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.