-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GC93l1uNupez6q5fizCQ94x1aNmSKDrgbKbuvWvfUfhirPS2zGLnVNQ5+weAFKpt IzXmrDK+sMZiHNYVDwABfA== 0000086346-03-000011.txt : 20030512 0000086346-03-000011.hdr.sgml : 20030512 20030512145509 ACCESSION NUMBER: 0000086346-03-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030329 FILED AS OF DATE: 20030512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALANT CORP CENTRAL INDEX KEY: 0000086346 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 133402444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06666 FILM NUMBER: 03692573 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2122217500 MAIL ADDRESS: STREET 1: 1058 CLAUSSEN RDSTE 101 CITY: AUGUSTA STATE: GA ZIP: 30907 10-Q 1 form10q1stquarter2003.txt FORM 10-Q 1ST QUARTER 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 2003. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-6666 SALANT CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3402444 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1114 Avenue of the Americas, New York, New York 10036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 221-7500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No As of May 6, 2003 there were outstanding 8,792,699 shares of the Common Stock of the registrant. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) 3 Condensed Consolidated Statements of Operations 3 Condensed Consolidated Statements of Comprehensive Income/(Loss) 4 Condensed Consolidated Balance Sheets 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Item 4. Controls and Procedures 22 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURE 26 CERTIFICATIONS 27 EXHIBITS 29 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data)
Three Months Ended March 29, March 30, 2003 2002 Net sales $ 67,187 $ 60,275 Cost of goods sold 47,669 44,194 Gross profit 19,518 16,081 Selling, general and administrative expenses (16,264) (15,405) Royalty income 31 42 Amortization of intangibles (164) (280) Merger expense (Note 9) (933) -- Other income, net 9 2 Interest income, net 49 25 Income before income taxes 2,246 465 Income tax expense (24) (2) Net income $ 2,222 $ 463 Basic income per share $ .25 $ .05 Diluted income per share $ .24 $ .05 Weighted average common stock outstanding - Basic 8,783 9,901 Weighted average common stock outstanding - Diluted 9,246 9,944
See Notes to Condensed Consolidated Financial Statements. Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (Unaudited) (Amounts in thousands) Three Months Ended March 29, March 30, 2003 2002 Net income $ 2,222 $ 463 Other comprehensive income/(loss), net of tax: Foreign currency translation adjustments (3) 2 Comprehensive income $ 2,219 $ 465 See Notes to Condensed Consolidated Financial Statements. Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
March 29, December 28, March 30, 2003 2002 2002 (Unaudited) (*) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,836 $ 21,226 $ 5,912 Accounts receivable, net 37,191 36,718 36,149 Inventory (Note 3) 42,636 39,972 29,732 Prepaid expenses and other current assets 1,476 1,581 1,886 Deferred tax asset 5,000 5,000 -- Total current assets 99,139 104,497 73,679 Property, plant and equipment, net 11,291 11,528 12,410 Intangible assets (Note 4) 22,418 22,582 23,182 Other assets 3,592 3,913 7,277 Total assets $ 136,440 $ 142,520 $ 116,548 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 16,335 $ 18,605 $ 9,251 Accrued liabilities 5,661 11,738 6,284 Net liabilities of discontinued Operations (Note 7) 446 446 481 Reserve for business restructuring (Note 6) 560 561 567 Total current liabilities 23,002 31,350 16,583 Deferred liabilities 10,116 10,105 4,417 Shareholders' equity Common Stock 10,011 10,000 10,000 Additional paid-in capital 206,067 206,040 206,040 Deficit (94,118) (96,340) (115,430) Accumulated other comprehensive loss (Note 5) (15,643) (15,640) (4,864) Less - treasury stock, at cost (2,995) (2,995) (198) Total shareholders' equity 103,322 101,065 95,548 Total liabilities and shareholders' equity $ 136,440 $ 142,520 $ 116,548 (*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements. Salant Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Three Months Ended March 29, March 30, 2003 2002 Cash Flows from Operating Activities: Net income $ 2,222 $ 463 Adjustments to reconcile income from continuing operations to net cash (used)/provided by operating activities: Depreciation 1,235 1,135 Amortization 164 280 Change in operating assets and liabilities (net of business acquired): Accounts receivable (473) (7,605) Inventory (2,664) 5,564 Prepaid expenses and other assets 229 1,957 Accounts payable (2,269) (1,325) Accrued and other liabilities (6,067) (281) Reserve for business restructuring (1) (17) Net cash (used)/provided by continuing operations (7,624) 171 Cash used by discontinued operations -- 12 Net cash (used)/provided by operating activities (7,624) 159 Cash Flows from Investing Activities: Capital expenditures (650) (974) Store fixture expenditures (152) -- Acquisition of a business -- (13,095) Net cash used by investing activities (802) (14,069) Cash Flows from Financing Activities: Exercise of stock options 38 -- Other, net (2) 2 Net cash provided by financing activities 36 2 Net decrease in cash and cash equivalents (8,390) (13,908) Cash and cash equivalents - beginning of year 21,226 19,820 Cash and cash equivalents - end of quarter $ 12,836 $ 5,912 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1 $ 49 Income taxes $ 2 $ -- See Notes to Condensed Consolidated Financial Statements. SALANT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Amounts in Thousands of Dollars, Except Share Data) (Unaudited) Note 1. Basis of Presentation Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of Salant Corporation and its subsidiaries (collectively, the "Company" or "Salant"). The Company's principal business is the designing, sourcing, importing and marketing of men's apparel and accessories. The Company sells its products to retailers, including department stores, specialty stores and off-price retailers, in addition to, directly to the consumer through its own retail outlet stores. The results of the Company's operations for the three months ended March 29, 2003 and March 30, 2002 are not necessarily indicative of a full year's operations. In the opinion of management, the accompanying financial statements include all adjustments of a normal recurring nature, which are necessary to present fairly such financial statements. Certain reclassifications were made to the prior period financial statements to conform to the 2003 presentation. Significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on form 10-K for the fiscal year ended December 28, 2002. Net Income Per Share Income available to common stockholders used in the computation of basic earnings per share data was computed based on net income. Basic income per share data was computed based on the weighted average number of common shares outstanding. Diluted earnings per share data was computed based on the weighted average number of common shares outstanding, adjusted for the dilutive effect of stock options, using the treasury stock method. For the quarters ended March 29, 2003 and March 30, 2002, 463 and 80 shares respectively, of common stock equivalents were included in the calculation of diluted earnings per share for outstanding stock options that had a dilutive effect. Stock-Based Compensation The Company measures compensation costs for its employee stock-based compensation under the intrinsic value method rather than the fair value method. Accordingly, compensation cost for the Company's stock options is measured as the excess, if any, of the market price of the Company's common stock at the date of grant, or at any subsequent measurement date as a result of certain types of modifications to the terms of its stock options, over the amount an employee must pay to acquire the stock. Such amounts are amortized as compensation expense over the vesting period of the related stock options. Any compensation cost is recognized as expense only to the extent it exceeds compensation expense previously recognized for such stock options. However, no stock-based employee compensation expense determined under the intrinsic value method has been recognized in the reported net loss during the three-month periods ended March 31, 2002 and March 30, 2003. A summary of the effect on net loss and net loss per share in each quarter presented as if the fair value method had been applied to all outstanding and unvested stock options that were granted commencing December 29, 1998 is as follows: Three months ended March 29, March 30, 2003 2002 Net Income, as reported $ 2,222 $ 463 Recognition of total stock-based employee compensation expense determined under the fair value method, net of related taxes 19 41 Net income, as adjusted $ 2,203 $ 422 Income per share: Basic income per share, as reported $ 0.25 $ 0.05 Diluted income per share, as reported 0.24 0.05 Basic income per share, as adjusted $ 0.25 $ 0.05 Diluted income per share, as adjusted 0.24 0.05 See Note 14 to the consolidated financial statements contained in the Form 10-K for disclosure of the adjustments, methods and significant assumptions used to estimate the fair values of stock options reflected in the table above. The significant assumptions remain unchanged since there were no stock options granted by the Company during the three-month periods ended March 31, 2002 and March 30, 2003. New Accounting Standards In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.145, "Recession of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections". In addition to amending and rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS No. 145 precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS No. 145 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The Company adopted SFAS No. 146 as of January 1, 2003 and the adoption of this pronouncement did not have a material effect on the consolidated results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for the year ended December 31, 2002 and for interim financial statements for the first quarter ending after December 31, 2002. The adoption of this Statement did not have a material impact on the consolidated financial statements, as the Company has decided not to adopt the fair value method of accounting for stock-based compensation. On April 30, 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others- an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. However, the disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is not a party to any agreement in which it is a guarantor of indebtedness of others. Accordingly, this pronouncement is currently not applicable to the Company. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or SPEs). In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The objective of FIN 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. However, certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities as defined in FIN 46. Accordingly, this pronouncement is currently not applicable to the Company. Note 2. Acquisition of Axis On January 4, 2002, Salant, through its wholly owned subsidiary, Salant Holding Corporation ("SHC"), acquired from Axis Clothing Corporation ("Axis"), certain of its assets pursuant to an Asset Purchase Agreement dated October 15, 2001 between SHC, Axis and Richard Solomon ("Solomon"), an individual. The assets acquired from Axis consisted of, among other things, trademarks, inventory, contract rights, fixed assets and certain office equipment primarily located in California (collectively, the "Axis Assets"). As a result of the acquisition, Salant further diversified its channels of distribution beyond traditional department stores. The results of Axis' operations are included in the consolidated statement of operations from the acquisition date. The Company did not assume any accounts payable, accrued liabilities or debt; however, it did assume several leases and contracts. In conjunction with the Asset Purchase Agreement, a three-year employment contract was signed between Solomon and SHC, along with SHC signing an agreement to lease office space (at current market rates) from Solomon. The Company has obtained third-party valuations of certain intangible assets. Of the total intangibles acquired, $9,700 has been allocated to trademarks and $2,318 has been allocated to goodwill. Neither the trademarks nor goodwill will be subject to amortization, but will be tested for impairment on a periodic basis. The remaining $300 of miscellaneous intangibles have been amortized over the first six months of 2002. The following table summarizes the fair values of the assets acquired at the date of acquisition: Current assets $ 751 Property, plant, and equipment 100 Intangible assets 300 Trademarks 9,700 Goodwill 2,318 Total assets acquired $13,169 The aggregate purchase price for the Axis Assets was approximately $12,433, plus direct acquisition costs of $736 of which $74 was incurred after the first quarter of 2002. Of the total purchase price, $10,633 was paid at closing and $1,800 has been placed in escrow of which $900 was paid on January 4, 2003 and the remaining $900 is payable on January 4, 2004. The purchase price was based upon arms-length negotiations considering (i) the value of the Axis brand, (ii) the quality of the Axis Assets and (iii) the estimated cash flow from the Axis Assets. The principal source of funds for the acquisition of the Axis Assets was from working capital. Note 3. Inventory March 29, December 28, March 30, 2003 2002 2002 Finished goods $ 31,438 $ 23,431 $ 22,758 Work-in-Process 11,264 16,269 5,280 Raw materials and supplies 1,610 2,023 3,313 Total inventory 44,312 41,723 31,351 Inventory markdown reserves (1,676) (1,751) (1,619) Net inventory $ 42,636 $ 39,972 $ 29,732 Note 4. Intangible Assets In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective December 30, 2001. During the first quarter of 2003, the Company recorded amortization expense for identified intangible assets with finite lives of $164 and estimated amortization expense for fiscal years 2003 through 2007 will be approximately $656 per year. The intangible assets (unamortized and amortized) are associated with the wholesale segment of the Company and are as follows:
March 29, 2003 December 28, 2002 Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net Amortizable Intangible Assets Licenses $11,161 $(5,586) $ 5,566 $11,161 $(5,476) $ 5,685 Trademarks 4,600 (1,842) 2,758 4,600 (1,788) 2,812 Other 300 (300) -- 300 (300) -- Total $16,061 $(7,728) $ 8,343 $16,061 $(7,564) $ 8,497 Unamortizable Intangible Assets Goodwill $ 2,318 $ 0 $ 2,318 $ 2,318 $ 0 $ 2,318 Trademarks 11,875 (108) 11,767 11,875 (108) 11,767 Total $14,193 $ (108) $14,085 $ 14,193 $ (108) $14,085 Total Intangible Assets $30,254 $(7,836) $22,418 $30,254 $(7,672) $22,582
Note 5. Accumulated Other Comprehensive Income/(Loss) Foreign Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustment Adjustment Income/(Loss) 2003 Beginning of year balance $ (117) $ (15,523) $ (15,640) Three months ended March 29, 2003 change (3) -- (3) End of quarter balance $ (120) $ (15,523) $ (15,643) 2002 Beginning of year balance $ (113) $ (4,753) $ (4,866) Three months ended March 30, 2002 change 2 -- 2 End of quarter balance $ (111) $ (4,753) $ (4,864) Note 6. Restructuring Reserve In the first quarter of 2003, the Company used $1 of the restructure reserve for employee costs necessary to complete the shut down of Mexican operations and other employee benefit costs. As of March 29, 2003, the reserve balance was $560 of which $475 was reserved for severance and other employee costs and $85 was reserved for various other restructuring costs. Note 7. Discontinued Operations As of March 29, 2003, the net liabilities of discontinued operations, from prior years, consists only of $446 of reserve for discontinued operations. The reserve for discontinued operations is comprised of $390 for severance and other employee costs, and $56 of other restructuring costs. There was no change to the net liabilities during the quarter. Note 8. Segment Reporting The Company operates in two business segments, wholesale and retail. The wholesale apparel segment consists of businesses that design, source, import and market men's apparel and accessories under various trademarks owned or licensed by the Company, or by its customers. The retail segment consists of a chain of retail outlet stores, through which it sells products made under the Perry Ellis trademarks by the Company and other Perry Ellis licensees. As of March 29, 2003, the Company operated 38 Perry Ellis retail outlet stores. The Company's total assets as of March 29, 2003, March 30, 2002 and December 28, 2002 and the results of operations for the three-months ended March 29, 2003 and March 30, 2002, by segment, were as follows: March 29, March 30, December 28, 2003 2002 2002 Total Assets Wholesale $127,282 $107,585 $133,442 Retail 9,158 8,963 9,078 $136,440 $116,548 $142,520 Net Sales Wholesale $ 62,226 $ 54,921 Retail 4,961 5,354 $ 67,187 $ 60,275 Gross Profit Wholesale $ 17,040 $ 13,740 Retail 2,478 2,341 $ 19,518 $ 16,081 Income/(Loss) before Income Taxes Wholesale $ 3,048 $ 1,375 Retail (802) (910) $ 2,246 $ 465 Note 9. Merger Agreement On February 3, 2003, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Perry Ellis International, Inc., a Florida corporation ("PEI") and Connor Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of PEI. Under the terms of the Merger Agreement, PEI will acquire the Company in a stock/cash transaction with a total merger consideration of approximately $91,000, comprised of approximately $52,000 in cash and approximately $39,000 worth of newly issued shares of PEI common stock (the "Merger"). Each holder of outstanding common stock of the Company will receive approximately $9.3691 per share comprised of at least $5.3538 per share of cash and up to $4.0153 per share of PEI common stock. The Merger Agreement provides that the maximum number of shares of PEI common stock to be issued in the Merger is limited to 3,250, with the remaining merger consideration to be paid in cash. The exact fraction of a share of PEI common stock that the Company stockholders will receive for each of their shares will be determined based on the Nasdaq average closing sale price of the PEI common stock for the 20-consecutive trading day period ending three trading days prior to the closing date. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of PEI. The Merger has been approved by all of the members of the board of directors of the Company. The Merger requires that a majority of the stockholders of the Company approve the Merger and that a majority of the stockholders of PEI approve the issuance of up to 3,250 shares of PEI's common stock in connection with the Merger Agreement, and is subject to SEC approval, the absence of material adverse changes, and certain other customary closing conditions. Stone Ridge Partners LLC is serving as financial advisor to the Company and has delivered a fairness opinion to the Company's board of directors. In addition, George Feldenkreis, PEI's Chairman and CEO, and Oscar Feldenkreis, PEI's President and COO, have each agreed to vote the PEI shares they control in favor of the issuance of the PEI common stock in the transaction. The Company has amended the Rights Agreement dated May 17, 2002, between the Company and Mellon Investor Services LLC to provide that the Merger will not trigger any rights or events thereunder. The Merger is also subject to anti-trust regulatory review; however, on April 1, 2003 PEI and the Company received notification of early termination of the 30-day statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, from the U.S. Federal Trade Commission. Pursuant to the Merger Agreement, PEI agreed to file and maintain in effect a registration statement for the Company's affiliates to enable them to resell shares of PEI common stock they receive in the Merger without legal restriction. On March 17, 2003 PEI filed a preliminary joint proxy statement-prospectus with the SEC and on April 29, 2003, PEI filed a pre-effective Amendment No. 1 to such joint proxy statement-prospectus. It is anticipated that the Merger will be consummated in June 2003. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations First Quarter of 2003 Compared with First Quarter of 2002 Net Sales Total net sales increased by $6.9 million, or 11.5%, to $67.2 million in the first quarter of 2003, as compared to $60.3 million in the first quarter of 2002. Net sales for the wholesale segment increased $7.3 million, or 13.3%, to $62.2 million in the first quarter of 2003, as compared to $54.9 million in the first quarter of 2002. Included in the $7.3 million increase in net sales was an increase for newly licensed wholesale businesses of $5.8 million and an increase in other existing non-Perry Ellis brands and labels of $3.1 million, due primarily to additional volume, in the first quarter of 2003 as compared to the first quarter of 2002. These increases in net sales were offset by a $1.4 decrease in net sales of Perry Ellis wholesale products, due primarily to a decrease in off-price sales, and a $0.2 million decrease in net sales relating to discontinued brands and labels. Net sales for the retail segment decreased by $0.4 million, or 7.3%, in the first quarter of 2003, as compared to the first quarter of 2002. Gross Profit The total gross profit percentage in the first quarter of 2003 increased to 29.1% from 26.7% in the first quarter of 2002. Total wholesale gross profit percentage increased to 27.4% in the first quarter of 2003 from 25.0% in the first quarter of 2002. The margin increase was primarily the result of lower production costs obtained through negotiations with suppliers due to the overall softness in the sourcing market. The retail segment's gross profit percentage increased to 50.0% for the first quarter of 2003, as compared to the first quarter of 2002 at 43.7%. The increase in the gross profit percentage for the retail outlet stores was also attributable to the better sourcing noted above for the wholesale segment, as the Company's products are sold in the retail outlet stores. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses in the first quarter of 2003 increased to $16.3 million (24.2% of net sales) from $15.4 million (25.6% of net sales) as compared to the first quarter of 2002, but decreased as a percentage of net sales. The increase in total SG&A was the result of additional expenses related to new businesses. Interest Income, Net Net interest income was $49 thousand for the first quarter of 2003 as compared to $25 thousand for the first quarter of 2002. The increase was the result of higher invested cash balances in the first quarter of 2003 compared to the first quarter of 2002. Net Income/Loss In the first quarter of 2003, the Company reported net income of $2.2 million, or $.24 per fully diluted share, as compared to net income of $0.5 million, or $.05 per fully diluted share in the first quarter of 2002. The increase in net income was due to the factors discussed above, as well as $0.9 million of merger related expenses that were incurred in the first quarter of fiscal 2003. Liquidity and Capital Resources On May 11, 1999, the Company entered into a syndicated revolving credit facility, (the "Credit Agreement"), as amended and restated on November 30, 2001, with The CIT Group/Commercial Services, Inc. ("CIT"). Effective May 11, 2002, the Company signed an amendment with CIT to extend the Credit Agreement for an additional three years. The execution of the Merger Agreement with PEI, as well as the consummation of the transactions contemplated thereby are prohibited by the Credit Agreement. Under the Credit Agreement, the Company will be obligated to pay to CIT a termination fee of 1% of the average aggregate daily balance of loans and letter of credit accommodations outstanding for the 12-month period prior to the date the facility is terminated. Assuming the transaction contemplated by the merger is closed on June 30, 2003, the termination fee would be approximately $350 thousand based upon the Company's actual average daily balances from July 2002 through March 2003 and an estimate of such balances from April 2003 though June 2003. The Company has received a consent from CIT to the execution of the Merger Agreement and CIT has waived any event of default under the Credit Agreement as a result of such execution. In addition, the consent from CIT also includes a consent to the consummation of the merger and a waiver of any event of default as a result thereof, subject to certain conditions including the payment of the termination fee. The Credit Agreement provides for a general working capital facility, in the form of direct borrowings and letters of credit, up to $85 million subject to an asset-based borrowing formula. The Credit Agreement consists of an $85 million revolving credit facility, with at least a $45 million letter of credit sub-facility. As collateral for borrowings under the Credit Agreement, the Company granted to CIT a first priority lien on, and security interest in, substantially all of the assets of the Company. The Credit Agreement also provides, among other things, that (i) the Company will be charged an interest rate on direct borrowings at the Prime Rate, or at the Company's request, 2.25% in excess of LIBOR (as defined in the Credit Agreement), and (ii) CIT may, in their sole discretion, make loans to the Company in excess of the borrowing formula but within the $85 million limit of the revolving credit facility. The Company is required under the agreement to comply with certain financial covenants, including but not limited to, consolidated tangible net worth, capital expenditures, minimum pre-tax income, minimum interest coverage ratio and an annual provision to reduce cash borrowings to zero for 30 consecutive days. The Company was in compliance with all applicable covenants at March 29, 2003. At March 29, 2003, there were no direct borrowings outstanding and letters of credit outstanding under the Credit Agreement were $23.2 million. The Company had unused availability, based on outstanding letters of credit and existing collateral, of $43.1 million and cash of approximately $12.8 million available to fund its operations. At the end of the first three months of 2002, there were no direct borrowings outstanding; letters of credit outstanding were $21.7 million, and the Company had unused availability of $39.6 million and cash of approximately $5.9 million available to fund its operations. March 29, March 30, 2003 2002 Maximum Availability under Credit Agreement $66.3 $61.3 Borrowings under Credit Agreement -- -- Outstanding Letters of Credit 23.2 21.7 Current Availability under Credit Agreement 43.1 39.6 Cash on Hand 12.8 5.9 Available to fund operations $55.9 $45.5 The Company's cash used by operating activities for the first quarter of 2003 was $7.6 million, which primarily reflects (i) a decrease in accrued liabilities of $6.0 million, (ii) an increase in inventory of $2.7 million, (iii) a decrease in accounts payable of $2.3 million, and (iv) an increase in net accounts receivable of $0.5 million. These were offset by net income from continuing operations of $2.3 million, a decrease of $0.2 million in prepaid and other assets and non-cash charges for depreciation and amortization totaling $1.4 million. Cash used by investing activities for the first quarter of 2003 was $0.6 million for capital expenditures and $0.2 million for department store fixtures. During fiscal 2003, the Company plans to make capital expenditures of approximately $2.7 million for computer systems and related infrastructure, $0.6 million at the distribution center, $0.5 million for the retail outlet stores and $0.5 million for other projects, for a total of approximately $4.3 million. The Company also plans to spend an additional $1.0 million for the installation of fixtures in department stores. At March 29, 2003, working capital totaled $76.1 million as compared to $57.1 million at the end of the first quarter of 2002 and the current ratio was 4.3:1 as compared to 4.4:1 in the first quarter of 2002. The components of working capital changed significantly as of March 29, 2003 as compared to March 30, 2002. Cash increased by $6.9 million, current liabilities increased by $6.4 million, inventory increased by $12.9 million, and accounts receivable increased by $1.0 million. Current liabilities increased $6.4 million at the end of the first quarter of 2003 as compared to the first quarter of 2002 due to the timing of inventory purchases and receipts. Accounts receivable increased by $1.0 million due to the timing of sales within the quarter. Critical Accounting Policies and Estimates Certain of the Company's accounting policies require the application of significant judgement by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent degree of uncertainty. These judgements are based on historical experience, the Company's observation of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The Company's significant accounting policies include: Revenue Recognition - Sales are recognized upon shipment of products to customers since title generally passes upon shipment and, in the case of sales by the Company's retail outlet stores, when goods are sold to consumers. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded based upon historical experience and current trends. While such allowances have been within the Company's expectations and the provisions established, there can be no assurance that the Company will continue to experience the same allowance rate as in the past. Inventory - Inventory is valued at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving and aged merchandise are provided based on historical experience and current market conditions. The Company evaluates the adequacy of the reserves quarterly. While markdowns have been within the Company's expectations and the provisions established, there can be no assurance that the Company will continue to experience the same level of markdowns as in the past. Valuation of Long-Lived Assets - The Company periodically reviews the carrying value of the Company's long-lived assets for recoverability. The review is based upon the Company's projections of anticipated future cash flows. While the Company believes that the estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect the Company's evaluations. Deferred Taxes -- The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized based on differences between financial statement and tax basis of assets and liabilities using presently enacted tax rates. A valuation allowance is recorded to reduce a deferred tax asset to that portion which is expected to more likely than not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during periods prior to the expiration of the related net operating losses. Retirement-Related Benefits -- The pension obligations related to the Company's defined benefit pension plans are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate, expected return of plan assets, future compensation increases, and other factors, which are updated on an annual basis. Management is required to consider current market conditions, including changes in interest rates, in making these assumptions. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized pension expense or benefit and the Company's pension obligation in future periods. The fair value of plan assets is based on the performance of the financial markets, particularly the equity markets. The equity markets can be, and recently have been, very volatile. Therefore, the market value of plan assets can change dramatically in a relatively short period of time. Additionally, the measurement of the plans' benefit obligations is highly sensitive to changes in interest rates. As a result, if the equity markets decline and/or interest rates decrease, the plans' estimated accumulated benefit obligation could exceed the fair value of plan assets and, therefore, the Company would be required to establish an additional minimum liability, which would result in a reduction in shareholders' equity for the amount of the shortfall. For fiscal 2002, 2001 and 2000, the Company recorded an additional minimum pension liability calculated under the provisions of SFAS No. 87 of $10.8 million, $0.4 million and $1.5 million, respectively, as an adjustment to accumulated other comprehensive loss. Factors that May Affect Future Results and Financial Condition. This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, there can be no assurance that the statement of the expectation or belief will result or be achieved or accomplished. The words "believe", "expect", "estimate", "project", "seek", "anticipate" and similar expressions may identify forward-looking statements. The Company's future operating results and financial condition are dependent upon the Company's ability to successfully design, source, import and market its products. Taking into account the foregoing, the following are identified as important factors that could cause results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line 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. Trademarks Licensed to the Company. Approximately two-thirds of the Company's net sales are attributable to trademarked products licensed by the Company. The principal trademarks licensed by the Company are PERRY ELLIS, PORTFOLIO BY PERRY ELLIS, OCEAN PACIFIC and JNCO. The licenses contain provisions related to, among other things, products which may be sold, territories where products may be sold, restrictions on sales to certain levels of distribution, minimum sales and royalty requirements, advertising and promotion requirements, sales reporting, design and product standards, renewal options, assignment and change of control provisions, defaults, cures and termination provisions. The change of control provisions and their potential effects vary with each licensing agreement. The license arrangements with PEI grant the licensor the right to terminate the licenses (subject to the payment of certain royalties) if any person or group acquires 40% or more of the equity interests or voting control of the Company. Assuming the exercise of all renewal options by the Company, the Perry Ellis licenses will expire on December 31, 2015, the Ocean Pacific license will expire on December 31, 2008 and the JNCO license will expire on December 31, 2011. Should any of the Company's material licenses be terminated, outside the normal course of business, there can be no assurance that the Company's financial condition and results of operations would not be adversely affected. Strategic Initiatives. In the first quarter of 2002, the Company purchased the assets and trademarks of Axis which designs, produces, and markets better men's sportswear. Subject to its obligations under the Merger Agreement with PEI, management of the Company is continuing to consider various strategic opportunities, including but not limited to, new menswear licenses and/or acquisitions. Management is also exploring ways to increase productivity and efficiency, and to reduce the cost structures of its respective businesses. Through this process management expects to expand its distribution channels and achieve effective economies of scale. No assurance may be given that any transactions resulting from this process will be announced or completed. Apparel Industry Cycles and other Economic Factors. The apparel industry historically has been subject to substantial cyclical variation, with consumer spending on apparel tending to decline during recessionary periods. A decline in the general economy or uncertainties regarding future economic prospects may affect consumer-spending habits, which, in turn, could have a material adverse effect on the Company's results of operations and financial condition. Retail Environment. Various retailers, including some of the Company's customers, have experienced declines in revenue and profits in recent periods and some have been forced to file for bankruptcy protection. To the extent that these difficult financial conditions continue at retail, there can be no assurance that the Company's financial condition and results of operations would not be adversely affected. Seasonality of Business and Fashion Risk. The Company's principal products are organized into seasonal lines for resale at the retail level during the Spring, Transition, Fall and Holiday seasons. Typically, the Company's products are designed as much as one year in advance and manufactured approximately one season in advance of the related retail-selling season. Accordingly, the success of the Company's products is often dependent on the ability of the Company to successfully anticipate the needs of the Company's retail customers and the tastes of the ultimate consumer up to a year prior to the relevant selling season. Foreign Operations. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas, and in certain parts of the world, political instability. Any substantial disruption of its relationship with its foreign suppliers could adversely affect the Company's operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas, which limit the amount of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocation could adversely affect the Company's operations. The Company's operations in Asia are subject to certain political and economic risks including, but not limited to, political instability, changing tax and trade regulations and currency devaluations and controls. Although the Company has experienced no material foreign currency transaction losses, its operations in the region are subject to an increased level of economic instability. The impact of these events on the Company's business, and in particular its sources of supply, could have a material adverse effect on the Company's performance. Dependence on Contract Manufacturing. The Company produces substantially all of its products through arrangements with independent contract manufacturers. The use of such contractors and the resulting lack of direct control could subject the Company to difficulty in obtaining timely delivery of products of acceptable quality. In addition, as is customary in the industry, the Company does not have any long-term contracts with its fabric suppliers or product manufacturers. While the Company is not dependent on one particular product manufacturer or raw material supplier, the loss of several such product manufacturers and/or raw material suppliers in a given season could have a material adverse effect on the Company's performance. Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors are cautioned not to use historical trends to anticipate results or trends in the future. In addition, the Company's participation in the highly competitive apparel industry often results in significant volatility in the Company's common stock price. New Accounting Pronouncements. In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.145, "Recession of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections". In addition to amending and rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS No. 145 precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS No. 145 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The Company adopted SFAS No. 146 on January 1, 2003 and the adoption of this pronouncement did not have a material effect on the consolidated results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for the year ended December 31, 2002 and for interim financial statements for the first quarter ending after December 31, 2002. The adoption of this Statement did not have a material impact on the consolidated financial statements, as the Company has not decided to adopt the fair value method of accounting for stock-based compensation. On April 30, 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others- an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. However, the disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is not a party to any agreement in which it is a guarantor of indebtedness of others. Accordingly, this pronouncement is currently not applicable to the Company. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or SPEs). In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The objective of FIN 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of FIN 46 apply to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. However, certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities as defined in FIN 46. Accordingly, this pronouncement is currently not applicable to the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in the trading of market risk sensitive instruments in the normal course of business. Financing arrangements for the Company are subject to variable interest rates including rates primarily based on the Reference Rate (as defined in the three-year syndicated revolving credit facility, as amended on November 30, 2001 with the CIT Group/Commercial Services, Inc.) with a LIBOR option. At March 29, 2003 and March 30, 2002 there were no direct borrowings outstanding under such credit facility. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures Within the 90 days prior to the date of this report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings with the Securities and Exchange Commission. (b) Changes in Internal Controls There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date the Company carried out this evaluation. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On February 3, 2003, the Company entered into an amendment to the Rights Agreement dated May 17, 2002 with Mellon Investor Services LLC. The Rights Agreement adopted a shareholders' right plan (or "poison pill") which attached a preferred share purchase right to each share of the Company's common stock. The amendment ensured that the rights under the plan would not be triggered by the announcement, signing, pendency or completion of the merger agreement entered into on February 3, 2003 by the Company, PEI and Connor Acquisition Corp. or any of the transactions contemplated thereby. The amendment was filed as Exhibit 4.1 to the Company's Form 8-K filed on February 5, 2003. ITEM 5. OTHER INFORMATION On February 3, 2003, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Perry Ellis International, Inc., a Florida corporation ("PEI") and Connor Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of PEI. Under the terms of the Merger Agreement, PEI will acquire the Company in a stock/cash transaction with a total merger consideration of approximately $91,000,000, comprised of approximately $52,000,000 in cash and approximately $39,000,000 worth of newly issued shares of PEI common stock (the "Merger"). Each holder of outstanding common stock of the Company will receive approximately $9.3691 per share comprised of at least $5.3538 per share of cash and up to $4.0153 per share of PEI common stock. The Merger Agreement provides that the maximum number of shares of PEI common stock to be issued in the Merger is limited to 3,250,000, with the remaining merger consideration to be paid in cash. The exact fraction of a share of PEI common stock that the Company stockholders will receive for each of their shares will be determined based on the Nasdaq average closing sale price of the PEI common stock for the 20-consecutive trading day period ending three trading days prior to the closing date. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of PEI. The Merger has been approved by all of the members of the board of directors of the Company. The Merger requires that a majority of the stockholders of the Company approve the Merger and that a majority of the stockholders of PEI approve the issuance of up to 3,250,000 shares of PEI's common stock in connection with the Merger Agreement, and is subject to SEC approval, the absence of material adverse changes, and certain other customary closing conditions. Stone Ridge Partners LLC is serving as financial advisor to the Company and has delivered a fairness opinion to the Company's board of directors. In addition, George Feldenkreis, PEI's Chairman and CEO, and Oscar Feldenkreis, PEI's President and COO, have each agreed to vote the PEI shares they control in favor of the issuance of the PEI common stock in the transaction. The Company has amended the Rights Agreement dated May 17, 2002, between the Company and Mellon Investor Services LLC to provide that the Merger will not trigger any rights or events thereunder. The Merger is also subject to anti-trust regulatory review; however, on April 1, 2003 PEI and Salant received notification of early termination of the 30-day statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, from the U.S. Federal Trade Commission. Pursuant to the Merger Agreement, PEI agreed to file and maintain in effect a registration statement for the Company's affiliates to enable them to resell shares of PEI common stock they receive in the Merger without legal restriction. On March 17, 2003 PEI filed a preliminary joint proxy statement-prospectus with the SEC and on April 29, 2003, PEI filed a pre-effective Amendment No. 1 to such joint proxy statement-prospectus. It is anticipated that the Merger will be consummated in June 2003. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed. Exhibit No. Description 2.1 Agreement and Plan of Merger, dated February 3, 2003, by and among Salant Corporation, Perry Ellis International, Inc. and Connor Acquisition Corp. (with exhibits)(1) 4.1 Amendment No. 1, dated as of February 3, 2003, to the Rights Agreement dated as of May 19, 2002 between Salant Corporation and Mellon Investment Services LLC(1) 10.1 Amendment to Employment Agreement of William O. Manzer, dated as of January 31, 2003, amending the Employment Agreement, dated March 13, 2000, between William O. Manzer and Salant Corporation(1) 10.2 Amendments to Employment Agreement of Awadhesh K. Sinha, dated as of December 27, 2002 and January 31, 2003, amending his Employment Agreement dated February 1, 1999 as amended by the Letter Agreements dated July 1, 1999 and March 28, 2001(1) 10.3 Letter Agreement, dated February 3, 2003, among Michael J. Setola, Salant Corporation and Perry Ellis International, Inc.(1) 10.4 Letter Agreement, dated February 3, 2003, among Awadhesh K. Sinha, Salant Corporation and Perry Ellis International, Inc.(1) 99.1 Voting Agreement dated February 3, 2003 among Salant Corporation, George Feldenkreis, Oscar Feldenkreis, GFX, Inc., a Florida corporation, and The Oscar Feldenkreis Family Partnership, Ltd., a Florida limited partnership(1) 99.2 Certification by Michael J. Setola, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.3 Certification by Awadhesh K. Sinha, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) filed as Exhibits to the Company's Form 8-K filed on February 5, 2003 and incorporated herein by reference. (b) Reports on Form 8-K During the first quarter of 2003, the Company filed a Form 8-K on February 5, 2003, regarding, among other things, the announcement on February 4, 2003, that the Company entered into an Agreement and Plan of Merger, dated February 3, 2003, with Perry Ellis International, Inc. and Connor Acquisition Corp. The Company also filed a Form 8-K on March 13, 2003 furnishing under Items 7 and 9 the transmittal letter and certificates for the Company's annual report on Form 10-K by the Company's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SALANT CORPORATION Date: May 12, 2003 /s/ Awadhesh K. Sinha Awadhesh K. Sinha Chief Operating Officer and Chief Financial Officer CERTIFICATION I, Michael J. Setola, Chief Executive Officer of Salant Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Salant Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/ Michael J. Setola Michael J. Setola Chief Executive Officer CERTIFICATION I, Awadhesh K. Sinha, Chief Financial Officer of Salant Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Salant Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 12, 2003 /s/ Awadhesh K. Sinha Awadhesh K. Sinha Chief Financial Officer EXHIBITS Exhibit No. Description 2.1 Agreement and Plan of Merger, dated February 3, 2003, by and among Salant Corporation, Perry Ellis International, Inc. and Connor Acquisition Corp. (with exhibits)(1) 4.1 Amendment No. 1, dated as of February 3, 2003, to the Rights Agreement dated as of May 19, 2002 between Salant Corporation and Mellon Investment Services LLC(1) 10.1 Amendment to Employment Agreement of William O. Manzer, dated as of January 31, 2003, amending the Employment Agreement, dated March 13, 2000, between William O. Manzer and Salant Corporation(1) 10.2 Amendments to Employment Agreement of Awadhesh K. Sinha, dated as of December 27, 2002 and January 31, 2003, amending his Employment Agreement dated February 1, 1999 as amended by the Letter Agreements dated July 1, 1999 and March 28, 2001(1) 10.3 Letter Agreement, dated February 3, 2003, among Michael J. Setola, Salant Corporation and Perry Ellis International, Inc.(1) 10.4 Letter Agreement, dated February 3, 2003, among Awadhesh K. Sinha, Salant Corporation and Perry Ellis International, Inc.(1) 99.1 Voting Agreement dated February 3, 2003 among Salant Corporation, George Feldenkreis, Oscar Feldenkreis, GFX, Inc., a Florida corporation, and The Oscar Feldenkreis Family Partnership, Ltd., a Florida limited partnership(1) 99.2 Certification by Michael J. Setola, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.3 Certification by Awadhesh K. Sinha, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) filed as Exhibits to the Company's Form 8-K filed on February 5, 2003 and incorporated herein by reference. EX-99 3 exhibit99_2.txt CEO CERTIFICATION 906 EXHIBIT 99.2 Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) I, Michael J. Setola, Chief Executive Officer of Salant Corporation (the "Registrant"), do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended March 29, 2003 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/ Michael J. Setola Michael J. Setola Chief Executive Officer May 12, 2003 *A signed original of this written statement required by Section 906 has been provided to Salant Corporation and will be retained by Salant Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 4 exhibit99_3.txt CFO CERTIFICAITON 906 EXHIBIT 99.3 Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) I, Awadhesh K. Sinha, Chief Financial Officer of Salant Corporation (the "Registrant"), do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended March 29, 2003 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/ Awadhesh K. Sinha Awadhesh K. Sinha Chief Financial Officer May 12, 2003 *A signed original of this written statement required by Section 906 has been provided to Salant Corporation and will be retained by Salant Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----