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 October 31, 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 December 13, 2000).
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, 2000 January 31, 2000
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 182,967 $ 225,631
Accounts receivable, net 55,915,887 46,006,774
Inventories 35,283,436 36,003,285
Deferred income taxes 1,960,103 1,960,103
Prepaid income taxes -- 1,856,815
Other current assets 2,771,707 2,340,166
------------- -------------
Total current assets 96,114,100 88,392,774
Property and equipment, net 9,522,980 8,930,393
Intangible assets, net 121,053,232 123,047,545
Other 4,066,024 4,502,476
------------- -------------
$ 230,756,336 $ 224,873,188
TOTAL ============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,443,560 $ 5,763,401
Accrued expenses 3,737,882 3,919,581
Income taxes payable 832,693 --
Accrued interest payable 1,175,431 4,410,631
Other current liabilities 2,405,106 3,648,067
------------- -------------
Total current liabilities 11,594,672 17,741,680
Senior subordinated notes payable, net 99,111,667 98,988,667
Deferred income tax 2,841,084 2,841,084
Long-term debt - senior credit agreement 36,330,436 18,031,496
Long-term debt - term loan -- 11,250,000
------------- -------------
Total long-term liabilities 138,283,187 131,111,247
------------- -------------
Total liabilities 149,877,859 148,852,927
------------- -------------
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 as of October 31, 2000
and January 31, 2000, respectively 67,393 67,318
Additional paid-in-capital 29,058,081 29,000,655
Retained earnings 52,711,372 46,952,288
------------- -------------
Total 81,836,846 76,020,261
Common stock in treasury at cost; 145,000 shares as of
October 31, 2000 (958,369) --
------------- -------------
Total stockholders' equity 80,878,477 76,020,261
------------- -------------
TOTAL $ 230,756,336 $ 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 October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
2000 1999 2000 1999
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenues:
Net Sales $ 64,355,857 $ 66,618,418 $201,528,826 $171,370,287
Royalty Income 6,275,228 6,453,288 19,115,446 15,513,345
------------ ------------ ------------ ------------
Total Revenues 70,631,085 73,071,706 220,644,272 186,883,632
Cost of Sales 51,509,922 49,855,041 155,146,314 127,343,210
------------ ------------ ------------ ------------
Gross Profit 19,121,163 23,216,665 65,497,958 59,540,422
------------ ------------ ------------ ------------
Operating Expenses:
Selling, General and Administrative Expenses 13,082,515 11,475,376 39,824,463 32,427,336
Depreciation and Amortization 1,575,377 1,363,049 4,601,051 3,745,266
------------ ------------ ------------ ------------
Total Operating Expenses 14,657,892 12,838,425 44,425,514 36,172,602
------------ ------------ ------------ ------------
Operating Income 4,463,271 10,378,240 21,072,444 23,367,820
Interest Expense 3,893,232 4,056,132 11,814,680 9,973,565
------------ ------------ ------------ ------------
Income Before Income Taxes 570,039 6,322,108 9,257,764 13,394,255
Income Taxes 218,689 2,358,028 3,498,680 4,931,292
------------ ------------ ------------ ------------
Net Income $ 351,350 $ 3,964,080 $ 5,759,084 $ 8,462,963
============ ============ ============ ============
Net Income per Share:
Basic $ 0.05 $ .59 $ 0.85 $ 1.26
============ ============ ============ ============
Diluted $ 0.05 $ .58 $ 0.85 $ 1.24
============ ============ ============ ============
Weighted Average Number of Shares Outstanding:
Basic 6,739,374 6,725,490 6,737,878 6,724,986
Diluted 6,772,743 6,879,748 6,805,559 6,851,480
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,759,084 $ 8,462,963
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,205,800 3,745,267
Amortization of debt issue cost 452,214 419,090
Amortization of bond discount 123,000 95,668
Gain on sale of trademark (33,176) --
Changes in operating assets and liabilities
(net of effects of acquisitions):
Accounts receivable, net (9,937,919) (22,363,166)
Inventories 693,443 2,334,738
Prepaid income taxes 1,856,815 --
Other current assets (422,365) 1,130,327
Other assets (15,762) 219,221
Accounts payable and accrued expenses (2,573,917) 2,296,115
Income taxes payable 832,693 (1,813,212)
Accrued interest payable (3,235,200) 1,214,797
Other current liabilities (1,089,172) 2,280,686
------------- -------------
Net cash used in operating activities (3,384,462) (1,977,506)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,016,432) (897,924)
Payment on purchase of intangible assets (169,672) (1,034,789)
Proceeds from sale of trademark 750,000 --
Deposit/payment for acquired businesses (1,370,170) (101,435,477)
------------- -------------
Net cash used in investing activities (2,806,274) (103,368,190)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in borrowings under credit facilities (11,250,000) 12,500,000
Net proceeds (payments) from long-term debt 18,298,940 (1,237,315)
Net proceeds from bonds payable -- 98,852,000
Debt issuance costs -- (4,678,200)
Purchase of treasury stock (958,369) --
Proceeds from exercise of stock options 57,501 137,499
------------- -------------
Net cash provided by financing activities 6,148,072 105,573,984
------------- -------------
NET (DECREASE) INCREASE IN CASH (42,664) 228,288
CASH AT BEGINNING OF YEAR 225,631 173,493
------------- -------------
CASH AT END OF PERIOD $ 182,967 $ 401,781
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 15,049,880 $ 8,195,554
============= =============
Income taxes $ 720,000 $ 5,803,580
============= =============
</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 of Perry Ellis
International, Inc. and Subsidiaries ("Perry Ellis" or "the Company") 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 and nine months ended October 31, 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:
<TABLE>
<CAPTION>
October 31, January 31,
2000 2000
--------------------- ---------------------
<S> <C> <C>
Total letter of credit facilities $ 52,000,000 $ 52,000,000
Outstanding letters of credit (34,283,687) (33,300,358)
--------------------- ---------------------
Total available $ 17,716,313 $ 18,699,642
===================== =====================
</TABLE>
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
4
<PAGE>
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 department utilization rates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Product $ 64,355,857 $ 66,618,418 201,528,826 $ 171,370,287
Licensing 6,275,228 6,453,288 19,115,446 15,513,345
--------------- --------------- --------------- ---------------
Total Revenues $ 70,631,085 $ 73,071,706 $ 220,644,272 $ 186,883,632
=============== =============== =============== ===============
Operating Income:
Product $ 367,699 $ 4,820,902 $ 8,301,484 $ 10,862,942
Licensing 4,095,572 5,557,339 12,770,960 12,504,878
--------------- --------------- --------------- ---------------
Total Operating Income $ 4,463,271 $ 10,378,241 $ 21,072,444 $ 23,367,820
=============== =============== =============== ===============
</TABLE>
5. TRADEMARK ACQUISITIONS
On July 5, 2000, Perry Ellis acquired intellectual property for
approximately $1.3 million which includes the following trademarks: Pro-Player,
Artex, Fun Gear and Salem Sportswear. Pro-Player is a well-known brand in the
sports apparel business with distribution in department stores and middle market
retailers.
6. SHARE REPURCHASE
On July 11, 2000 the board of directors of Perry Ellis approved a share
repurchase program in which up to 500,000 shares of common stock may be
purchased from time to time during the following 12 months. The shares will be
purchased in the open market or in privately negotiated transactions. As of
October 31, 2000, the Company had repurchased 145,000 shares at an average price
of $6.61 per share.
7. SUBSEQUENT EVENT
On November 22, 2000, the Company completed the purchase of various
trademarks including the Mondo di Marco(R) trademark from the bankruptcy estate
of Mondo, Inc. for $1.75 million.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
5
<PAGE>
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; import 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 and nine months ended October 31, 2000 as compared to three and nine
months ended October 31, 1999.
Total revenues. Total revenues consist of net sales and royalty income.
Total revenues decreased 3.4% to $70.6 million for the three months ended
October 31, 2000 from $73.1 million for the comparable period in 1999. For the
nine months ended October 31, 2000, total revenues increased 18.1% to $220.6
million from $186.9 million for the nine months ended October 31, 1999. The
decline for the three month period is primarily the result of a decrease in
product sales as described below. The increase in the nine month period reflects
growth in both product sales and royalty income.
Net sales. Net sales decreased 3.3% to $64.4 million for the three months
ended October 31, 2000 from $66.6 million in the comparable prior period,
relating to a decline in the department store and urban wear channels of
distribution. For the nine months ended October 31, 2000, net sales increased by
$30.1 million or 17.6% to $201.5 million from $171.4 million in the comparable
prior period. The increase in sales was the result of significant increases in
private label and, to a lesser extent, increases in sales of branded
merchandise. Within branded products, the largest increases in net sales year to
date were experienced in the Crossings, John Henry, Grand Slam and PING brand
names.
Royalty income. Royalty income decreased by $0.2 million to $6.3 million
for the three months ended October 31, 2000 from $6.5 in the comparable prior
period, while it increased 23.2% to $19.1 million for the nine months ended
October 31, 2000 from $15.5 million for the comparable prior period. The decline
in the three month period was largely attributable to the financial difficulty
being experienced by a Perry Ellis licensee. The current nine month period
includes income from the acquired John Henry, Manhattan, and Perry Ellis brands
for the entire period. The prior year reflects such income from the dates of
acquisition.
Cost of sales. Cost of sales for the three and nine month periods ended
October 31, 2000 increased $1.6 million or 3.2% and $27.8 million or 21.8% to
$51.5 million and $155.1 million from $49.9 million and $127.3 million in the
comparable prior periods, respectively, reflecting primarily the increase in the
number of units sold for both the three and nine month periods. As a percentage
6
<PAGE>
of net sales, cost of sales increased for the three and nine month period ended
October 31, 2000 to 80.0% and 77.0% from 74.9% and 74.3% for the three and nine
month periods ended October 31, 1999. The increase in cost of sales as a
percentage of net sales is a result of product mix changes and increased
markdown allowances.
Gross Profit. Gross profit was $19.1 million and $65.5 million,
respectively, for the three and nine month periods ended October 31, 2000,
compared to $23.2 million and $59.5 million for the comparable periods in 1999.
The decrease in gross profit for the three month period reflects the change in
product mix, while the increase in gross profit for the nine month period
reflects increases in royalty income which have no associated cost of sales and
the increased product sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses, excluding depreciation and amortization, increased $1.6
million or 14.0% and $7.4 million or 22.8%, respectively, for the three and nine
month periods ended October 31, 2000 to $13.1 million and $39.8 million from
$11.5 million and $32.4 million in the 1999 period. As a percentage of total
revenue, selling, general and administrative expenses were 18.6% and 18.0% for
the three and nine months ended October 31, 2000 compared to 15.7% and 17.3% in
the comparable 1999 period. The increase in selling, general and administrative
costs were attributable to higher payroll, advertising and warehouse costs
associated with increased inventory and shipping activity.
Depreciation and amortization. Depreciation and amortization for the three
and nine month periods ended October 31, 2000 increased to $1.6 million and $4.6
million, respectively, from $1.4 million and $3.7 million in the comparable 1999
period. The increase in the nine month period ending October 31, 2000 reflects
the additional amortization resulting from the brand acquisitions in 1999.
Interest expense. Interest expense decreased $0.2 million for the three
months to $3.9 million and increased $1.8 million for the nine month period
ending October 31, 2000 to $11.8 million from $4.1 million and $10.0 million in
the comparable 1999 period. The increase for the nine month period is primarily
attributable to the additional interest resulting from the $100 million
subordinated debentures as well as increased borrowings under the revolving
credit agreement to support the increase in sales.
Income taxes. For the three and nine month periods ended October 31, 2000,
the effective tax rate was 38.4% and 37.3% compared to 37.7% and 36.8%,
respectively, for the comparable 1999 period. The increased tax rate is
attributable to the loss of graduated rates and a low estimate in the prior
year.
Net income. Net income for the three and nine months ended October 31, 2000
decreased $3.6 million and $2.7 million to $0.4 million and $5.8 million,
respectively, from $4.0 million and $8.5 million, respectively, from the
comparable 1999 period. As a percentage of total revenue, net income was 0.6%
and 2.6% for the three and nine months ended October 31, 2000 compared to 5.5%
and 4.6% in the comparable 1999 period.
7
<PAGE>
Liquidity and Capital Resources
The Company relies primarily upon cash flows from operations and borrowings
under its senior credit facility to finance operations and expansion. Cash used
in operating activities was $3.4 million in the nine months ended October 31,
2000 compared to $2.0 million in the nine months ended October 31, 1999. The
decrease in cash flow is primarily attributable to the reduced net income in the
current period.
Net cash used in investing activities was $2.8 million for the nine months
ended October 31, 2000 which primarily reflects purchases of property and
equipment and the payment for the Pro Player, Artex, Fun Gear and Salem
Sportswear trademarks.
Net cash provided by financing activities for the nine months ended October
31, 2000 totaled $6.1 million which was primarily the result of net borrowings
under the Company's senior credit facility.
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 a borrowing base calculation.
Interest on borrowings is variable, based upon the Company's option of selecting
a LIBOR plus 2.0% 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 Company's assets are pledged as
collateral for the facility.
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 and
nine months ended October 31, 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.
8
<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 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for SEC only)
(b) Reports on Form 8-K - None
9
<PAGE>
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: December 15, 2000
By: /s/ NEAL S. NACKMAN
----------------------------------------
Neal S. Nackman, Chief Financial Officer
10
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
EX 27 Financial Data Schedule
