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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
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 0-21764
SUPREME INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1162998
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3000 N.W. 107TH AVENUE, MIAMI, FLORIDA 33172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 592-2830
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS.
Indicate by check mark whether the Registrant has filed all documents and
reports to be filed by Sections 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 [ ] No [ ]
The number of shares outstanding of the Registrant's Common Stock is
6,723,874 (as of March 12, 1999).
The aggregate market value of the voting stock held by non-affiliate of
the Registrant's approximately $44,693,206 (as of March 12, 1999).
DOCUMENTS INCORPORATED BY REFERENCE
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY PRO FORMA AND SUPPLEMENTAL FINANCIAL INFORMATION
The "Pro Forma Financial Information" set forth below gives effect to (i)
the Perry Ellis International acquisition and (ii) a Rule 144A offering of
$100.0 million in aggregate principal amount of senior subordinated notes due
2006. The "Supplemental Financial Information" set forth below, in addition to
giving effect to the transactions included in the Pro Forma Financial
Information, gives effect to (i) the John Henry/Manhattan acquisition and the
related concurrent sale of the existing dress shirt inventory to Phillips-Van
Heusen and (ii) additional indebtedness incurred under the Senior Credit
Facility to finance the John Henry/Manhattan acquisition. The income statement
and operating information give effect to such transactions as if they had
occurred on February 1, 1998 and the balance sheet information gives effect to
such transactions as if they had occurred on January 31, 1999.
The information presented below has been derived from our audited
consolidated financial statements, the audited financial statements of Perry
Ellis International, Inc. and certain financial information received from
Salant Corporation with respect to the John Henry/Manhattan acquisition. This
information does not purport to represent what our operating results or
financial condition would actually have been had the Perry Ellis International
acquisition and/or the John Henry/Manhattan acquisition and related
transactions with Phillips-Van Heusen actually occurred as of the dates
indicated above or to project our financial condition for any future period.
The information presented below should be read in conjunction with our
consolidated financial statements and notes thereto, the financial statements
and notes thereto of Perry Ellis International, Inc., the Unaudited Pro Forma
Combined Financial Information and notes thereto included in Item 8 of this
report and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
PRO FORMA
FISCAL YEAR ENDED
JANUARY 31, 1999
PRO FORMA FINANCIAL INFORMATION ----------------------
(DOLLARS IN MILLIONS)
STATEMENT OF INCOME DATA:
Total revenues ........................................ $ 240.6
Depreciation and amortization ......................... 5.9
Operating income ...................................... 23.1
Interest expense ...................................... 14.4
BALANCE SHEET DATA (AT YEAR END):
Working capital ....................................... $ 66.5
Total assets .......................................... 183.4
Total debt ............................................ 106.5
Total stockholders' equity ............................ 64.9
OTHER FINANCIAL DATA AND RATIOS:
Pro Forma EBITDA (a) .................................. $ 29.0
Capital expenditures .................................. 4.0
Ratio of Pro Forma EBITDA to interest expense ......... 2.0x
Ratio of total debt to Pro Forma EBITDA ............... 3.7x
SUPPLEMENTAL FINANCIAL INFORMATION
The Pro Forma Financial Information set forth above does not give effect
to the John Henry/Manhattan acquisition because audited financial information
for the assets being acquired will not be available from Salant Corporation
prior to the filing of this report. However, we have been provided with certain
unaudited financial information for the eleven months ended November 30, 1998
that has been derived from Salant's internal financial records. Based on this
information, EBITDA related to the John Henry and Manhattan brands for the 11
months ended November 30, 1998 was $3.8 million ("Estimated EBITDA") (see note
(b) below). The sum of the
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$29.0 million Pro Forma EBITDA (with respect to the Perry Ellis International
acquisition) set forth above plus Estimated EBITDA is $32.8 million ("Adjusted
EBITDA"). The information used to calculate the Estimated EBITDA and,
correspondingly, the Adjusted EBITDA may not be reliable because Estimated
EBITDA (i) has been obtained from the unaudited financial records of Salant
Corporation, (ii) reflects only eleven months of operations and (iii) does not
include the impact of any additional costs or expenses that may be recorded by
Salant Corporation in December, as a result of normal year-end adjustments or
otherwise, that relate to the 11 months ended November 30, 1998. Additionally,
the Estimated EBITDA and, correspondingly, the Adjusted EBITDA do not take into
consideration any expenses of assuming the lease for the dress shirt
manufacturing facility located in Mexico, operating that facility or disposing
of that facility. Although no agreement has been reached, we intend to either
sublease the facility or not renew the lease.
The following financial information supplements the Pro Forma Financial
Information set forth above to give effect to the John Henry/Manhattan
acquisition and related Phillips-Van Heusen transactions by adjusting (i) Pro
Forma EBITDA by Estimated EBITDA and (ii) Total Debt and interest expense by
the additional debt of $27.0 million and related interest expense of $2.1
million incurred to finance the John Henry/Manhattan acquisition (after giving
effect to the Phillips-Van Heusen acquisition of the existing dress shirt
inventory) (dollars in millions):
Pro Forma EBITDA ..................................... $ 29.0
Estimated EBITDA(b) .................................. 3.8
--------
Adjusted EBITDA(a) ................................. $ 32.8
========
Interest expense ..................................... $ 16.5
Total Debt ........................................... $ 133.5
Ratio of Adjusted EBITDA to interest expense ......... 2.0x
Ratio of Total Debt to Adjusted EBITDA ............... 4.1x
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(a) 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 (loss) 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 it 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. contained
in Item 8 of this report.
(b) Estimated EBITDA represents the sum of (i) royalty income related to the
John Henry and Manhattan brands less the related direct expenses (which
exclude any allocation of corporate expense), in each case for the 11
months ended November 30, 1998 as determined from the financial
information provided by Salant Corporation referred to above and (ii)
the minimum yearly royalty required to be paid to us by Phillips-Van
Heusen pursuant to its license of the John Henry and Manhattan brands.
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SUMMARY HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following table presents selected historical financial and operating
data derived from the audited consolidated financial statements of Supreme and
the audited financial statements of Perry Ellis International, Inc. The
historical financial data should be read in conjunction with our consolidated
financial statements and the notes and the financial statements of Perry Ellis
International, Inc. and the notes thereto appearing elsewhere herein and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
SUPREME HISTORICAL
STATEMENT OF INCOME DATA:
Net sales .................................. $ 90,564 $ 121,839 $ 157,373 $ 190,689 $ 221,347
Net royalty income ......................... -- 759 1,654 4,032 3,057
---------- ---------- ---------- ---------- ----------
Total revenue .............................. 90,564 122,598 159,027 194,721 224,404
Cost of sales .............................. 69,187 92,145 122,046 145,991 166,198
---------- ---------- ---------- ---------- ----------
Gross profit ............................... 21,377 30,453 36,981 48,730 58,206
Selling, general and administrative
expenses .................................. 13,493 20,395 24,729 34,137 39,478
Depreciation and amortization .............. 474 725 1,147 1,748 2,161
---------- ---------- ---------- ---------- ----------
Operating income ........................... 7,410 9,333 11,105 12,845 16,567
Interest expense ........................... 1,219 2,224 1,664 2,782 3,494
---------- ---------- ---------- ---------- ----------
Income before income taxes ................. 6,191 7,109 9,441 10,063 13,073
Income taxes ............................... 2,319 2,685 3,597 2,885 4,491
---------- ---------- ---------- ---------- ----------
Net income ................................. $ 3,872 $ 4,424 $ 5,844 $ 7,178 $ 8,582
========== ========== ========== ========== ==========
Net income per share
Basic ..................................... $ 0.73 $ 0.76 $ 0.89 $ 1.10 $ 1.29
Diluted ................................... $ 0.73 $ 0.75 $ 0.89 $ 1.08 $ 1.27
Weighted average number of shares
outstanding
Basic ..................................... 5,300,000 5,800,000 6,534,446 6,540,604 6,674,103
Diluted ................................... 5,300,000 5,874,470 6,595,147 6,665,635 6,769,810
OTHER FINANCIAL DATA AND RATIOS:
EBITDA (a) ................................. $ 7,884 $ 10,058 $ 12,252 $ 14,593 $ 18,728
Capital expenditures ....................... 747 1,309 1,058 3,828 4,005
Ratio of earnings to fixed charges (b) ..... 5.3x 3.8x 5.7x 4.1x 4.2x
BALANCE SHEET DATA (AT YEAR END):
Working capital ............................ $ 43,067 $ 47,760 $ 23,575 $ 66,166 $ 71,300
Total assets ............................... 55,512 53,735 88,158 101,650 108,958
Total debt (c) ............................. 28,256 6,968 31,949 39,658 33,511
Total stockholders' equity ................. 22,016 43,833 47,775 55,155 64,946
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
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<S> <C> <C> <C>
PERRY ELLIS INTERNATIONAL, INC. HISTORICAL
STATEMENT OF INCOME DATA:
Net royalty income ................................... $10,917 $15,660 $16,177
Selling, general and administrative expenses ......... 8,606 7,109 8,398
Depreciation and amortization ........................ 212 226 228
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Operating income ..................................... 2,099 8,325 7,551
Interest income ...................................... 144 136 32
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Income before income taxes ........................... 2,243 8,461 7,583
Income taxes ......................................... 218 852 760
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Net income ........................................... $ 2,025 $ 7,609 $ 6,823
======= ======= =======
OTHER FINANCIAL DATA AND RATIOS:
EBITDA (a) ........................................... $ 2,455 $ 8,688 $ 7,811
Capital expenditures ................................. 47 87 21
BALANCE SHEET DATA (AT YEAR END):
Working capital ...................................... $ 1,995 $ (27) $ 2,665
Total assets ......................................... 4,803 3,112 4,563
Total debt ........................................... -- -- --
Total stockholders' equity ........................... 3,439 1,369 3,839
</TABLE>
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(a) 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 similarily 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. contained in Item 8 of this report.
(b) For 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.
(c) Total debt includes balances outstanding under credit facilities, long-term
debt and current portion of long-term debt.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a leading designer and marketer of a broad line of high quality
men's sportswear, including sport and dress shirts, golf sportswear, sweaters,
urban wear and casual and dress pants which we sell to all levels of retail
distribution. We have built a broad portfolio of brands through selective
acquisitions and the establishment of our own brands over our 32-year operating
history. We are currently one of the top five branded suppliers to department
stores in the knit and woven shirt product categories. We currently use over 70
independent suppliers, mostly located in the Far East, other parts of Asia,
Mexico, and Central America.
We own or license from third parties the brand names under which most of
our products are sold. These brand names include Crossings and Natural Issue
for casual sportswear, John Henry for dress casual wear, Andrew Fezza for dress
sportswear, Ping and Munsingwear for golf sportswear and PNB Nation for urban
wear. We market our brands to a wide range of demographic segments, targeted at
consumers in specific age, income and ethnic groups. Currently, our products
are predominantly produced for the men's segment of the apparel industry, in
which fashion trends tend to be less volatile than in other segments. The
percentage of our revenues from branded products increased to 81.4% in fiscal
1999 from 71.5% in fiscal 1997.
We also license our proprietary brands to third parties for the
manufacture and marketing of various products which we do not sell, including
underwear, activewear and loungewear. In addition to generating additional
sources of revenue for us, these licensing arrangements raise overall awareness
of our brands.
RECENT DEVELOPMENTS
In order to expand our licensing operations, we recently signed a
definitive agreement to acquire Perry Ellis International, Inc. which owns and
licenses the prestigious and well-known Perry Ellis brand name. We have also
signed a definitive agreement to purchase the trademarks for John Henry, the
leading brand for men's dress casualwear at Sears Roebuck, for Manhattan, the
best selling dress shirt brand at Wal-Mart and Kmart Corporation and for Lady
Manhattan.
PERRY ELLIS INTERNATIONAL ACQUISITION. In January 1999, we agreed to buy
Perry Ellis International, Inc. for approximately $74.6 million in cash, net of
purchase price adjustments. Perry Ellis International, Inc. is a privately held
company which owns and licenses the Perry Ellis brand name, currently one of
the top selling brands in department stores in the United States. Perry Ellis
International, Inc. is currently the licensor under 34 license agreements,
primarily for various men's wear, boys' wear and fragrances. During the years
ended December 31, 1998, Perry Ellis International, Inc. had revenues of $16.2
million and EBITDA of $7.8 million. Under our management of the brand, we
expect to benefit from certain operating efficiencies and to enhance the
licensing royalties the Perry Ellis brand generates. Net income from royalties
at Perry Ellis International, Inc. grew 48.2% from fiscal year end December 31,
1996 to December 31, 1998 while operating expenses grew at a rate of 55.6%
primarily as a result of increased advertising.
JOHN HENRY/MANHATTAN ACQUISITION. In December 1998, we entered into an
agreement to buy certain assets of the John Henry and Manhattan dress shirt
business from Salant Corporation which is currently in Chapter 11 bankruptcy
proceedings. On February 24, 1999, the bankruptcy court approved the purchase
for $27.0 million, plus the value of the existing dress shirt inventory (which
was subsequently valued at approximately $17.2 million). The acquisition was
completed on March 29, 1999. The assets purchased consist of the John Henry,
Manhattan and Lady Manhattan trademarks, tradenames, license agreements,
certain manufacturing equipment and the existing dress shirt inventory. On
March 29, 1999, Phillips-Van Heusen Corporation purchased the existing dress
shirt
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inventory at our acquisition cost and licensed from us the John Henry and
Manhattan brands for men's dress shirts. In connection with the John
Henry/Manhattan acquisition, we assumed a lease for a shirt manufacturing
facility in Mexico which expires in July 1999. Although no agreement has been
reached, we intend to either sublease the Mexican facility to one of our
suppliers for use in the production of our products or not renew the lease. The
acquisition price, net of the $1.0 million deposit we have paid and the
proceeds from sale of the existing dress shirt inventory, was approximately
$26.0 million and was financed with borrowings under our Senior Credit
Facility.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected items
in our consolidated statements of income expressed as a percentage of total
revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
1997 1998 1999
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<S> <C> <C> <C>
Net sales ............................................ 99.0% 97.9% 98.6%
Royalty income ....................................... 1.0 2.1 1.4
----- ----- -----
Total revenues ....................................... 100.0 100.0 100.0
Cost of sales ........................................ 76.7 75.0 74.1
----- ----- -----
Gross profit ......................................... 23.3 25.0 25.9
Selling, general and administrative expenses ......... 16.3 18.4 18.5
----- ----- -----
Operating income ..................................... 7.0 6.6 7.4
Interest expense ..................................... 1.0 1.4 1.6
----- ----- -----
Income before income taxes ........................... 6.0 5.2 5.8
Income tax provision ................................. 2.3 1.5 2.0
----- ----- -----
Net income ........................................... 3.7% 3.7% 3.8%
===== ===== =====
</TABLE>
FISCAL 1999 AS COMPARED TO FISCAL 1998
TOTAL REVENUES. Total revenues consist of net sales and royalty income.
Total revenue grew $29.7 million or 15.3% to $224.4 million in fiscal 1999 from
$194.7 million in fiscal 1998 as a result of internal growth.
NET SALES. Net sales increased $30.6 million or 16.1% to $221.3 million in
fiscal 1999 from $190.7 million in fiscal 1998 as branded products grew to
represent nearly 81.4% of net sales in fiscal 1999 compared to 75.4% of net
sales in fiscal 1998. Within branded products, the increase in net sales was
primarily the result of the sales growth in the Munsingwear brand where net
sales increased by $23.6 million to approximately $66.0 million in fiscal 1999.
In addition, net sales of the Natural Issue brand increased by approximately,
$10.2 million to $76.2 million for fiscal 1999. In the portfolio of other
branded products, the John Henry brand also experienced an increase in net
sales. We first introduced the Andrew Fezza, PNB Nation and Ping brands during
fiscal 1999. They also contributed to the increase in net sales. The increases
in net sales in fiscal 1999 were slightly offset by declines in net sales of
our other branded and private label products.
ROYALTY INCOME. We had royalty income of $3.1 million for fiscal 1999
compared to $4.0 million for fiscal 1998. The decline of $0.9 million was
primarily due to our relationship with one customer, which shifted from
primarily a licensee basis to primarily a sales basis. Net sales to this
customer increased by $7.0 million to $11.5 million in fiscal 1999.
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COST OF SALES. Cost of sales for fiscal 1999 was $166.2 million or 74.1%
of total revenue as compared to $146.0 million or 75.0% of total revenue for
fiscal 1998. The decrease in the cost of sales as a percentage of total
revenues is a result of our increased sales in branded products, which
typically generate higher gross profit margin than private label products.
Gross profit was $58.2 million or 25.9% of total revenue for fiscal 1999 as
compared to $48.7 million or 25.0% of total revenue in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including depreciation and amortization, for fiscal
1999 were $41.6 million or 18.5% of total revenue as compared to $35.9 million
or 18.4% of total revenue for fiscal 1998. The increase is primarily
attributable to costs associated with recent license acquisitions and the $0.7
million in costs associated with the increase in temporary personnel hired in
connection with our new inventory management system. The costs associated with
the recent license acquisitions are primarily related to payroll, advertising,
and samples. We will continue to incur expenses related to start up costs of
acquired licenses, including the completion and integration of the Perry Ellis
International acquisition and the John Henry/Manhattan acquisition. We believe
that we will achieve greater efficiencies in our new corporate and warehouse
facility during the coming fiscal year, somewhat offsetting these increases.
INTEREST EXPENSE. Interest expense for fiscal 1999 was $3.5 million as
compared to $2.8 million for fiscal 1998. The increase was the result of
additional indebtedness incurred to support the increase in working capital
requirements during the fiscal year particularly in the third quarter.
INCOME TAXES. During fiscal 1999, our effective tax rate was 34.4%
compared to 28.7% in fiscal 1998, which resulted in an increase in the income
tax provision by $1.6 million to $4.5 million. The prior year tax rate was
lower than normal as we adjusted our provision for overpayments in fiscal 1997.
NET INCOME. Net income for fiscal 1999 increased $1.4 million or 19.4% to
$8.6 million or 3.8% of total revenue from $7.2 million or 3.7% of total
revenue for fiscal 1998.
FISCAL 1998 AS COMPARED TO FISCAL 1997
TOTAL REVENUES. Total revenues grew 22.5% or $35.7 million to $194.7
million in fiscal 1998 from $159.0 million in fiscal 1997 primarily as a result
of the growth from our acquisition of the Munsingwear brand and the related
license income.
NET SALES. Net sales for fiscal 1998 increased 21.2% or $33.3 million to
$190.7 million from $157.4 million for fiscal 1997. The increase in net sales
was primarily attributable to the Munsingwear and Grand Slam brands which
increased approximately $33.0 million as well as an increase in the Crossings
brand. We acquired the Munsingwear brand during the final quarter of fiscal
1997. This increase was partially offset by a decrease in revenue from sales of
the Natural Issue brand and private label products.
ROYALTY INCOME. We had royalty income of $4.0 million for fiscal 1998
compared to $1.7 million for fiscal 1997. The increase of $2.3 million was
primarily due to the increase in royalties from the licensing of the
Munsingwear brand.
COST OF SALES. Cost of sales for fiscal 1998 was $146.0 million or 75.0%
of total revenue as compared to $122.0 million or 76.7% of total revenue for
fiscal 1997. The decrease in the cost of sales as a percentage of total revenue
reflects a continued shift to more sales of branded products which typically
generate higher gross profit margin than private label products. Gross profit
was $48.7 million or 25.0% of total revenues for fiscal 1998 as compared to
$37.0 million or 23.3% of total revenues in fiscal 1997.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses, including depreciation and amortization, for fiscal
1998 were $35.9 million or 18.4% of total revenue as
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compared to $25.9 million or 16.3% of sales for fiscal 1997. This increase was
due to increased levels of staffing required to service the Munsingwear brand
and increased advertising costs relating to the start of consumer advertising
as a result of brand imaging.
INTEREST EXPENSE. Interest expense for fiscal 1998 was $2.8 million
compared to $1.7 million for fiscal 1997. This increase in interest expense was
the result of the additional indebtedness incurred by us in connection with the
acquisition of the Munsingwear and Jolem labels, as well as to support
increased levels of working capital requirements proportionate with the
increased levels of revenue.
INCOME TAXES. During fiscal 1998, our effective tax rate was 28.7%
compared to 38.1% in fiscal 1997. This decrease was the result of our
adjustment of our income tax provision because of tax overpayments for the
prior two fiscal years.
NET INCOME. Net income for fiscal 1998 was $7.2 million or 3.7% of total
revenues as compared to $5.8 million or 3.7% of total revenues for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
We rely primarily upon cash flow from operations and borrowings under our
Senior Credit Facility to finance operations and expansion. Cash provided by
operating activities was $14.3 million in fiscal 1999, compared to a usage of
cash of $3.1 million in fiscal 1998 and cash provided by operating activities
of $1.9 million in 1997. The $17.4 million increase in fiscal 1999 cash flow
from operations as compared to fiscal 1998 is due primarily to decreases in
inventory and accounts receivable levels from year-to-year in the amount of
$6.4 million and $3.2 million, respectively, as well as increases in accounts
payable and accrued expenses of $5.3 million.
Net cash used in investing activities was $10.2 million in fiscal 1999, of
which $5.0 million was for the deposit on the pending Perry Ellis International
acquisition and $1.0 million was related to the pending John Henry/Manhattan
acquisition. Net cash used in investing activities for fiscal 1998 totaled $4.6
million, of which $3.8 million related principally to the new distribution and
office facility.
Net cash used in financing activities for fiscal 1999 totaled $4.9 million
which was primarily due to a reduction of $6.1 million from borrowings on the
Letter of Credit Facilities and the Senior Credit Facility. Net cash provided
by financing activities for fiscal 1998 totaled $7.9 million, which was
primarily due to an increase in borrowings under the Senior Credit Facilities.
Working capital (current assets minus current liabilities) was $71.3
million at the end of fiscal 1999 as compared to $66.2 million at the end of
fiscal 1998. The $5.1 million increase in working capital primarily resulted
from an increase in accounts receivable and other current assets due to the
sales growth and deposits made for pending acquisitions. The current ratio
(current assets divided by current liabilities) was 8.2:1 and 7.9:1 at the end
of fiscal 1999 and fiscal 1998, respectively.
We have a $100.0 million ($90.0 million after applying the net proceeds of
the Rule 144A offering described below) credit facility with a group of banks
consisting of a revolving credit facility of up to an aggregate principal amount
of $75.0 million and a term loan in the aggregate amount of $25.0 million ($10.0
million of the term loan portion is required to be repaid with the net proceeds
of the Rule 144A offering) (the "Senior Credit Facility"). Borrowings pursuant
to the revolving credit facility are limited under its terms to a borrowing base
calculation, which generally restricts the outstanding balances to 85.0% of
eligible receivables plus 90.0% of eligible factored accounts receivable plus
60.0% of eligible inventories minus all outstanding letters of credit issued
pursuant to the Senior Credit Facility that are not fully secured by cash
collateral. The maximum amount of borrowing under the Senior Credit Facility
attributable to (i) eligible factored accounts receivable is $20.0 million and
(ii) eligible inventory is $30.0 million. Interest on revolving borrowings is
variable based, at our option, upon either LIBOR plus 2.50% or the agent bank's
prime rate plus 0.50%. Interest on the term loan is 25 basis points higher than
on the revolving credit facility. The Senior Credit Facility contains certain
covenants, the most restrictive of which requires us to maintain certain
financial ratios and minimum net worth. In addition, the Senior Credit Facility
restricts the payment of dividends. The Senior Credit Facility is secured by all
of our assets and is guaranteed by our subsidiaries. The outstanding balance
under the Company's previous senior credit facility was $33.5 million on January
31, 1999. The Senior Credit Facility expires in October 2002.
9
<PAGE>
Borrowings under the Senior Credit Facility were used to finance the John
Henry/Manhattan acquisition and amounted to approximately $27.0 million. We
intend to finance the approximately $74.6 million acquisition of Perry Ellis
International, Inc., with the net proceeds from a Rule 144A offering of $100.0
million in aggregate principal amount of senior subordinated notes due 2006. The
remaining net proceeds from the Rule 144A offering will be used to reduce
borrowings under the Senior Credit Facility, including reducing the $25.0
million term loan to $15.0 million.
We also maintain three letter of credit facilities which total $60.0
million. Each letter of credit is collateralized by the consignment of
merchandise in transit under that letter of credit. Indebtedness under these
letters of credit bears interest at variable rates approximately equal to the
lenders' specified base lending rates minus 1.0% per annum. As of January 31,
1999, there was $36.6 million available under these facilities. One of the
facilities expires in July 1999 and the other two facilities, aggregating $15.0
million, have perpetual terms.
Capital expenditures, principally associated with the new office and
warehouse facility, were $4.0 million, $3.8 million and $1.1 million for fiscal
1999, 1998 and 1997 respectively. Capital expenditures, including the
integration costs for the pending Perry Ellis International and John
Henry/Manhattan acquisitions, for fiscal 2000 and 2001 are expected to be
approximately $4.0 million and $4.5 million, respectively.
Our products have historically been geared toward lighter-weight products
generally worn during the spring and summer months, which typically caused a
disproportionately higher amount of revenues to be realized during the first
quarter of each fiscal year. The introduction of fall, winter and holiday
merchandise has also positively affected the third quarter. Our business is
currently more affected by the variations in retail buying patterns than the
seasons of the year.
Management believes that the combination of the borrowing availability
under the amended Senior Credit Facility, the completion of this offering,
funds anticipated from changes in working capital and funds anticipated to be
generated from operating activities will be sufficient to meet our operating
and capital needs in the foreseeable future.
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
We do not believe that inflation has significantly affected our results of
operations.
We purchase from foreign suppliers in U.S. dollars. Accordingly, the
Company, to date, has not been materially adversely affected by foreign
currency fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Management has not determined
the effect, if any, of adopting SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES ("SOP 985"). SOP 98-5 establishes accounting standards for the
reporting of certain costs associated with the start-up of operations, lines of
business, etc. SOP 98-5 requires that costs of start-up activities, including
organizational costs, be expenses as incurred and that in the year of adoption,
start-up costs recorded should be expensed.
10
<PAGE>
SOP 98-5 is effective for fiscal years beginning subsequent to December 15,
1998. Management has not determined the effect, if any, of adopting SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING Activities. Among other provisions, SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It also requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for financial statements
for fiscal year beginning after June 15, 1999. Management has not determined
the effect, if any, of adopting SFAS No. 133.
YEAR 2000 READINESS DISCLOSURE
BACKGROUND. The Year 2000 issue refers to the inability of certain
data-sensitive computer chips, software and systems to recognize a two-digit
date field as belonging to the 21st century. Many computer software programs,
as well as certain hardware and equipment containing date-sensitive data, were
structured to utilize a two-digit date field. Accordingly, these programs may
not be able to properly recognize dates in the year 2000 and later, which could
result in a significant system and equipment failures. This is a significant
issue for most if not all companies, with far reaching implications, some of
which cannot be anticipated or predicted with any degree of certainty. We
recognize that we must take action to ensure that our operations will not be
adversely impacted by Year 2000 software failures.
We have undertaken a study of our functional application systems to
determine their compliance with year 2000 issues and, to the extent of
noncompliance, the required remediation. As a result of such study, we believe
the majority of our systems are year 2000 compliant. Our current distribution
software was modified by expanding the date to be century compliant, and all
entry forms were modified using a windowing algorithm. The financial systems
Account Receivables, Accounts Payables and General Ledger were replaced with
Oracle Financial release 11.01, under Oracle 8.0.5 database. This is year 2000
compliant, and enhances our business analysis capabilities.
Our EDI application is software purchased from NGC, a company in Miami
Lakes, Florida. While we do not own the source code to this software, NGC
provided written certification of year 2000 compliance. Furthermore, we passed
the EDI year 2000 compliance test from NRF (National Retail Federation).
Results of the test can be found at http://www.nrf.com. We are ready to change
to the new EDI 4010 documents whenever our customers are ready. Some of our
larger customers are already doing 4010 transactions with us. Our EDI software
is also ready to convert any non-compliant year 2000 EDI documents to an
internal year 2000 compliant transaction.
All of our PBXs or telephone systems are year 2000 compliant and were
certified and tested by Lucent Technologies. The security system equipment Year
2000 compliant certification could be found under
http://www.napcosecurity.com/nsg nsg2000.html. The monitoring company Security
One has provided us a Year 2000 certification of any Date Based System. We
completed the required remediation noted above, including testing, by December
31, 1998. However, there are also less significant hardware options which will
be remediated during 1999. To date, the expense to outsiders incurred by us in
order to become year 2000 compliant, including computer software costs, have
been $0.2 million and the current additional estimated cost to outsiders to
complete such remediation is expected to be $0.2 million. Such costs, other
than software, have been and will continue to be expensed as incurred.
An assessment of the readiness of year 2000 compliance of third party
entities with which we have relationships, such as our banking institutions,
customers, payroll processors and others is ongoing. We have inquired, or are
in the process of inquiring, of the significant aforementioned third party
entities as to their readiness with respect to year 2000 compliance and to date
has received indications that many of them are either compliant or in the
process of remediation. We will continue
11
<PAGE>
to monitor these third party entities to determine the impact on our business
and the actions we must take, if any, in the event of non-compliance by any of
these third parties. Our initial assessment of compliance by third party is
that there is not a material business risk to us posed by any such
noncompliance and, as such, we have not yet developed any related contingency
plan.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, this "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements that involve a number of risks
and uncertainties, including the risks described elsewhere in this report and
detailed from time to time in the Company's filings with the Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-33 appearing at the end of this report.
12
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following compensation table sets forth for fiscal 1999, fiscal 1998
and fiscal 1997, the cash and certain other compensation paid to the Chief
Executive Officer ("CEO") and such other executive officers whose annual salary
and bonus exceeded $100,000 during fiscal 1999 (together with the CEO,
collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------- ----------------------------------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) OPTION/SAR'S (#) COMPENSATION ($)(1)
- ----------------------------- ------------- ------------ ----------- ----------------------- --------------------
<S> <C> <C> <C> <C> <C>
George Feldenkreis 1999 270,833 55,000 150,000 9,615
Chairman and CEO 1998 125,000 100,000 -- 4,750
1997 120,000 50,000 -- 500
Oscar Feldenkreis 1999 373,000 470,000 55,000 19,542
President and Chief 1998 350,000 460,000 -- 4,750
Operating Officer 1997 350,000 450,000 -- 500
Joseph Roisman 1999 152,000 15,000 3,000 1,109
Executive Vice President 1998 147,000 21,000 -- 4,750
1997 140,000 10,000 -- 500
</TABLE>
- ----------------
(1) The dollar amount represents Company contributions for the Named Executive
Officer under the Company's 401(K) plan and Company payments for leased
vehicles.
EMPLOYMENT AGREEMENTS
Supreme has an employment agreement with Oscar Feldenkreis, the President
and Chief Operating Officer, which was renewed in May 1998 for a two-year
period. In connection with the renewal of the employment agreement, Mr.
Feldenkreis was granted ten-year options under the 1993 Plan to purchase a
total of 55,000 shares of Common Stock at an exercise price of $15.75 per
share. The employment agreement provides for an annual salary of $350,000,
subject to annual cost-of-living increases, and an annual bonus as may be
determined by the Compensation Committee in its discretion, up to a maximum of
$500,000. The employment agreement also prohibits Mr. Feldenkreis from directly
or indirectly competing with us for one year after termination of his
employment for any reason except our termination of Mr. Feldenkreis without
cause. Upon termination of the employment agreement by reason of his death or
disability, Mr. Feldenkreis or his estate will receive a lump sum payment equal
to one year's salary plus a bonus as may be determined by the Compensation
Committee in its discretion.
Supreme also has an employment agreement with George Feldenkreis, the
Chairman of the Board and CEO, which was renewed in May 1998 for a two-year
period. In connection with the renewal of the employment agreement, Mr.
Feldenkreis was granted options under the 1993 Plan to purchase a total of
150,000 shares of Common Stock at an exercise price of $15.75 per share. The
employment agreement provides for an annual salary of $375,000, subject to
annual cost-of-living increases, and an annual bonus as may be determined by
the Compensation Committee in its discretion, up to a maximum of $250,000.
George Feldenkreis' employment agreement contains termination and
non-competition provisions similar to those set forth in Oscar Feldenkreis'
agreement.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
options made during fiscal 1999 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
--------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION FOR
NUMBER OF SHARES OPTIONS GRANTED EXERCISE OR OPTION TERM ($)(1)
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------------- -------------------- ----------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
George Feldenkreis ...... 150,000 38.8 15.75 5/07/08 1,485,764 3,765,217
Oscar Feldenkreis ....... 55,000 14.2 15.75 5/07/08 544,780 1,380,579
Joseph Roisman .......... 3,000 0.8 10.00 5/04/03 8,288 18,315
</TABLE>
- ----------------
(1) Based upon the exercise price, which was equal to the fair market on the
date of grant, and annual appreciation at the rate stated on such price
through the expiration date of the options. Amounts represented
hypothetical gains that could be achieved for the options if exercised at
the end of the term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the Securities
and Exchange Commission (the "Commission") and do not represent the
Company's estimate or projection of the future stock price. Actual gains,
if any, are contingent upon the continued employment of the Named
Executive Officer through the expiration date, as well as being dependent
upon the general performance of the Common Stock. The potential realizable
values have not taken into account amounts required to be paid for federal
income taxes.
STOCK OPTIONS HELD AT END OF FISCAL 1999
The following table indicates the total number and value of exercisable
and unexercisable stock options held by each of the Named Executive Officers as
of January 31, 1999. No options to purchase stock were exercised by any of the
Named Executive Officers in fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)
------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
- ---------------------------- ------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
George Feldenkreis ......... 150,000 0 37,500 0
Oscar Feldenkreis .......... 100,000 0 354,400 0
Joseph Roisman ............. 12,000 2,250 98,213 13,500
</TABLE>
- ----------------
(1) Based on the Nasdaq National Market last sales price for the Company's
Common Stock on January 29, 1999 in the amount of $16.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements.
(1) Financial Statements. The following consolidated financial
statements of Supreme International Corporation and subsidiaries are
included in Part II, Item 8:
PAGE
-----
Independent Auditors' Report ........................................ F-1
Consolidated Balance Sheets as of January 31, 1998 and 1999 ......... F-2
Consolidated Statements of Income
For Each of the Three Years in the Period Ended January 31, 1999 .... F-3
Consolidated Statements of Changes in Stockholders' Equity
For Each of the Three Years in the Period Ended January 31, 1999 .... F-4
Consolidated Statements of Cash Flow
For Each of the Three Years in the Period Ended January 31, 1999 .... F-5
Notes to Consolidated Financial Statements .......................... F-6
The following financial statements of Perry Ellis International, Inc.
are included in Part II, Item 8:
PAGE
-----
Independent Auditors' Report ........................................ F-21
Balance Sheet as of December 31, 1997 and 1998 ...................... F-22
Statement of Operations for the years ended
December 31, 1996, 1997 and 1998 ................................... F-23
Undistributed Income for the years ended
December 31, 1996, 1997 and 1998 ................................... F-24
Statement of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 ................................... F-25
Notes to Financial Statements ....................................... F-26
The following Unaudited Pro Forma Combined Financial Information of
Supreme International Corporation and Perry Ellis International, Inc.
are included in Part II, Item 8:
PAGE
-----
Introduction ........................................................ F-29
Balance Sheet as of January 31, 1999 ................................ F-30
Income Statement for the year ended January 31, 1999 ................ F-31
Notes to Unaudited Pro Forma Combined Financial Information ......... F-32
(2) Consolidated Financial Statement Schedule
All schedules for which provision is made in applicable regulations
of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or the required information
have been included in the Consolidated Financial Statements and
therefore such schedules have been omitted.
15
<PAGE>
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ---------------------------------------------------------------------------------------------
<S> <C>
3.1 Registrant's Second Amended and Restated Articles of Incorporation(6)
3.2 Registrant's Amended and Restated Bylaws(1)
4.1 Form of Common Stock Certificate(1)
10.3 Form of Indemnification Agreement between the Registrant and each of the Registrant's
Directors and Officers(1)
10.6 Business Lease dated October 4, 1990, between George Feldenkreis and the Registrant
relating to warehouse facilities(1)
10.7 Business Lease dated May 1, 1990, between George Feldenkreis and the Registrant relating
to warehouse facilities(1)
10.9 1993 Stock Option Plan (1)(2)
10.10 Directors Stock Option(1)(2)
10.15 Loan and Security Agreement dated as of October 5, 1994, between the Registrant and
NationsBank
10.16 First Amendment to Loan and Security Agreement dated as of August 19, 1995, between
the Registrant and NationsBank of George N.A.(4)
10.17 Amendment to Business Lease between George Feldenkreis and the Registrant relating to
office facilities(4)
10.18 Revocable Credit Facility Agreement dated May 26, 1995 between the Registrant and
Hamilton Bank, N.A.(4)
10.19 Revolving Line of Credit Agreement dated June 23, 1995 between the Registrant and Ocean
Bank(4)
10.20 Profit Sharing Plan(2)(4)
10.21 Amended and Restated Employment Agreement between the Registrant and George
Feldenkreis(2)(4)
10.22 Amended and Restated Employment Agreement between the Registrant and Oscar
Feldenkreis(2)(4)
10.23 Business Lease dated December 26, 1995 between George Feldenkreis and the Registrant
relating to office facilities(5)
10.24 Lease Agreement [Land] dated as of August 28, 1997 between SUP Joint Venture, as Lessor
and Registrant, as Lessee(7)
10.25 Lease Agreement [Building] dated as of August 28, 1997 between SUP Joint Venture, as
Lessor and Registrant, as Lessee(7)
10.26 Amended and Restated Loan and Security Agreement dated as of March 31, 1998(7)
10.27 Amendment to Amended and Restated Loan and Security Agreement dated as of August 1,
1998(6)
22.1 Subsidiaries of Registrant(3)
23.2 Consent of Deloitte & Touche LLP(6)
27.1 Financial Data Schedule (SEC use only)(6)
</TABLE>
- ----------------
(1) Previously filed as an Exhibit of the same number to Registrant's
Registration Statement on Form S -1 (File No. 33-60750) and incorporated
herein by reference.
(2) Management Contract or Compensation Plan.
(3) Previously filed as an Exhibit of the same number to Registrant's Annual
Report on Form 10-K for the year ended January 31, 1995 and incorporated
herein by reference.
(4) Previously files as an Exhibit of the same number to Registrant's
Registration Statement on Form S-1 (File No. 33-96304) and incorporated
herein by reference.
(5) Previously filed as an Exhibit of the same number to Registrant's Annual
Report on Form 10-K for the year ended January 31, 1996 and incorporated
herein by reference.
(6) Filed herewith.
(7) Previously filed as an exhibit of the same number to Registrant's Annual
Report on Form 10-K for the year ended January 31, 1997 and incorporated
herein by reference.
16
<PAGE>
(b) Reports on Form 8-K
On January 15, 1999 Supreme filed a current report on Form 8-K to
disclose that it had entered into a definitive agreement with respect to
the John Henry/Manhattan acquisition.
(c) Item 601 Exhibits
The exhibits required by Item 601 of Regulation S-K are set forth in
(a)(3) above.
(d) Financial Statement Schedules
The financial statement schedules required by Regulation S-K are set forth
in (a)(2) above.
17
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 12 of the Securities Exchange Act
of 1934, the Registrant has caused this report or amendment to thereto to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUPREME INTERNATIONAL CORPORATION
By: /s/ GEORGE FELDENKREIS
By: /s/ GEORGE FELDENKREIS
-------------------------------------
George Feldenkreis
Chairman of the Board and Chief
Executive Officer
Dated: April 6, 1999
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Supreme International Corporation and subsidiaries:
We have audited the consolidated balance sheets of Supreme International
Corporation and subsidiaries (the "Company") as of January 31, 1998 and 1999,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended January 31, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 12, 1999
F-1
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ............................................................. $ 1,010,256 $ 173,493
Accounts receivable, net ......................................... 35,502,607 38,969,845
Inventories ...................................................... 35,799,388 32,965,655
Deferred income taxes ............................................ 1,154,905 1,091,482
Deposits for acquisitions ........................................ -- 6,000,000
Other current assets ............................................. 2,253,328 2,040,200
------------ ------------
Total current assets ........................................... 75,720,484 81,240,675
Property and equipment, net ....................................... 4,899,656 7,851,592
Intangible assets, net ............................................ 19,716,064 18,842,797
Other ............................................................. 1,313,747 1,022,467
------------ ------------
TOTAL .......................................................... $101,649,951 $108,957,531
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................. $ 4,048,325 $ 4,595,688
Accrued expenses ................................................. 2,062,912 4,931,525
Borrowings under letter of credit facilities ..................... 3,000,000 --
Other current liabilities ........................................ 442,790 413,505
------------ ------------
Total current liabilities ...................................... 9,554,027 9,940,718
Deferred income tax ............................................... 282,905 559,728
Long term debt--senior credit agreement ........................... 36,658,174 33,511,157
------------ ------------
Total liabilities .............................................. 46,495,106 44,011,603
------------ ------------
Commitments and Contingencies: (Note 16)
Stockholders' Equity:
Preferred stock--$.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding ................................. -- --
Class A Common Stock--$.01 par value; 30,000,000 shares authorized;
no shares issued or outstanding ................................. -- --
Common stock--$.01 par value; 30,000,000 shares authorized;
6,555,681 and 6,712,374 shares issued and outstanding
as of January 31, 1998 and 1999, respectively ................... 65,556 67,123
Additional paid-in-capital ........................................ 27,598,618 28,806,455
Retained earnings ................................................. 27,490,671 36,072,350
------------ ------------
Total stockholders' equity ..................................... 55,154,845 64,945,928
------------ ------------
TOTAL .......................................................... $101,649,951 $108,957,531
============ ============
</TABLE>
See Notes to consolidated financial statements.
F-2
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues
Net Sales ........................................... $ 157,372,796 $ 190,689,212 $ 221,347,295
Royalty Income ...................................... 1,654,262 4,031,878 3,057,357
------------- ------------- -------------
Total Revenues ..................................... 159,027,058 194,721,090 224,404,652
Cost of Sales ........................................ 122,045,614 145,991,132 166,198,450
------------- ------------- -------------
Gross Profit ......................................... 36,981,444 48,729,958 58,206,202
Selling, General and Administrative Expenses ......... 25,876,115 35,885,443 41,639,672
------------- ------------- -------------
Operating Income ..................................... 11,105,329 12,844,515 16,566,530
Interest Expense ..................................... 1,664,392 2,781,509 3,493,985
------------- ------------- -------------
Income Before Income Tax Provision ................... 9,440,937 10,063,006 13,072,545
Income Tax Provision ................................. 3,596,918 2,884,844 4,490,866
------------- ------------- -------------
Net Income ........................................... $ 5,844,019 $ 7,178,162 $ 8,581,679
============= ============= =============
Net Income Per Share
Basic ............................................... $ 0.89 $ 1.10 $ 1.29
============= ============= =============
Diluted ............................................. $ 0.89 $ 1.08 $ 1.27
============= ============= =============
Weighted Average Number of Shares Outstanding
Basic ............................................... 6,534,446 6,540,604 6,674,103
============= ============= =============
Diluted ............................................. 6,595,147 6,665,635 6,769,810
============= ============= =============
</TABLE>
See Notes to consolidated financial statements.
F-3
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1996 ................... 6,800,000 $ 68,000 $ 29,296,594 $14,468,490 $ 43,833,084
Purchase of treasury stock, at cost ......... (278,069) (2,780) (1,947,599) -- (1,950,379)
Exercise of stock options ................... 7,500 75 48,675 -- 48,750
Net Income .................................. -- -- -- 5,844,019 5,844,019
--------- -------- ------------ ----------- ------------
BALANCE, JANUARY 31, 1997 ................... 6,529,431 65,295 27,397,670 20,312,509 47,775,474
Exercise of stock options ................... 26,250 261 200,948 -- 201,209
Net Income .................................. -- -- -- 7,178,162 7,178,162
--------- -------- ------------ ----------- ------------
BALANCE, JANUARY 31, 1998 ................... 6,555,681 65,556 27,598,618 27,490,671 55,154,845
Exercise of stock options ................... 78,525 785 457,367 -- 458,152
Exercise of warrants ........................ 78,168 782 (782) -- --
Net Income .................................. -- -- -- 8,581,679 8,581,679
Tax benefit for exercise of
non-qualified stock options ............... -- -- 751,252 -- 751,252
--------- -------- ------------ ----------- ------------
BALANCE, JANUARY 31, 1999 ................... 6,712,374 $ 67,123 $ 28,806,455 $36,072,350 $ 64,945,928
========= ======== ============ =========== ============
</TABLE>
See Notes to consolidated financial statements.
F-4
<PAGE>
SUPREME INTERNATIONAL CORPORATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 5,844,019 $ 7,178,162 $ 8,581,679
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization .................................. 1,147,091 1,748,006 2,161,398
Loss on sale and abandonment of property ....................... 257,221 187,692 --
Decrease (increase) in deferred taxes .......................... 159,655 (203,342) 340,246
Changes in operating assets and liabilities:
(net of effects of acquisition)
Accounts receivable, net ...................................... (8,951,318) (6,695,371) (3,467,238)
Inventories ................................................... 293,527 (3,598,866) 2,833,733
Other current assets .......................................... (359,942) (727,633) 213,128
Other assets .................................................. (1,915,477) 889,854 291,280
Accounts payable and accrued expenses ......................... 4,835,234 (1,907,414) 3,415,976
Other current liabilities ..................................... 563,756 28,055 (29,285)
------------- ------------ -------------
Net cash provided by (used in)
operating activities ..................................... 1,873,766 (3,100,857) 14,340,917
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .............................. (1,058,061) (3,828,142) (4,004,588)
Proceeds from sale of property and equipment .................... 164,545 32,102 --
Payment on purchase of intangible assets ........................ (137,027) (758,598) (235,479)
Deposit for John Henry/Manhattan acquisition .................... -- -- (1,000,000)
Deposit for Perry Ellis International acquisition ............... -- -- (5,000,000)
Payment for Jolem acquisition ................................... (3,657,435) -- --
Payment for Munsingwear acquisition ............................. (19,768,380) -- --
------------- ------------ -------------
Net cash used in investing activities ........................ (24,456,358) (4,554,638) (10,240,067)
------------- ------------ -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings under letter of
credit facilities ............................................. 6,812,629 (3,812,629) (3,000,000)
Net proceeds from (repayments of) long-term debt ................ 18,168,857 11,521,373 (3,147,017)
Purchase of treasury stock ...................................... (1,950,379) -- --
Tax benefit for exercise of non-qualified stock options ......... -- -- 751,252
Proceeds from exercise of stock options ......................... 48,750 201,209 458,152
------------- ------------ -------------
Net cash provided by (used in) financing activities .......... 23,079,857 7,909,953 (4,937,613)
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH ................................. 497,265 254,458 (836,763)
CASH AT BEGINNING OF YEAR ....................................... 258,533 755,798 1,010,256
------------- ------------ -------------
CASH AT END OF YEAR ............................................. $ 755,798 $ 1,010,256 $ 173,493
============= ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest ....................................................... $ 1,433,403 $ 2,820,016 $ 3,293,877
============= ============ =============
Income taxes ................................................... $ 3,394,466 $ 3,174,807 $ 1,762,479
============= ============ =============
</TABLE>
See Notes to consolidated financial statements.
F-5
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
1. GENERAL
Supreme International Corporation and subsidiaries (the "Company") was
incorporated in the State of Florida and has been in business since 1967. The
Company is a leading designer and marketer of a broad line of high quality
men's sportswear, including sport and dress shirts, golf sportswear, sweaters,
urban wear, casual and dress pants and shorts to all levels of retail
distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Supreme International Corporation and its wholly-owned
subsidiaries. All intercompany transactions and balances have been eliminated
in consolidation.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts in the consolidated financial
statements and the accompanying notes. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of accounts
receivable and accounts payable approximates fair value due to their short-term
nature. The carrying amount of debt and credit facilities approximate fair
value due to their stated interest rate approximating a market rate. These
estimated fair value amounts have been determined using available market
information or other appropriate valuation methodologies.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out basis) or market. Costs consist of the purchase price, customs,
duties, freight, insurance, and commissions to buying agents.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the assets. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the
lease term or estimated useful lives of the improvements. The useful lives
range from five to ten years.
INTANGIBLE ASSETS--Intangible assets primarily represent costs capitalized
in connection with the acquisition, registration and maintenance of brand names
and license rights. The amortization periods for the intangible assets range
from fifteen to twenty years, with a weighted average of nineteen and a half
years.
LONG LIVED-ASSETS--Management reviews long-lived assets, including
identifiable intangible assets, for possible impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If there is an indication of impairment, management prepares an
estimate of future cash flows (undiscounted and without interest charges)
expected to result from the use of the asset and its eventual disposition. If
these cash flows are less than the carrying amount of the asset, an impairment
loss is recognized to reduce the asset to its estimated fair value. Preparation
of estimated expected future cash flows is inherently subjective and is based
on management's best
F-6
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
estimate of assumptions concerning future conditions. At January 31, 1999,
management believes there was no impairement to long-lived assets.
REVENUE RECOGNITION--Sales are recognized upon shipment, returns for
defective goods are netted against sales, and an allowance is provided for
estimated returns and other chargebacks. Royalty income is recognized when
earned on the basis of the terms specified in the underlying contractual
agreements.
INCOME TAXES--Deferred income taxes result primarily from timing
differences in the recognition of expenses for tax and financial reporting
purposes and are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 ("SFAS No. 109"), Accounting for Income
Taxes, which requires the asset and liability method of computing deferred
income taxes. Under the asset and liability method, deferred taxes are adjusted
for tax rate changes as they occur.
NET INCOME PER SHARE--Basic net income per share is computed by dividing
net income by the weighted average shares of outstanding common stock. The
calculation of diluted net income per share is similar to basic earnings per
share except that the denominator includes dilutive potential common stock. The
dilutive potential common stock included in the Company's computation of
diluted net income per share includes the effects of the stock options and
warrants described in Note 14, as determined using the treasury stock method.
The weighted average number of shares for stock options included in the
dilutive weighted average shares outstanding were 60,701, 125,031 and 95,707 in
1997, 1998 and 1999, respectively.
STOCK SPLIT--On July 21, 1997, the Company's Board of Directors declared a
3 for 2 stock split in the form of a stock dividend. The accompanying financial
statements reflect the stock split as if it had occurred as of the earliest
period being presented.
ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company has chosen to account
for stock-based compensation to employees and non-employee members of the Board
using the intrinsic value method prescribed by Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As required by Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, the Company has
presented certain pro forma and other disclosures related to stock-based
compensation plans.
RECLASSIFICATIONS--Certain amounts in the 1998 and 1997 financial
statements have been reclassified to conform to the 1999 presentation.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130
("SFAS No. 130"), REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires that
all components of comprehensive income be reported on one of the following: (1)
the statement of income; (2) the statement of changes in stockholders' equity,
or (3) a separate statement of comprehensive income. Comprehensive income is
comprised of net income and all changes to stockholders' equity, except those
due to investments by stockholders (changes in paid-in capital) and
distributions to stockholders (dividends). SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company adopted SFAS No. 130
F-7
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
for the fiscal year ended January 31, 1999. The components of comprehensive
income which are excluded from net income are not significant, individually or
in the aggregate, and therefore no separate statement of comprehensive income
has been presented.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 changes the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. SFAS No. 131
also requires entity-wide disclosure about products and services an entity
provides, the foreign countries in which it holds assets and reports revenues
and its major customers. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. The Company adopted SFAS No. 131 for the fiscal year
ended January 31, 1999 (see Note 15).
In March 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. Management has
not determined the effect, if any, of adopting SOP 98-1.
In April 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES ("SOP 98-5"). SOP 98-5 establishes accounting standards for the
reporting of certain costs associated with the start-up of operations, lines of
business, etc. SOP 98-5 requires that costs of start-up activities, including
organizational costs, be expensed as incurred and that in the year of adoption,
start-up costs recorded should be expensed. SOP 98-5 is effective for fiscal
years beginning subsequent to December 15, 1998. Management has not determined
the effect, if any, of adopting SOP 98-5.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING Activities ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal year beginning after June 15, 1999.
Management has not determined the effect, if any, of adopting SFAS No. 133.
3. ACQUISITIONS
MUNSINGWEAR ACQUISITION--On September 6, 1996, the Company acquired
certain assets of Munsingwear, Inc. ("Munsingwear"), a manufacturer of men's
casual apparel, for approximately $18,400,000. The assets acquired consisted of
brand names including GRAND SLAM/registered trademark/, GRAND SLAM
TOUR/registered trademark/, PENGUIN SPORT/registered trademark/, and other
intangible assets. The purchase price amounted to approximately $19,800,000,
which included $1,400,000 of transaction costs, and was primarily allocated to
working capital and intangible assets as follows: inventories $300,000;
accounts receivable $300,000; and brand
F-8
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
3. ACQUISITIONS--(CONTINUED)
names $19,200,000. The acquisition was accounted for under the purchase method
of accounting and was financed with borrowings from the revolving credit
agreement (see Note 10).
JOLEM ACQUISITION--On May 6, 1996, the Company acquired all the assets of
Jolem Imports, Inc. ("Jolem"), a Miami based manufacturer of men's and boy's
casual apparel. The purchase price amounted to approximately $3,700,000 and was
primarily allocated to working capital and intangible assets as follows:
inventories $1,800,000; accounts receivable $1,500,000; and brand names
$400,000. The acquisition was accounted for under the purchase method of
accounting.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of January 31:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Trade accounts ................................................ $ 37,499,297 $ 43,219,125
Royalties and other receivables ............................... 2,217,338 1,479,149
------------ ------------
Total ......................................................... 39,716,635 44,698,274
Less: Allowance for doubtful accounts ......................... (609,874) (609,874)
Allowance for sales returns and other chargebacks .......... (3,604,154) (5,118,555)
------------ ------------
Total ......................................................... $ 35,502,607 $ 38,969,845
============ ============
</TABLE>
The activity for the allowance accounts are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ---------------- ----------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Beginning balance ............................ $ 242,792 $ 250,000 $ 609,874
Provision .................................... 135,854 799,129 167,659
Write-offs, net of recoveries ................ (128,646) (439,255) (167,659)
------------ ------------- -------------
Ending balance ............................... $ 250,000 $ 609,874 $ 609,874
============ ============= =============
Allowance for sales returns and other
chargebacks:
Beginning balance ............................ $ 567,014 $ 1,670,565 $ 3,604,154
Provision .................................... 9,057,342 13,047,822 11,984,955
Actual returns and other chargebacks ......... (7,953,791) (11,114,233) (10,470,554)
------------ ------------- -------------
Ending balance ............................... $ 1,670,565 $ 3,604,154 $ 5,118,555
============ ============= =============
</TABLE>
The Company carries accounts receivable at the amount it deems to be
collectible. Accordingly, the Company provides allowances for accounts
receivable it deems to be uncollectible based on management's best estimates.
Recoveries are recognized in the period they are received. The ultimate amount
of accounts receivable that become uncollectible could differ from those
estimated.
F-9
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
5. INVENTORIES
Inventories consisted of the following as of January 31:
1998 1999
--------------- --------------
Finished goods ........................ $ 31,972,723 $ 30,730,131
Raw materials and in process .......... 1,204,841 255,085
Merchandise in transit ................ 2,621,824 1,980,439
------------ ------------
Total ................................. $ 35,799,388 $ 32,965,655
============ ============
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of January 31:
1998 1999
--------------- ---------------
Land .................................. $ -- $ 1,125,000
Furniture, fixture and equipment ...... 5,723,557 7,205,651
Vehicles .............................. 309,955 371,364
Leasehold improvements ................ 1,617,288 2,299,704
------------ ------------
7,650,800 11,001,719
Less: accumulated depreciation ........ (2,751,144) (3,150,127)
------------ ------------
Total ................................. $ 4,899,656 $ 7,851,592
============ ============
Depreciation expense relating to property and equipment amounted to
approximately $800,000, $847,000, and $1,052,000 for the fiscal years ended
January 31, 1997, 1998 and 1999, respectively.
7. INTANGIBLE ASSETS
Intangible assets consisted of the following as of January 31:
1998 1999
-------------- --------------
Trademarks & Licenses ............. $ 21,306,788 $ 21,544,562
Goodwill .......................... 17,864 16,165
------------ ------------
21,324,652 21,560,727
Accumulated Amortization .......... (1,608,588) (2,717,930)
------------ ------------
Balance, net ...................... $ 19,716,064 $ 18,842,797
============ ============
Amortization expense relating to the intangible assets amounted to
approximately $347,000, $901,000 and $1,109,000, for the fiscal years ended
January 31, 1997, 1998 and 1999, respectively.
F-10
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
8. ACCRUED EXPENSES
Accrued expenses consisted of the following as of January 31:
1998 1999
------------- -------------
Income taxes ...................... $ 370,687 $2,107,457
Salaries and commissions .......... 662,865 1,549,758
Buying commissions ................ 597,280 818,188
Other ............................. 432,080 456,122
---------- ----------
Total ............................. $2,062,912 $4,931,525
========== ==========
9. BORROWINGS UNDER LETTER OF CREDIT FACILITIES
The Company has a $45 million facility which provides up to $35 million to
issue sight letters of credit including a sub-limit of $2 million to issue time
letters of credit up to 120 days. In addition, the facility has a $10 million
sub-limit for refinancing of sight letters of credit for a period of up to 120
days. The facility is collateralized by the consignment of merchandise in
transit under each letter of credit. Indebtedness under this facility bears
interest at variable rates substantially equal to the lenders' prime rate minus
1.0% per annum (6.75% as of January 31, 1999). Amounts outstanding under the
$10 million sub-limit are collateralized by a secondary interest in the
Company's accounts receivable and inventories.
The Company has two additional letters of credit facilities which provide
for borrowings of up to $15 million to issue sight letters of credit. The
facilities are collateralized by the consignment of the merchandise in transit
under each letter of credit.
Borrowings available under letter of credit facilities consisted of the
following as of January 31:
1998 1999
--------------- ---------------
Total letter of credit facilities ...... $ 60,000,000 $ 60,000,000
Borrowings ............................. (3,000,000) --
Outstanding letters of credit .......... (26,673,016) (23,420,765)
------------- -------------
Available .............................. $ 30,326,984 $ 36,579,235
============= =============
10. LONG-TERM DEBT--SENIOR CREDIT FACILITY
The Company amended its revolving credit facility (the "Senior Credit
Facility") on August 1, 1998 with a group of banks giving it the right to
borrow $60 million or a portion thereof for its general corporate purposes. The
Senior Credit Facility expires in April 2001 . Borrowings are limited under the
terms of a borrowing base calculation which generally restricts the outstanding
balance to 85% of eligible receivables plus 50% of eligible inventories, as
defined. Interest on borrowings is variable, based upon the Company's option of
selecting a LIBOR plus 1.25% or the bank's prime rate. The weighted average
interest rate was 6.69% as of January 31, 1999. The Senior Credit Facility
contains certain covenants, the most restrictive of which require the Company
to maintain certain financial and net worth ratios. In addition, the Senior
Credit Facility restricts the payment of dividends. The Senior Credit Facility
is secured by the Company's assets. The outstanding balance under the Senior
Credit Facility as of January 31, 1998 and 1999 amounted to $36,658,174 and
$33,511,157, respectively.
F-11
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
10. LONG-TERM DEBT--SENIOR CREDIT FACILITY--(CONTINUED)
The Company amended the Senior Credit Facility in March, 1999. As amended,
the Senior Credit Facility will provide a revolving credit facility up to an
aggregate amount of $75 million and a term loan of $25 million. The amended
agreement expires in October 2002.
11. INCOME TAXES
The income tax provision consisted of the following for each of the years
ended January 31:
1997 1998 1999
------------- ------------- -------------
Current income taxes:
Federal ................... $2,910,509 $2,780,815 $3,057,838
State ..................... 526,754 307,371 1,002,692
Foreign ................... -- -- 90,090
---------- ---------- ----------
Total ...................... $3,437,263 $3,088,186 $4,150,620
Deferred income taxes:
Federal and state ......... 159,655 (203,342) 340,246
---------- ---------- ----------
Total ...................... $3,596,918 $2,884,844 $4,490,866
========== ========== ==========
The following table reconciles the statutory federal income tax rate to
the Company's effective income tax rate for each of the years ended January 31:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal income tax rate ............................... 35.0 % 35.0 % 35.0 %
Increase (decrease) resulting from
State income taxes, net of federal income tax benefit .......... 3.9 2.1 2.9
Benefit of graduated rate ...................................... (1.0) (1.0) (1.0)
Reversal of certain income tax reserves ........................ -- (5.0) --
Other ........................................................... 0.2 (2.4) (2.5)
----- ----- -----
Total ........................................................... 38.1 % 28.7 % 34.4 %
===== ===== =====
</TABLE>
F-12
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
11. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows as of January 31:
1998 1999
------------ ------------
Deferred income tax assets:
Inventories ............................. $ 642,944 $ 795,442
Accounts receivable ..................... 227,468 220,165
Accrued expenses ........................ 183,750 --
Other ................................... 100,743 75,875
--------- ---------
Deferred income tax assets .............. 1,154,905 1,091,482
--------- ---------
Deferred income tax liabilities:
Fixed assets ............................ (61,742) (318,580)
Intangible .............................. (99,694) (241,148)
Other ................................... (121,469) --
--------- ---------
Deferred income tax liabilities ......... (282,905) (559,728)
--------- ---------
Net deferred income tax asset ........... $ 872,000 $ 531,754
========= =========
A valuation allowance for deferred income tax assets is not deemed
necessary as the assets are expected to be recovered.
12. RETIREMENT PLAN
The Company adopted a 401(K) Profit Sharing Plan (the "Plan") in which
eligible employees may participate. Employees are eligible to participate in
the Plan upon the attainment of age 21, and completion of one year of service.
Participants may elect to contribute up to 15% of their annual compensation,
not to exceed amounts prescribed by statutory guidelines. The Company is
required to contribute an amount equal to 50% of each participant's eligible
contribution up to 4% of the participant's annual compensation. The Company may
elect to contribute additional amounts at its discretion. The Company's
contributions to the plan were approximately $34,000, $74,000, and $115,000 for
the fiscal years ended January 31, 1997, 1998 and 1999 respectively.
13. RELATED PARTY TRANSACTIONS
The Company leases certain office and warehouse space owned by the
Company's Chairman of the Board of Directors and Chief Executive Officer under
non-cancelable operating lease arrangements. Rent expense, including taxes, for
these leases amounted to approximately $600,000, $625,000 and $546,000 for the
fiscal years ended January 31, 1997, 1998 and 1999, respectively.
The Company entered into a license agreement (the "License Agreement")
with Isaco International, Inc. ("Isaco"), pursuant to which Isaco was granted
an exclusive license to use the Natural Issues brand name in the United States
and Puerto Rico to market a line of men's underwear and loungewear. The License
Agreement provides for a guaranteed minimum royalty payment to the Company of
$137,500 and expires on May 31, 1999. The principal shareholder of Isaco is the
father-in-law of the Company's President and Chief Operating Officer. Royalty
income earned from the License
F-13
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
Agreement amounted to approximately $243,000, $296,000 and $298,000 for the
fiscal years ended January 31, 1997, 1998 and 1999, respectively.
In January 1998, the Company entered into two additional three-year
license agreements with Isaco for use of the Natural Issue brand in the United
States and its territories and possessions to market lines of hosiery and
neckwear. The license agreement for neckwear provides for a guaranteed minimum
annual royalty of $15,000 and the license agreement for hosiery provides for a
guaranteed minimum annual royalty of $25,000 during the first year, increasing
by $5,000 in each subsequent year.
14. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS--The Company adopted a 1993 Stock Option Plan (the "1993
Plan") and a Directors Stock Option Plan (the "Directors Plan") (collectively,
the "Stock Option Plans"), under which shares of common stock are reserved for
issuance upon the exercise of the options. The number of shares issuable under
the Directors Plan is 150,000. The 1993 Plan was amended during fiscal 1999 to
increase the number of shares issuable from 450,000 shares to 900,000 shares.
The Stock Option Plans are designed to serve as an incentive for attracting and
retaining qualified and competent employees, directors, consultants, and
independent contractors of the Company. The 1993 Plan provides for the granting
of both incentive stock options and nonstatutory stock options. Incentive stock
options may only be granted to employees. Only non-employee directors are
eligible to receive options under the Directors Plan. All matters relating to
the Directors Plan are administered by a committee of the Board of Directors
consisting of two or more employee directors, including selection of
participants, allotment of shares, determination of price and other conditions
of purchase, except that the per share exercise price of options granted under
the Directors Plan may not be less than the fair market value of the common
stock on the date of grant.
Options can be granted under the 1993 Plan on such terms and at such
prices as determined by the Board of Directors, or a committee thereof, except
that the per share exercise price of incentive stock options granted under the
1993 Plan may not be less than the fair market value of the common stock on the
date of grant, and in the case of an incentive stock option granted to a 10%
shareholder, the per share exercise price will not be less than 110% of such
fair market value. The aggregate fair market value of the shares covered by
incentive stock options granted under the 1993 Plan that become exercisable by
a grantee in any calendar year is subject to a $100,000 limit.
On December 9, 1998, in order to provide an appropriate incentive to
certain members of management whose stock option exercise prices were higher
than the market price on that date, the Company allowed certain options to be
repriced. This repricing was at the consent of the option holders, and all
other terms of the options, including grant dates and exercise dates, remain
intact and in accordance with the 1993 Plan.
F-14
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
14. STOCK OPTIONS AND WARRANTS--(CONTINUED)
A summary of the status of the option plans as of and for the changes
during each of the three years in the period ended January 31, 1999 is
presented below:
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE OPTIONS EXERCISABLE
--------------------------------- -----------------------------
NUMBER NUMBER WEIGHTED AVERAGE
OF SHARES LOW HIGH WEIGHTED OF SHARES EXERCISE PRICE
------------- ---------- ----------- ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 31, 1996 218,250 $ 6.33 $ 10.75 $ 7.71 114,938 $ 8.06
Granted 1997 ................ 90,000 $ 6.67 $ 10.75 $ 8.87
Exercised 1997 .............. (7,500) $ 6.50 $ 6.50 $ 6.50
Cancelled 1997 .............. (7,500) $ 6.50 $ 6.50 $ 6.50
-------
Outstanding January 31, 1997 293,250 $ 6.33 $ 10.75 $ 8.01 192,938 $ 8.14
Granted 1998 ................ 24,000 $ 9.17 $ 10.17 $ 9.84
Exercised 1998 .............. (26,250) $ 6.67 $ 10.75 $ 7.73
Cancelled 1998 .............. --
-------
Outstanding January 31, 1998 291,000 $ 6.33 $ 10.75 $ 7.92 221,750 $ 7.90
Granted 1999 ................ 387,000 $ 9.75 $ 15.75 $ 13.18
Exercised 1999 .............. (103,125) $ 6.33 $ 10.67 $ 7.36
Cancelled 1999 .............. (8,875) $ 10.67 $ 15.25 $ 10.96
--------
Outstanding January 31, 1999 566,000 $ 6.67 $ 15.75 $ 11.95 410,375 $ 12.66
========
</TABLE>
The following table summarizes the information about options outstanding
at January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------------- ------------- ------------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 6.50 - $ 9.75 152,750 3.0 $ 8.20 135,625 $ 8.19
$ 10.00 - $15.00 175,250 4.7 $ 10.07 42,750 $ 10.12
$ 15.25 - $15.75 238,000 9.1 $ 15.73 232,000 $ 15.75
</TABLE>
F-15
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
14. STOCK OPTIONS AND WARRANTS--(CONTINUED)
As described in Note 2, the Company accounts for stock-based compensation
using the provisions of APB No. 25 and related interpretations. No compensation
expense has been recognized in the years ended January 31, 1997, 1998 and 1999
as the exercise prices for stock options granted are equal to their fair market
value at the time of grant. Had compensation cost for options granted been
determined in accordance with the fair value provisions of SFAS 123, the
Company's net income and net income per share would have been as follows for
the years ended January 31:
1997 1998 1999
--------------- ---------------- ---------------
Net income:
As reported ......... $ 5,844,019 $ 7,178,162 $ 8,581,679
=========== ============ ============
Pro forma ........... $ 5,710,383 $ 7,026,242 $ 8,145,789
=========== ============ ============
Net income per share:
As reported
Basic .............. $ 0.89 $ 1.10 $ 1.29
=========== ============ ============
Diluted ............ $ 0.89 $ 1.08 $ 1.27
=========== ============ ============
Pro forma:
Basic ............... $ 0.87 $ 1.07 $ 1.22
=========== ============ ============
Diluted ............. $ 0.87 $ 1.05 $ 1.20
=========== ============ ============
The fair value for these options was estimated at the grant date using the
Black-Scholes Option Pricing Model with the following weighted-average
assumptions for 1997, 1998 and 1999:
1997 1998 1999
--------- --------- ---------
Risk free interest rate ................ 6.5% 6.5% 6.5%
Dividend yield ......................... 0.0% 0.0% 0.0%
Volatility factors ..................... 58.0% 45.9% 67.3%
Weighted average life (years) .......... 5.0 5.0 5.0
Using the Black-Scholes Option Pricing Model, the estimated
weighted-average fair value per option granted in 1997, 1998 and 1999 were
$4.97, $5.99 and $9.22, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
The pro forma amounts may not be representative of the future effects on
reported net income and net income per share that will result from the future
granting of stock options, since the pro forma compensation expense is
allocated over the periods in which options become exercisable and new option
awards are granted each year.
F-16
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
14. STOCK OPTIONS AND WARRANTS--(CONTINUED)
WARRANTS--In conjunction with the Company's initial public offering in May
1993, the Company granted 180,000 warrants entitling the holders of each
warrant to purchase one share of common stock at an exercise price of $9.35 per
share. The warrants became exercisable on May 21, 1995. All warrants were
exercised during fiscal 1999.
15. SEGMENT INFORMATION
The Company is engaged principally in one line of business, that being a
leading designer and marketer of a broad line of high quality men's sportswear,
including sport and dress shirts, golf sportswear, sweaters, urban wear, casual
and dress pants and shorts to all levels of retail distribution. We own or
license the brands under which most of our products are sold. The percentage of
our revenues from branded products amounted to 75% in fiscal 1998 and 81% in
fiscal 1999. Sales to any one customer exceeding ten percent amounted to 15%,
12% and 12% for the year ended January 31, 1997; 12% and 13% for the year ended
January 31, 1998; and 15%, 10% and 10% for the year ended January 31, 1999. The
Company does not believe that these concentrations of sales and credit risk
represent a material risk of loss with respect to its financial position as of
January 31, 1999.
16. COMMITMENTS AND CONTINGENCIES
The Company has licensing agreements, as licensee, for the use of certain
branded and designer labels. The license agreements expire on varying dates
through December 31, 2000. Total royalty payments under these license
agreements amounted to approximately $405,000, $330,000 and $573,000 for the
years ended January 31, 1997, 1998 and 1999, respectively, and were classified
as selling, general and administrative expenses.
The Company is party to an employment agreement with Oscar Feldenkreis,
the Company's President and Chief Operating Officer, which expires in May 2000,
and is subject to annual renewal. The employment agreement currently provides
for an annual salary of $350,000, subject to annual cost-of-living increases,
and an annual bonus as may be determined by the Compensation Committee in its
discretion, up to a maximum of $500,000. The employment agreement requires Mr.
Feldenkreis to devote his full-time to the affairs of the Company. Upon
termination of the employment agreement by reason of the employee's death or
disability, Mr. Feldenkreis or his estate will receive a lump sum payment equal
to one year's salary plus a bonus as may be determined by the Compensation
Committee in its discretion. The employment agreement also prohibits Mr.
Feldenkreis from directly or indirectly competing with the Company for one year
after termination of his employment for any reason except the Company's
termination of Mr. Feldenkreis without cause.
The Company is also party to an employment agreement with George
Feldenkreis, the Company's Chairman of the Board and Chief Executive Officer,
expiring in May 2000, and is subject to annual renewal. The employment
agreement currently provides for an annual salary of $375,000, subject to
annual cost-of-living increases, and an annual bonus as may be determined by
the Compensation Committee in its discretion, up to a maximum of $250,000.
Pursuant to his employment agreement, Mr. Feldenkreis devotes a majority of his
working time to the affairs of the Company. George Feldenkreis' employment
agreement contains termination and non-competition provisions similar to those
set forth in Oscar Feldenkreis' agreement.
F-17
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
16. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company consolidated its administrative offices and warehouses and
distribution facilities into a 238,000 square foot facility in Miami. The lease
has a term of five years, minimum annual rental of approximately $1,000,000 and
requires a minimum contingent rental payment at the termination of the lease of
$12,325,000. The minimum contingent rental payment is not required if, at the
Company's option, the lease is renewed after the five year term.
Minimum aggregate annual commitments for all of the Company's
noncancelable operating lease commitments, including the related party leases
described in Note 13 and the minimum contingent rental payment described above,
are as follows.
YEAR ENDING JANUARY 31,
- -------------------------
2000 ................. $ 1,461,800
2001 ................. 1,335,600
2002 ................. 1,206,200
2003 ................. 13,154,500
2004 ................. 372,100
------------
Total ............... $ 17,530,200
============
Rent expense for these leases, including the related party rent payments
discussed in Note 13, amounted to $1,078,000, $1,460,000, and $1,946,000 for
the fiscal years ended January 31, 1997, 1998 and 1999, respectively.
The Company guarantees up to $600,000 of letters of credit of an
unaffiliated entity.
Upon consummation of the John Henry/Manhattan acquisition described in Note
17, the Company will pay Icahn Associates Corp. or its affiliates ("IAC") a
financial advisory fee of $1.0 million. In addition, IAC has been granted the
right to acquire 1,320,000 shares of the Company's common stock at $12 per
share. This right is exercisable on or before April 13, 1999. Simultaneously
with the exercise of the right, IAC will be required to enter into a two-year
standstill agreement and will receive certain registration rights with respect
to the shares.
The Company is subject to claims and suits against it, as well as the
initiator of claims and suits against others, in the ordinary course of its
business, including claims arising from the use of its trademarks. The Company
does not believe that the resolution of any pending claims will have a material
adverse affect on its financial position, results of operations or cash flows.
F-18
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
17. SUBSEQUENT EVENTS
PERRY ELLIS INTERNATIONAL, INC. In January 1999, the Company agreed to buy
Perry Ellis International, Inc. for approximately $75.0 million in cash. Perry
Ellis International, Inc. is a privately-held company, which owns and licenses
the Perry Ellis brand, currently one of the top selling brands in specialty
chains and department stores in the United States. Perry Ellis International,
Inc. is currently the licensor under approximately 34 license agreements,
primarily for various categories of men's wear, boys' wear and fragrances.
During the year ended December 31, 1998, Perry Ellis International, Inc. had
revenues of $16.2 million. The Company anticipates completing the Perry Ellis
International acquisition in early April, 1999.
SENIOR SUBORDINATED NOTES. Concurrently with the Company's acquisition of
Perry Ellis International, Inc., the Company intends to issue $100,000,000 in
senior subordinated notes due 2006.
JOHN HENRY/MANHATTAN. In December 1998, the Company entered into an
agreement to buy certain assets of the John Henry and Manhattan dress shirt
business from Salant Corporation, which is currently in a Chapter 11 bankruptcy
proceeding. On February 24, 1999, the bankruptcy court approved the purchase for
approximately $44.2 million in cash. The assets consist of the John Henry,
Manhattan and Lady Manhattan trademarks and trade names, license agreements, the
existing dress shirt inventory with a value of approximately $17.2 million and
certain manufacturing equipment. The Company will also assume a lease for the
dress shirt manufacturing facility located in Mexico and other ordinary course
of business liabilities. The Company has entered into an agreement with
Phillips-Van Heusen Corporation to license the John Henry and Manhattan brands.
The agreement also provides that Phillips-Van Heusen will buy the existing dress
shirt inventory from the Company at the Company's cost concurrent with the
closing of the John Henry/Manhattan acquisition.
F-19
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1999
18. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q TOTAL
------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1999
Net Sales ........................ $ 60,085 $ 49,709 $ 65,012 $ 46,541 $ 221,347
Royalty income ................... 1,022 981 492 562 3,057
-------- -------- -------- -------- ---------
Total revenues ................... 61,107 50,690 65,504 47,103 224,404
Gross Profit ..................... 15,648 13,166 16,085 13,307 58,206
Net Income ....................... 2,637 1,053 2,812 2,080 8,582
Net income per share:
Basic ........................... $ 0.40 $ 0.16 $ 0.42 $ 0.31 $ 1.29
Diluted ......................... $ 0.39 $ 0.15 $ 0.42 $ 0.31 $ 1.27
FISCAL YEAR ENDED JANUARY 31, 1998
Net Sales ........................ $ 48,841 $ 42,037 $ 54,550 $ 45,261 $ 190,689
Royalty income ................... 1,123 1,051 887 971 4,032
-------- -------- -------- -------- ---------
Total revenues ................... 49,964 43,088 55,437 46,232 194,721
Gross Profit ..................... 12,963 10,538 12,477 12,752 48,730
Net Income ....................... 2,149 826 2,411 1,792 7,178
Net income per share:
Basic ........................... $ 0.33 $ 0.13 $ 0.37 $ 0.27 $ 1.10
Diluted ......................... $ 0.33 $ 0.12 $ 0.36 $ 0.27 $ 1.08
FISCAL YEAR ENDED JANUARY 31, 1997
Net Sales ........................ $ 37,807 $ 31,159 $ 46,746 $ 41,661 $ 157,373
Royalty income ................... 28 70 405 1,151 1,654
-------- -------- -------- -------- ---------
Total revenues ................... 37,835 31,229 47,151 42,812 159,027
Gross Profit ..................... 8,672 6,824 11,116 10,369 36,981
Net Income ....................... 1,615 689 1,974 1,566 5,844
Net income per share:
Basic (1) ....................... $ 0.25 $ 0.11 $ 0.30 $ 0.24 $ 0.89
Diluted ......................... $ 0.25 $ 0.10 $ 0.30 $ 0.24 $ 0.89
</TABLE>
- ----------------
(1) Total does not equal sum of quarters due to effect of the weighted
averaging of shares outstanding.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Perry Ellis International, Inc.:
We have audited the accompanying balance sheet of Perry Ellis
International, Inc. as of December 31, 1997 and December 31, 1998, and the
related statement of operations, undistributed income and cash flows for the
three years ended December 31, 1996, December 31, 1997 and December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement.
An audit includes examining on a test basis evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Perry Ellis International,
Inc. as of December 31, 1997 and December 31, 1998, and the results of its
operations and cash flows for the three years ended December 31, 1996, December
31, 1997, and December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Saul L. Klaw & Co., P.C.
Certified Public Accountants
Dated: March 12, 1999
F-21
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash Balances ..................................................... $ 527,161 $1,776,722
Due from Licensees ................................................ 389,281 944,885
Prepaid Expenses .................................................. 758,171 543,383
Prepaid Franchise Taxes ........................................... -0- 75,232
Unexpired Insurance ............................................... 41,317 43,200
Employee Loan Receivable .......................................... -0- 6,183
---------- ----------
Total Current Assets ............................................... 1,715,930 3,389,605
Fixed Assets ....................................................... 1,995,817 2,016,958
Less: Accumulated Depreciation ..................................... (647,380) (875,444)
Security Deposits .................................................. 47,688 32,334
---------- ----------
Total Assets ....................................................... $3,112,055 $4,563,453
========== ==========
LIABILITIES
Current Liabilities
Accounts Payable, Expenses ........................................ $ 542,170 $ 163,443
Accrued Payroll ................................................... 500,425 452,884
Employment Termination Payable, Current ........................... 90,000 108,296
Franchise Taxes Payable ........................................... 610,058 -0-
---------- ----------
Total Current Liabilities .......................................... 1,742,653 724,623
---------- ----------
CAPITAL
Capital Stock--no par value; 200 shares authorized; 50 shares issued
and outstanding .................................................. 1,000 1,000
Undistributed Income ............................................... 1,368,402 3,837,830
---------- ----------
Total Capital ...................................................... 1,369,402 3,838,830
---------- ----------
Total Liabilities and Capital ...................................... $3,112,055 $4,563,453
========== ==========
</TABLE>
(See Notes to Financial Statements)
F-22
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Royalty Revenues ................ $12,191,490 $15,739,291 $16,210,696
Less Agent's Commission ......... 1,273,879 78,750 33,750
----------- ----------- -----------
Net Royalty Revenues ............ 10,917,611 15,660,541 16,176,946
Operating Expenses .............. 5,544,425 7,334,551 8,625,713
Non-recurring Items ............. 3,273,529 -0- -0-
----------- ----------- -----------
Operating Income ................ 2,099,657 8,325,990 7,551,233
Interest Income ................. 143,765 135,537 32,061
----------- ----------- -----------
Income Before Taxes ............. 2,243,422 8,461,527 7,583,294
State and Local Taxes ........... 218,631 852,072 760,346
----------- ----------- -----------
Net Income for the Year ......... $ 2,024,791 $ 7,609,455 $ 6,822,948
=========== =========== ===========
</TABLE>
(See Notes to Financial Statements)
F-23
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
UNDISTRIBUTED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balance at Beginning ......................... $2,826,046 $3,437,637 $1,368,402
Net Income for the Year ...................... 2,024,791 7,609,455 6,822,948
---------- ---------- ----------
Total ........................................ 4,850,837 11,047,092 8,191,350
---------- ---------- ----------
Less Distributions to Stockholder during year:
Dividend Paid ........................... 1,390,000 9,625,000 4,325,000
Foreign Tax Credits ..................... 23,200 53,690 28,520
---------- ---------- ----------
Total ........................................ 1,413,200 9,678,690 4,353,520
---------- ---------- ----------
Balance at End ............................... $3,437,637 $1,368,402 $3,837,830
========== ========== ==========
</TABLE>
(See Notes to Financial Statements)
F-24
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income .............................................. $ 2,024,791 $ 7,609,455 $ 6,822,948
Depreciation ............................................ 212,000 225,783 228,064
Loss on Investment in Limited Partnership ............... 154,187 -0- -0-
Changes in Operating Assets and Liabilities:
Due from Licensees ..................................... 167,120 (362,559) (555,604)
Prepaid Expenses ....................................... (265,840) (396,439) 212,905
Other Current Assets ................................... -0- -0- (6,183)
Accounts Payable ....................................... 486,503 (140,906) (378,727)
Accrued Payroll ........................................ (24,814) 325,192 (47,541)
Corporate Taxes Payable ................................ (350,947) 610,058 (685,290)
Employment Termination ................................. (75,000) (126,000) 18,296
Commissions Payable .................................... 200,000 (200,000) -0-
Non-Current Assets ..................................... (851) (846) 15,354
Non-Current Liabilities ................................ (216,000) (90,000) -0-
------------ ------------ ------------
Net Cash Provided by Operating Activities ................ 2,311,149 7,453,738 5,624,222
------------ ------------ ------------
Cash Flow from Investing Activities:
(Credit) for Disposal of Service Agreement .............. (1,000,001) 1,000,001 -0-
(Additions) to Fixed Assets ............................. (47,461) (87,160) (21,141)
------------ ------------ ------------
Net Cash (Used) Provided by Investing Activities ......... (1,047,462) 912,841 (21,141)
------------ ------------ ------------
Cash Flow from Financing Activities:
Distribution to Stockholders ............................ (1,413,200) (9,678,690) (4,353,520)
------------ ------------ ------------
Net (Decrease) Increase in Cash Flows .................... (149,513) (1,312,111) 1,249,561
Cash at Beginning of Year ................................ 1,988,785 1,839,272 527,161
------------ ------------ ------------
Cash at End of Year ...................................... $ 1,839,272 $ 527,161 $ 1,776,722
============ ============ ============
Supplemental Disclosure of
Cash Flow Information:
Taxes Paid ............................................. $ 627,773 $ 192,652 $ 1,446,000
============ ============ ============
</TABLE>
(See Notes to Financial Statements)
F-25
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
1. DESCRIPTION OF BUSINESS
The Company was incorporated on September 12, 1978 and operates as a
licensor. Its income consists primarily of royalties received from licensees
under licensing agreements. Revenues to a major customer accounted for
approximately 36% in 1997 and 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, receivables and
payables, for which carrying amounts approximate fair value due to the
short-term nature of the instruments.
FIXED ASSETS
Fixed Assets consist of fixtures, equipment and improvements and are
stated at cost.
Depreciation is computed using the straight-line basis over the estimated
useful life of the assets. The useful lives range from five to ten years.
Maintenance and Repairs are expensed as incurred. Expenditures for major
renewals are capitalized. Upon the sale, replacement or retirement of assets,
the cost and accumulated depreciation or amortization thereon are removed from
the accounts.
INCOME TAXES
The Company has qualified as a small business ("S") corporation under the
Internal Revenue Code. The federal income tax effect of income and losses is
passed through to the stockholders. Consequently, there is no provision for
federal income taxes in the financial statements. However, the Company is
subject to state and local income taxes in certain taxing districts in which it
does business.
F-26
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
3. CASH BALANCES
Cash balances consist of the following:
1997 1998
----------- -----------
Cash in Checking and Savings Accounts ........... $519,972 $1,559,711
Cash in Pierpont Money Market Accounts .......... 7,189 217,011
-------- ----------
Total ........................................... $527,161 $1,776,722
======== ==========
4. DUE FROM LICENSEES
The balance due from licensees in the amount of $944,885 represents
charges of advertising and other expenses advanced for the account of the
individual licensees of the Company.
5. PREPAID EXPENSES
The prepaid expense balance consists of the following:
1997 1998
----------- ----------
Deposit for Advertising Campaign ............... $197,785 $ 75,718
Deposit Paid for Photoshoots ................... 424,441 444,365
Deposit for Outdoor Systems Billboard .......... -0- 20,486
Deposit for Trade Shows ........................ 116,592 -0-
Other Expenses ................................. 19,353 2,814
-------- --------
Total .......................................... $758,171 $543,383
======== ========
6. PROPERTY AND EQUIPMENT
Property and equipment balances consist of the following:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Furniture, fixtures and equipment ........................ $ 420,329 $ 437,763
Leasehold improvements ................................... 1,575,488 1,579,195
---------- ----------
1,995,817 2,016,958
Less: accumulated depreciation and amortization .......... (647,380) (875,444)
---------- ----------
Total .................................................... $1,348,437 $1,141,514
========== ==========
</TABLE>
7. ACCRUED PAYROLL
Accrued Payroll consists of incentive bonuses earned by executives during
the calendar year and payable in the following year.
8. PENSION PLAN
The Company has a Money Purchase and Profit Sharing Plan in effect. All
employees are eligible to participate in both plans upon the completion of one
year of service and reaching the age of 21. The Company is required to
contribute 10% of the compensation of all participants to the Money Purchase
Pension Plan on an annual basis. There is no contribution requirement for the
Proft Sharing Plan. Employees are not required to contribute to either plan.
The contributions for the calendar year 1997 aggregated $127,066 and for
1998, $66,265.
F-27
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
9. RENTS
The Company leases its executive and design offices. As at December 31,
1998, total minimum rentals are approximately as follows:
1999 ............... $215,000
2000 ............... 230,000
2001 ............... 246,000
Thereafter ......... 478,000
Rent expense for this lease amounted to approximately $196,000, $197,000
and $219,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
10. SUBSEQUENT EVENT
In January 1999, the Company's sole shareholder agreed to sell 100% of the
Company's outstanding common stock to Supreme International Corporation for
approximately $75 million in cash. The sale is expected to close in April 1999.
F-28
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INTRODUCTION
The following sets forth the Unaudited Pro Forma Combined Financial
Information of Supreme as of and for the fiscal year ended January 31, 1999,
giving effect to the Perry Ellis acquisition under the "purchase" method of
accounting, and the Rule 144A offering of an aggregate principal amount of
$100.0 million in senior subordinated notes due 2006. Supreme's Unaudited Pro
Forma Combined Income Statement Information presents the acquisition of Perry
Ellis International, Inc. and the Rule 144A offering as if they had been
consummated on February 1, 1998. The Unaudited Pro Forma Combined Balance Sheet
Information of Supreme presents the Perry Ellis International acquisition and
the Rule 144A offering 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 acquisition and the Rule 144A offering 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 and Perry Ellis
International, Inc. has been derived from the audited financial statements of
Supreme and Perry Ellis International, Inc., respectively, included in Item 8.
The pro forma adjustments relating to the acquisition and integration of Perry
Ellis International, Inc. 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.
The Unaudited Pro Forma Combined Financial Information does not give
effect to the pending John Henry/Manhattan acquisition and the related
Phillips-Van Heusen transactions. See "Item 6. Selected Financial Data--Summary
Pro Forma and Supplemental Financial Information."
F-29
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
BALANCE SHEET JANUARY 31, 1999
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA
--------------------------- ----------------------------------
SUPREME PERRY ELLIS ADJUSTMENTS(2) COMBINED
----------- ------------- -------------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash ............................................. $ 174 $ 1,777 $ (1,777)(a) $ 174
Accounts receivable, net ......................... 38,970 945 -- 39,915
Inventories ...................................... 32,966 -- -- 32,966
Deferred income taxes ............................ 1,091 -- -- 1,091
Deposits for acquisitions ........................ 6,000 -- (5,000)(b) 1,000
Other current assets ............................. 2,040 667 (75)(c) 2,632
-------- -------- -------- --------
Total Current Assets .......................... 81,241 3,389 (6,852) 77,778
Property and equipment, net ....................... 7,852 1,142 (900)(d) 8,094
Intangible assets, net ............................ 18,843 -- 74,104 (e) 92,947
Other assets ...................................... 1,022 32 3,479 (f) 4,533
-------- -------- -------- --------
Total Assets .................................. $108,958 $ 4,563 $ 69,831 $183,352
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable ................................. $ 4,596 $ 163 -- $ 4,759
Accrued expenses ................................. 4,931 561 -- 5,492
Other current liabilities ........................ 414 -- $ 640 (g) 1,054
-------- -------- -------- ---------
Total Current Liabilities ..................... 9,941 724 640 11,305
Deferred income taxes ............................. 560 -- -- 560
Senior Credit Facility ............................ 33,511 -- (25,822)(h) 7,689
Notes offered in the Rule 144A offering ........... -- -- 98,852 (i) 98,852
-------- -------- -------- --------
Total Liabilities ............................. 44,012 724 73,670 118,406
Stockholders' equity .............................. 64,946 3,839 (3,839)(j) 64,946
-------- -------- -------- --------
Total Liabilities and Stockholders' Equity..... $108,958 $ 4,563 $ 69,831 $183,352
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
F-30
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA
----------------------------- -----------------------------------
SUPREME PERRY ELLIS ADJUSTMENTS(3) COMBINED
------------- ------------- ------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ............................................. $ 221,347 $ -- $ -- $ 221,347
Royalty income ........................................ 3,057 16,177 -- 19,234
--------- -------- -------- ---------
Total revenues ........................................ 224,404 16,177 -- 240,581
Cost of sales ......................................... 166,198 -- -- 166,198
--------- -------- -------- ---------
Gross profit .......................................... 58,206 16,177 -- 74,383
Selling, general, and administrative expenses ......... 41,639 8,594 1,059 (a) 51,292
--------- -------- -------- ---------
Operating income ...................................... 16,567 7,583 (1,059) 23,091
Interest expense ...................................... 3,494 -- 10,896 (b) 14,390
--------- -------- -------- ---------
Income before provision for income taxes .............. 13,073 7,583 (11,955) 8,701
Provision for income taxes ............................ 4,491 760 (1,504)(c) 3,747
--------- -------- -------- ---------
Net income ............................................ $ 8,582 $ 6,823 $(10,451) $ 4,954
========= ======== ======== =========
Other Operating Data:
Ratio of earnings to fixed charges(4) ................ 4.3x -- -- 1.6x
Depreciation and amortization ........................ $ 2,161 $ 228 $ 3,525 $ 5,914
EBITDA(5) ............................................ $ 18,728 $ 7,811 $ 2,466 $ 29,005
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
F-31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED 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 Perry Ellis
International, Inc. financial information has been included as of and for
the twelve months ended December 31, 1998 because they have historically
reported on a calendar year end. 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 purchase price is $75,000, adjusted for working capital less other
agreed upon adjustments. Based upon the Perry Ellis International, Inc.
December 31, 1998 balance sheet, the purchase price is calculated as
follows:
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
========
For purposes of preparing the Unaudited Pro Forma Combined Balance Sheet,
the Perry Ellis 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 the Company's best estimate based upon currently
available information.
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1999
-----------------
<S> <C> <C>
(a) Cash balances of Perry Ellis International, Inc. which are not being
acquired ............................................................. $ (1,777)
(b) Deposit applied to Perry Ellis International acquisition ............. (5,000)
(c) Other current assets of Perry Ellis International, Inc. which are not
being acquired ....................................................... (75)
(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>
F-32
<PAGE>
(3) The pro forma income statement data for the year ended January 31, 1999
present the effects of the Perry Ellis International acquisition and the
Rule 144A offering, in each case as if they occurred as of the beginning
of such period, including:
<TABLE>
<S> <C> <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 adjustment 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 adjustment to interest expense ............................................ 10,896
--------
(c) Adjustment to the provision for income taxes at an effective rate of 34.4% ...... (1,504)
--------
Total adjustment to income statement ............................................ $10,451)
========
</TABLE>
In addition to the above, the company believes additional cost savings will
be realized through the combination of the two companies.
(4) For 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.
(5) 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 similarily titled
measures for other companies. See "Statements of Cash Flow" in our
consolidated financial statements and in the financial statements of Perry
Ellis International, Inc. contained elsewhere in this Item 8.
F-33
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION
- ------- -----------
23.2 Consent of Deloitte & Touche
27.1 Financial Data Schedule
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-69613 of Supreme International Corporation on Form S-8 of our report
dated March 12, 1999 appearing in the Annual Report on Form 10-K/A of Supreme
International Corporation for the year ended January 31, 1999.
DELOITTE & TOUCHE LLP
Miami, Florida
April 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 173,493
<SECURITIES> 0
<RECEIVABLES> 38,969,845
<ALLOWANCES> 0
<INVENTORY> 32,965,655
<CURRENT-ASSETS> 81,240,675
<PP&E> 11,001,719
<DEPRECIATION> 3,150,127
<TOTAL-ASSETS> 108,957,531
<CURRENT-LIABILITIES> 9,940,718
<BONDS> 0
0
0
<COMMON> 67,123
<OTHER-SE> 64,878,805
<TOTAL-LIABILITY-AND-EQUITY> 108,957,531
<SALES> 221,347,295
<TOTAL-REVENUES> 224,404,652
<CGS> 166,198,450
<TOTAL-COSTS> 166,198,450
<OTHER-EXPENSES> 41,639,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,493,985
<INCOME-PRETAX> 13,072,545
<INCOME-TAX> 4,490,866
<INCOME-CONTINUING> 8,581,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,581,679
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.27
</TABLE>
