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 July 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 6,724,374
(as of September 7, 2000).
<PAGE>
PERRY ELLIS INTERNATIONAL, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1:
Consolidated Balance Sheets
as of July 31, 2000 (Unaudited) and January 31, 2000 1
Consolidated Statements of Income (Unaudited)
for the three and six months ended July 31, 2000
and July 31, 1999 2
Consolidated Statements of Cash Flow (Unaudited)
for the six months ended July 31, 2000
and July 31, 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 10
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 2000 January 31, 2000
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 499,060 $ 225,631
Accounts receivable, net 43,648,826 46,006,774
Inventories 37,715,206 36,003,285
Deferred income taxes 1,960,103 1,960,103
Prepaid income taxes -- 1,856,815
Other current assets 1,693,790 2,340,166
----------------- -----------------
Total current assets 85,516,985 88,392,774
Property and equipment, net 9,468,460 8,930,393
Intangible assets, net 122,586,764 123,047,545
Other 4,464,035 4,502,476
----------------- -----------------
TOTAL $ 222,036,244 $ 224,873,188
================= =================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,371,662 $ 5,763,401
Accrued expenses 4,030,696 3,919,581
Income taxes payable 798,208 --
Accrued interest payable 4,289,033 4,410,631
Other current liabilities 2,943,670 3,648,067
----------------- -----------------
Total current liabilities 15,433,269 17,741,680
Senior subordinated notes payable, net 99,070,667 98,988,667
Deferred income tax 2,841,084 2,841,084
Long term debt-senior credit agreement 14,596,342 18,031,496
Long term debt-term loan 8,750,000 11,250,000
----------------- -----------------
Total long-term liabilities 125,258,093 131,111,247
----------------- -----------------
Total liabilities 140,691,362 148,852,927
----------------- -----------------
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 July 31, 2000
and January 31, 2000, respectively 67,393 67,318
Additional paid-in-capital 29,058,081 29,000,655
Retained earnings 52,360,021 46,952,288
----------------- -----------------
Total 81,485,495 76,020,261
Common stock in treasury at cost; 15,000 shares as of July
31, 2000 (140,613) --
----------------- -----------------
Total stockholders' equity 81,344,882 76,020,261
----------------- -----------------
TOTAL $ 222,036,244 $ 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 July 31, Six Months Ended July 31,
----------------------------- -----------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 58,940,558 $ 45,273,099 $ 137,172,970 $ 104,751,870
Royalty Income 6,747,662 6,743,539 12,840,218 9,060,057
-------------- -------------- -------------- --------------
Total Revenues 65,688,220 52,016,638 150,013,188 113,811,927
Cost of Sales 44,764,744 33,309,249 103,636,392 77,481,828
-------------- -------------- -------------- --------------
Gross Profit 20,923,476 18,707,389 46,376,796 36,330,099
Operating Expenses
Selling, General and Administrative Expenses 12,431,184 10,790,649 26,738,612 20,970,444
Depreciation and Amortization 1,523,462 1,403,616 3,025,674 2,382,215
-------------- -------------- -------------- --------------
Total Operating Expenses 13,954,646 12,194,265 29,764,286 23,352,659
-------------- -------------- -------------- --------------
Operating Income 6,968,830 6,513,124 16,612,510 12,977,440
Interest Expense 4,058,403 3,957,308 7,924,785 5,905,297
-------------- -------------- -------------- --------------
Income Before Income Taxes 2,910,427 2,555,816 8,687,725 7,072,143
Income Taxes 1,092,456 948,725 3,279,991 2,573,264
-------------- -------------- -------------- --------------
Net Income $ 1,817,971 $ 1,607,091 $ 5,407,734 $ 4,498,879
============== ============== ============== ==============
Net Income per Share
Basic $ 0.27 $ 0.24 $ 0.80 $ 0.67
============== ============== ============== ==============
Diluted $ 0.27 $ 0.23 $ 0.79 $ 0.66
============== ============== ============== ==============
Weighted Average Number of Shares Outstanding
Basic 6,739,374 6,724,341 6,737,878 6,723,374
Diluted 6,805,469 6,870,131 6,822,715 6,836,268
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
PERRY ELLIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended July
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,407,734 $ 4,498,879
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,061,614 2,382,218
Amortization of debt issue cost 235,914 268,323
Amortization of bond discount 82,000 54,667
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable, net 2,357,948 (681,712)
Inventories (1,711,921) 1,825,117
Prepaid income taxes 1,856,815 (944,134)
Other current assets 528,086 2,168,926
Other assets (379,288) (235,489)
Accounts payable and accrued expenses (2,374,887) 599,611
Income Taxes Payable 798,208 (2,107,458)
Accrued Interest Payable (121,598) 4,077,228
Other current liabilities (704,398) 2,274,373
--------------- ---------------
Net cash provided by operating activities: 9,036,227 14,180,549
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,349,644) (251,500)
Payment on purchase of intangible assets (1,489,151) (223,160)
Payment for acquired businesses -- (101,419,490)
--------------- ---------------
Net cash used in investing activities: (2,838,795) (101,894,150)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from long-term loan (2,500,000) 13,750,000
Net repayments of senior credit facility (3,435,154) (20,048,430)
Net proceeds from senior subordinated notes -- 98,852,000
Debt issuance costs -- (4,686,371)
Proceeds from exercise of stock options 11,151 104,870
--------------- ---------------
Net cash (used in) provided by financing activities: (5,924,003) 87,972,069
--------------- ---------------
NET INCREASE IN CASH 273,429 258,468
CASH AT BEGINNING OF YEAR 225,631 173,493
--------------- ---------------
CASH AT END OF PERIOD $ 499,060 $ 431,961
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,046,384 $ 1,525,944
=============== ===============
Income taxes $ 610,000 $ 4,871,580
=============== ===============
</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. ("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 six
months ended July 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:
July 31, January 31,
2000 2000
--------------- ---------------
Total letter of credit facilities $ 52,000,000 $ 52,000,000
Outstanding letters of credit (31,026,695) (33,300,358)
--------------- ---------------
Total Available $ 20,973,305 $ 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
4
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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 JULY 31, SIX MONTHS ENDED JULY 31,
----------------------------- -----------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Product $ 58,940,558 $ 45,273,099 $ 137,172,970 $ 104,751,870
Licensing 6,747,662 6,743,539 12,840,218 9,060,057
-------------- -------------- -------------- --------------
Total Revenues $ 65,688,220 $ 52,016,638 $ 150,013,188 $ 113,811,927
============== ============== ============== ==============
Operating Income
Product $ 2,262,506 $ 1,530,727 $ 7,937,122 $ 6,029,900
Licensing 4,706,324 4,982,397 8,675,388 6,947,540
-------------- -------------- -------------- --------------
Total Operating Income $ 6,968,830 $ 6,513,124 $ 16,612,510 $ 12,977,440
============== ============== ============== ==============
</TABLE>
5. TRADEMARK ACQUISITION
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 July
31, 2000, the company had repurchased 15,000 shares.
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
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
5
<PAGE>
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 six months ended July 31, 2000 as compared to three and six months
ended July 31, 1999.
Total Revenues. Total revenues consist of net sales and royalty income.
Total revenues increased 26.3% to $65.7 million for the three months ended July
31, 2000 from $52.0 million for the comparable period in 1999. For the six
months ended July 31, 2000, total revenues increased 31.8% to $150.0 million
from $113.8 million for the six months ended July 31, 1999. The increases in
both of these periods reflect growth in both product sales and royalty income.
Net sales. Net sales increased $13.6 million or 30.0% to $58.9 million for
the three months ended July 31, 2000 from $45.3 million in the comparable prior
period. For the six months ended July 31, 2000, net sales increased by $32.4
million or 31.0% to $137.2 million from $104.8 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 John Henry, Andrew Fezza, Grand Slam and PING brand names.
Royalty Income. Royalty income remained steady at $6.7 million for the
three months ended July 31, 2000 and 1999, while it increased 40.7% to $12.8
million for the six months ended July 31, 2000 from $9.1 million for the prior
comparable period. The current year's periods 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 six month periods ended July
31, 2000 increased $11.5 million or 34.5% and $26.1 million or 33.7% to $44.8
million and $103.6 million from $33.3 million and $77.5 million in the prior
comparable periods, respectively, reflecting the increase in net sales for these
periods. As a percentage of net sales, cost of sales increased for the three and
six month periods ended July 31, 2000, to 75.9% and 75.6% from 73.6% and 74.0%
for the three and six month periods ended July 31, 1999. The increase in cost of
sales as a percentage of net sales is a result of product mix change, the
increase in private label business, which typically generates a lower profit
margin, and markdown pressure at retail.
Gross Profit. Gross profit was $20.9 million and $46.4 million,
respectively for the three and six month periods ended July 31, 2000, compared
to $18.7 million and $36.3 million for the comparable periods in 1999. The
increases in gross profit reflect the 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 14.8% and $5.7 million or 27.1%, respectively, for the three and six
month periods ended July 31, 2000 to $12.4 million and $26.7 million from $10.8
million and $21.0 million in the 1999 period. As a percentage of
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total revenue, selling, general and administrative expenses were 18.9% and 17.8%
for the three and six months ended July 31, 2000 compared to 20.7% and 18.5% in
the comparable 1999 period. The overall increase in selling, general and
administrative costs were due to increased shipping expenses, 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 acquired licensing operations.
Depreciation and amortization. Depreciation and amortization for the three
and six month periods ended July 31, 2000 increased to $1.5 million and $3.0
million, respectively, from $1.4 million and $2.4 million in the comparable 1999
period reflecting the additional amortization resulting from the brand
acquisitions in 1999.
Interest Expense. Interest expense increased $0.1 million and $2.0 million
for the three and six months ended July 31, 2000, to $4.1 million and $7.9
million, respectively, from $4.0 million and $5.9 million in the comparable 1999
period. 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. For the three and six month periods ended July 31, 2000, the
effective tax rate was 37.5% and 37.8% compared to 37.1% and 36.4%,
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 six months ended July 31, 2000
increased $0.2 million and $0.9 million to $1.8 million and $5.4 million from
$1.6 million and $4.5 million, respectively, from the comparable 1999 period. As
a percentage of total revenue, net income was 2.7% and 3.6% for the three and
six months ended July 31, 2000 compared to 3.1% and 3.9% in the comparable 1999
period.
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
provided by operating activities was $9.0 million in the six months ended July
31, 2000 compared to $14.2 million in the six months ended July 31, 1999. The
decrease in cash flow is primarily attributable to the semi-annual payment of
interest on the Company's $100 million debentures due in April 2000. In the
prior year's period, interest expense was accrued but not payable until
October, 1999.
Net cash used in investing activities was $2.8 million for the six months
ended July 31, 2000 which primarily reflects purchases of property and equipment
and the payment for the Pro Player, Artex, Fun Gear and Salem Sportswear
trademarks.
7
<PAGE>
Net cash used in financing activities for the six months ended July 31,
2000 totaled $5.9 million which was primarily the result of repayments of
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 1.5% 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
six months ended July 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.
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
8
<PAGE>
(a) On June 12, 2000, the Company held its Annual Meeting of
Shareholders (the "Meeting").
(b) Not applicable.
(c) At the Meeting, the following matters were voted upon:
I. ELECTION OF DIRECTORS
The following table sets forth the name of each nominee and the voting
with respect to each nominee for director.
FOR WITHHOLD AUTHORITY
Oscar Feldenkreis 4,235,285 8,150
Joseph P. Lacher 4,235,285 8,150
Richard W. McEwen 4,235,285 8,150
Allan Zwerner 4,235,285 8,150
II. APPROVAL OF PROPOSAL TO ADOPT THE PERRY ELLIS INTERNATIONAL, INC.
INCENTIVE COMPENSATION PLAN
With respect to the foregoing matter, 3,988,296 shares were voted for in
favor, 249,389 against and 5,750 shares abstained. There were no broker
non-votes.
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
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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: September 14, 2000
By: /s/ NEAL S. NACKMAN
-----------------------------------------------
Neal S. Nackman, Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
