SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Amendment No. 2
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 29, 1999
SUPREME INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 0-21764 59-1162998
State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
3000 N.W. 107TH AVENUE, MIAMI, FLORIDA 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 592-2830
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS Page
----
(a) Financial Statements of Business Acquired.
Report of Independent Auditors' Report F-1
Statement of Revenues, Direct Expenses and Allocated Corporate
Expenses Before Interest and Domestic Income Taxes for the
Year Ended January 2, 1999 F-2
Statement of Net Assets to be Sold as of January 2, 1999 F-3
(b) Notes to Financial Statements F-4
Unaudited Pro Forma Combined Financial Information.
Unaudited Pro Forma Combined Balance Sheet as of January 31,
1999 F-7
Unaudited Pro Forma Combined Income Statement for the Year
Ended January 31, 1999 F-8
Notes to Unaudited Pro Forma Combined Financial Information F-9
<PAGE>
SIGNATURES
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 hereunto duly authorized.
SUPREME INTERNATIONAL CORPORATION
Date: June 11, 1999 By: /S/ ROSEMARY B. TRUDEAU
------------------------------
Rosemary B. Trudeau,
Vice President of Finance
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of Salant Corporation
We have audited the accompanying statement of net assets to be acquired of the
John Henry and Manhattan Business (the "Business"), comprising the licensing
operations of John Henry and Manhattan brands owned by Salant Corporation
("Salant"), as of January 2, 1999 and the related statement of revenues, direct
expenses and allocated corporate expenses before interest and domestic income
taxes for the year then ended. These financial statements are the responsibility
of Salant's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, the Business comprises the
licensing operations of the John Henry and Manhattan brands owned by Salant. The
Business receives managerial, administrative and other support from Salant.
Certain expenses included in the financial statements represent allocated
amounts from Salant. As a result, the Business net assets to be acquired and its
revenues, direct expenses and allocated corporate expenses before interest and
taxes may not be indicative of conditions that would have existed or results
that would have occurred had the Business operated as an unaffiliated entity.
In our opinion, such financial statements present fairly, in all material
respects, the net assets to be acquired of the Business as of January 2, 1999,
and its revenues, direct expenses and allocated corporate expenses before
interest and domestic income taxes for the year then ended in conformity with
the generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
June 4, 1999
F-1
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
STATEMENT OF REVENUES, DIRECT EXPENSES AND ALLOCATED CORPORATE
EXPENSES BEFORE INTEREST AND DOMESTIC INCOME TAXES
YEAR ENDED
JANUARY 2, 1999
---------------
Royalty income $3,993,405
Salaries and wages (177,632)
Amortization of trademarks (330,000)
Professional fees (260,044)
Other expenses (144,753)
Allocated expenses (251,122)
Foreign taxes (Note 2) (178,998)
Other income, net 17,228
----------
Income before interest and
domestic income taxes $2,668,084
==========
See Notes to Financial Statements
F-2
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF THE JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
STATEMENT OF NET ASSETS TO BE ACQUIRED
JANUARY 2, 1999
---------------
ASSETS
Property and equipment, net (Note 3) 1,762,201
Trademarks (Note 4) 9,680,000
Goodwill (Note 4) 15,557,799
-----------
NET ASSETS TO BE ACQUIRED $27,000,000
===========
See Notes to Financial Statements
F-3
<PAGE>
JOHN HENRY AND MANHATTAN BUSINESS
(COMPRISING THE LICENSING OPERATIONS OF JOHN HENRY AND MANHATTAN BRANDS
OWNED BY SALANT CORPORATION)
Notes to Financial Statements
Year ended January 2, 1999
NOTE 1. ORGANIZATION AND OPERATIONS
Frost Bros. Enterprises, Inc. ("Frost Bros."), a wholly-owned subsidiary of
Salant Corporation ("Salant"), owns the JOHN HENRY trademark. Salant owns the
LADY MANHATTAN and MANHATTAN trademarks. Salant operated under the protection of
chapter 11 of title 11 of the United States Code in the United States Bankruptcy
Court for the Southern District of New York ("Bankruptcy Court") for the period
of December 29, 1998 through May 11, 1999. The trademarks have been registered
or are pending registration with the United States Patent and Trademark Office.
Salant has sought to capitalize on the consumer recognition of and interest in
its trademarks by licensing several of those trademarks to others. As of January
2, 1999 ("Fiscal 1998"), licenses were outstanding to approximately 19 licensees
to make or sell apparel products and accessories in the United States and to 29
licensees operating in 32 other countries under the MANHATTAN, LADY MANHATTAN
and JOHN HENRY trademarks. Products under license include men's belts, leather
accessories, neckwear, optical frames, outerwear, pajamas, robes, scarves,
shorts, slacks, socks, sport coats, sunglasses, suspenders and underwear, and
women's blouses and tops, gloves, intimate apparel, lingerie, optical frames and
shirts.
Salant sold its John Henry and Manhattan businesses (the "Business") pursuant to
a Purchase and Sale Agreement (subject to and subsequently approved by the
Bankruptcy Court on February 26, 1999) dated December 28, 1998 (the "Agreement")
between Salant and Supreme International Corporation ("Supreme"). The Business
includes the JOHN HENRY, MANHATTAN and LADY MANHATTAN trade names, the leasehold
interest in a dress shirt facility located in Valle Hermosa, Mexico, and certain
equipment located at the Valle Hermosa facility and certain related equipment at
Salant's facility located in Andalusia, Alabama. The cash purchase price was
$27,000,000 and the transaction was closed on March 29, 1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Business is not a "stand-alone" division or subsidiary of Salant and was not
generally accounted for separately. As a result, the distinct and separate
accounts necessary to present an individual balance sheet, income statement and
cash flow statement of the Business as of January 2, 1999 and the year then
ended have not been maintained.
The Business does not have its own stand-alone treasury, legal, financial,
information systems and other similar corporate support functions. For purposes
of preparing these financial statements, an allocation (see Note 5) was made for
various expenses and is included in the financial statements. However,
sufficient information is not available to develop a reasonable cost allocation
for income taxes (other than those withheld by foreign licensees) and interest.
Due to the limitations noted above, the following financial information is
presented: (i) Statement of Net Assets to be Acquired - This statement includes
only the net assets of the Business
F-4
<PAGE>
that is being purchased by Supreme; (ii) Statement of Revenues, Direct Expenses
and Allocated Corporate Expenses before Interest and Domestic Income Taxes -
This statement includes all corporate cost allocations for which a reasonable
method of allocating the cost to the operations can be developed. A Statement of
Cash Flows has not been presented as the Business does not maintain its own cash
accounts.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
1998 comprised of 52 weeks.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated or amortized over
their estimated useful lives, or for leasehold improvements, the lease term, if
shorter. Depreciation and amortization are computed principally by the
straight-line method for financial reporting purposes.
The annual depreciation rates are as follows:
Machinery, equipment and autos 6.7% - 33.3%
Furniture and fixtures 10.0% - 33.3%
Leasehold improvements Shorter of the life of
the asset or the lease term
INTANGIBLES
Trademarks and goodwill are amortized on a straight-line basis over their useful
lives of 40 years. In evaluating the value and future benefits of these
intangible assets, their carrying value would be reduced by the excess, if any,
of the intangibles over management's best estimate of undiscounted future
operating income before amortization of the related intangible asset over the
remaining amortization period. If an impairment existed, the carrying value
would be reduced to the value of its discounted cash flows.
FOREIGN TAXES
Foreign tax expense represents the withholdings by foreign licensees for taxes
due in the country in which the royalties are earned. No allocation has been
made for domestic income taxes.
REVENUE RECOGNITION
Royalty income is recognized at the time the royalty is earned.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-5
<PAGE>
NOTE 3. PROPERTY AND EQUIPMENT
JANUARY 2, 1999
---------------
Machinery, equipment, furniture
and fixtures 4,152,505
Leasehold improvements 87,829
----------
4,240,334
Less accumulated depreciation and amortization 2,478,132
----------
$1,762,201
==========
Pursuant to the Agreement, assets to be acquired were transferred from other
operating divisions to the Statement of Net Assets to be Acquired as of January
2, 1999. As the manufacturing operations have been discontinued, no depreciation
expense is included in the accompanying financial statements.
NOTE 4. TRADEMARKS AND GOODWILL
Trademarks consist of the JOHN HENRY, MANHATTAN and LADY MANHATTAN names that
were acquired in Salant's 1988 purchase of Manhattan Industries. At January 2,
1999, the net book value of the trademarks was $9,680,000, which was net of
accumulated amortization of $3,520,000. Amortization expense for trademarks for
Fiscal 1998 was $330,000. Goodwill arose from the acquisition, in 1988 of the
Dress Shirt and the Accessories divisions of Manhattan Industries, which used
the trademarks in the manufacture and sale of products bearing the trademark
names. As the manufacturing operations have been discontinued, no amortization
of goodwill is included in the accompanying financial statements. As of January
2, 1999, goodwill had a carrying value of $15,557,799, net of accumulated
amortization of $25,323,201.
NOTE 5. ALLOCATIONS
The Business does not maintain stand-alone treasury, legal, financial,
information systems and other similar corporate support functions. The Business
does record certain expenses related to employee payroll and benefits,
professional fees and advertising. For purposes of preparing the financial
information for the Business, certain Salant expenses were allocated based upon
various factors such as square footage, revenues and the identification of costs
specifically attributable to the Business.
Management believes that these allocations are based on assumptions that are
reasonable under the circumstances. However, the Business' net assets to be
acquired and the results of revenues, direct expenses and allocated corporate
expenses before interest and domestic taxes may not be indicative of conditions
that would have existed or results that would have occurred had the Business
operated as an unaffiliated entity.
F-6
<PAGE>
UNAUDITED PRO FROMA COMBINED FINANCIAL INFORMATION
The following sets forth Supreme's Unaudited Pro Forma Combined
Financial Information as of and for the fiscal year ended January 31, 1999,
giving effect to the Perry Ellis International, Inc. and John Henry/Manhattan
acquisitions under the "purchase" method of accounting, and the Rule 144A
offering of an aggregate principal amount of $100 million in 12 1/4% Senior
Subordinated Notes due 2006. Supreme's Unaudited Pro Forma Combined Income
Statement Information presents (i) the acquisition of Perry Ellis International,
Inc. and the Rule 144A offering and (ii) the John Henry/Manhattan acquisition,
each as if they had been consummated on February 1, 1998. Supreme's Unaudited
Pro Forma Combined Balance Sheet Information presents the Perry Ellis
International, Inc. acquisition, the Rule 144A offering and the John
Henry/Manhattan acquisition as if they had been consummated on January 31, 1999.
The Unaudited Pro Forma Combined Financial Information of the combined companies
are presented for illustrative purposes only, and therefore do not purport to
present the financial position or results of operations of Supreme had the Perry
Ellis International, Inc. acquisition, the Rule 144A offering, and the John
Henry/Manhattan acquisition occurred on the dates indicated, nor are they
necessarily indicative of the results of operations which may be expected to
occur in the future.
The historical financial information for Supreme, Perry Ellis
International, Inc. and the John Henry/Manhattan Business has been derived from
the respective audited financial statements. The pro forma adjustments relating
to the acquisitions and integration of Perry Ellis International, Inc. and John
Henry/Manhattan represent Supreme's preliminary determinations of these
adjustments and are based upon available information and certain assumptions
Supreme considers reasonable under the circumstances. Final amounts could differ
from those set forth herein.
F-7
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
JANUARY 31, 1999
(DOLLARS IN THOUSANDS)
HISTORICAL(1) PRO FORMA HISTORICAL(1) PRO FORMA
---------------------- ------------------------- ------------ -------------------------
JOHN HENRY/
SUPREME PERRY ELLIS ADJUSTMENTS(2) COMBINED MANHATTAN ADJUSTMENTS(4) COMBINED
-------- ----------- -------------- -------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 174 $1,777 $ (1,777) $ 174 $ -- $ -- $ 174
Accounts receivable, net 38,970 945 -- 39,915 -- -- 39,915
Inventories 32,966 -- -- 32,966 -- -- 32,966
Deferred income taxes 1,091 -- -- 1,091 -- -- 1,091
Deposits for acquisitions 6,000 -- (5,000)(b) 1,000 -- (1,000)(a) --
Other current assets 2,040 667 (75)(c) 2,632 -- 1,500 (b) 4,132
-------- ------ -------- -------- ------- -------- --------
Total Current Assets 81,241 3,389 (6,852) 77,778 -- 500 78,278
Property and equipment, net 7,852 1,142 (900)(d) 8,094 1,762 (1,762)(c) 8,094
Intangible assets, net 18,843 -- 74,104 (e) 92,947 25,238 2,602 (d) 120,787
Other assets 1,022 32 3,479 (f) 4,533 -- -- 4,533
-------- ------ -------- -------- ------- -------- --------
Total Assets $108,958 $4,563 $ 69,831 $183,352 $27,000 $ 1,340 $211,692
======== ====== ======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,596 $ 163 $ -- $ 4,759 $ -- $ -- $ 4,759
Accrued expenses 4,931 561 -- 5,492 -- -- 5,492
Other current liabilities 414 -- 640 (g) 1,054 -- 2,340 (c) 3,394
-------- ------ -------- -------- ------- -------- --------
Total Current Liabilities 9,941 724 640 11,305 -- 2,340 13,645
Deferred income taxes 560 -- -- 560 -- -- 560
Senior Credit Facility 33,511 -- (25,822)(h) 7,689 -- 26,000 (f) 33,689
Senior Subordinated Notes -- -- 98,852 (i) 98,852 -- -- 98,852
-------- ------ -------- -------- ------- -------- --------
Total Liabilities 44,012 724 73,670 118,406 -- 28,340 146,746
Stockholders' equity 64,946 3,839 (3,839)(j) 64,946 27,000 (27,000)(g) 64,946
-------- ------ -------- -------- ------- -------- --------
Total Liabilities
and Stockholders' Equity $108,958 $4,563 $ 69,831 $183,352 $27,000 $ 1,340 $211,692
======== ====== ======== ======== ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
F-8
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
YEAR ENDED JANUARY 31, 1999
(DOLLARS IN THOUSANDS)
HISTORICAL(1) PRO FORMA HISTORICAL(1) PRO FORMA
---------------------- ------------------------- ------------ -------------------------
JOHN HENRY/
SUPREME PERRY ELLIS ADJUSTMENTS(3) COMBINED MANHATTAN ADJUSTMENTS(5) COMBINED
-------- ----------- -------------- -------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $221,347 $ -- $ -- $221,347 $ -- $ -- $221,347
Royalty income 3,057 16,177 -- 19,234 3,993 887 (a) 24,114
-------- ------- -------- -------- ------- -------- --------
Total revenue 224,404 16,177 -- 240,581 3,993 887 245,461
Cost of sales 166,198 -- -- 166,198 -- -- 166,198
-------- ------- -------- -------- ------- -------- --------
Gross profit 58,206 16,177 -- 74,383 3,993 887 79,263
Selling, general, and
administrative expenses 41,639 8,594 1,059 (a) 51,292 1,146 929 (b) 53,367
-------- ------- -------- -------- ------- -------- --------
Operating income 16,567 7,583 (1,059) 23,091 2,847 (42) 25,896
Interest expense 3,494 -- 10,896 (b) 14,390 -- 2,056 (c) 16,446
-------- ------- -------- -------- ------- -------- --------
Income before provision for
income taxes 13,073 7,583 (11,955) 8,701 2,847 (2,098) 9,450
Provision for income taxes 4,491 760 (1,504)(c) 3,747 179 258 (d) 4,184
-------- ------- -------- -------- ------- -------- --------
Net income $ 8,582 $ 6,823 $(10,451) $ 4,954 $ 2,668 $ (2,356) $ 5,266
======== ======= ======== ======== ======= ======== ========
Other Operating Data:
Ratio of earnings to
fixed charges(6) 4.3x -- -- 1.6x -- -- 1.6x
Depreciation and amortization $ 2,161 $ 228 $ 3,525 $ 5,914 $ 330 $ 1,122 $ 7,366
EBITDA(7) $ 18,728 $ 7,811 $ 2,466 $ 29,005 $ 3,177 $ 1,080 $ 33,262
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
F-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(1) The year ended January 31, 1999 is Supreme's historical financial reporting
period. For the pro forma year ended January 31, 1999 (i) Perry Ellis
International, Inc. financial information has been included for the twelve
months ended December 31, 1998 and (ii) John Henry/Manhattan has been
included as of and for the year ended January 2, 1999, because they have
historically reported on these fiscal year ends. Supreme believes the
effect of the difference in these reporting periods is not significant and
is not reflected in the Unaudited Pro Forma Combined Financial Information.
(2) The Perry Ellis International, Inc. purchase price is $75,000 plus net
working capital less the net severance and bonus amounts. Based upon the
Perry Ellis International, Inc.'s December 31, 1998 balance sheet, the
purchase price is calculated as follows:
<TABLE>
<S> <C>
PURCHASE PRICE DETERMINATION:
Gross purchase price $ 75,000
Net adjustments to purchase price (449)
---------
Net purchase price $ 74,551
=========
PURCHASE PRICE ALLOCATION:
Current assets $ 1,537
Property, plant and equipment 242
Other assets 32
Trademarks 74,104
Accounts payable and accrued expenses (1,364)
---------
Net purchase price $ 74,551
=========
</TABLE>
For purposes of preparing the Unaudited Pro Forma Combined Balance Sheet,
the Perry Ellis International assets acquired and liabilities assumed have
been recorded at their estimated fair values. A final determination of the
required purchase accounting adjustments and of the fair value of the
assets and liabilities of Perry Ellis International, Inc. acquired or
assumed has not yet been made. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited pro
forma financial information reflect Supreme's best estimate based upon
currently available information.
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1999
-----------------
<S> <C>
(a) Cash balances of Perry Ellis International, Inc.
which are not being acquired $ (1,777)
(b) Deposit applied to the Perry Ellis International, Inc. acquisition (5,000)
(c) Other current assets of Perry Ellis International, Inc. which are
not being acquired (75)
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1999
-----------------
<S> <C>
(d) Property, plant and equipment have been adjusted to their
estimated fair value (900)
(e) Trademarks acquired 74,104
(f) Deferred financing costs related to the notes offered in the Rule
144A offering 3,479
(g) Liabilities assumed, including severance and acquisition costs
payable 640
(h) Pay down of Senior Credit Facility (25,822)
(i) Issuance of notes offered in the Rule 144A offering 98,852
(j) Elimination of Perry Ellis International, Inc.'s stockholders'
equity (3,839)
</TABLE>
(3) The pro forma income statement data for the year ended January 31, 1999
present the effects of the Perry Ellis International, Inc. acquisition and
the Rule 144A offering, in each case as if they occurred as of the
beginning of such period, including:
<TABLE>
<S> <C>
(a) Adjustments to selling, general and administrative expenses:
Decrease in depreciation expense to reflect the fair value and
useful lives of the acquired property, plant and equipment $ (180)
Amortization expense of trademarks (straight-line 20 years) 3,705
Elimination of consulting fees, licensing fees, severance costs,
occupancy costs and employment costs that will not be incurred by
the Company (2,466)
--------
Total adjustments to selling, general and administrative
expenses 1,059
--------
(b) The pro forma adjustments to interest expense arising from the
Perry Ellis International acquisition and the offering of the
notes in the Rule 144A offering are presented below:
Reduction of interest expense related to the lower balance
outstanding under the credit facility (at 7.60%) (1,962)
Additional interest cost related to:
The notes offered in the Rule 144A offering 12,250
Amortization of deferred financing costs and discount 608
--------
Total adjustments to interest expense 10,896
-------
(c) Adjustment to the provision for income taxes at an effective rate
of 34.4% (1,504)
--------
Total adjustments to income statement $(10,451)
========
</TABLE>
In addition to the above, Supreme believes additional cost savings will
be realized through the combination of the two companies.
F-11
<PAGE>
(4) The John Henry/Manhattan purchase price is $27,000. Based upon the
financial statements of the John Henry and Manhattan Business of Salant
Corporation as of January 2, 1999, the allocation of the purchase price is
as follows:
<TABLE>
<S> <C>
PURCHASE PRICE ALLOCATION:
Current assets $ 1,500
Trademarks 27,440
Current Liabilities (expenses related to the acquisition) (1,940)
---------
Net purchase price $ 27,000
=========
</TABLE>
For purposes of preparing the Unaudited Pro Forma Combined Balance Sheet,
the John Henry/Manhattan assets acquired and liabilities assumed have been
recorded at their estimated fair values. A final determination of the
required purchase accounting adjustments and of the fair value of the
assets and liabilities of the John Henry/Manhattan acquisition has not yet
been made. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma financial
information reflect Supreme's best estimate based upon currently available
information.
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1999
-----------------
<S> <C>
(a) Deposit applied to the John Henry/Manhattan acquisition $ (1,000)
---------
(b) The estimated fair value of property and equipment acquired and
held for sale 1,500
---------
(c) To remove the historical cost of property and equipment acquired (1,762)
---------
(d) Intangible assets are being adjusted as follows:
Elimination of John Henry/Manhattan intangible assets (25,238)
Record trademarks acquired 27,440
Deferred financing costs related to the Senior Credit Facility 400
---------
Total adjustment to intangible assets, net 2,602
---------
(e) Liabilities for acquisition costs incurred of $1,940 and
financing costs of $400 2,340
---------
(f) Borrowings on Senior Credit Facility 26,000
---------
(g) Elimination of John Henry/Manhattan stockholders' equity (27,000)
---------
</TABLE>
F-12
<PAGE>
(5) The pro forma income statement data for the year ended January 31, 1999
present the effects of the John Henry/Manhattan, in each case as if they
occurred as of the beginning of such period, including:
<TABLE>
<S> <C>
(a) Adjustments to royalty income:
Additional royalty income as a result of the licensing agreement
with Phillips-Van Heusen $ 1,000
Elimination of inter-company revenues (113)
-------
Total adjustment to royalty income 887
-------
(b) Adjustments to selling, general and administrative expenses:
Amortization expense of trademarks (straight-line 20 years) 1,372
Elimination of inter-company expenses (113)
Elimination of amortization of intangible assets not acquired (330)
-------
Total adjustment to selling, general and administrative
expenses 929
-------
(c) The pro forma adjustments to interest expense arising from the
John Henry/Manhattan acquisition and the corresponding increase
in debt are presented below:
Increase of interest expense related to the increased balance
outstanding under the credit facility (at 7.60%) 1,976
Amortization of deferred financing costs 80
-------
Total adjustment to interest expense 2,056
-------
(d) Inclusion of a provision for federal income taxes at an effective
rate of 34.4% 258
-------
Total adjustment to income statement $(2,356)
=======
</TABLE>
In addition to the above, Supreme believes additional cost savings will be
realized through the combination of the two companies.
(6) For the purpose of computing this ratio, earnings consist of earnings
before income taxes and fixed charges. Fixed charges consist of interest
expense, amortization of deferred debt issuance costs and the portion of
rental expense of the Lease deemed representative of the interest factor.
(7) EBITDA represents net income before taking into consideration interest
expense, income tax expense, depreciation expense and amortization expense.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and does not represent cash flow from
operations. Accordingly, do not regard this figure as an alternative to net
income or as an indicator of our operating performance or as an alternative
to cash flows as a measure of liquidity. We believe that EBITDA is widely
used by analysts, investors and other interested parties in our industry
but is not necessarily comparable with similarly titled measures for other
companies. See "Statements of Cash Flows" in our consolidated financial
statements and in the financial statements of Perry Ellis International,
Inc. and of the John Henry and Manhattan Business.
F-13
