in intense negotiations with certain of such parties regarding a
combination transaction. However, by reason of certain market changes which,
among other things, caused a reduction in the value of certain of Salant's
business units, no such transaction was able to be consummated. Moreover,
Salant, together with Magten and Apollo, determined to review their continued
pursuit of the transactions contemplated by the March 2 Letter Agreement in
light of, among other things, the significant additional time required to
consummate such transactions and the occurrence of certain events (including,
but not limited to, a reduction in the value of certain of Salant's business
units) that caused various assumptions upon which the March 2 Letter Agreement
was premised to no longer be true.
The Plan Negotiations
Thereafter, in contemplation of filing the Chapter 11 Case, Salant, Magten and
Apollo agreed to pursue a restructuring of Salant pursuant to which all of the
Senior Notes would be converted to new equity of Salant and that provided for
Salant to continue to operate after the restructuring as a stand-alone Perry
Ellis business ("Reorganized Salant"). The terms for Salant's restructuring
agreed to among the parties prior to the Filing Date form the basis for the
Plan. Under the Plan, as proposed to be confirmed at the hearing on March 25,
1999, (i) the entire $104.9 million outstanding aggregate principal amount of,
and all accrued and unpaid interest on, the Senior Notes would be converted into
95% of Salant's issued and outstanding new common stock, subject to dilution for
shares issued under the Stock Award and Incentive Plan and the Restricted Stock
Plan, and (ii) the existing common stock ("Old Common Stock") would be converted
into 5% of Salant's issued and outstanding new common stock, subject to dilution
for shares issued under the Stock Award and Incentive Plan and the Restricted
Stock Plan.
In connection with the negotiations leading up to the formulation of the Plan,
Salant, Magten and Apollo agreed that the enterprise value of the Company was
less than the amount of Salant's outstanding indebtedness and, therefore, no
value remained for the Stockholders. However, to reach a consensual agreement
and avoid the costs associated with a protracted litigation, the parties agreed
to the terms of the Plan described above.
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 four
distribution centers; one in New York, one in South Carolina and two in Texas.
At the end of 1998, the Company is planning to sell or close all manufacturing
and distribution facilities, except for the distribution facility in South
Carolina. The Company owns approximately 1,067,000 square feet of space devoted
to manufacturing and distribution and leases approximately 328,000 square feet
of such space. The Company owns approximately 69,000 square feet of office space
and leases approximately 211,000 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 1998, the Company's Stores division operated
20 factory outlet stores, comprising approximately 44,000 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
The Company is a defendant in several legal actions. In the opinion of the
Company's management, based upon the advice of the respective attorneys handling
such cases, such actions are not expected to have a material adverse effect on
the Company's consolidated financial position, results of operations or cash
flow. In addition, the Company notes the following legal proceedings.
1. Bankruptcy Case. On December 29, 1998, Salant filed a petition under
chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Southern District of New York (Case No. 98-10107 (CB)). The Company
filed its Plan on the Filing Date. The Plan has been approved by all of the
holders of Senior Notes that voted and over 96% of the holders of Salant
common stock that voted. On March 25, 1999, the Bankruptcy Court held a
hearing on the confirmation of the Plan. At the hearing, the Bankruptcy
Court advised that it would take the objection to confirmation under
advisement. Prior to the Bankruptcy Court's announcement of its ruling on
the objection, Salant and Supreme (in its own capacity and on behalf of
PEI), which had filed an objection to confirmation, settled and resolved
their differences, and the economic terms of their settlement were set
forth on the Term Sheet attached to and incorporated into the Confirmation
Order. Thereafter, at the April 16, 1999 hearing, the Bankruptcy Court
entered the Confirmation Order.
2. Rodriguez-Olvera Action. The Company is a defendant in a lawsuit captioned
Maria Delores Rodriguez-Olvera, et al. Vs. Salant Corp., et al., Case No.
97-07-14605-CV, in the 365th Judicial District Court of Maverick County,
Texas (the "Rodriguez-Olvera Action"). The plaintiffs in the
Rodriguez-Olvera Action assert personal injury, wrongful death, and
survival claims arising out of a bus accident that occurred on June 23,
1997. A bus registered in Mexico, owned by the Company's subsidiary
Maquiladora Sur, S.A. de C.V. ("Maquiladora"), a Mexican corporation (and
driven by a Mexican citizen and resident employed by Maquiladora, carrying
Mexican workers from their homes in Mexico to their jobs at Maquiladora),
overturned and caught fire in Mexico. Fourteen persons were killed in the
accident, and twelve others claim injuries as a result of the accident; the
Rodriguez-Olvera plaintiffs seek compensation from the Company for those
deaths and injuries.
The Company has vigorously defended against the allegations made in the
lawsuit. Its defenses include, among other things, that the claims, if any,
asserted by the Rodriguez-Olvera plaintiffs exist against Maquiladora, and
not the Company, and that the Rodriguez-Olvera Action should be tried in
the courts of Mexico, and not the United States, under the doctrine of
forum non conveniens. The Company also contends that the law of Mexico,
rather than that of the United States, governs the Rodriguez-Olvera
plaintiffs' claims. The Rodriguez-Olvera plaintiffs disagree with the
Company's positions.
A motion on behalf of the company to dismiss the Rodriguez-Olvera Action
under the doctrine of forum non conveniens was denied by the trial court.
The propriety of those rulings is the subject of an action for a writ of
mandamus, captioned In Re Salant Corporation, et al., Case No.
4-98-00929-CV (the "Mandamus Action"), in the Court of Appeals for the
Fourth District of Texas, at San Antonio (the "Texas Court of Appeals").
The Texas Court of Appeals has stayed further proceedings in the underlying
Rodriguez-Olvera action (for reasons apart from any that might result in a
stay under federal bankruptcy law) pending the outcome of the Mandamus
Action.
The Company is also a defendant in a related declaratory judgment action,
captioned Hartford Fire Insurance Company v. Salant Corporation, Index No.
60233/98, in the Supreme Court of the State of New York, County of New York
(the "Hartford Action"), relating to the Company's insurance coverage for
the claims that are the subject of the Rodriguez-Olvera Action. In the
Hartford Action, the Company's insurers seek a declaratory judgment that
the claims asserted in the Rodriguez-Olvera Action are not covered under
the policies that the insurers had issued. The Company's insurers have
nevertheless provided a defense to the Company in the Rodriguez-Olvera
Action, without prejudice to their positions in the Hartford Action.
If, as the Company contends in the Hartford Action, the Rodriguez-Olvera
claims are covered by insurance, the damages sought by the Rodriguez-Olvera
plaintiffs nevertheless exceed the face amount of the Company's liability
insurance coverage. Accordingly, it is possible that the damages that would
be awarded in the Rodriguez-Olvera Action could exceed available coverage
limits. Counsel for the plaintiffs in the Rodriguez-Olvera action has
stated that they have offered to settle that lawsuit within the Company's
insured limits, and that the Company's insurance carriers have rejected the
Rodriguez-Olvera plaintiffs' settlement offers. Counsel for the
Rodriguez-Olvera plaintiffs has further stated that in such event, in his
view, Texas law should hold the Company's insurers liable for failing to
settle the claims within policy limits. The Company considers it
inappropriate to endorse or dispute that view and expresses no position on
that view herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, 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 currently trading on the Over-The-Counter Bulletin
Board under the trading symbol SLNT. On December 17, 1998, the New York Stock
Exchange ("NYSE") advised the Company that trading of its Common Stock will be
suspended prior to the opening of the NYSE on December 30, 1998. The NYSE had
advised Salant that this action was taken in view of the fact that Salant has
fallen below the NYSE's continued listing criteria.
The high and low sale prices per share of Common Stock (based upon the NYSE
composite tape) for each quarter of 1997 and 1998 are set forth below. The
Company did not declare or pay any dividends during such years. The indenture
governing the Senior 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 2, 1999, Salant was prohibited from paying cash dividends by reason
of, among other things, these provisions.
<TABLE>
<CAPTION>
High and Low Sale Prices Per Share of the Common Stock
Quarter High Low
<S> <C> <C> <C>
1998
Fourth 0.500 0.031
Third 0.875 0.406
Second 0.813 0.500
First 1.813 0.375
1997
Fourth 3.375 1.563
Third 3.000 1.938
Second 4.250 2.875
First 5.375 3.000
</TABLE>
On April 7, 1999, there were 1,025 holders of record of shares of Common Stock,
and the closing market price was $0.13.
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 as of January
3, 1998 and January 2, 1999 and for each of the fiscal years for the three
year period ended January 2, 1991 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 1994 through 1996 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. 02 Jan. 03, Dec. 28, Dec. 30, Dec. 31,
1999 1998 1996 1995 1994
(52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
For The Year Ended:
Continuing Operations:
<S> <C> <C> <C> <C> <C>
Net sales $300,586 $ 347,667 $ 371,958 $ 445,889 $ 363,477
Restructuring costs (a) (24,825) (2,066) (11,730) (3,550) -
Income/(loss) from continuing operations (56,775) (8,394) (12,652) (3943) 1,476
Discontinued Operations:
Loss from operations, net of income taxes (10,163) (10,464) 3,329 3,445 (7,608)
Loss on disposal, net of income taxes (5,724) (1,330) - - (1,796)
Extraordinary gain (b) - 2,100 - 1,000 63
Net income/(loss)(a) (72,662) (18,088) (9,323) 502 (7,865)
Basic and diluted earnings/(loss) per share:
Earnings/(loss) per share from continuing
operations before extraordinary gain (a) $(3.74) $ (0.55) $ (0.84) $ (0.26) $ 0.10
Earnings/(loss) per share from discontinued
operations (1.05) (0.78) 0.22 0.23 (0.63)
Earnings per share from extraordinary gain - 0.14 - 0.06 -
Basic earnings/(loss) per share (a) (4.79) (1.19) (0.62) 0.03 (0.53)
Cash dividends per share - - - - -
At Year End:
Current assets $149,697 $ 147,631 $ 149,476 $ 163,031 $169,586
Total assets 176,129 228,583 231,717 251,340 261,800
Current liabilities (c) 203,029 180,898 56,032 59,074 66,747
Long-term debt (c) -- -- 106,231 110,040 109,908
Deferred liabilities 4,010 5,382 8,863 11,373 13,479
Working capital/(deficiency) (53,333) (33,267) 93,440 103,957 102,839
Current ratio 0.7:1 0.8:1 2.7:1 2.8:1 2.5:1
Shareholders' equity / (deficiency) $(30,910) $ 42,303 $ 60,591 $ 70,853 $ 71,666
Book value per share $(2.04) $ 2.79 $ 4.01 $ 4.71 $ 4.78
Number of shares outstanding 15,171 15,171 15,094 15,041 15,008
</TABLE>
(a) Includes, for the year ended January 2, 1999, a provision of $24,825
($1.64 per share; tax benefit not available) for restructuring costs
primarily related to the Company's intention to focus solely on its Perry
Ellis men's apparel business and, as a result, intends to exit its
non-Perry Ellis menswear divisions. To that end, Salant has sold its John
Henry and Manhattan businesses. These businesses include the John Henry,
Manhattan and Lady Manhattan trade names and the related goodwill, the
leasehold interest in a dress shirt facility located in Valle Hermosa,
Mexico, and the equipment located at the Valle Hermosa facility and at
Salant's facility located in Andalusia, Alabama. These assets had a net
book value of $43,184 and were sold in 1999 for $27,000, resulting in a
loss of $16,184. In addition to the $16,184, the restructuring provision
consisted of (i) $6,305 of additional property, plant and equipment
write-downs, (ii) $2,936 for the write-off of other assets, severance,
leases and other restructuring costs and (iii) offset by a reversal of $600
from the reversal of previously recorded restructuring reserves primarily
resulting from the settlement of liabilities for less than the carrying
amount and the gain on sale from the sale of the Thomson building; 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.
(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 Notes at a price below the principal amount thereof.
(c) At January 2, 1999 and January 3, 1998, long term debt of $104,879 has been
classified as liabilities subject to compromise and a current liability,
respectively. 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
On the filing date, the Company filed a petition under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York in order to implement a restructuring of its Senior Notes. On that
date, Salant filed the Plan with the Bankruptcy Court in order to implement its
restructuring. The restructuring consists of two key components; (i) the
conversion of all principal and accrued interest under the Senior Notes to 95%
of new Common Stock of Salant and (ii) the sale and or disposal of substantially
all of the Company's business other than the businesses conducted under the
Perry Ellis Trademarks.
Results of Operations
Fiscal 1998 Compared with Fiscal 1997
Net Sales
In Fiscal 1998 net sales of $300.6 million were $47.1 million or 13.5% less than
the $347.7 million of net sales in Fiscal 1997. Sales of men's apparel at
wholesale decreased by $39.1 million or 12.0% in Fiscal 1998. This decrease
resulted primarily from (i) a $19.4 million reduction in sales of men's bottoms
primarily due to reduced demand for basic denim products and the phase-out of
the Company's discontinued Thomson brand; (ii) an $8.5 million reduction in
non-Perry Ellis product sales, principally as a result of lower sales of Gant,
John Henry and Manhattan dress shirts and discontinuance of Manhattan
sportswear; and (iii) a $7.1 million decrease in Perry Ellis dress shirt sales,
primarily as a result of the planned reduction of sales to off price channels of
distribution.
Sales by the retail outlet stores division decreased by $8.0 million or 37.0%
from last year. This reduction was primarily caused by the elimination of all
non-Perry Ellis stores at the end of Fiscal 1997.
Gross Profit
In Fiscal 1998 gross profit of $62.4 million was $14.9 million less than the
$77.3 million of gross profit in Fiscal 1997. The gross profit margin decreased
from 22.2% in Fiscal 1997 to 20.8% in Fiscal 1998. The decline in gross profit
and gross profit margin was primarily attributable to (i) approximately $10.5
million of the decline, to lower sales and (ii) approximately $4.4 million of
loss of gross profit, relating to the markdown taken from the disposition of
non-Perry Ellis inventory in connection with the Company's restructuring.
Selling General and Administrative Expenses
Selling, General, and Administration (S,G&A) expenses for Fiscal 1998 were $72.0
million (23.9% of net sales) compared to $73.2 million (21.0% of net sales for
Fiscal 1997). Through the first nine months of Fiscal 1998, the Company
decreased its SG&A expenses by approximately $6.3 million. This decrease in SG&A
expenses, however, was substantially offset in the fourth quarter by (i)
approximately $2.8 million of additional bonus needs required for the management
retention program in connection with the Company's restructuring activities,
(ii) the write-off of approximately $2.2 million of miscellaneous receivables
from a company that ceased doing business in January 1999 and (iii)
approximately $1.5 million in additional cost relating to the Company's Year
2000 Compliance Program.
Provision for Restructuring
In 1998, the Company recorded a provision for restructuring of $24,825 related
to the decision of the Company to focus primarily on its Perry Ellis men's
apparel business. As a result, the Company intends to exit its other businesses.
Subsequent to January 2, 1999, Salant sold its John Henry and Manhattan
businesses pursuant to a Purchase and Sale Agreement dated December 28, 1998
(subject to and subsequently approved by the Bankruptcy Court on February 25,
1999). These businesses include the John Henry, Manhattan and Lady Manhattan
trade names and the related goodwill, the leasehold interest in a dress shirt
facility located in Valle Hermosa, Mexico, and the equipment located at the
Valle Hermosa facility and at Salant's facility located in Andalusia, Alabama.
These assets had a net book value of $43,184 (consisting of the $29,979 for
goodwill, $9,680 for licenses and $3,525 for fixed assets) and were sold for
$27,000, resulting in a loss of $16,184. At the end of fiscal 1998 the net
realizable value of $27,000 for these assets was included in the consolidated
balance sheet as assets held for sale. The assets not sold in this transaction
are also included as assets held for sale and are recorded at their estimated
net realizable value of $1,400.
In addition to the $16,184 above, the restructuring provision consisted of (i)
$6,305 of additional property, plant and equipment write-downs, (ii) $2,936 for
the write off of other assets, severance costs, lease exit costs and other
restructuring costs and (iii) offset by $600 from the reversal of previously
recorded restructuring reserves primarily resulting from the settlement of
liabilities for less than the carrying amount and the gain on the sale of the
Thomson manufacturing and distribution facility. As of January 2, 1999, $3,551
remained in the restructuring reserve relating to future lease payments of $845,
royalties of $592, severance of $840 and other miscellaneous restructuring costs
of $1,274, of which $527 related to the 1996 restructuring provision for future
minimum royalties.
In Fiscal 1997, the Company recorded a provision for restructuring of $2.1
million, consisting of (i) a $3.5 million provision 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.
Interest Expense, Net
Net interest expense was $13.9 million for Fiscal 1998 compared with $14.6
million for Fiscal 1997. The decrease in interest expense related primarily to a
lower average borrowing rate.
Loss from Continuing Operations
In Fiscal 1998, the Company reported a loss from continuing operations before
extraordinary gain of $56.8 million or $3.74 per share, compared to a loss from
continuing operations of $8.4 million, or $0.55 per share in Fiscal 1997.
Earnings before Interest, Taxes, Depreciation, Amortization,
Reorganization Costs, Debt Restructuring Costs, Restructuring Charges,
Discontinued Operations, and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, reorganization
costs, debt restructuring costs, restructuring charges, discontinued operations,
and extraordinary gain was $3.3 million (1.1% of net sales) in Fiscal 1998,
compared to $17.2 million (5% of net sales) in Fiscal 1997, a decrease of $13.9
million, or 81%. The Company believes this information is helpful in
understanding cash flow 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.
Loss from Discontinued Operations
For Fiscal 1998, the Company recognized a charge of $15.9 million reflecting the
discontinuance of the Company's Children's Group. Of the $15.9 million, $10.2
million related to operating losses prior to the date the decision was made to
discontinue the business and $5.7 million represented estimated future operating
losses and losses from the sale of the business. The $5.7 million estimated
future loss is comprised of (i) a write-off of assets of $2.9 million, (ii) an
estimated loss from operations of $1.6 million, (iii) severance of $1.5 million
and (iv) royalty and lease payments of $1.5 million, offset by $1.8 million for
the sale of the Dr. Denton trademark. The Children's Group had net sales of
$42.8 million in 1998, $49.3 million in 1997 and $45.8 million in 1996.
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. Additionally, in 1997, the Company recorded a
charge of $1,330 to accrue for expected operating losses during the phase-out
period. In addition, the Company discontinued the Children's Group in 1998 and
the loss from operations of $2,328 was added to the loss of $8,136 from the
discontinued operations of the Made in the Shade division.
Net Loss
As a result of the above, the net loss for Fiscal 1998 was $72.7 million, or
$4.79 per share, compared with a net loss of $18.1 million, or $1.19 per share
for Fiscal 1997.
Fiscal 1997 Compared with Fiscal 1996
Net Sales
Fiscal 1997 sales of $347.7 million were $24.3 million less than the $372.0
million of net sales in Fiscal 1996. Sales of men's apparel at wholesale
decreased by $18.9 million, or 5.5%, in Fiscal 1997. This decrease resulted from
(i) 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, (ii) 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, (iii) a $5.1 million decrease in sales
of men's accessories, primarily due to the slow-down of the novelty neckwear
business and (iv) 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 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 gross profit margin decreased from 22.4% in Fiscal 1996 to 22.2% in Fiscal
1997. 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
$73.2 million (21.0% of net sales) compared with $77.1 million (20.7% 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.
Interest Expense, Net
Net interest expense was $14.6 million for Fiscal 1997 compared with $13.7
million for Fiscal 1996. The $0.9 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 $8.4 million, or $0.55 per share, compared with a loss
from continuing operations of $12.7 million, or $0.84 per share, in Fiscal 1996.
Earnings before Interest, Taxes, Depreciation, Amortization,
Reorganization Costs, Debt Restructuring Costs, Restructuring Charges,
Discontinued Operations, and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization, reorganization
costs, debt restructuring costs, restructuring charges, discontinued operations,
and extraordinary gain was $17.2 million (5% of net sales) in Fiscal 1997,
compared to $20.7 million (5.6% of net sales) in Fiscal 1996, a decrease of $3.5
million, or 17%. The Company believes this information is helpful in
understanding cash flow 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.
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.
Gain/(Loss) from 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. Additionally, in 1997, the Company recorded a
charge of $1,330 to accrue for expected operating losses during the phase-out
period. In addition, the Company discontinued the Children's Group in 1998 and
the loss from operations of $2,328 was added to the loss of $8,136 from the
discontinued operations of the Made in the Shade division.
The income from discontinued operations for 1996 was comprised of the loss of
$365 for the Made in the Shade division and income from discontinued operations
of $3,694 for the Children's Group.
Net Loss
As a result of the above, the net loss for Fiscal 1997 was $18.1 million, or
$1.19 per share, compared with a net loss of $9.3 million, or $0.62 per share in
Fiscal 1996.
Liquidity and Capital Resources
Upon commencement of the Chapter 11 Case, Salant filed a motion seeking the
authority of the Bankruptcy Court to enter into a revolving credit facility with
CIT pursuant to and in accordance with the terms of the Ratification and
Amendment Agreement, dated as of December 29, 1998 (the "Amendment") which,
together with related documents are referred to herein as the "CIT DIP
Facility", effective as of the Filing Date, which would replace the Company's
existing working capital facility under the Credit Agreement. On December 29,
1998, the Bankruptcy Court approved the CIT DIP Facility on an interim basis and
on January 19, 1999 approved the CIT DIP Facility on a final basis.
The CIT DIP Facility provides for a general working capital facility, in the
form of direct borrowings and letters of credit, up to $85 million subject to an
asset-based borrowing formula. The CIT DIP Facility consists of an $85 million
revolving credit facility, with a $30 million letter of credit subfacility. As
collateral for borrowings under the CIT DIP Facility, the Company granted to CIT
a first priority lien on and security interest in substantially all of the
Company's assets and those of its subsidiaries, with superpriority
administrative claim status over any and all administrative expenses in the
Company's Chapter 11 Case, subject to a $2 million carve-out for professional
fees and the fees of the United States Trustee. The CIT DIP Facility has an
initial term of 150 days, subject to renewal, at CIT's discretion, for an
additional 90 day period and, thereafter, for an additional 120 day period.
The CIT DIP Facility also provides, among other things, that the Company will be
charged an interest rate on direct borrowings of 1.0% in excess of the Reference
Rate (as defined in the Credit Agreement). If the Company does not consummate
the Plan by the end of the initial 150 day term, and CIT elects to renew the CIT
DIP Facility for an additional 90 day period, as described above, pursuant to
the CIT DIP Facility, the Company is required to pay CIT the amount of $250
thousand and the interest rate under the CIT DIP Facility will be increased to
1.25% in excess of the Reference Rate. If the Company does not consummate the
Plan by the end of the first 90 day renewal under the CIT DIP Facility, and CIT
elects to renew the CIT DIP Facility for an additional 120 day period, as
described above, pursuant to the CIT DIP Facility, the Company is required to
pay CIT the amount of $250 thousand and the interest rate under the CIT DIP
Facility will be increased to 1.75% in excess of the Reference Rate. CIT may, in
its sole discretion, make loans to the Company in excess of the borrowing
formula but within the $85 million limit of the revolving credit facility. In
addition, the CIT DIP Facility provides that the accounts of the Company's
non-Perry Ellis business units will be factored by CIT beginning January 1, 1999
on a non-notification basis for the first 150 days and on a notification basis
thereafter.
Pursuant to the terms of the CIT DIP Facility, the Company will pay the
following fees: (i) a documentary letter of credit fee of 1/8 of 1.0% on
issuance and 1/8 of 1/0% on negotiation; (ii) a standby letter of credit fee of
1% per annum plus bank charges; (iii) a factoring commission of .75%; (iv) a
collateral management fee of $4,167 per month; and (v) a field exam fee of $750
per day, plus out-of-pocket expenses. In addition, the Company will be liable
for all of CIT's costs and expenses incurred in connection with the CIT DIP
Facility, including attorneys' fees and expenses.
Upon confirmation and consummation of the Plan, the Company intends to enter
into a syndicated revolving credit facility (the "CIT Exit Facility") with CIT
pursuant to and in accordance with the terms of a commitment letter dated
December 7, 1998 (the "CIT Commitment Letter"), effective as of consummation of
the Plan, which will replace the CIT DIP Facility described above.
The CIT Exit Facility will provide for a general working capital facility, in
the form of direct borrowings and letters of credit, up to $85 million subject
to an asset-based borrowing formula. The CIT Exit Facility will consist of a $85
million revolving credit facility, with at least a $30 million letter of credit
subfacility. As collateral for borrowings under the CIT Exit Facility, Salant
will grant to CIT and a syndicate of lenders to be arranged by CIT (the
"Lenders") a first priority lien on and security interest in substantially all
of the assets of Salant. The CIT Exit Facility will have an initial term of
three years.
The CIT Exit Facility will also provide, among other things, that (i) Salant
will be charged an interest rate on direct borrowings of .50% in excess of the
Reference Rate; provided, however, that if Salant meets certain mutually agreed
upon financial tests based upon opening financial statements, then the interest
rate shall be .25% in excess of the Reference Rate or 2.25% in excess of LIBOR
(as defined in the Credit Agreement), and (ii) the Lenders may, in their sole
discretion, make loans to Salant in excess of the borrowing formula but within
the $85 million limit of the revolving credit facility.
Pursuant to the CIT Exit Facility, Salant will pay the following fees: (i) a
documentary letter of credit fee of 1/8 of 1.0% on issuance and 1/8 of 1.0% on
negotiation; (ii) a standby letter of credit fee of 1.0% per annum plus bank
charges; (iii) a commitment fee of $325 thousand; (iv) an unused line fee of
.25%; (v) an agency fee of $100 thousand (only for the second and third years of
the term of the CIT Exit Facility); (vi) a collateral management fee of $8,333
per month; and (vii) a field exam fee of $750 per day plus out-of-pocket
expenses. In addition, Salant will be liable for all of the Lenders' costs and
expenses incurred in connection with the CIT Exit Facility, including attorneys'
fees and expenses, whether or not the Lenders and Salant close upon the CIT Exit
Facility.
The execution of the CIT Exit Facility is subject to various conditions,
including, but not limited to, satisfaction of the Plan requirements and
approval of the financing facility by CIT's Executive Credit Facility. Moreover,
Salant is required to consummate the CIT Exit Facility no later than June 30,
1999. There is no assurance that such conditions will be satisfied or that the
CIT Exit Facility will be executed.
At the end of Fiscal 1998 direct borrowings and letters of credit outstanding
under the DIP CIT Facility were $38.5 million and $24.3 million, respectively,
and the Company had unused availability of $13.0 million. 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. During Fiscal 1998, the maximum
aggregate amount of direct borrowings and letters of credit outstanding at any
one time under the Credit Agreement was $100.9 million, at which time the
Company had unused availability of $8.4 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.
The Company's cash provided by operating activities for fiscal 1998 was $.9
million, which primarily reflects the operating loss of $56.8 million, an
increase in assets held for sale of $28.4 million and a decrease in accounts
payable of $21.0 million offset by (i) a decrease in inventory of $15.2 million,
(ii) an increase in liabilities subject to compromise of $38.9 million and (iii)
non-cash charges, such as depreciation, amortization and other assets of $60.2
million.
Cash used in fiscal 1998 for investing activities was $6.0 million, of which
$4.9 million was related to capital expenditures, $1.1 million for the
installation of store fixtures in department stores. During fiscal 1999, the
Company plans to make capital expenditures of approximately $5.0 million and to
spend an additional $2.5 million for the installation of store fixtures in
department stores.
Cash provided by financing activities in fiscal 1998 was $4.1 million, primarily
attributable to short-term borrowings under the Credit Agreement.
New 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 its financial statements and
has not determined the timing of or method of adoption.
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 has
completed its assessment of date critical non-IS and has determined that they
are year 2000 compliant. 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
second quarter of 1999, at an estimated cost of $500 thousand. 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 third 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. To ensure business continuity, the Company began
surveying its suppliers of key goods and services in 1998 for Y2K compliance.
The Company continues to follow-up with its key business partners on a global
basis to obtain responses to its inquiries. Based on responses received to date,
management will perform a risk assessment by the end of the second quarter of
1999 and develop necessary contingency plans in the third quarter of 1999.
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 April 5, 1999, the Company's backlog of orders was
approximately $45.5 million, which reflect 52% less than the backlog of orders
of approximately $94.9 million that existed at March 7, 1998. The decrease is
due to the Company's decision to focus primarily on its Perry Ellis business and
exit its non-Perry Ellis Menswear Apparel businesses and its Children's Apparel
Group.
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:
Disruption of Operations Relating to the Chapter 11 Case. The commencement of
the Chapter 11 Case could adversely affect the Company's and its subsidiaries'
relationships with their customers, suppliers or employees. If the Company's and
its subsidiaries' relationships with customers, suppliers or employees are
adversely affected, the Company's operations could be materially affected. The
Company anticipates, however, that it will have sufficient cash to service the
obligations that it intends to pay during the period prior to and through the
consummation of the Plan.
Even though the Plan was confirmed by the Bankruptcy Court on April 16, 1999,
there can be no assurance that the Company would not thereafter suffer a
disruption in its business operations as a result of filing the Chapter 11 Case,
particularly in light of the fact that the Company has been a debtor in
bankruptcy on two prior occasions.
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 1999 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. As of January 2, 1999, the Company
produced 65% of all of its products (in units) through arrangements with
independent contract manufacturers. Upon consummation of the Plan, substantially
all of the Company's inventory will be manufactured by independent contractors.
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 (the "Company") as of January 2, 1999 and January
3, 1998, and the related consolidated statements of operations, comprehensive
income, shareholders' equity/deficiency and cashflows for the years ended
January 2, 1999, January 3, 1998 and December 28, 1996. 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 2, 1999 and January 3, 1998, the results of their operations and their
cash flows for the years ended January 2, 1999, January 3, 1998 and December 28,
1996 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.
As discussed in Note 1, the Company has filed for reorganization under Chapter
11 of the Federal Bankruptcy Code. The accompanying financial statements do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do not purport to show (a)
as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, the Company has received a commitment from,
but has not yet executed a new credit exit facility with, its lenders.
This matter raises a substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
April 2, 1999
(April 16, 1999 as to Note 1 paragraphs 4 and 5)
New York, New York
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Year Ended
January 2, January 3, December 28,
1999 1998 1996
<S> <C> <C> <C>
Net sales $ 300,586 $ 347,667 $ 371,958
Cost of goods sold 238,192 270,328 288,508
----------- ----------- ------------
Gross profit 62,394 77,339 83,450
Selling, general and administrative expenses (71,999) (73,169) (77,075)
Royalty income 5,254 5,596 6,148
Goodwill amortization (1,881) (1,881) (2,227)
Other income, net 199 564 2,634
Restructuring costs (Note 3) (24,825) (2,066) (11,730)
Reorganization costs (Note 1) (3,200) -- --
Debt restructuring costs (Note 10) (8,633) -- --
----------- ---------------- -----------------
(Loss)/Income from continuing operations before interest,
income taxes and extraordinary gain (42,691) 6,383 1,200
Interest expense, net (Notes 9 and 10) 13,944 14,610 13,748
---------- ------------ -------------
Loss from continuing operations
before income taxes and extraordinary gain (56,635) ( 8,227) (12,548)
Income taxes (Note 12) 140 167 104
------------ -------------- ---------------
Loss from continuing operations
before extraordinary gain (56,775) ( 8,394) (12,652)
Discontinued operations (Note 17):
(Loss)/Income from discontinued operations (10,163) (10,464) 3,329
Loss on disposal (5,724) (1,330) --
Extraordinary gain (Note 4) -- 2,100 --
---------------- -------------- -----------------
Net loss (72,662) $ (18,088) $ (9,323)
=========== ============= ===============
Basic and diluted loss per share:
Loss per share from continuing
operations before extraordinary gain $ (3.74) $ (0.55) $ (0.84)
(Loss)/earnings per share from discontinued operations (1.05) (0.78) 0.22
Extraordinary gain -- 0.14 --
----------------- ---------------- ------------------
Basic and diluted loss per share $ (4.79) $ (1.19) $ (0.62)
============= =============== ===============
Weighted average common stock outstanding 15,171 15,139 15,078
============ =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
January 2, January 3, December 28,
1999 1998 1997
<S> <C> <C> <C>
Net loss $(72,662) $(18,088) $(9,323)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (203) (70) (54)
Minimum pension liability adjustments (348) (326) (997)
------------- ------------ ------------
Comprehensive income $(73,213) $(18,484) $(10,374)
========= ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
January 2, January 3,
1999 1998
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,222 $ 2,193
Accounts receivable - net of allowance for doubtful accounts
of $2,661 in 1998 and $2,094 in 1997 (Notes 9 and 10) 38,359 39,635
Inventories (Notes 5 and 9) 69,590 84,777
Prepaid expenses and other current assets 5,266 3,536
Assets held for sale (Note 3) 28,400 --
Net assets of discontinued operations (Note 17) 6,860 17,490
---------------- --------------------------
Total current assets 149,697 147,631
Property, plant and equipment, net (Notes 6 and 9) 12,371 22,913
Other assets (Notes 7, 10 and 12) 14,061 58,039
--------------- ------------------------
$ 176,129 $ 228,583
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY / DEFICIENCY
Current liabilities:
Loans payable (Note 9) 38,496 $ 33,800
Accounts payable 2,831 23,889
Reserve for business restructuring (Note 3) 3,551 2,764
Liabilities subject to compromise (Note 1) 143,807 --
Accrued salaries, wages and other liabilities (Note 8) 14,344 15,566
Current portion of long term debt (Note 10) -- 104,879
------------------- --------------------------
Total current liabilities 203,029 180,898
Deferred liabilities (Note 15) 4,010 5,382
Commitments and contingencies (Notes 9, 10, 13, 14, 16 and 20)
Shareholders' equity / deficiency (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 15,405
issued and issuable - 15,405 shares in 1998 and 1997
Additional paid-in capital 107,249 107,249
Deficit (147,897) (75,235)
Accumulated other comprehensive income (Note 18) (4,053) (3,502)
Less - treasury stock, at cost - 234 shares (1,614) (1,614)
----------------- ----------------
Total shareholders' (deficiency) / equity (30,910) 42,303
---------------- -------------------------
$ 176,129 $ 228,583
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY / DEFICIENCY
(Amounts in thousands)
Accum-
ulated Total
Other Share-
Common Stock Add'l Compre- Treasury Stock holders'
Number Paid-In hensive Number Equity/
of Shares Amount Capital Deficit Income of SharesAmount (Deficiency)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1995 15,275 15,275 107,071 (47,824) (2,055) 234 (1,614) 70,853
Stock options exercised 53 53 59 112
Net loss (9,323) (9,323)
Other Comprehensive Income (1,051) (1,051)
-------------------------------------------------------------------------------- -----------
Balance at December 28, 1996 15,328 15,328 107,130 (57,147) (3,106) 234 (1,614) 60,591
Stock options exercised 77 77 119 196
Net loss (18,088) (18,088)
Other Comprehensive Income (396) (396)
-----------------------------------------------------------------------------------------------
Balance at January 3, 1998 15,405 15,405 107,249 (75,235) (3,502) 234 (1,614) 42,303
=====
Net loss (72,662) (72,662)
Other Comprehensive Income (551) (551)
---------------------------------------------------------------------------------------------------
Balance at January 2, 1999 15,405$15,405$107,249$(147,897)$(4,053) 234 $(1,614) $(30,910)
============================== ======= ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Salant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended
January 2, January 3, December 28,
1999 1998 1996
Cash Flows from Operating Activities
<S> <C> <C> <C>
Income/(loss) from continuing operations $ (56,775) $ (8,394) $ (12,652)
Adjustments to reconcile income from continuing operations to
net cash (used in)/provided by operating activities:
Depreciation 7,474 6,578 5,576
Amortization of intangibles 1,881 1,881 2,228
Write-down of fixed assets 10,931 1,274 263
Write-down of other assets 39,952 - 6,264
Loss on sale of fixed assets - 17
Changes in operating assets and liabilities:
Accounts receivable 1,276 (7,717) (2,622)
Inventories 15,187 3,863 18,219
Prepaid expenses and other current assets (1,730) 629 1,251
Assets held for sale (28,400)
Other assets 301 (242) (760)
Accounts payable (21,058) (1,690) 1,393
Accrued salaries, wages and other liabilities (1,222) (2,589) (2,460)
Liabilities subject to compromise 38,928
Reserve for business restructuring 787 (205) 1,400
Deferred liabilities (1,372) (2,203) (2,148)
------------- ------------ -------------
Net cash (used in)/provided by continuing operating activities 6,160 (8,815) 15,969
Cash used in discontinued operations (5,257) (5,120) 58
------------- ------------ --------------
Net cash (used in)/provided by operations 903 (13,935) 16,027
------------- ----------- -----------
Cash Flows from Investing Activities
Capital expenditures, net of disposals (4,871) (5,104) (6,542)
Store fixture expenditures (1,148) (3,122) (3,855)
Acquisition - - (694)
Proceeds from sale of assets - - 1,854
---------------- ---------------- -----------
Net cash used in investing activities (6,019) (8,226) (9,237)
-------------- ------------ -----------
Cash Flows from Financing Activities
Net short-term borrowings/(repayments) 4,696 26,123 (6,745)
Retirement of long-term debt - (3,372) -
Exercise of stock options - 196 112
Other, net (551) (70) (54)
-------------- --------------- -------------
Net cash provided by/(used in) financing activities 4,145 22,877 (6,687)
------------ ------------ -----------
Net increase/(decrease) in cash and cash equivalents (971) 716 103
Cash and cash equivalents - beginning of year 2,193 1,477 1,374
------------ ------------- ----------
Cash and cash equivalents - end of year $ 1,222 $ 2,193 $ 1,477
=========== ============ =========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 5,441 $ 16,479 $ 16,307
========= ========== =========
Income taxes $ 321 $ 201 $ 189
========== ============ ===========
</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.
On December 29, 1998 (the "Filing Date") Salant Corporation filed a petition
under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") in order to implement a restructuring of its 10-1/2 % Senior
Notes due December 31, 1998 (the "Senior Notes"). Salant also filed its Plan of
Reorganization (the "Plan") with the Bankruptcy Court in order to implement its
restructuring. Salant's major note and equity holders support the Plan. In
addition, Salant has obtained a $85 million debtor-in-possession facility (the
"DIP Facility") from its existing working capital lender, The CIT
Group/Commercial Services, Inc. ("CIT"), during the chapter 11 case. The Company
also has received a commitment letter from CIT, which is subject to certain
conditions, for an exit facility (the "Exit Facility") to replace the DIP
Facility following the emergence from Chapter 11.
The Plan provides that (i) all of the outstanding principal amount of Senior
Notes, plus all accrued and unpaid interest thereon, will be converted into 95%
of Salant's new common stock, subject to dilution, and (ii) all of Salant's
existing common stock will be converted into 5% of Salant's new common stock,
subject to dilution. Salant's general unsecured creditors (including trade
creditors) are unimpaired and upon consummation of the Plan will be paid in
full. The Plan has been approved by all of the holders of Senior Notes that
voted and over 96% of the holders of Salant common stock that voted. On March
25, 1999, the Bankruptcy Court held a hearing on the confirmation of the Plan.
At the hearing, the Bankruptcy Court advised that it would take the objection to
confirmation under advisement.
Prior to the Bankruptcy Court's announcement of its ruling on the objection,
Salant and Supreme International, Inc. (in its own capacity and on behalf of
Perry Ellis International, Inc.), which had filed an objection to confirmation,
settled and resolved their differences, and the economic terms of their
settlement were set forth in a term sheet which was attached to and incorporated
into the confirmation order. Thereafter, at the April 16, 1999 hearing, the
Bankruptcy Court entered an order confirming the Plan.
The following is a summary of the material provisions of the Term Sheet
setting forth the terms of the PEI Settlement. The following description is
qualified in its entirety by the provisions of the Term Sheet, which is
attached as Exhibit A to the Confirmation Order. The PEI Settlement
provides that (i) Salant will return to PEI the license to sell Perry Ellis
products in Puerto Rico, the U.S. Virgin Islands, Guam and Canada (Salant
will retain the right to sell its existing inventory in Canada through
January 31, 2000); (ii) the royalty rate due PEI under Salant's Perry Ellis
Portfolio pants license with respect to regular price sales in excess of
$15,000 annually will be increased to 5%; (iii) Salant will provide
Supreme-PEI with the option to take over any real estate lease for a retail
store that Salant intends to close; (iv) Salant will assign to Supreme-PEI
its sublicense with Aris Industries, Inc. for the manufacture, sale and
distribution of the Perry Ellis America brand sportswear and, depending on
certain circumstances, receive certain royalty payments from Supreme-PEI
through the year 2005; (v) Salant will pay PEI prepetition invoices of $617
and post petition invoices of $57 on the later of (i) the Effective Date
(as defined in the Plan) of the Plan and (ii) the due date with respect to
such amounts; (vi) Supreme-PEI (a) agrees and acknowledges that the sales
of businesses made by Salant during its chapter 11 case do not violate the
terms of Salant's license agreements with PEI (the "Perry Ellis Licenses")
and do not give rise to the termination of the Perry Ellis Licenses and (b)
consents to the change of control arising from the conversion of debt into
equity under the Plan and acknowledges that such change of control does not
give rise to any right to terminate the Perry Ellis Licenses; and (vii)
Supreme-PEI withdraws with prejudice its objection to confirmation of the
Plan, and supports confirmation of the Plan.
As of the Filing Date Salant had $143,807 (consisting of $14,703 in Senior
Note interest, $104,879 of Senior Notes and $24,225 of unsecured
pre-bankruptcy claims) of liabilities subject to compromise, in addition to
the loans payable to CIT. In addition Salant accrued the estimated fees in
the 1998 fourth quarter of $3.2 million for the administration of the
chapter 11 proceedings.
Post-restructuring, Salant intends to focus primarily on its Perry Ellis men's
apparel business and, as a result, intends to exit its other businesses,
including its Children's Group and non-Perry Ellis menswear divisions.
Subsequent to January 2, 1999, the Company sold its John Henry and Manhattan
businesses. These businesses include the John Henry, Manhattan and Lady
Manhattan trade names, the John Henry and Manhattan dress shirt inventory, the
leasehold interest in the dress shirt facility located in Valle Hermosa, Mexico,
and the equipment located at the Valle Hermosa facility and at Salant's facility
located in Andalusia, Alabama. Salant has also sold, subsequent to January 2,
1999, its Children's Group. This agreement is primarily for the sale of
inventory related to the Children's Group. As a result of the above, Salant will
now report its business operations as a single segment.
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 Children's Group and Made in the Shade
divisions.) In December 1998, the Company decided to discontinue the operations
of the Children's Group, which produced and marketed children's blanket sleepers
primarily using a number of well-known licensed characters created by, among
others, DISNEY and WARNER BROTHERS. The Children's Group also marketed pajamas
under OSHKOSH B'GOSH trademark, and sleepwear and underwear under the JOE BOXER
trademark. In June 1997, the Company discontinued the operations of the Made in
the Shade division, which produced and marketed women's junior sportswear. As
further described in Note 17, the consolidated financial statements and the
notes thereto reflect the Children's Group and Made in the Shade 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.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31. The 1998
and 1996 fiscal year was comprised of 52 weeks. The 1997 fiscal year was
comprised of 53 weeks.
Reclassifications
Certain reclassifications were made to the 1996 and 1997 consolidated financial
statements to conform to the 1998 presentation.
Cash and Cash Equivalents
The Company treats cash on hand, deposits in banks and certificates of deposit
with original maturities of less than 3 months as cash and cash equivalents for
the purposes of the statements of cash flows.
Inventories
Inventories are stated at the lower of cost (principally determined on a
first-in, first-out basis for apparel operations and the retail inventory method
on a first-in, first-out basis for outlet store operations) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated or
amortized over their estimated useful lives, or for leasehold improvements, the
lease term, if shorter. Depreciation and amortization are computed principally
by the straight-line method for financial reporting purposes and by accelerated
methods for income tax purposes.
The annual depreciation rates used are as follows:
Buildings and improvements 2.5% - 10.0%
Machinery, equipment and autos 6.7% - 33.3%
Furniture and fixtures 10.0% - 50.0%
Leasehold improvements Shorter of the life of the asset or the lease
term
Other Assets
Intangible assets are being amortized on a straight-line basis over their useful
lives, of 25 years. Costs in excess of fair value of net assets acquired, 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 accrued expenses, the carrying amounts
approximated fair value because of their short maturity. Long-term debt,
which was issued at a market rate of interest, currently is not traded and
in accordance with the Plan will be converted to equity. In addition,
deferred liabilities have carrying amounts approximating fair value.
Earnings/(Loss) Per Share
Earnings/(loss) per share is based on the weighted average number of common
shares (including, as of January 2, 1999 and January 3, 1998, 185,854 and
205,854 shares, respectively, anticipated to be issued pursuant to the
Reorganization Plan) and common stock equivalents outstanding, if applicable.
Loss per share for 1998 and 1997 did not include common stock equivalents,
inasmuch as their effect would have been anti-dilutive. In 1998, 1997 and 1996,
earnings per share did not include 1,266,367, 1,343,393 and 837,240 stock
options, respectively, which would not have had a dilutive effect.
Foreign Currency
In fiscal 1998, the Company entered into forward foreign exchange contracts,
relating to its projected 1999 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 2, 1999, the outstanding
foreign currency contracts had a cost of approximately $4,886 and a year end
market value of approximately $4,851. Subsequent to year-end and in connection
with the restructuring, the outstanding foreign currency contracts were sold
without a material gain or loss.
In fiscal 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 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 has adopted Statement of Financial Accounting Standard ("SFAS") No.
130, "Reporting Comprehensive Income", during the year ended January 2, 1999.
SFAS No. 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 required 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 has adopted 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 for all periods presented. 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.
In June 1998, the Financial Accounting Standards Board issued 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.
Note 3. Restructuring Costs
In 1998, the Company recorded a provision for restructuring of $24,825 related
to the decision of the Company to focus primarily on its Perry Ellis men's
apparel business. As a result, the Company intends to exit its other businesses.
Subsequent to January 2, 1999, Salant sold its John Henry and Manhattan
businesses pursuant to a Purchase and Sale Agreement dated December 28, 1998
(subject to and subsequently approved by the Bankruptcy Court on February 26,
1999). These businesses include the John Henry, Manhattan and Lady Manhattan
trade names and the related goodwill, the leasehold interest in a dress shirt
facility located in Valle Hermosa, Mexico, and the equipment located at the
Valle Hermosa facility and at Salant's facility located in Andalusia, Alabama.
These assets had a net book value of $43,184 (consisting of the $29,979 for
goodwill, $9,680 for licenses and $3,525 for fixed assets) and were sold for
$27,000, resulting in a loss of $16,184. At the end of fiscal 1998 the net
realizable value of $27,000 for these assets was included in the consolidated
balance sheet as assets held for sale. The assets not sold in this transaction
are also included as assets held for sale and are recorded at their estimated
net realizable value of $1,400.
In addition to the $16,184 above, the restructuring provision consisted of (i)
$6,305 of additional property, plant and equipment write-downs, (ii) $2,936 for
the write off of other assets, severance costs, lease exit costs and other
restructuring costs and (iii) offset by $600 from the reversal of previously
recorded restructuring reserves primarily resulting from the settlement of
liabilities for less than the carrying amount and the gain on the sale of the
Thomson manufacturing and distribution facility. As of January 2, 1999, $3,551
remained in the restructuring reserve relating to future lease payments of $845,
royalties of $592, severance of $840 and other miscellaneous restructuring costs
of $1,274, of which $527 related to the 1996 restructuring provision for future
minimum royalties.
Assets held for sale include (i) buildings in Eagle Pass and Carrizo Springs,
Texas and Andalusia, Alabama and (ii) machinery, equipment, furniture and
fixtures in several locations in Mexico, Long Island City and the Texas
facilities. The Company is investigating, through various channels, an efficient
and timely disposal/sale of these assets.
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
relating 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.
Note 4. Extraordinary Gain
In 1997, the Company recorded an extraordinary gain of $2,100, including $1,500
in the fourth quarter for the early extinguishment of debt.
Note 5. Inventories
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
<S> <C> <C>
Finished goods $ 42,022 $ 45,108
Work-in-process 17,225 19,714
Raw materials and supplies 10,343 19,955
---------- ----------
$ 69,590 $ 84,777
========= =========
</TABLE>
Finished goods inventory includes in transit merchandise of $1,858 and $4,428 at
January 2, 1999 and January 3, 1998, respectively.
Note 6. Property, Plant and Equipment
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
<S> <C> <C>
Land and buildings $ 6,404 $ 13,673
Machinery, equipment, furniture
and fixtures 15,088 28,708
Leasehold improvements 4,172 6,271
Property held under capital leases -- 583
-------------- ------------
25,664 49,235
Less accumulated depreciation and amortization 13,293 26,322
--------- ----------
$ 12,371 $ 22,913
========= =========
</TABLE>
Note 7. Other Assets
<TABLE>
<CAPTION>
January 2 January 3,
1999 1998
Excess of cost over net assets acquired,
net of accumulated amortization of
<S> <C> <C>
$3,828 in 1998 and $13,240 in 1997 $ 7,333 $ 39,042
Trademarks and license agreements,
net of accumulated amortization of
$1,227 in 1998 and $4,064 in 1997 3,373 13,498
Other 3,355 5,499
------------ -----------
$ 14,061 $ 58,039
========= =========
</TABLE>
The unamortized portion of intangible assets related to the non-Perry Ellis
menswear operations amounting to $39,952 ($29,979 representing the excess of
cost over net assets acquired and $9,680 representing licenses and $293
representing trademarks) were included in the computation of restructuring
charges as discussed in Note 3.
In June 1996, the company wrote-off other assets of $4,325 that consisted of
$4,075 for the unamortized portion of the excess of cost over net assets
acquired related to the JJ. Farmer division and $250 related to the license
agreements for the Gant product lines.
In November 1996, the Company sold its leasehold interest in a closed facility
in Glen Rock, New Jersey, resulting in a gain of $2,712, which is included in
other income.
Note 8. Accrued Salaries, Wages and Other Liabilities
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
<S> <C> <C>
Accrued salaries and wages $ 5,491 $ 3,803
Accrued pension and retirement benefits 1,972 2,792
Accrued royalties -- 207
Accrued interest 151 3,897
Other accrued liabilities 6,730 4,867
---------- ----------
$ 14,344 $ 15,566
======== ========
</TABLE>
Note 9. Financing and Factoring Agreements
Upon commencement of the Chapter 11 Case, Salant filed a motion seeking the
authority of the Bankruptcy Court to enter into a revolving credit facility with
CIT pursuant to and in accordance with the terms of the Ratification and
Amendment Agreement, dated as of December 29, 1998 (the "Amendment") which,
together with related documents are referred to herein as the ("CIT DIP
Facility"), effective as of the Filing Date, which would replace the Company's
existing working capital facility under the Credit Agreement. On December 29,
1998, the Bankruptcy Court approved the CIT DIP Facility on an interim basis.
After a hearing before the Bankruptcy Court held on January 19, 1999 to consider
the final approval of the CIT DIP Facility, the Bankruptcy Court approved the
CIT DIP Facility on a final basis.
The CIT DIP Facility provides for a general working capital facility, in the
form of direct borrowings and letters of credit, up to $85 million subject to an
asset-based borrowing formula. The CIT DIP Facility consists of an $85 million
revolving credit facility, with a $30 million letter of credit subfacility. As
collateral for borrowings under the CIT DIP Facility, the Company granted to CIT
a first priority lien on and security interest in substantially all of the
Company's assets and those of its subsidiaries, with superpriority
administrative claim status over any and all administrative expenses in the
Company's Chapter 11 Case, subject to a $2 million carve-out for professional
fees and the fees of the United States Trustee. The CIT DIP Facility has an
initial term of 150 days, subject to renewal, in CIT's discretion, for an
additional 90 day period and, thereafter, for an additional 120 day period.
The CIT DIP Facility also provides, among other things, that the Company will be
charged an interest rate on direct borrowings of 1.0% in excess of the Reference
Rate (as defined in the Credit Agreement). If the Company does not consummate
the Plan by the end of the initial 150 day term, and CIT elects to renew the CIT
DIP Facility for an additional 90 day period, as described above, pursuant to
the CIT DIP Facility, the Company is required to pay CIT the amount of $250
thousand and the interest rate under the CIT DIP Facility will be increased to
1.25% in excess of the Reference Rate. If the Company does not consummate the
Plan by the end of the first 90 day renewal under the CIT DIP Facility, and CIT
elects to renew the CIT DIP Facility for an additional 120 day period, as
described above, pursuant to the CIT DIP Facility, the Company is required to
pay CIT the amount of $250 thousand and the interest rate under the CIT DIP
Facility will be increased to 1.75% in excess of the Reference Rate. CIT may, in
its sole discretion, make loans to the Company in excess of the borrowing
formula but within the $85 million limit of the revolving credit facility. In
addition, the CIT DIP Facility provides that the accounts of the Company's
non-Perry Ellis business units will be factored by CIT beginning January 1, 1999
on a non-notification basis for the first 150 days and on a notification basis
thereafter.
Pursuant to the terms of the CIT DIP Facility, the Company will pay the
following fees: (i) a documentary letter of credit fee of 1/8 of 1.0% on
issuance and 1/8 of 1.0% on negotiation; (ii) a standby letter of credit fee of
1% per annum plus bank charges; (iii) a factoring commission of .75%; (iv) a
collateral management fee of $4,167 per month; and (v) a field exam fee of $750
per day, plus out-of-pocket expenses. In addition, the Company will be liable
for all of CIT's costs and expenses incurred in connection with the DIP
Facility, including attorneys' fees and expenses.
Upon consummation of the Plan, the Company intends to enter into a syndicated
revolving credit facility (the "CIT Exit Facility") with CIT pursuant to and in
accordance with the terms of a commitment letter dated December 7, 1998 (the
"CIT Commitment Letter"), effective as of consummation of the Plan, which will
replace the CIT DIP Facility described above.
The CIT Exit Facility will provide for a general working capital facility, in
the form of direct borrowings and letters of credit, up to $85 million subject
to an asset-based borrowing formula. The CIT Exit Facility will consist of a $85
million revolving credit facility, with at least a $30 million letter of credit
subfacility. As collateral for borrowings under the CIT Exit Facility, Salant
will grant to CIT and a syndicate of lenders to be arranged by CIT (the
"Lenders") a first priority lien on and security interest in substantially all
of the assets of Salant. The CIT Exit Facility will have an initial term of
three years.
The CIT Exit Facility will also provide, among other things, that (i) Salant
will be charged an interest rate on direct borrowings of .50% in excess of the
Reference Rate; provided, however, that if Salant meets certain mutually agreed
upon financial tests based upon opening financial statements, then the interest
rate shall be .25% in excess of the Reference Rate or 2.25% in excess of LIBOR
(as defined in the Credit Agreement), and (ii) the Lenders may, in their sole
discretion, make loans to Salant in excess of the borrowing formula but within
the $85 million limit of the revolving credit facility.
Pursuant to the CIT Exit Facility, Salant will pay the following fees: (i) a
documentary letter of credit fee of 1/8 of 1.0% on issuance and 1/8 of 1.0% on
negotiation; (ii) a standby letter of credit fee of 1.0% per annum plus bank
charges; (iii) a commitment fee of $325 thousand; (iv) an unused line fee of
.25%; (v) an agency fee of $100 thousand (only for the second and third years of
the term of the CIT Exit Facility); (vi) a collateral management fee of $8,333
per month; and (vii) a field exam fee of $750 per day plus out-of-pocket
expenses. In addition, Salant will be liable for all of the Lenders' costs and
expenses incurred in connection with the Facility, including attorneys' fees and
expenses, whether or not the Lenders and Salant close upon the CIT Exit
Facility.
The execution of the CIT Exit Facility is subject to various conditions,
including, but not limited to, satisfaction of the Plan requirements and
approval of the financing facility by CIT's Executive Credit Facility. Moreover,
Salant is required to consummate the CIT Exit Facility no later than June 30,
1999. There is no assurance that such conditions will be satisfied or that the
CIT Exit Facility will be executed.
On January 2, 1999, direct borrowings and letters of credit outstanding under
the Credit Agreement were $38,496 and $24,325, respectively, and the Company had
unused availability of $13,022. On January 2, 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. The
weighted average interest rate on borrowings under the Credit Agreement for the
years ended January 2, 1999 and January 3, 1998 was 8.4% and 9.3%, 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 Notes.
The Senior 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 Notes are secured by a first lien
(subordinated to the lien securing borrowings under the Credit Agreement to the
extent of $15,000) on certain accounts receivable, certain intangible assets,
the capital stock of Salant's subsidiaries and certain real property of the
Company, and by a second lien on substantially all of the other assets of the
Company. The Senior Notes were due on December 31, 1998 and as of January 2,
1999, $104,879 was outstanding and included in liabilities subject to compromise
and as of January 3, 1998 included in current liabilities.
On April 22, 1998, the Company filed a registration statement on Form S-4 in
order to facilitate the debt restructuring of the Senior Notes due December 31,
1998. Thereafter, Salant filed amendments to the registration statement on May
10, 1998, May 26, 1998 and August 31, 1998. In consideration of, among other
things, the significant additional time required to consummate such transactions
and the occurrence of certain events (including, but not limited to, a reduction
in the value of certain of Salant's business units) that caused the corporation
its bondholders and shareholders to seek an alternative debt restructuring
process through chapter 11 proceedings. In connection with the filing the
Company incurred $8,633 relating to the efforts to restructure the debt through
the registration statement process, which were charged to expense in the fourth
quarter of 1998.
In contemplation of the debt restructuring, the Company elected not to pay the
interest payments due during 1998. As a result, at the Filing Date Salant owed
approximately $14.7 million for interest on the Senior Notes. The $14.7 million
is included on the balance sheet in liabilities subject to compromise (as
discussed in Note 1).
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 Notes in a principal amount equal to the
net cash proceeds at 100% of the principal amount thereof.
Note 11 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 20 factory outlet stores in
various parts of the United States. Foreign operations, other than sourcing, are
not significant.
In 1998, approximately 20% of the Company's sales were made to Sears, Roebuck &
Company ("Sears") and approximately 14% of the Company's sales were made to
Federated Department Stores, Inc. ("Federated"). Also in 1998, approximately 11%
of the Company's sales were made to Dillard's Corporation ("Dillard's") and
approximately 10% of the Company's sales were made to Marmaxx Corporation
("Marmaxx"). In 1997 approximately 10% of the Company's sales were made to
Dillards. In 1997 and 1996, approximately 11% and 10% of the Company's sales
were made to Marmaxx, respectively and approximately 19% and 15% of the
Company's sales were made to Sears for 1997 and 1996, respectively. In both 1997
and 1996, approximately 12% of the Company's sales were made to Federated.
No other customer accounted for more than 10% of sales during 1998, 1997 or
1996.
Note 12. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
January 2, January 3, December 28,
1999 1998 1996
Current:
<S> <C> <C> <C>
Federal $ (109) $ (34) $ (106)
State -- --
Foreign 249 201 209
------- ------ ------
$ 140 $ 167 $ 103
====== ===== =====
</TABLE>
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>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income tax benefit, at 34% $(19,256) $(3,589) $(3,135)
Loss producing no current tax benefit (19,256) 3,589 3,135
Alternative minimum tax
Tax refunds from prior years (109) (34) (106)
Foreign taxes 249 201 209
---------- ---------- ---------
Income tax provision $ 140 $ 167 $ 103
========= ========= ========
</TABLE>
The following are the tax effects of significant items comprising the Company's
net deferred tax asset:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
Deferred tax liabilities:
<S> <C> <C>
Differences between book and tax basis of property $ (3,575) $ (3,575)
---------- ---------
Deferred tax assets:
Reserves not currently deductible 24,419 12,700
Operating loss carryforwards 58,886 51,844
Tax credit carryforwards 1,764 2,958
Expenses capitalized into inventory 3,800 4,925
----------- ----------
88,869 72,427
---------- ---------
Net deferred asset 85,294 68,852
Valuation allowance (85,294) (68,852)
--------- ---------
Net deferred tax asset $ -- $ --
============= =============
</TABLE>
At January 2, 1999, the Company had net operating loss carryforwards ("NOLs")
for income tax purposes of approximately $151,000, expiring from 1999 to the
year 2018, which can be used to offset future taxable income. Approximately
$51,000 of these NOLs arose from the acquisition of Manhattan Industries in
April 1988 and expire in 2003. To the extent any of these NOLs are utilized they
will offset any unamortized goodwill related to the Manhattan acquisition. The
Manhattan acquisition and the 1990 bankruptcy and subsequent consummation have
caused an "ownership change" for federal income tax purposes. 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 $151,000 of NOLs reflected above is the maximum
the Company may use to offset future taxable income. Of the $151,000 of NOLs,
$109,000 is subject to annual usage limitations under Section 382 of
approximately $7,200.
In addition, at January 2, 1999, the Company had available tax credit
carryforwards of approximately $1,764 which expire between 1999 and 2010.
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 Plan, 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 that was terminated during 1998. The funding for
this plan was based on premium costs of related insurance contracts.
The reconciliation of the funded status of the plans at January 2, 1999 and
January 3, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Change in Projected Benefit Obligation (PBO)
During Measurement Period
<S> <C> <C> <C>
PBO, November 30 of previous year $ 49,862 $ 46,811
Service Cost 1,000 1,050
Interest Cost 3,307 3,272
Actuarial (Gain)/Loss 24 1,760
Plan Curtailment (70) -
Plan Settlement (332) -
Benefits Paid (2,640) (3,031)
------------ ------------
PBO, November 30 $ 51,151 $ 49,862
Change in Plan Assets During the Measurement Period
Plan Assets at Fair Value, November 30
of previous year $ 42,295 $ 35,979
Actual Return on Plan Assets 2,299 4,435
Employer Contribution 3,586 4,912
Benefits Paid (2,898) (3,031)
----------- -----------
Plan Assets at Fair Value, November 30 $ 45,282 $ 42,295
</TABLE>
The reconciliation of the Prepaid/(Accrued) plans at January 2, 1999 and January
3, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Reconciliation of Prepaid/(Accrued)
<S> <C> <C>
Funded Status of the Plan $ (5,868) $ (7,567)
Unrecognized Net (Gain)/Loss 8,141 7,307
Unrecognized Prior Service Cost (1,031) (1,111)
Unrecognized Net Transition (Asset)/Obligation 411 552
------------ -------------
Net Amount Recognized $ 1,653 $ (819)
Prepaid Benefit Cost $ 1,683 $ (164)
Accrued Benefit Liability (3,887) (4,288)
Intangible Asset - 125
Accumulated Other Comprehensive Income 3,857 3,508
----------- -----------
Net Amount Recognized $ 1,653 $ (819)
</TABLE>
Components of Net Periodic Benefit Cost for Fiscal Year
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service Cost $ 1,000 $ 1,050 $ 1,270
Interest Cost 3,307 3,272 2,912
Expected Return of Plan Assets (3,427) (3,027) (2,660)
Amortization of Unrecognized:
Net (Gain)/Loss 266 233 125
Prior Service Cost (111) (111) (107)
Net Transition (Asset)/Obligation 71 71 80
Settlement Gain (92) - -
Curtailment Loss 101 - -
----------- -------------- --------------
Net Periodic Pension Cost $ 1,115 $ 1,488 $ 1,620
Other Comprehensive Income $ 348
Accrued Benefit Obligation, November 30 $ 46,878 $ 46,042 $ 42,239
</TABLE>
Assumptions used in accounting for defined benefit pension plans are as follows:
<TABLE>
1998 1998 1997 1997 1996 1996
Non- Qualified Non- Qualified Non- Qualified
Qualified Plans Qualified Plans Qualified Plans
Plan Plan Plan
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 6.75% 7.0% 7.0% 7.25% 7.25%
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 8.5% 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 $
3,184, $3,839 and $4,095 in 1998, 1997 and 1996, 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 1998, 1997 and 1996 Salant's aggregate contributions to the Long Term
Savings and Investment Plan amounted to $198, $218 and $229, respectively.
Note 14. Stock Options and Shareholder Rights
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 Plan provides that Salant will reserve 10% of the outstanding common stock,
on a fully diluted basis, as of the consummation of the Plan, (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 Plan 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
Plan 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. Pursuant to the Plan, upon the effective date, all
existing stock options will be cancelled.
The following table summarizes stock option transactions during 1996, 1997 and
1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price Range Price
<S> <C> <C> <C>
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 granted during 1998 10,000 $1.7188 $1.72
Options exercised during 1998 0
Options surrendered or canceled during 1998 (87,026) $2.25-12.875 $5.15
-----------
Options outstanding at January 2, 1999 1,266,367 $1.7188-9.82 $3.85
=========
Options exercisable at January 2, 1999 513,526 $2.0625-12.875 $4.21
==========
Options exercisable at January 3, 1998 191,392 $2.41 -12.875 $6.02
==========
</TABLE>
The following tables summarize information about outstanding stock options as of
January 2, 1999 and January 3, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Average
Number Remaining Weighted Number Weighted
Outstanding at Contractual Life Average Exercisable at Average
Range of Exercise Price 1/2/99 Exercise 1/2/99 Exercise Price
Price
<S> <C> <C> <C> <C> <C> <C>
$1.7188 -$2.75 300,300 8.56 $2.495 100,299 $2.529
$2.813 - $4.00 453,900 8.11 3.849 201,060 3.809
$4.125 400,000 8.22 4.125 100,000 4.125
$4.25 - $5.88 45,167 3.86 5.459 45,167 5.459
$6.69 - $ 9.82 67,000 4.82 7.245 67,000 7.245
$1.7188 - $ 9.82 1,266,367 7.93 3.85 513,526 4.21
Weighted Average
Number Remaining Weighted Number Weighted
Outstanding at Contractual Life Average Exercisable at Average
Range of Exercise Price 1/3/98 Exercise 1/3/98 Exercise Price
Price
$2.0625 -$2.75 305,300 9.55 $2.508 5,300 $2.731
$2.813 - $4.00 492,900 9.13 3.861 40,899 3.588
$4.125 400,000 9.22 4.125 0 0
$4.25 - $8.19 131,567 5.43 6.346 131,567 6.346
$9.82 - $12.875 13,626 2.33 11.393 13,626 11.393
$2.0625 - $12.875 1,343,393 8.82 3.952 191,392 6.016
</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. Pursuant to the
Plan, upon the effective date, the Rights Plan will be cancelled.
In summary, as of January 2, 1999, there were 1,266,367 shares of Common Stock
reserved for the exercise of stock options and 644,048 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
1998 and 1997 was $1.45 and $3.65, 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
1998, 1997 and 1996, respectively: risk-free interest rate of 5.16%, 5.75% and
6.34%; expected dividend yield of 0%, for all years; expected life of 4.46
years, 4.62 years and 4.62 years; and expected volatility of 106%, 49% and 53%.
The outstanding stock options at January 2, 1999 have a weighted average
contractual life of 7.93 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 1998,
1997 and 1996 would have been ($74,069), ($19,070) and ($9,900), respectively.
The Company's pro forma net income/(loss) per share for 1998, 1997 and 1996
would have been ($4.88), ($1.25) and ($0.66), 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 2, January 3,
1999 1998
<S> <C> <C>
Deferred pension obligations $ 3,856 $ 3,634
Other deferred liabilities 154 196
Liability for settlement of 1990 chapter 11 claims -- 1,552
----------- --------
$ 4,010 $ 5,382
======= =======
</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 1998, 1997 and 1996, rental expense was $7,008, $7,689 and $7,563,
respectively. As of January 2, 1999, future minimum rental payments under
noncancelable operating leases (exclusive of renewal options, percentage
rentals, and adjustments for property taxes and operating expenses) were as
follows:
Fiscal Year
1999 $ 4,459
2000 3,793
2001 3,413
2002 3,101
2003 2,863
Thereafter _ 25,260
--------
Total $ 42,890
=========
(b) Employment Agreements
The Company has employment agreements with certain executives, which provide for
the payment of compensation aggregating approximately $3,438 in 1999 and $1,200
in 2000 . In addition, such employment agreements provide for incentive
compensation based on various performance criteria.
Note 17. Discontinued Operations
In December 1998, the Company discontinued the operations of the Children's
Group, which produced and marketed children's blanket sleepers primarily using a
number of well-known licensed characters created by, among others, DISNEY and
WARNER BROTHERS. The Children's Group also marketed pajamas under OSHKOSH B'GOSH
trademark, and sleepwear and underwear under the JOE BOXER trademark. For Fiscal
1998, the Company recognized a charge of $15.9 million reflecting the
discontinuance of the Company's Children's Group. Of the $15.9 million, $10.2
million related to the operations prior to the date the decision was made to
discontinue the business and $5.7 million represented estimated future losses
during the phase-out period. The $5.7 million estimated phase-out loss is
comprised of (i) write-off of assets of $2.9 million, (ii) estimated loss from
operations of $1.6 million, (iii) severance of $1.5 million and (iv) royalty and
lease payments of $1.5 million, offset by $1.8 million for the sale of the Dr.
Denton trademark. No income tax benefits have been allocated to the division.
Pursuant to a purchase and sale agreement dated January 14, 1999, the Company
sold, all of Salant's right to, title and interest in, certain assets (Dr.
Denton trademark, selected inventory and machinery and equipment) of the
Children's Group. Inventory not sold in the above mentioned purchase agreement
has been or will be sold during the phase-out period. Accounts receivable,
prepaids, accounts payable and accrued liabilities will be collected or paid
through the normal course of business. Property, plant and equipment has been
written down to its estimated net realizable value and the Company is actively
pursuing the disposal of these assets.
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. Additionally, in 1997, the Company recorded a
charge of $1,330 to accrue for expected operating losses during the phase-out
period. Substantially, all assets and liabilities were settled in fiscal year
1997 with the balance resolved in early fiscal year 1998.
The Made in the Shade division's results for 1997 and 1996, as well as the
Salant Children's division's results for 1998, 1997 and 1996 are summarized as
follows (no income tax benefits have been allocated to the divisions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ---- ----
Net Sales
<S> <C> <C> <C>
Children's $ 42,766 $ 49,265 $45,753
Made in the Shade -- 2,822 20,408
------------- ---------- --------
Total $ 42,766 $ 52,087 $66,161
======== ======== =======
Net Income/(Loss) from operations
Children's $(10,163) $ (2,328) $ 3,694
Made in the Shade -- (8,136) (365)
------------- ----------- ----------
Total $(10,163) $(10,464) $ 3,329
======== ======== =======
</TABLE>
Net assets of discontinued operations in the 1998 and 1997 consolidated balance
sheets include:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net accounts receivable $ 3,833 $ 6,193
Net inventory 5,698 11,861
Prepaids and other 999 704
Net property plant & equipment 0 3,526
Assets held for Sale 2,826 0
--------- -----------
Assets $13,356 $22,284
------- -------
Accounts payable $ 1,374 $ 3,858
Accrued liabilities 394 675
Reserve for phase-out losses 4,728 261
-------- ----------
Liabilities $ 6,446 $ 4,794
------- --------
Net Assets $ 6,860 $17,490
======= =======
</TABLE>
Note 18. Accumulated Other Comprehensive Income
<TABLE>
<CAPTION>
Accum-
Foreign Minimum ulated
Currency Pension other
Translation Liability Compre-
Adjust- Adjust- hensive
ments ments Income
1998
<S> <C> <C> <C>
Beginning of the year balance $ 6 $(3,508) $(3,502)
12 month change (203) (348) (551)
------ ---------- ----------
End of the year balance $ 97) $(3,856) $(4,053)
====== ======== ========
1997
Beginning of the year balance $ 76 $(3,182) $(3,106)
12 month change (70) (326) (396)
------- ---------- ----------
End of the year balance $ 6 $(3,508) $(3,502)
======== ======== ========
1996
Beginning of the year balance $ 130 $(2,185) $(2,055)
12 month change (54) (997) (1,051)
------- ---------- ---------
End of the year balance $ 76 $(3,182) $(3,106)
======= ======== ========
</TABLE>
Note 19. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Fiscal year ended January 2, 1999
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
<S> <C> <C> <C> <C> <C>
Net sales $300,586 $73,935 $80,344 $69,362 $76,945
Gross profit 62,394 8,899 20,862 16,665 15,968
Net income/(loss) (72,662) (67,887) 2,090 (3,568) (3,297)
Basic earnings/(loss) per share (a) $(4.79) $(4.47) $0.14 $(0.24) $(0.22)
Fiscal year ended January 3, 1998
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Net sales $347,667 $99,126 $88,834 $75,940 $83,767
Gross profit 77,339 20,282 21,820 16,264 18,973
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>
Reference is made to Notes 3, 4 and 5 concerning fourth quarter adjustments
during the years ended January 2, 1999 and January 3, 1998.
(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.
Note 20. Legal Proceeding
The Company is a defendant in several legal actions. In the opinion of the
Company's management, based upon the advice of the respective attorneys handling
such cases, such actions are not expected to have a material adverse effect on
the Company's consolidated financial position, results of operations or cash
flow. In addition, the Company notes the following legal proceeding.
Rodriguez-Olvera Action. The Company is a defendant in a lawsuit captioned Maria
Delores Rodriguez-Olvera, et al. Vs. Salant Corp., et al., Case No.
97-07-14605-CV, in the 365th Judicial District Court of Maverick County, Texas
(the "Rodriguez-Olvera Action"). The plaintiffs in the Rodriguez-Olvera Action
assert personal injury, wrongful death, and survival claims arising out of a bus
accident that occurred on June 23, 1997. A bus registered in Mexico, owned by
the Company's subsidiary Maquiladora Sur, S.A. de C.V. ("Maquiladora"), a
Mexican corporation (and driven by a Mexican citizen and resident employed by
Maquiladora, carrying Mexican workers from their homes in Mexico to their jobs
at Maquiladora), overturned and caught fire in Mexico. Fourteen persons were
killed in the accident, and twelve others claim injuries as a result of the
accident; the Rodriguez-Olvera plaintiffs seek compensation from the Company for
those deaths and injuries.
The Company has vigorously defended against the allegations made in the lawsuit.
Its defenses include, among other things, that the claims, if any, asserted by
the Rodriguez-Olvera plaintiffs exist against Maquiladora, and not the Company,
and that the Rodriguez-Olvera Action should be tried in the courts of Mexico,
and not the United States, under the doctrine of forum non conveniens. The
Company also contends that the law of Mexico, rather than that of the United
States, governs the Rodriguez-Olvera plaintiffs' claims. The Rodriguez-Olvera
plaintiffs disagree with the Company's positions.
A motion on behalf of the company to dismiss the Rodriguez-Olvera Action under
the doctrine of forum non conveniens was denied by the trial court. The
propriety of those rulings is the subject of an action for a writ of mandamus,
captioned In Re Salant Corporation, et al., Case No. 4-98-00929-CV (the
"Mandamus Action"), in the Court of Appeals for the Fourth District of Texas, at
San Antonio (the "Texas Court of Appeals"). The Texas Court of Appeals has
stayed further proceedings in the underlying Rodriguez-Olvera action (for
reasons apart from any that might result in a stay under federal bankruptcy law)
pending the outcome of the Mandamus Action.
The Company is also a defendant in a related declaratory judgment action,
captioned Hartford Fire Insurance Company v. Salant Corporation, Index No.
60233/98, in the Supreme Court of the State of New York, County of New York (the
"Hartford Action"), relating to the Company's insurance coverage for the claims
that are the subject of the Rodriguez-Olvera Action. In the Hartford Action, the
Company's insurers seek a declaratory judgment that the claims asserted in the
Rodriguez-Olvera Action are not covered under the policies that the insurers had
issued. The Company's insurers have nevertheless provided a defense to the
Company in the Rodriguez-Olvera Action, without prejudice to their positions in
the Hartford Action.
If, as the Company contends in the Hartford Action, the Rodriguez-Olvera claims
are covered by insurance, the damages sought by the Rodriguez-Olvera plaintiffs
nevertheless exceed the face amount of the Company's liability insurance
coverage. Accordingly, it is possible that the damages that would be awarded in
the Rodriguez-Olvera Action could exceed available coverage limits. Counsel for
the plaintiffs in the Rodriguez-Olvera action has stated that they have offered
to settle that lawsuit within the Company's insured limits, and that the
Company's insurance carriers have rejected the Rodriguez-Olvera plaintiffs'
settlement offers. Counsel for the Rodriguez-Olvera plaintiffs has further
stated that in such event, in his view, Texas law should hold the Company's
insurers liable for failing to settle the claims within policy limits. The
Company considers it inappropriate to endorse or dispute that view and expresses
no position on that view herein.
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") currently consists of seven members. Prior
to December 29, 1998 (the "Filing Date"), the Board consisted of nine members,
however, three of the then current directors Messrs. York, Falk and Katz,
tendered their resignations effective that date. On the Filing Date, Michael
Setola joined the Board and became Chairman. Upon consummation of the Plan , the
following individuals shall be elected or appointed as the case may be to serve
as the initial members of the Board: Michael Setola, Talton R. Embry, Rose
Peabody Lynch, G.
Raymond Epson and Ben Evans.
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>
Mike Setola............. 40 Director, Chairman of the Board and December 1998
Chief Executive Officer
Ann Dibble Jordan..... 64 Director September 1993
Harold Leppo............. 62 Director September 1993
Jerald S. Politzer....... 53 Director April 1997
Bruce F. Roberts......... 75 Director September 1993
John S. Rodgers........ 69 Director March 1973
Marvin Schiller.......... 65 Director May 1983
Awadhesh Sinha........... 52 Executive Vice President February 1999
and Chief Financial Officer
Todd Kahn................ 34 Chief Operating Officer, 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:
Michael Setola was elected Chief Executive Officer and Chairman of the Board of
the Company on December 29, 1998. Prior to that time, Mr. Setola was President
of the Perry Ellis Division since January 1994 and President of Salant's
Children's Division since October 1991.
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; and Automatic Data Processing,
Inc., a computer services company.
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.
Jerald S. Politzer resigned from his position as Chairman of the Board and Chief
Executive Officer on December 29, 1998. Mr. 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.
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.
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.
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; and Tutor
Time Learning Systems Inc., a childcare and educational company.
Awadhesh Sinha was elected Executive Vice President and Chief Financial Officer
of Salant on February 1, 1999. Prior to this, Mr. Sinha was Executive Vice
President of Operations and Chief Financial Officer of Perry Ellis since 1998,
Executive Vice President and Chief Financial Officer of the Perry Ellis division
since 1992, Vice President of Finance since 1983 and joined the Company as a
Division Controller in 1981.
Todd Kahn was elected Chief Operating Officer on December 29, 1998, Executive
Vice President on May 13, 1997, Secretary on August 15, 1995, Assistant
Secretary on September 22, 1993 and Vice President and General Counsel on June
1, 1993. Prior to this Mr. Kahn 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 completion of the Plan 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 2, 1999, such
persons complied with all applicable Section 16(a) filing requirements with the
following exceptions: A Form 3 was not filed within ten days after Mr. Franzel
(the former Chief Financial Officer) sold Common Stock of the Company; a Form 3
was not filed within 10 days of Mr. Setola's election as Chairman and a Form 3
was not filed within 10 days of Mr. Sinha's February 1, 1999 election as Chief
Financial Officer.
Post Chapter 11 Board
The Plan provides that, if the Plan is consummated, the existing members of the
Board will resign. As provided for in the Plan as of the consummation date, the
directors listed below will serve as the initial members of the Board of
Reorganized Salant. Such directors shall be elected or appointed, as the case
may be, pursuant to the Plan, but shall not take office and shall not be deemed
to be elected or appointed until the occurrence of the Effective Date. Those
directors and officers of the Company not continuing in office shall be deemed
removed therefrom as of the Effective Date pursuant to the Plan. The Board of
Directors of Reorganized Salant as of the Effective Date shall consist of the
following members: Michael Setola, Talton R. Embry, Rose Peabody Lynch, G.
Raymond Epson and Ben Evans.
Set forth below (with the exception of Michael Setola) are summary biographies
for each of the proposed directors to constitute the Board upon completion of
the Debt Restructuring:
Talton R. Embry established Magten Asset Management Corp. in 1978 to manage
distressed securities and special situation high yield debt for institutional
and taxable clients. Mr. Embry is currently the Chairman and Chief Investment
Officer of Magten and directs Magten's research and portfolio management
functions. Prior to this association, Mr. Embry was a vice president at
Fiduciary Trust Company in New York from 1968 to 1978. Mr. Embry graduated from
Rutgers University in 1968. He is currently a director of Anacomp, BDK Holdings
and Combined Broadcasting (in dissolution). In addition, he has previously
served as a director of Capure Holdings, Thermadyne, TSX Corporation, Varco
International, West Point Stevens and was vice chairman and director of Revco
Drug Stores.
G. Raymond Empson is currently the President of Keep America Beautiful, Inc., a
non-profit, public education organization dedicated to the enhancement of
American communities through beautification, litter prevention, recycling and
neighborhood improvement programs. Prior to that, from 1994 to early 1997, Mr.
Empson was an independent business consultant to institutional investors, Boards
of Directors and corporate management with respect to strategic and operational
issues. From 1991 to 1994, he was President and Chief Executive Officer of
Collection Clothing Corp. Prior to that, until 1990, Mr. Empson was President
and Chief Executive Officer of Gerber Products Company and Gerber Childrenswear,
Inc. From 1976 to 1986, he was Executive President of Buster Brown Apparel, Inc.
Ben Evans joined S.D. Leidesdorf & Company, the predecessor firm to Ernst &
Whinney, in 1954 as a junior accountant. He became a partner at that firm in
1968. From 1978 through 1989, Mr. Evans was a member of Ernst & Whinney's
corporate financial service group concentrating on bankruptcy assignments
generally on behalf of unsecured creditors' committees, with special emphasis in
the apparel, retailing, food, drug, and pharmaceutical industries. Since 1989,
Mr. Evans has been a consultant for the firm of Ernst & Young (formerly known as
Ernst & Whinney) in their corporate financial services group continuing his work
in the bankruptcy area.
Rose Peabody Lynch was the Vice President and General Merchandise Manager of
Victoria's Secret Bath and Fragrance from 1993 to 1996. Prior to that, Ms. Lynch
was President to Trowbridge Gallery, from 1989 to 1993. From 1987 to 1989 Ms.
Lynch was President of Danskin, Inc. From 1985 to 1987 Ms. Lynch was the
Director of Marketing (Cosmetics) for Charles of the Ritz Group, Inc. From 1982
to 1985 Ms. Lynch was the Director of Marketing Development (Treatment) for
Elizabeth Arden, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by Salant for
fiscal years 1996 through 1998 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>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation (a) Long-Term Compensation
Number of
Securities
Other Res- Under-
Principal Annual tricked lying Long-Term All Other
Name Positions Year Salary($) Bonus($) Compen- Stock Options Incentive Compen-
sation Awards Granted Payouts sation($)
- - ---- --------- ---- --------- -------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Setola Chief
Executive
Officer (b) 1998 450,468 270,000 0 0 0 0 2,000
President of
Perry Ellis 1997 407,391 280,000 0 0 100,000 0 1,900
Division
President of
Perry 1996 308,160 0 0 0 0 0 1,800
Ellis Division
Jerald S. Politzer Chief
Executive
Officer 1998 695,275 700,000 0 0 0 0 38,000
Chief
Executive
Officer (c) 1997 487,500 650,000(d) 0 0 400,000 0 29,644
(e)
Philip A. Franzel Executive
Vice President
and Chief
Financial 1998 308,160 150,000 0 0 0 0 0
Officer
Executive
Vice President
and Chief
Financial 1997 109,615 150,000(c) 0 0 75,000 0 0
Officer (f)
Todd Kahn Chief Operating
Officer, General
Counsel and
Secretary(g) 1998 304,314 150,000 0 0 0 0 2,000
Executive Vice
President,
General Counsel 1,900
and Secretary 1997 258,077 75,000 0 0 65,000 0 (h)
Vice President,
General Counsel
and Secretary 1996 201,923 0 0 0 0 0 792
</TABLE>
<PAGE>
(a) Includes amounts earned in fiscal year, whether or not deferred.
(b) Mr. Setola was elected Chief Executive Officer on December 29, 1998.
(c) Mr. Politzer joined the Company and was elected Chief Executive Officer on
April 1, 1997.
(d) Reflects a one-time minimum cash bonus for 1997 agreed to in lieu of a sign-
up bonus.
(e) Housing allowance of $21,000 and pre-employment expense reimbursement of
$8,644.
(f) Mr. Franzel joined the Company and was elected Executive Vice President
and Chief Financial Officer on August 18, 1997.
(g) Mr. Kahn was elected Chief Operating Officer on December 29, 1998.
(h) Matching contributions under the Company's Long Term Savings and Investment
Plans (the "Savings Plan").
Option Grants for Fiscal Year 1998
There were no options granted to, or exercises of options by, the Named
Executive Officers, of Common Stock in the last fiscal year.
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 1993 to December 1998. The return on the indices is calculated assuming
the investment of $100 on December 31, 1993 and the reinvestment of dividends.
Cumulative Total Shareholder Return December 1993 to December 1998
<TABLE>
<CAPTION>
Comparison of Five Year Cumulative Total Shareholder Return*
Salant Corporation, Wilshire 5000, and S&P Textile Industry Index
Date Salant Wilshire 5000 S&P Textile
---- ------ ------------- -----------
<S> <C> <C> <C> <C>
December 1993 $100.00 $100.00 $100.00
December 1994 77.97 99.94 97.98
December 1995 52.54 136.37 109.97
December 1996 42.37 165.30 151.08
December 1997 23.73 217.03 162.92
December 1998 0.64 267.88 141.01
</TABLE>
*Total return assumes reinvestment of dividends on a quarterly basis.
Employment Agreements
Mr. Setola is a party to an employment agreement dated March 11, 1994, amended
by letter agreements dated December 21, 1995 and June 16, 1997, respectively
(the "Setola Agreement"), which provides for his employment as President of the
Company's Perry Ellis Division (The "Division") through December 31, 1999,
unless terminated (the "Setola Employment Period"), earlier in accordance with
the Setola Agreement. The Setola Agreement provides for an annual base salary of
$300,000 per annum from January 1, 1996 to December 31, 1996, and $400,000 per
annum from January 1, 1997 until December 31, 1999. Commencing with the 1997
fiscal year, the terms of the Setola Agreement provide that Mr. Setola shall be
guaranteed an annual bonus equal to $100,000 based on criteria determined by the
CEO of the Company from time to time. Under the terms of the Setola Agreement,
Mr. Setola is entitled to receive an annual cash bonus: (i) if the Division
attains or exceeds its Pre-tax Income Budget (as defined in the Setola
Agreement) for the applicable fiscal year, commencing with the 1996 fiscal year
(a copy of each fiscal year's budget will be furnished to Mr. Setola in December
of the prior year), the Company shall pay a bonus to Mr. Setola for such fiscal
year in which such Pre-tax Income Budget was attained or exceeded by the
Division equal to 60% of his then current base salary plus an additional bonus
equal to 10% of such then current base salary for each full 10% by which the
actual Pre-tax Income (as defined in the Setola Agreement) for the Division
exceeds the Pre-tax Income Budget;. (ii) if the actual Pre-tax Income of the
Division is less than 100% of its Pre-tax Income Budget and equal to or greater
than 95% of its Pre-tax Income Budget for the applicable fiscal year, commencing
with the 1996 fiscal year, then Mr. Setola shall receive a bonus equal to 40% of
his then current base salary; and (iii) if the actual Pre-tax Income Budget of
the Division is less than 95% of its Pre-tax Income Budget and equal to or
greater than 90% of its Pre-tax Income Budget for the applicable fiscal year,
commencing with the 1996 fiscal year, then Mr. Setola shall receive a bonus
equal to 25% of his then current base salary. Notwithstanding anything contained
herein to the contrary, commencing with the 1997 fiscal year, Mr. Setola is
guaranteed an annual bonus equal to $100,000 based upon criteria determined by
the Chief Executive Officer of the Company from time to time.
The Setola Agreement provides that if the Perry Ellis men's bottoms business of
the Company's Thomson Division (the "Bottoms Division") is incorporated into the
Division, Mr. Setola will be eligible for a bonus based on the performance of
the Bottoms Division for each fiscal year as follows: (i) if the Bottoms
Division attains or exceeds its Pre-tax Income Budget for a fiscal year,
commencing with the 1996 fiscal year, the Company shall pay a bonus to Mr.
Setola for such fiscal year equal to 25% of his then current base salary plus an
additional bonus equal to 4% of such then current base salary for each full 10%
by which the actual Pre-tax Income of the Bottoms Division exceeds its Pre-tax
Income Budget; (ii) if the actual Pre-tax Income is less than 100% of its
Pre-tax Income Budget and equal to or greater than 95% of its Pre-tax Income
Budget in a fiscal year, commencing with the 1996 fiscal year, then Mr. Setola
shall receive a bonus equal to 17% of his current base salary; and (iii) if the
actual Pre-tax Income of the Bottoms Division is less than 95% of its Pre-tax
Income Budget and equal to or greater than 90% of its Pre-tax Income Budget in a
fiscal year, commencing with the 1996 fiscal year, then Mr.
Setola shall receive a bonus equal to 10% of his then current base salary.
The amount of any such bonus payable to Mr. Setola shall be calculated on or
before 90 days following the close of each fiscal year of the Company commencing
with the 1995 fiscal year. A written statement of the calculation and the amount
of the bonus, if any, shall be delivered to Mr. Setola within such 90-day
period. In the event of the termination of the Setola Employment Period prior to
the close of a complete fiscal year of the Company, the bonus amount shall be
computed on the basis of the results of the full fiscal year within which the
termination of the Setola Employment Period occurs and shall be prorated based
on the proportion that (x) the number of days from January 1 of such year to the
date of the termination of the Setola Employment Period bears to (y) 365.
Notwithstanding anything to the contrary contained in this Agreement, if Mr.
Setola leaves the employ of the Company prior to the completion of the Setola
Employment Period or the Setola Employment Period is terminated by the Company
for "cause", Mr. Setola shall not be entitled to any bonus or pro rata bonus for
the year in which such termination takes place or any subsequent year.
If the actual Pre-tax Income of the dress shirt and sportswear divisions
(exclusive of the Bottoms Division) of the Division for the three fiscal years
1996, 1997 and 1998 in the aggregate equals or exceeds $45 million, then Mr.
Setola shall receive a one time special bonus (the "Special Bonus") of $300,000.
If the actual Pre-tax Income of the dress shirt and sportswear divisions
(exclusive of the Bottoms Division) of the Division for the three fiscal years
1996, 1997 and 1998 in the aggregate equals or exceeds $40 million, then the
amount of the Special Bonus shall be $150,000. The Special Bonus, if any, shall
be payable on or about April 15, 1999 (the "Payment Date"); provided that, Mr.
Setola is employed by the Company on the Payment Date.
The Setola Agreement provides that during the Setola Employment Period, Mr.
Setola shall be entitled to an automobile allowance of $680 per month.
The Setola Agreement provides that if Mr. Setola's employment is terminated by
the Company without "cause" or other than as a result of death or disability,
Mr. Setola shall be entitled to (i) base salary through the date of termination;
(ii) base salary at the annualized rate then in effect for the remainder of what
would otherwise have been the then current Setola Employment Period; (iii)
pro-rated bonus; and (iv) the right to exercise each stock option then held by
Mr. Setola, each of which shall remain exercisable until the earlier of (A) 6
months following the date of termination and (B) the remainder of the exercise
period of each such option.
In connection with the Plan, it is the Company's intention to amend the Setola
Agreement (as amended, the "Amended Setola Agreement"), effective as of January
1, 1999, to provide (i) for Mr. Setola's new position as Chairman and Chief
Executive Officer of the Company; (ii) for Mr. Setola's new base salary in the
amount of $650,000 per annum; and (iii) that if the Effective Date does not
occur on or prior to June 30, 1999, Mr. Setola's employment will terminate on
December 31, 1999, unless earlier terminated in accordance with the terms of the
Amended Setola Agreement.
As presently contemplated, the Amended Setola Agreement will provide that Mr.
Setola is entitled to receive a cash bonus for the Company's 1999 fiscal year:
(i) if the Company's Perry Ellis Division attains 100% of its EBITDA budget set
for the Company's 1999 fiscal year, in an amount equal to $650,000; (ii) if the
Division exceeds 100% of its EBITDA budget, in an amount equal to the sum of (A)
$650,000 and (B) 1% of $650,000 for each full 1% by which the Division exceeds
its EBITDA budget; (iii) if the Division exceeds 90% but does not attain at
least 100% of its EBITDA budget, in an amount equal to (A) $650,000 minus (B) 2%
of $650,000 for each full 1% by which the Division's EBITDA budget exceeds the
Division's performance for that fiscal year; (iv) if the Division attains 90% of
its EBITDA budget, in an amount equal to $520,000; and (v) if the Division does
not attain at least 90% of its EBITDA budget, in an amount equal to $325,000. If
Mr. Setola's employment is terminated prior to December 31, 1999, the amount of
Mr. Setola's bonus will be calculated on the basis of the results of the full
fiscal year and prorated based upon the proportion that (x) the number of days
from January 1, 1999 through the date of termination of the Setola Employment
Period bears to (y) 365. Notwithstanding the foregoing, in no event will the
amount of the bonus in respect of the 1999 fiscal year be less than $325,000 if
the Setola Employment Period is terminated (A) by the Company other than for
"cause" or (B) by Mr. Setola for "good reason;" provided, however, that Mr.
Setola will not be entitled to any bonus in respect of the 1999 fiscal year if
the Employment Period is terminated (C) by the Company for "cause" or (D) by Mr.
Setola other than for "good reason." The bonus in respect of the Company's 1999
fiscal year will be paid to Mr. Setola within 90 days following the close of the
Company's 1999 fiscal year.
In connection with the Plan, it is the Company's intention to enter into an
agreement (the "New Setola Agreement"), which will govern the terms of Mr.
Setola's continuing employment with the Company. The New Setola Agreement is to
be implemented as part of the Plan and shall become effective upon the Effective
Date of the Plan; provided, however, that the Effective Date of the Plan shall
have occurred by June 30, 1999. In the event that the Effective Date shall not
have occurred by June 30, 1999, Mr. Setola's employment shall be governed by the
terms of the Amended Setola Agreement. Upon becoming effective, the New Setola
Agreement will supercede all prior agreements pertaining to Mr. Setola's
employment with the Company, including the Amended Setola Agreement. Pursuant to
the terms of the New Setola Agreement, Mr. Setola will serve as the Chairman of
the Board and Chief Executive Officer of the Company effective January 1, 1999
through December 31, 2000. Thereafter, the term of employment shall be
automatically renewed for successive one year terms, unless prior notice by
either party shall have been given within one hundred eighty (180) days of the
expiration of the then existing term. The New Setola Agreement will provide for
the payment of a base salary in the amount of $650,000 for 1999 and $700,000 for
2000. For each year following 2000 that the term of Mr. Setola's employment
under the New Setola Agreement is renewed, the annual base salary shall be equal
to the base salary in effect for the immediately preceding year plus $75,000.
Under the terms of the Setola Agreement, for the fiscal year 1999, Mr. Setola
shall be eligible for an annual bonus (the "1999 Annual Bonus") as described
below.
Three hundred twenty-five thousand ($325,000) of the 1999 Annual Bonus shall be
guaranteed (the "Guaranteed Portion") if Mr. Setola is employed by the Company
through December 31,1999 (or his employment has been terminated either by the
Company without "cause" or by Mr. Setola for "good reason" prior to such date).
In the event that the Company's Perry Ellis Menswear division's actual 1999
performance shall equal 100% of its fiscal year 1999 budget (which performance
and budget shall be based upon EBITDA), the aggregate amount of Mr.
Setola's 1999 Annual Bonus shall be $650,000.
In the event that the Company's Perry Ellis Menswear division's actual 1999
performance shall exceed 100% of its fiscal year 1999 budget, the aggregate
amount of Mr. Setola's 1999 Annual Bonus shall be equal to the sum of (i)
$650,000, plus (ii) an amount equal to 1% of $650,000 for each full 1% increment
by which the Company's Perry Ellis Menswear division's actual 1999 performance
shall exceed its fiscal year 1999 budget.
In the event that the Company's Perry Ellis Menswear division's actual 1999
performance shall be greater than 90% and less than 100% of its fiscal year 1999
budget, the aggregate amount of Mr. Setola's 1999 Annual Bonus shall be an
amount equal to (i) $650,000 minus (ii) an amount equal to 2% of $650,000 for
each full 1% increment by which the Company's Perry Ellis Menswear division's
actual 1999 performance is less than 100% of its fiscal year 1999 budget.
In the event that the Company's Perry Ellis Menswear division's actual 1999
performance shall be equal to 90% of its fiscal year 1999 budget, the aggregate
amount of Mr. Setola's 1999 Annual Bonus shall be $520,000. In the event that
the Company's Perry Ellis Menswear division's actual 1999 performance shall be
less than 90% of its fiscal year 1999 budget, the aggregate amount of Mr.
Setola's 1999 Annual Bonus shall be $325,000 (the Guaranteed Portion).
For fiscal years 2000 and beyond, Mr. Setola shall be eligible for an annual
bonus in respect of each such year in accordance with the formula for fiscal
year 1999 described above; provided, however, that (i) the amount of each such
bonus shall be based upon the Company's performance (as opposed to the Company's
Perry Ellis Menswear division's performance) in respect of each year as compared
to its budget for each such year (which performance and budget need not be based
upon EBITDA) and (ii) no portion of any such bonus shall be guaranteed.
Each bonus will be paid to Mr. Setola within 90 days after the end of the fiscal
year to which the bonus relates. If Mr. Setola's employment terminates on a day
other than the last day of a year, the amount of the bonus payable with respect
to that year will be calculated on the basis of the results of the full fiscal
year and prorated based upon the proportion that (x) the number of days from
January 1 of the year in which the termination occurs through the date of
termination bears to (y) 365; provided, however, that if Mr. Setola's employment
terminates during the 1999 fiscal year as a result of a "change in control" (i)
only that portion of the 1999 bonus in excess of the Guaranteed Portion will be
prorated and (ii) the 1999 bonus will be paid to Mr.
Setola in a lump sum on the date of termination.
If Mr. Setola's employment is terminated prior to the end of any year, the
amount of Mr. Setola's bonus will be calculated on the basis of the results of
the full fiscal year and prorated based upon the proportion that (x) the number
of days from January 1, 1999 through the date of termination of the Setola
Employment Period bears to (y) 365.
The New Setola Employment Agreement will provide that during the term of Mr.
Setola's employment with the Company: (i) the Company will provide Mr. Setola
with an automobile allowance of $680 per month; (ii) the Company will provide
Mr. Setola with a housing allowance of up to $3,000 per month; and (iii) Mr.
Setola will be eligible to participate in the pension and welfare plans of the
Company. In addition, the New Setola Agreement will provide that Mr. Setola will
be reimbursed for the reasonable legal expenses that he incurs in connection
with the preparation and negotiation of the New Setola Agreement.
Pursuant to the New Setola Agreement, on the Effective Date, Mr. Setola will
receive a grant of options to purchase 2.5% of the issued and outstanding shares
of the Company's common stock, on a fully diluted basis, as of the Effective
Date. The options shall (i) have an exercise price per share equal to the fair
market value on the Effective Date of a share of the Company's common stock;
(ii) vest and become exercisable with respect to 1/3 of the total number of
shares subject thereto on each of (A) the Effective Date; (B) December 31, 1999;
and (C) December 31, 2000; and (iii) have a duration of 10 years. Upon the
"change in control" (as defined in the New Setola Agreement) during the period
that Mr. Setola shall be actively employed by the Company: (i) the options, to
the extent not thereto vested and exercisable, shall immediately become fully
vested and exercisable and (ii) to the extent that the aggregate value derived
by Mr. Setola from the options is less than an amount equal to the greater of
(A) 0.8% of the aggregate value of the consideration received by the Company or
its shareholders in connection with the "change in control" and (B) $675,000,
the Company shall immediately after the "change in control", make a lump sum
cash payment to Mr. Setola equal to such difference.
The New Setola Agreement will provide that if Mr. Setola's employment is
terminated (i) by the Company without "cause" or other than as a result of death
or "disability" or (ii) by Mr. Setola for "good reason," Mr. Setola shall be
entitled to (A) base salary through the date of termination; (B) base salary at
the annualized rate then in effect from the date of termination (1) in the event
that termination shall occur prior to a "change in control," until the 12-month
anniversary of the date of termination or (2) in the event termination shall
occur after a "change in control," until the earlier of (I) the 12-month
anniversary of the date of termination and (II) December 31, 2000 (the "Setola
Severance Period"); (C) pro-rated bonus; (D) continued participation in Company
benefit plans during the Setola Severance Period (or until the date or dates on
which Mr. Politzer receives equivalent coverage and benefits under the plans and
programs of a subsequent employer, if earlier); and (E) the right to exercise
each stock option then held by Mr. Setola, each of which shall remain
exercisable until the earlier of (1) 6 months following the date of termination
and (2) the remainder of the exercise period of each such option.
Mr. Politzer is a party to an agreement (the "Politzer Agreement"), dated March
20, 1997, that provided for his employment as Chief Executive Officer of the
Company effective April 1, 1997 through the termination of his employment as of
the Filing Date. The Politzer Agreement provided for the payment of a base
salary in the amount of $650,000 per annum for the first 12 months of his
employment, $700,000 per annum for the second 12 months of his employment and
$750,000 for the third 12 months of his employment. Under the terms of the
Politzer Agreement, Mr. Politzer was eligible to receive a cash bonus in respect
of each fiscal year during the term of his employment equal to; (i) 50% of his
then current base salary if the Company generated actual pre-tax income for a
year equal to at least 90% but less than 100% of the pre-tax income provided in
the Company's annual business plan for such year; (ii) 100% of his then current
base salary if the Company's actual pre-tax income for a year was to equal to
100% of its annual business plan. If the Company's actual pre-tax income was in
excess of the annual business plan for a year. Mr. Politzer's incentive bonus
was increased 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 was to receive a minimum cash bonus for the Company's
1997 fiscal year, and no other fiscal year thereafter, in the amount of
$650,000.
The Politzer Agreement provided that each bonus was to be paid to Mr. Politzer
within 90 days after the end of the fiscal year to which the bonus relates. The
Politzer Agreement provided that if Mr. Politzer's employment was terminated on
a day other than the last day of a year, the amount of the bonus payable with
respect to that year would be calculated on the basis of the results of the full
fiscal year and prorated based upon the proportion that (x) the number of
completed months during the period from January 1 of the year in which the
termination occurred through the date of termination bore to (y) 12.
The Politzer Agreement provided that during the term of Mr. Politzer's
employment with the Company: (i) the Company would provide Mr. Politzer with an
automobile allowance of $680 per month; (ii) the Company would provide Mr.
Politzer with a housing allowance of up to $3,000 per month; and (iii) Mr.
Politzer would be eligible to participate in the pension and welfare plans of
the Company.
The Politzer Agreement provided that if Mr. Politzer's employment was terminated
(i) by the Company without "cause" or other than as a result of death or
"disability" or (ii) by Mr. Politzer for "good reason," Mr. Politzer would be
entitled to (A) base salary through the date of termination; (B) base salary at
the annualized rate then in effect from the date of termination until the
12-month anniversary of the date of termination (the "Politzer Severance
Period"); (C) pro-rated bonus; (D) continued participation in Company benefit
plans during the Politzer Severance Period (or until the date or dates on which
Mr. Politzer receives equivalent coverage and benefits under the plans and
programs of a subsequent employer, if earlier); and (E) the right to exercise
each stock option then held by Mr. Politzer, each of which shall remain
exercisable until the earlier of (1) 6 months following the date of termination
and (2) the remainder of the exercise period of each such option.
Notwithstanding the foregoing, the terms and conditions of the termination of
Mr. Politzer's employment will be governed by the Politzer Consulting Agreement
(as defined below), which the Company intends to enter into with Mr. Politzer.
In July 1998, the Company implemented a Management Retention Incentive Program.
Pursuant to the Management Retention Incentive Program, Mr. Politzer will
receive a payment of $700,000 if he remains employed by the Company until
February 15, 1999 or if terminated by the Company without cause (the "Retention
Amount," and, together with the Severance Payments, the "Termination Amount").
Mr. Politzer received this amount in February 1999.
As of the Filing Date, Mr. Politzer ceased to be the Chief Executive Officer and
Chairman of the Board of the Company. The Company intends to retain Mr. Politzer
as a consultant to the Company pursuant to the terms of a transition and
consulting agreement (the "Politzer Consulting Agreement") to be entered into by
and between Mr. Politzer and the Company. The Politzer Consulting Agreement will
have retroactive effect to the Filing Date. The Politzer Consulting Agreement
will provide that during the period (the "Consulting Period") from the Filing
Date to the Effective Date, Mr. Politzer will provide services to the Company as
a consultant on an as-needed basis, and will provide advice and guidance to Mr.
Setola, as the newly-appointed Chief Executive Officer, and the Board, as
requested by the Board or Mr. Setola, including, (i) assisting the Company in
connection with the transition of its management, (ii) assisting the Company in
effectuating a corporate restructuring of its three current business units into
a Perry Ellis only business unit; and (iii) providing guidance and advice to the
Company in connection with transition and strategic decision making.
Under the Politzer Consulting Agreement, from and after the Filing Date and
terminating on March 31, 2000 (the "Continuation Period"), Mr. Politzer will
continue to receive bi-weekly payments equal to the bi-weekly salary payments to
which Mr. Politzer was entitled as of the Filing Date (the "Fee Payments"),
subject to the limitation described in the following paragraph. In addition,
during the period commencing on the Filing Date and terminating on the date (the
"Target Date") that is the earlier of (i) the Effective Date and (ii) April 30,
1999, Mr. Politzer will be entitled to the continuation of certain benefits
including the maintenance of an office and a secretary and reimbursement of
expenses associated with maintaining an automobile ($680 per month) and an
apartment ($3,000 per month) in New York City (the "Housing and Car
Reimbursements"). The Politzer Consulting Agreement will provide that Mr.
Politzer will, at the same benefit level at which he participated as of the
Filing Date, continue to be eligible to participate in all medical, dental,
health and life insurance plans and in other employee benefit plans or programs
of the Company until the earlier of (i) March 31, 2000 and (ii) the date or
dates on which he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer; provided, however, that Mr. Politzer will not
be entitled to participate in any employee benefit plan or program to the extent
that his participation therein is precluded as a matter of law or by the terms
or conditions of such employee benefit plan or program.
Following the Target Date, the aggregate amount of any and all Fee Payments that
Mr. Politzer would otherwise have been entitled to receive under the Politzer
Consulting Agreement from the Target Date through the end of the Continuation
Period will be reduced by an amount equal to (i) $250,000 minus (ii) an amount
equal to the cost that would have been incurred by Reorganized Salant in order
to provide the Housing and Car Reimbursements to Mr. Politzer during the period
from the Target Date through the Continuation Period. The payments and other
benefits to be provided to Mr. Politzer pursuant to the Politzer Consulting
Agreement will be in full satisfaction and release of all claims (including, but
not limited to, any claims for severance) arising out of Mr. Politzer's
employment with the Company or the termination thereof. The Politzer Consulting
Agreement will (i) provide that the non-compete provision contained in the
existing agreement will terminate on the later to occur of the Effective Date or
April 30, 1999 and (ii) include a non-disparagement provision which will
terminate on March 31, 2001.
Mr. Franzel is a party to an agreement (the "Franzel Agreement"), dated August
18, 1997, that provided for his employment as the Executive Vice President and
Chief Financial Officer of the Company effective August 18, 1997 through the
time of his resignation on January 25, 1999. The Franzel Agreement provided for
the payment of a base salary in an amount not less than $300,000 per year. The
Franzel Agreement provided that Mr. Franzel would be paid a cash bonus in
respect of each fiscal year during the term of his employment with the Company
equal to (i) 40% of his then current base salary if the Company generated actual
pre-tax income for a year equal to at least 90% but less than 100% of the
pre-tax income provided in the Company's annual business plan for such year; and
(ii) 50% of his then current base salary if the Company generated actual pre-tax
income for such year equal to 100% of the pre-tax income provided in the
Company's annual business plan. If the Company's actual pre-tax income for such
year was in excess of the annual business plan for such year, Mr. Franzel's
incentive bonus was increased by 5% of his then current base salary for each
full 5% increment of increased actual pre-tax income for such year.
The Franzel Agreement provided that each bonus was to be paid to Mr. Franzel
within 90 days after the end of the fiscal year to which the bonus relates. The
Franzel Agreement provided that if Mr. Franzel's employment was terminated on a
day other than the last day of a year, the amount of the bonus payable with
respect to that year would be calculated on the basis of the results of the full
fiscal year and prorated based upon the proportion that (x) the number of
completed months during the period from January 1 of the year in which the
termination occurred through the date of termination bore to (y) 12.
The Franzel Agreement provided that during the term of Mr. Franzel's employment
with the Company: (i) the Company would provide Mr. Franzel with an automobile
allowance ($680 per month); and (ii) Mr. Franzel would be eligible to
participate in the pension and welfare plans of the Company.
The Franzel Agreement provided that if Mr. Franzel's employment was terminated
(i) by the Company without "cause" or other than as a result of death or
"disability" or (ii) by Mr. Franzel for "good reason," Mr. Franzel would be
entitled to (A) base salary through the date of termination; (B) base salary at
the annualized rate then in effect from the date of termination until the
12-month anniversary of the date of termination (the "Franzel Severance
Period"); (C) pro-rated bonus; (D) continued participation in Company benefit
plans during the Franzel Severance Period (or until the date or dates on which
Mr. Franzel receives equivalent coverage and benefits under the plans and
programs of a subsequent employer, if earlier); and (E) the right to exercise
each stock option then held by Mr. Franzel, each of which shall remain
exercisable until the earlier of (1) 6 months following the date of termination
and (2) the remainder of the exercise period of each such option.
Notwithstanding the foregoing, the terms and conditions of the termination of
Mr. Franzel's employment will be governed by the Separation Agreement (as
defined below).
On January 25, 1999, Mr. Philip Franzel resigned as Chief Financial Officer of
the Company. The Company intends to enter into a separation agreement (the
"Separation Agreement") with Mr. Franzel during the pendency of the Chapter 11
Case. Pursuant to the terms of the Separation Agreement, Mr. Franzel, beginning
on January 25, 1999 and terminating on February 15, 1999, rendered advisory and
consulting services to the Company in connection with the business, management
and finances of the Company as are reasonably requested by the Board of
Directors, Mr. Setola or Mr. Sinha. From February 15, 1999 through and including
June 30, 1999, Mr. Franzel will be available, subject to reasonable prior
notice, to the Company to provide guidance and advice on financial matters.
Under the Separation Agreement, beginning on January 25, 1999 and terminating on
June 30, 1999, Mr. Franzel will receive $25,680 per month payable in bi-weekly
installments in arrears. On February 15, 1999, Mr. Franzel received, pursuant to
the terms of the Management Retention Program, a bonus in the amount of
$150,000. The Separation Agreement provides that during the period beginning on
January 25, 1999 and terminating on June 30, 1999, the Company shall provide to
Mr. Franzel those medical, dental and other similar health benefits that Mr.
Franzel had immediately prior to his resignation by paying his premium under
COBRA; provided, however, that all of the Company's obligations therefor will
terminate upon the commencement of benefit coverage by any subsequent full-time
employer of Mr. Franzel.
The Separation Agreement will be in full satisfaction and release of all claims
(including, but not limited to, any claims for severance) arising out of Mr.
Franzel's employment with the Company or the termination thereof. The Separation
Agreement (i) will provide that a non-compete provision will be in place until
June 30, 1999 and (ii) will include a non-disparagement provision which will
terminate on June 30, 2000. The Separation Agreement will have a retroactive
effect.
Mr. Kahn is a party to an agreement (the "Kahn Agreement"), dated May 1, 1997,
that provided for his employment as the Executive Vice President, General
Counsel and Secretary of the Company effective May 1, 1997 through December 31,
1999, which shall automatically be renewed for successive one-year terms, unless
at least 180 days prior to any such renewal, either party notifies the other of
its election to terminate Mr. Kahn's employment with the Company by not renewing
the then current employment term. The Kahn Agreement provides for the payment of
a base salary in an amount not less than $275,000 per year, which amount shall
be reviewed annually commencing March of 1998 for increase. The Kahn Agreement
provides that Mr. Kahn will be paid a cash bonus in respect of each fiscal year
during the term of his employment with the Company equal to (i) 40% of his then
current base salary if the Company generated actual pre-tax income for a year
equal to at least 90% but less than 100% of the pre-tax income provided in the
Company's annual business plan for such year; and (ii) 50% of his then current
base salary if the Company generated actual pre-tax income for such year equal
to 100% of the pre-tax income provided in the Company's annual business plan. If
the Company's actual pre-tax income for such year was in excess of the annual
business plan for such year, Mr. Kahn's incentive bonus was increased by 5% of
his then current base salary for each full 5% increment of increased actual
pre-tax income for such year.
The Kahn Agreement provides that each bonus is to be paid to Mr. Kahn within 90
days after the end of the fiscal year to which the bonus relates. The Kahn
Agreement provides that if Mr. Kahn's employment is terminated on a day other
than the last day of a year, the amount of the bonus payable with respect to
that year would be calculated on the basis of the results of the full fiscal
year and prorated based upon the proportion that (x) the number of completed
months during the period from January 1 of the year in which the termination
occurs through the date of termination bears to (y) 12.
The Kahn Agreement provides that during the term of Mr. Kahn's employment with
the Company: (i) the Company will provide Mr. Kahn with an automobile allowance
of $680 per month; and (ii) Mr. Kahn will be eligible to participate in the
pension and welfare plans of the Company.
The Kahn Agreement provides that if Mr. Kahn's employment is terminated (i) by
the Company without "cause" or other than as a result of death or "disability"
or (ii) by Mr. Kahn for "good reason," Mr. Kahn will be entitled to (A) base
salary through the date of termination; (B) base salary at the annualized rate
then in effect from the date of termination until the 12-month anniversary of
the date of termination (the "Kahn Severance Period"); (C) pro-rated bonus; (D)
continued participation in Company benefit plans during the Kahn Severance
Period (or until the date or dates on which Mr. Kahn receives equivalent
coverage and benefits under the plans and programs of a subsequent employer, if
earlier); and (E) the right to exercise each stock option then held by Mr. Kahn,
each of which shall remain exercisable until the earlier of (1) 6 months
following the date of termination and (2) the remainder of the exercise period
of each such option.
In connection with the Plan, the Company intends to enter into a new agreement
(the "New Kahn Agreement"), which shall be effective upon the Effective Date.
Pursuant to the terms of the Kahn Agreement, Mr. Kahn will serve as the Chief
Operating Officer and General Counsel of the Company for a period of one year,
commencing on January 1, 1999, and will supercede any existing employment
agreement between Mr. Kahn and the Company. Given that the term of the New Kahn
Agreement will, under the terms thereof, begin prior to the Effective Date but
the New Kahn Agreement will not become effective until the Effective Date, the
New Kahn Agreement will have retroactive effect to January 1, 1999. Base salary
for Mr. Kahn will be $25,000 per month. The New Kahn Agreement will also provide
for a bonus in the amount of $25,000 per month from February 15, 1999 through
December 31, 1999, payable in two installments as follows: the aggregate bonuses
for the period from February 15, 1999 through March 31, 1999, will be paid to
Mr. Kahn in a single payment on February 15, 1999 in advance; and bonuses for
the period from April 1, 1999 through December 31, 1999, will be paid to Mr.
Kahn in quarterly installments in advance. Notwithstanding the foregoing, upon
the later to occur of (i) the Company's emergence from Chapter 11, and (ii) the
wind-down and/or sale of all of the Company's non-Perry Ellis businesses, Mr.
Kahn will receive a lump sum payment of $262,500 less any aggregate bonus
payments actually made to him prior to that event. In addition, the Kahn
Agreement will provide for the payment of a $150,000 retention bonus to Mr. Kahn
in accordance with, and subject to, the Company's Management Retention Bonus
Plan on February 15, 1999. If Mr. Kahn is terminated without cause prior to
December 31, 1999, under the Kahn Agreement, Mr. Kahn will be entitled to
receive the aggregate amount of $565,500, less any aggregate base salary and
bonus payments made prior to his termination.
Compensation Committee Interlocks and Insider Participation
The members of the Company's Compensation and Stock Plan Committees up until
December 29, 1998 were Messrs. Leppo, Schiller and Yorke, none of whom were (i)
during the 1998 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 1998 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 1998 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.
Management Retention Program. In July of 1998, the Board instituted the
Management Retention Program (the "MRP") in an effort and with such a purpose as
to retain key employees during the period of time the Company was involved in
its restructuring efforts. Pursuant to the MRP, such key employees would receive
a bonus based on their previously existing incentive bonus arrangement if they
remained employed by the Company until February 15, 1999 or if they were
terminated by the Company without cause. The aggregate amount allocated to the
MRP for payments to such key employees was approximately $3.7 million. Messrs.
Politzer and Setola were beneficiaries of the MRP.
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.
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 1998, 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.
Other Information Regarding the Directors
During the 1998 fiscal year, there were twenty-two 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 1998 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. Falk and Katz 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 1998 fiscal year. The members
of the Committee until December 29, 1998 were Messrs. Politzer, Schiller, and
Yorke. 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 one time during the 1998 fiscal year. The
members of the Committee until December 29, 1998 were Messrs.
Katz, Leppo and Roberts. The Committee meets independently with
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 did not meet during the 1998 fiscal
year. The members of the Committees until December 29, 1998 were 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 did not meet in the 1998 fiscal year. The members of
the Committee until December 29, 1998 were Ms. Dibble Jordan and Mr. Roberts.
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 1998 fiscal year. The members
of the Committee until December 29, 1998 were 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
Highest Five Consecutive Years of the 10 20 25 30 35
-- -- -- -- --
Last 15 Years Preceding Retirement(a)
<S> <C> <C> <C> <C> <C> <C>
$ 60,000................................... $4,885 $9,770 $12,213 $14,656 $17,098
80,000.................................. 7,385 14,770 18,463 22,156 25,848
100,000................................... 9,885 19,770 24,713 29,656 34,598
120,000................................... 12,385 24,770 30,963 37,156 43,348
150,000................................... 16,135 32,270 40,338 48,406 56,473
180,000................................... 17,385 34,770 43,463 52,156 60,848
200,000................................... 17,385 34,770 43,463 52,156 60,848
</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. Setola, Politzer, Kahn and Sinha have, respectively, 7 years, 1
year, 5 years and 17 years of credited service under the Retirement
Plan.
<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 39.5%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
</TABLE>
(a) This percentage is calculated on the basis of 14,984,608 shares
outstanding as of April 7, 1999, excluding those shares held by or for
the account of Salant.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The Following table sets forth certain information as of April 7, 1999 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>
<CAPTION>
BENEFICIAL OWNERSHIP OF SALANT COMMON STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS OF SALANT
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership1 Class2
<S> <C> <C>
Ann Dibble Jordan 2,5003 *
Todd Kahn 71,5004 *
Harold Leppo 2,5005 *
Jerald S. Politzer 145,0006 1.0%
Bruce F. Roberts 6,5007 *
John S. Rodgers 434,0878 3.0%
Marvin Schiller 16,7349 *
Michael J. Setola 75,43310 *
Awadhesh Sinha 41,80011 *
All directors and executive
officers as a group (8 persons) 796,05412 5.0%
</TABLE>
- - --------
* Represents less than one percent.
1 For Purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has the
right to acquire within 60 days following April 7,1999. 2 As of April 7, 1999,
there were 14,984,608 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 April 7,1999 is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage of ownership of any
other person. 3 This amount represents 2,500 issuable upon the exercise of stock
options. 4 This amount includes 4,000 shares held directly and 67,500 shares
issuable upon the exercise of stock options. 5 This amount represents 2,500
issuable upon the exercise of stock options. 6 This amount includes 45,000
shares held directly and 100,000 shares issuable upon the exercise of stock
options. 7 This amount includes 4,000 shares held directly and 2,500 shares
issuable upon the exercise of stock options. 8 This amount includes 424,280
shares held directly by Mr. Rodgers, 1,600 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 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. 9 This amount includes 11,234 shares held directly and 5,500 shares
issuable upon the exercise of stock options. 10This amount includes 2,100 shares
held directly and 73,333 shares issuable upon the exercise of stock options.
11This amount includes 19,800 shares held directly and 22,000 shares issuable
upon the exercise of stock options. 12 The 796,054 shares held by all directors
and executive officers of Salant as a group includes (i) 516,337 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) 277,433
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, April 7, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred since January 3, 1998 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.
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 Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Shareholders' Equity/Deficiency
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule
The following Financial Statement Schedule for the years ended January 2, 1999,
January 3, 1998 and December 28, 1996 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>
<TABLE>
<CAPTION>
SALANT CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions at End
Description of Period Expenses -- Describe -- Describe of Period
---------- --------- ------------------ ----------- ---------
YEAR ENDED JANUARY 2, 1999:
Accounts receivable - allowance
<S> <C> <C> <C> <C> <C>
for doubtful accounts $2,094 $2,769 $ -- $2,202 (A) $2,661
Reserve for business restructuring $2,764 $24,825 $ -- $24,038 (B) $3,551
YEAR ENDED JANUARY 3, 1998:
Accounts receivable allowance
for doubtful accounts $2,806 $195 $ -- $907 (A) $2,094
Reserve for business restructuring $2,969 $2,066 $ -- $2,271 (B) $2,764
YEAR ENDED DECEMBER 28, 1996:
Accounts receivable allowance
for doubtful accounts $3,007 $(112) $ -- $89 (A) $2,806
Reserve for business restructuring $1,569 $11,730 $ -- $10,330 (B) $2,969
</TABLE>
NOTES:
(A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in
plant closings and business restructuring.
<PAGE>
Reports on Form 8-K
During the fourth quarter of 1998, the Company filed one Form 8-K dated November
30, 1998 reporting that (i) it had received and accepted an $85 million
financing commitment from its working capital priority lender that would be
available to Salant upon the completion of its restructuring and (ii) that such
lender had also extending its then current financing to Salant through December
31, 1998. No financial statements were included in the Form 8-K filed.
<PAGE>
<TABLE>
<CAPTION>
Exhibits
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.
2.3 Chapter 11 Plan of Reorganization Exhibit 2.3 to Form 8-K dated
for Salant Corporation, dated December 29, 1998.
December 29, 1998.
2.4 Disclosure Statement for Chapter 11 Exhibit 2.4 to Form 8-K dated
Plan of Reorganization, dated December 29, 1998.
December 29, 1998.
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 1988 Stock Plan.* Exhibit 19.3 to Annual Report on
Form 10-K for fiscal year 1988.
10.4 First Amendment, effective Exhibit 19.1 to Quarterly Report
as of July 25, 1989, to the Salant on Form 10-Q for the quarter
Corporation 1988 Stock Plan. * ended September 30, 1989.
10.5 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on
Stock Plan Employee Agreement. * Form 10-K for fiscal year 1988.
10.6 Form of Salant Corporation Exhibit 19.8 to
1988 Stock Plan Director Annual Report on
Agreement. * Form 10-K for fiscal
year 1988.
10.7 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.
10.8 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.
10.9 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual
Stock Plan Directors' Option Report on Form
Agreement. * 10-K for Fiscal Year 1993.
10.10 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.
10.11 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on
dated February 28, 1995, to the Form 8-K, dated March 2, 1995.
Revolving Credit, Factoring and
Security Agreement, dated
September 20, 1993, as amended,
between The CIT Group/Commercial
Services, Inc. and Salant Corporation.
10.12 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on
as amended and restated. * Form 10-K for Fiscal Year 1994.
10.13 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on
as amended and restated. * Form 10-K for Fiscal Year 1994.
10.14 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on
and Investment Plan as amended Form 10-K for Fiscal Year 1994.
and restated. *
10.15 Fourth Amendment to Credit Exhibit 10.27 to
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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 Salant Corporation 1996 Stock Plan.* Exhibit 10.40 to Annual Report on
Form 10-K for Fiscal Year 1996.
10.26 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report on
dated as of February 20, 1997, to Form 10-K for Fiscal Year 1996.
the Revolving Credit, Factoring and
Security Agreement, dated as
of September 20, 1993, as amended,
between Salant Corporation and
The CIT Group/Commercial Services, Inc.
10.27 Employment Agreement, dated as Exhibit 10.43 to Annual Report on
of March 24, 1997, between Form 10-K for Fiscal Year 1996.
Jerald S. Politzer and
Salant Corporation. *
10.28 Employment Agreement, dated as of Exhibit 10.44 to Quarterly Report on
May 1, 1997, between Todd Kahn and Form 10-Q for the quarter ended
Salant Corporation. * June 28, 1997.
10.29 Employment Agreement, dated as of Exhibit 10.45 to Quarterly Report on
August 18, 1997 between Philip A. Form 10-Q for the quarter ended
Franzel and Salant Corporation. * June 28, 1997.
10.30 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly Report on
Agreement, dated as of Form 10-Q for the quarter ended
August 8, 1997, to the Revolving June 28, 1997.
Credit, Factoring and Security
Agreement, dated as of
September 20, 1993, as amended,
between Salant Corporation and
The CIT Group/Commercial Services, Inc.
10.31 Letter Agreement, dated Exhibit 10.48 to Current Report on
March 2, 1998, by and among Salant Form 8-K dated March 4, 1998.
Corporation, Magten Asset Management
Corp., as agent on behalf of
certain of its accounts, and Apollo
Apparel Partners, L.P.
10.32 Twelfth Amendment and Forbearance Exhibit 10.49 to Current Report on
Agreement to Credit Agreement, dated Form 8-K dated March 4, 1998.
as of March 2, 1998, by and between
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.33 Thirteenth Amendment and Forbearance Exhibit 10.53 to Current Report on
Agreement, dated as of June 1, 1998, Form 8-K dated June 1, 1998.
By and between Salant Corporation
And The CIT Group/Commercial
Services, Inc.
10.34 Commitment Letter, dated June 1, Exhibit 10.54 to Current Report
on 1998, by and between Salant Form 8-K dated June 1, 1998.
Corporation and The CIT
Group/Commercial Services, Inc.
10.35 Letter Agreement, dated June 1, Exhibit 10.55 to Current Report on
1998, by and among Salant Form 8-K dated June 1, 1998.
Corporation, Magten Asset Management
Corp., as agent on behalf of
certain of its accounts, and Apollo
Apparel Partners, L.P.
10.36 Letter Agreement, dated July 8, Exhibit 10.44 to Quarterly Report on
1998, amending the Letter Agreement, Form 10-Q for the quarter ended
dated March 2, 1998, as amended, July 4, 1998.
By and among Salant Corporation,
Magten Asset Management Corp.,
as agent on behalf of certain of
its accounts, and Apollo Apparel
Partners, L.P.
10.37 Letter Agreement, dated July 20, Exhibit 10.45 to Quarterly Report on
1998, amending the Employment Form 10-Q for the quarter ended
Agreement, dated August 18, 1997, October 3, 1998.
between Philip A. Franzel and
Salant Corporation. *
10.38 Letter Agreement, dated July 20, Exhibit 10.46 to Quarterly Report on
1998, amending the Employment Form 10-Q for the quarter ended
Agreement, dated May 1, 1997, October 3, 1998.
between Todd Kahn and Salant
Corporation. *
10.39 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on
1998, amending the Employment Form 10-Q for the quarter ended
Agreement, dated March 20, 1997, October 3, 1998.
between Jerald s. Politzer and
Salant Corporation. *
10.40 Letter Agreement, dated Exhibit 10.48 to Current Report on
November 30, 1998, by and between Form 8-K dated November 30, 1998.
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.41 Letter Agreement, dated Exhibit 10.49 to Current Report on
December 4, 1998, by and between Form 8-K dated November 30, 1998.
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.42 Ratification and Amendment Exhibit 10.50 to Current Report on
Agreement, dated as of December 29, Form 8-K dated December 29, 1998.
1998, by and between Salant
Corporation and The CIT Group/Commercial
Services, Inc.
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: April 19, 1999 By: /s/ Awadhesh Sinha
------------------------
Awadhesh Sinha
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 April 19, 1999.
Signature Title
/s/ Michael Setola Chairman of the Board,
Michael Setola and Chief Executive Officer
(Principal Executive Officer);
Director
/s/ Awadhesh Sinha Executive Vice President
Awadhesh Sinha and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Ann Dibble Jordan /s/ Harold Leppo
Ann Dibble Jordan Director Harold Leppo Director
/s/ Bruce Roberts /s/ John S. Rodgers
Bruce F. Roberts Director John S. Rodgers Director
/s/ Marvin Schiller /s/ Jerry Politzer
Marvin Schiller Director Jerald Politzer Director
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
<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.
2.3 Chapter 11 Plan of Reorganization Exhibit 2.3 to Form 8-K dated
for Salant Corporation, dated December 29, 1998.
December 29, 1998.
2.4 Disclosure Statement for Chapter 11 Exhibit 2.4 to Form 8-K dated
Plan of Reorganization, dated December 29, 1998.
December 29, 1998.
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 1988 Stock Plan.* Exhibit 19.3 to Annual Report on
Form 10-K for fiscal year 1988.
10.4 First Amendment, effective Exhibit 19.1 to Quarterly Report
as of July 25, 1989, to the Salant on Form 10-Q for the quarter
Corporation 1988 Stock Plan. * ended September 30, 1989.
10.5 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on
Stock Plan Employee Agreement. * Form 10-K for fiscal year 1988.
10.6 Form of Salant Corporation Exhibit 19.8 to
1988 Stock Plan Director Annual Report on
Agreement. * Form 10-K for fiscal
year 1988.
10.7 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.
10.8 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.
10.9 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual
Stock Plan Directors' Option Report on Form
Agreement. * 10-K for Fiscal Year 1993.
10.10 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.
10.11 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on
dated February 28, 1995, to the Form 8-K, dated March 2, 1995.
Revolving Credit, Factoring and
Security Agreement, dated
September 20, 1993, as amended,
between The CIT Group/Commercial
Services, Inc. and Salant Corporation.
10.12 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on
as amended and restated. * Form 10-K for Fiscal Year 1994.
10.13 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on
as amended and restated. * Form 10-K for Fiscal Year 1994.
10.14 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on
and Investment Plan as amended Form 10-K for Fiscal Year 1994.
and restated. *
10.15 Fourth Amendment to Credit Exhibit 10.27 to
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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 Salant Corporation 1996 Stock Plan.* Exhibit 10.40 to Annual Report on
Form 10-K for Fiscal Year 1996.
10.26 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report on
dated as of February 20, 1997, to Form 10-K for Fiscal Year 1996.
the Revolving Credit, Factoring and
Security Agreement, dated as
of September 20, 1993, as amended, between
Salant Corporation and
The CIT Group/Commercial Services, Inc.
10.27 Employment Agreement, dated as Exhibit 10.43 to Annual Report on
of March 24, 1997, between Form 10-K for Fiscal Year 1996.
Jerald S. Politzer and
Salant Corporation. *
10.28 Employment Agreement, dated as of Exhibit 10.44 to Quarterly Report on
May 1, 1997, between Todd Kahn and Form 10-Q for the quarter ended
Salant Corporation. * June 28, 1997.
10.29 Employment Agreement, dated as of Exhibit 10.45 to Quarterly Report on
August 18, 1997 between Philip A. Form 10-Q for the quarter ended
Franzel and Salant Corporation. * June 28, 1997.
10.30 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly Report on
Agreement, dated as of Form 10-Q for the quarter ended
August 8, 1997, to the Revolving June 28, 1997.
Credit, Factoring and Security
Agreement, dated as of
September 20, 1993, as amended,
between Salant Corporation and
The CIT Group/Commercial Services, Inc.
10.31 Letter Agreement, dated Exhibit 10.48 to Current Report on
March 2, 1998, by and among Salant Form 8-K dated March 4, 1998.
Corporation, Magten Asset Management
Corp., as agent on behalf of
certain of its accounts, and Apollo
Apparel Partners, L.P.
10.32 Twelfth Amendment and Forbearance Exhibit 10.49 to Current Report on
Agreement to Credit Agreement, dated Form 8-K dated March 4, 1998.
as of March 2, 1998, by and between
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.33 Thirteenth Amendment and Forbearance Exhibit 10.53 to Current Report on
Agreement, dated as of June 1, 1998, Form 8-K dated June 1, 1998.
By and between Salant Corporation
And The CIT Group/Commercial
Services, Inc.
10.34 Commitment Letter, dated June 1, Exhibit 10.54 to Current Report
on 1998, by and between Salant Form 8-K dated June 1, 1998.
Corporation and The CIT
Group/Commercial Services, Inc.
10.35 Letter Agreement, dated June 1, Exhibit 10.55 to Current Report on
1998, by and among Salant Form 8-K dated June 1, 1998.
Corporation, Magten Asset Management
Corp., as agent on behalf of
certain of its accounts, and Apollo
Apparel Partners, L.P.
10.36 Letter Agreement, dated July 8, Exhibit 10.44 to Quarterly Report on
1998, amending the Letter Agreement, Form 10-Q for the quarter ended
dated March 2, 1998, as amended, July 4, 1998.
By and among Salant Corporation,
Magten Asset Management Corp.,
as agent on behalf of certain of its
accounts, and Apollo Apparel
Partners, L.P.
10.37 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on
1998, amending the Employment Form 10-Q for the quarter ended
Agreement, dated August 18, 1997, October 3, 1998.
between Philip A. Franzel and
Salant Corporation. *
10.38 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on
1998, amending the Employment Form 10-Q for the quarter ended
Agreement, dated May 1, 1997, October 3, 1998.
between Todd Kahn and Salant
Corporation. *
10.39 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on
1998, amending the Employment Form 10-Q for the quarter ended
Agreement, dated March 20, 1997, October 3, 1998.
between Jerald s. Politzer and
Salant Corporation. *
10.40 Letter Agreement, dated Exhibit 10.48 to Current Report on
November 30, 1998, by and between Form 8-K dated November 30, 1998.
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.41 Letter Agreement, dated Exhibit 10.49 to Current Report on
December 4, 1998, by and between Form 8-K dated November 30, 1998.
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.42 Ratification and Amendment Exhibit 10.50 to Current Report on
Agreement, dated as of December 29, Form 8-K dated December 29, 1998.
1998, by and between Salant
Corporation and The CIT Group/Commercial
Services, Inc.
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-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 1,222
<SECURITIES> 0
<RECEIVABLES> 38,359
<ALLOWANCES> 0
<INVENTORY> 69,590
<CURRENT-ASSETS> 149,697
<PP&E> 12,371
<DEPRECIATION> 0
<TOTAL-ASSETS> 176,129
<CURRENT-LIABILITIES> 203,029
<BONDS> 0
0
0
<COMMON> 15,405
<OTHER-SE> (46,315)
<TOTAL-LIABILITY-AND-EQUITY> 176,129
<SALES> 300,586
<TOTAL-REVENUES> 305,840
<CGS> 238,192
<TOTAL-COSTS> 312,072
<OTHER-EXPENSES> 36,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,944
<INCOME-PRETAX> (56,635)
<INCOME-TAX> 140
<INCOME-CONTINUING> (56,775)
<DISCONTINUED> 15,887
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,662)
<EPS-PRIMARY> (479)
<EPS-DILUTED> (479)
</TABLE>
