SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended April 30, 2000
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 0-21764
PERRY ELLIS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-1162998
(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
3000 N.W. 107 Avenue
Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 592-2830
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 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 [ ]
The number of shares outstanding of the registrant's common stock is 6,739,374
(as of June 2, 2000).
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1:
Consolidated Balance Sheets
as of April 30, 2000 (Unaudited) and January 31, 2000 1
Consolidated Statements of Income (Unaudited)
for the three months ended April 30, 2000
and April 30, 1999 2
Consolidated Statements of Cash Flow (Unaudited)
for the three months ended April 30, 2000
and April 30, 1999 3
Notes to Consolidated Financial Statements 4
Item 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations 5
PART II: OTHER INFORMATION 8
Signature 9
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, 2000 January 31, 2000
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 255,133 $ 225,631
Accounts receivable, net 67,592,605 46,006,774
Inventories 39,738,947 36,003,285
Deferred income taxes 1,960,103 1,960,103
Prepaid income taxes -- 1,856,815
Other current assets 1,953,949 2,340,166
------------ ------------
Total current assets 111,500,737 88,392,774
Property and equipment, net 9,334,786 8,930,393
Intangible assets, net 122,108,644 123,047,545
Other 4,436,729 4,502,476
------------ ------------
TOTAL $247,380,896 $224,873,188
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,239,478 $ 5,763,401
Accrued expenses 3,705,179 3,919,581
Income taxes payable 208,019 --
Accrued interest payable 1,288,299 4,410,631
Other current liabilities 3,388,952 3,648,068
------------ ------------
Total current liabilities 13,829,927 17,741,670
Senior subordinated notes payable, net 99,029,667 98,988,667
Deferred income tax 2,841,084 2,841,084
Long term debt-senior credit agreement 42,012,693 18,031,496
Long term debt-term loan 10,000,000 11,250,000
------------ ------------
Total liabilities 167,713,371 148,852,917
------------ ------------
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;
6,739,374 and 6,731,874 shares issued and outstanding
as of April 30, 2000 and January 31, 2000, respectively 67,393 67,318
Additional paid-in-capital 29,058,081 29,000,655
Retained earnings 50,542,051 46,952,298
------------ ------------
Total stockholders' equity 79,667,525 76,020,271
------------ ------------
TOTAL $247,380,896 $224,873,188
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
1
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PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Net Sales $78,232,412 $59,478,771
Royalty Income 6,092,556 2,316,518
----------- -----------
Total Revenues 84,324,968 61,795,289
Cost of Sales 58,871,648 44,172,579
----------- -----------
Gross Profit 25,453,320 17,622,710
----------- -----------
Operating Expenses
Selling, General and Administrative Expenses 14,307,428 10,179,795
Depreciation and Amortization 1,502,212 978,599
----------- -----------
Total Operating Expenses 15,809,640 11,158,394
----------- -----------
Operating Income 9,643,680 6,464,316
Interest Expense 3,866,382 1,947,989
----------- -----------
Income Before Income Tax Provision 5,777,298 4,516,327
Income Tax Provision 2,187,535 1,624,539
----------- -----------
Net Income $ 3,589,763 $ 2,891,788
=========== ===========
Net Income Per Share
Basic $ 0.53 $ 0.43
=========== ===========
Diluted $ 0.53 $ 0.43
=========== ===========
Weighted Average Number of Shares Outstanding
Basic 6,732,354 6,723,374
=========== ===========
Diluted 6,835,903 6,803,228
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,589,763 $ 2,891,788
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,410,049 978,599
Amortization of debt issue cost 110,133 --
Amortization of bond discount 41,000 49,381
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable, net (21,585,831) (14,528,133)
Inventories (3,735,662) 4,810,357
Other current assets 2,199,439 (481,827)
Other assets (41,396) 428,013
Accounts payable and accrued expenses (530,306) 2,099,738
Accrued interest payable (3,122,332) 1,104,358
Other current liabilities (259,116) (1,486,408)
------------- -------------
Net cash used in operating activities (21,924,259) (4,134,134)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (799,442) (139,550)
Payment on purchase of intangible assets (35,495) (99,500)
Payment for acquired businesses -- (100,403,221)
------------- -------------
Net cash used in investing activities (834,937) (100,642,271)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) long-term loan (1,250,000) 15,000,000
Net proceeds from (repayments of) senior credit facility 23,981,197 (5,420,811)
Net proceeds from senior subordinated notes -- 98,852,000
Debt issuance costs (3,475,000)
Proceeds from exercise of stock options 57,501 95,274
------------- -------------
Net cash provided by financing activities 22,788,698 105,051,463
------------- -------------
NET INCREASE IN CASH 29,502 275,058
CASH AT BEGINNING OF PERIOD 225,631 173,493
------------- -------------
CASH AT END OF PERIOD $ 255,133 $ 448,551
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 6,964,273 $ 706,628
============= =============
Income taxes $ 130,000 $ 1,896,580
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
Item 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and changes in cash flows in
conformity with generally accepted accounting principles. The unaudited
consolidated financial statements should be read in conjunction with the audited
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended January 31, 2000. In the opinion of management,
the unaudited consolidated financial statements contain all adjustments
necessary for a fair presentation of the interim periods presented and all
adjustments are of a normal and recurring nature. The results of operations for
the three months ended April 30, 2000 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
Certain amounts in the prior period have been reclassified to conform
to the current period's presentation.
2. INVENTORIES
Inventories are stated at the lower of cost or market on a first-in
first-out basis and consist principally of finished goods.
3. LETTER OF CREDIT FACILITIES
Borrowings and availability under letter of credit facilities consist
of the following as of:
April 30, January 31,
2000 2000
------------ ------------
Total letter of credit facilities $ 52,000,000 $ 52,000,000
Outstanding letters of credit (32,183,173) (33,300,358)
------------ ------------
Total Available $ 19,816,827 $ 18,699,642
============ ============
4. SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, our principal segments are grouped between
the generation of revenues from products and royalties. The Licensing segment
derives its revenues from royalties associated from the use of its brand names,
principally Perry Ellis, John Henry, Manhattan and Munsingwear. The Product
segment derives its revenues from the design, import and distribution of apparel
to department stores and other retail outlets, principally throughout the United
States. Trademark costs have been allocated among the divisions where the brands
are shared. Shared selling, general and administrative expenses are allocated
amongst the segments based upon gross profit contribution.
4
<PAGE>
Three Months Ended April 30,
--------------------------
2000 1999
----------- -----------
Revenues:
Product $78,232,412 $59,478,771
Licensing 6,092,556 2,316,518
----------- -----------
Total Revenues $84,324,968 $61,795,289
=========== ===========
Operating Income
Product $ 5,674,614 $ 4,765,777
Licensing 3,969,065 1,698,538
----------- -----------
Total Operating Income $ 9,643,679 $ 6,464,315
=========== ===========
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND RESULTS
OF OPERATIONS
Perry Ellis International, Inc., (the "Company"), cautions readers that
certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements
which may be deemed to have been made in this report or which are otherwise made
by or on behalf of the Company. For this purpose, any statements contained in
this report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "would", "estimate", or "continue" or the negative other variations
thereof or comparable terminology are intended to identify forward-looking
statements. Factors which may affect the Company's results include, but are not
limited to, risk related to fashion trends; the retail industry; reliance on key
customers; contract manufacturing; foreign sourcing; imports and export
restrictions; competition; seasonality; rapid expansion of business; dependence
on key personnel and other factors discussed herein and in the Company's other
filings with the Securities and Exchange Commission.
Results of Operations
Three months ended April 30, 2000 as compared to three months ended April 30,
1999.
Total Revenues. Total revenues consist of net sales and royalty income.
Total revenues grew $22.5 million or 36.5% to $84.3 million for the three months
ended April 30, 2000 from $61.8 million for the three months ended April 30,
1999. The increase reflects increases in both product sales and royalty income.
Net sales. Net sales increased $18.7 million or 31.5% to $78.2 million
for the three months ended April 30, 2000 from $59.5 million in the year ago
period. The increase in sales was the result of significant increases in the
private label business and, to a lesser extent, increases in our branded
merchandise. Within branded products, the largest increases in net sales were
experienced in the John Henry, Andrew Fezza, PNB Nation and PING brand names.
5
<PAGE>
Royalty Income. Royalty income increased $3.8 million to $6.1 million
for the three months ended April 30, 2000. The increase is primarily attributed
to income generated from our prior year acquisitions of the John Henry/Manhattan
and Perry Ellis brand names in the quarter ended April 30, 1999.
Cost of sales. Cost of sales for the three month period ended April 30,
2000 was $58.9 million, or 75.3% of net sales as compared to $44.2 million or
74.3% of net sales for the three months ended April 30, 1999. The increase in
cost of sales as a percentage of net sales is a result of product mix and the
increase in private label business which typically generates a lower profit
margin.
Gross Profit. Gross profit was $25.5 million for the three month period
ended April 30, 2000, compared to $17.6 million for the period ended April 30,
1999. The increase in gross profit reflects the increase in royalty income
which has no associated cost of sales and increased gross profit from higher
wholesale sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses, excluding depreciation and amortization, for the three
months ended April 30, 2000 were $14.3 million or 17.0% of total revenues as
compared to $10.2 million or 16.5% of total revenue for the three months ended
April 30, 1999. The increase in selling, general and administrative costs was
due to increased shipping, advertising expenses and other variable selling and
design expenses associated with the higher wholesale sales and to a lesser
extent to payroll expenses associated with the expanded licensing operations.
Depreciation and amortization. Depreciation and amortization for the
three months ended April 30, 2000 increased $0.5 million to $1.5 million from
the comparable period reflecting the additional amortization resulting from the
brand acquisitions in 1999.
Interest Expense. Interest expense increased $1.9 million for the three
months ended April 30, 2000, to $3.9 million from the comparable period a year
ago. The increase is primarily attributable to the additional interest resulting
from the $100 million subordinated debt offering as well as increased borrowings
under the revolving credit agreement to support the increase in sales.
Income taxes. During the three month period ended April 30, 2000, the
effective tax rate increased to 37.9% compared to 36.0% for the three month
period ended April 30, 1999. The increased tax rate is attributable to the loss
of graduated rates and an unusually low estimate in the prior year.
Net income. Net income increased $0.7 million or 24.1% to $3.6 million
or 4.3% of total revenues for the three months ended April 30, 2000 as compared
to $2.9 million or 4.7% of total revenues for the three months ended April 30,
1999.
Liquidity and Capital Resources
The Company relies primarily upon cash flow from operations and
borrowings under its senior credit facility to finance operations and expansion.
Cash used in operating activities was $21.9 million in the three months ended
April 30, 2000 compared to $4.1 million in the year ago period. The Company's
increased usage of cash from operations is attributable to increased
6
<PAGE>
accounts receivable of $21.5 million commensurate with increased sales, and
increased inventory levels of $3.7 million which reflects higher anticipated
sales in the next period. In addition, the Company paid a semi-annual bond
interest payment during the current period resulting in a net usage of $3.1
million. This cash usage was offset by an increase in net income and non cash
depreciation and amortization which increased to $5.2 million from $3.9 million
in the prior year.
Net cash used in investing activities was $0.8 million for the three
months ended April 30, 2000 which primarily reflects purchases of property and
equipment.
Net cash provided by financing activities for the three months ended
April 30, 2000 totaled $22.8 million which was primarily the result of an
increase of $24.0 million in borrowings under the Company's senior credit
facility to support the cash used in operations.
The Company has a senior credit facility consisting of a revolving
credit facility of up to an aggregate amount of $75 million and a term loan in
the aggregate amount of $15 million. The senior credit facility expires in
October 2002. Borrowings are limited under the terms of borrowing base
calculation. Interest on borrowings is variable, based upon the Company's option
of selecting a LIBOR plus 1.75% or the bank's prime rate. The facility contains
covenants which require the Company to maintain certain financial and net worth
ratios and restricts the payment of dividends. The facility is secured by the
Company's assets.
Management believes that the combination of borrowing availability
under the senior credit facility, existing working capital and funds anticipated
to be generated from operating activities will be sufficient to meet the
Company's anticipated operating and capital needs in the foreseeable future.
Effects of Inflation and Foreign Currency Fluctuations
The Company does not believe that inflation or foreign currency
fluctuations significantly affected its results of operations for the three
months ended April 30, 2000 and 1999.
MARKET RISK IN THE LOANS
The Company is subject to market risk associated principally with
changes in interest rates. Interest rate exposure is principally limited to
borrowings under the senior credit facility.
7
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Financial Data Schedule (for SEC only)
(a) Reports on Form 8-K
None
(b) 27.1
8
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 14, 2000 By: /s/Neal S. Nackman
-------------------------
Chief Financial Officer
9
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27.1 Financial Data Schedule
